Wednesday, December 28, 2022
Currently, the Dow is up in four of the last five trading sessions — and up +15.7% just two days ahead of the end of Q4. It’s shaping up to be the second-best quarter for the Dow since 1999. The S&P 500, +6.8% in Q4, is enjoying its first up-quarter in a year. Yet the month of December has broken with tradition and is shaping up to be the market’s first December to close in the red since 2018. That Santa Claus Rally is slipping away.
Plenty of market analysts are looking at the last year of trading behavior and seeing the possibility of taking out the October/early November lows sometime in the first quarter of 2023. Although, on the Dow at least, higher highs were accomplished for the first time all year during the first sessions of this month. For the Nasdaq, it’s already approaching those lower lows.
We see a changing outlook overseas — both in the promise* that China is relaxing its zero-Covid policies, including in Hong Kong today, and in a global interest rate outlook that not only sees the ECB changing its tune but the Bank of Japan, as well. Higher rates the world over will do to the global marketplace what Fed funds rates have done here at home: roll over acute inflation metrics. Long-term, it’s likely the correct solution, but it widens opportunities for market challenges in the global market near-term.
After today’s opening bell, we’ll see Pending Home Sales results for November, where -1.8% is expected, moderating to the downside from -4.6% in October. Year over year, last month’s October pending home sales posted its steepest decline of all-time: -37%, taking out the previous low in the first few months of the 2020 pandemic. These prints have been coming in lower and lower since July; we’ll see if this reverses today.
We’ve already seen Existing Home Sales for November come in lower, month over month: 4.1 million versus 4.4 million previously. The average single-family home price dropped to $371K from $379K previously. Another unexpected drop like we saw last month may be a sign of things to watch more closely: something of a less-manageable deterioration in the housing market, that which might anticipate impolite lower metrics elsewhere over time.
Ahead of today’s opening bell — on Christmas Week volume, of course — both the S&P and Nasdaq are flat, the Dow is +35 points. We had been in the green across the board. Catalysts will be difficult to come by until next week’s jobs numbers hit the tape. Thus far, jobs numbers have progressed more or less predictably lower — that’s still best-case scenario. But a bigger drop here may also bring a new wave of thought about the markets overall.
* A promise from China’s central government may or may not be something worth taking market action on.
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