Thoughts For Thursday: Waiting For Santa

Well, there are eighteen days left till Christmas which one supposes should allow enough time for Santa to visit the market and that appears to be just what the market is hoping for. With not strong signal from Fed Chair Powell hinting at the timing of the first rate cut, impetus in the market to run higher, currently seems stymied.FreepikWednesday the stock market moved slightly lower, the S&P 500 closed at 4,549, down 18 points, the Dow closed at 36,054, down 70 points and the Nasdaq Composite closed at 14,147, down 83 points.Chart: The New York TimesMost actives were led by Tesla (TSLA), up 0.3%, followed by Advanced Micro Devices (AMD), down 1.3% and America Airlines (AAL), up 2.7%.Chart: The New York TimesIn morning futures trading S&P 500 market futures are trading down 1 point, Dow market futures are trading down 75 points, and Nasdaq 100 market futures are trading up 29 points.TalkMarkets contributor Anu Ganti  asks Happy Days For How Long?“With less than a month left to go to close out the year, it’s a good time to reflect on the highs and lows that market participants have experienced. While the year began with a rocky start due to the Silicon Valley Bank collapse, the market continued to power forward, stumbling in Q3 as 10-year Treasury yields rose to a 15-year high, but recovering with a bang in November, with the S&P 500®
 up 21% YTD.1 One consequence of rising Treasury yields was the surge in the U.S. dollar, which typically is a currency headwind for mega caps, as U.S. multi-nationals tend to gain most of their revenue from overseas. But that didn’t hamper the tear that mega caps were on this year, as Exhibit 1 illustrates, with the S&P 500 Top 50 outpacing the S&P 600®
 by 28% YTD. While we recently saw a pullback in 10-year yields along with the dollar, with the S&P U.S. Dollar Futures Index down 2% in November, if that trend continues, that could potentially be a further benefit to mega-cap strength.”“While small caps recovered in November, this year’s large-cap-led rally has been unusual in terms of its narrow breadth. We can visualize this in Exhibit 2, where we rank the historical annual S&P 500 returns in our database by skewness of constituent returns, as measured by the difference between the average versus median constituent return, and subsequently divide them into quartiles. Then we perform the same exercise, now ranking by skewness of constituents’ return contribution. So far this year, the average return has been greater than the median by 3.5%, in between the third and fourth quartile, while the average constituent contribution has been greater than the median by 3.7%, placed right below the fourth quartile level. These relatively extreme results are consistent with the concentration of outperformance within the Magnificent Seven stocks, which has been unusually high relative to history, and perhaps a headwind for more concentrated active managers that are underweight the largest stocks.”“Putting risk into context, despite geopolitical tensions coupled with lingering inflation and recession concerns, the market has been at ease, with the VIX®
 trending downward in the past 12 months, ending November below the 13 handle. But what signal has low equity implied volatility given for future equity returns historically? We rank the same years in our database by VIX and divide them into three buckets based on a VIX level at year-end of less than 13, between 13 and 20, and above 20. Historically, we see a linear relationship between the year-end level of VIX and median subsequent year S&P 500 returns, indicating that, on average, years ending with higher implied volatility tended to be followed by higher returns.”Contributor Dennis Miller is concerned that Moody’s Cries Wolf – Nobody Pays Attention.PixabayMoody’s rating service lowered its outlook on the US credit rating to “negative” from “stable”. This is not a ratings downgrade; but rather a warning of things to come. This follows actual downgrades in the US credit ratings from Fitch and S&P Global Ratings.Yahoo Finance reports:

“The key driver of the outlook change to negative is Moody’s assessment that the downside risks to the US’s fiscal strength have increased and may no longer be fully offset by the sovereign’s unique credit strengths.

…. In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.

Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.”

As always, Treasury Secretary Janet Yellen disagreed:“This is a decision I disagree with. ‘The American economy is fundamentally strong, and Treasury securities remain the world’s preeminent safe and liquid asset.’”Political polarization allows the insanity to continue unabated. Gutless politicians pass (CR) continuing budget resolutions (upcoming elections take priority); federal spending is up 40% since 2019. The debt clock is ticking; Congress continues to ignore….Moody’s action is akin to a carbon monoxide detector blaring full blast. While you may not see, hear, or smell anything, it is a warning of impending danger – still allowing time to fix the cause and avoid a disaster. While politicos ignore the warnings, Americans should take heed.”Contributor Douglas R. Terry looks at the big employment picture in Macro: ADP Employment.”Private companies added 103,000 workers to payrolls in November. This disappointed as consensus was expecting 123,000 additions. Also, the October number was revised down by 7,000 jobs erasing some of the strength off September’s 32 month low in hiring of 89,000.On an annual basis employment is growing 2.035% and continues to slow from the hiring surge of 2021 and 2022. There are 2,578,000 more people on private payrolls today than at this time last year which is historically a strong year.”TM contributor Christian Borjon Valencia takes note of the continuing lull ion crude prices, WTI Plunges Below $70.00 In Upbeat U.S. Inventory Report, China’s Economy Concerns.”The US crude oil benchmark dropped below $70.00 per barrel after a solid inventory report in the United States (US) concerned market participants, outweighing the drawdown in crude stocks. WTI is trading at $69.52, down more than 3%.Last week, the Organization of Petroleum Exporting Countries and its allies, OPEC+, agreed to take a voluntary production cut of 2.2 million barrels for the first quarter of 2024. During the current week, Saudi Arabia and Russian officials commented that cuts could be extended beyond March.Oil prices remain on the defensive, spurred by China’s economic recovery as concerns mount, a day after rating agency Moody’s lowered the outlook on China’s A1 rating to negative from stable. The daily chart portrays WTI in a downtrend, with bears in full control, after breaching last year’s low of $70.10, which has opened the door for further downside. The next demand area would be the June 28 daily low at $67.10, followed by the latest swing low of $66.85, the June 12 daily low. If those levels are taken out, that will expose the year-to-date (YTD) low of $63.61. On the flipside, if buyers reclaim the $70.00 barrier, that could pave the way to test the November 16 daily low of $72.22.”In Europe contributor Bert Colijn reports Eurozone Retail Trade Ticks Up Slightly In October.”The 0.1% increase in retail trade means that volumes have been broadly unchanged since August. After two years of declining retail volumes, we are reluctant to call a change in trend just yet though. That said, we do expect improvements in 2024.pile of apples in basket beside jars UnsplashRetail volumes have fallen for about two years in a row now. In recent months, volumes have stabilized, but not to a degree that we expect an imminent revival of sales either. The 0.1% increase in October was boosted by a strong increase in Germany and the Netherlands, while France and Italy saw significant declines.The correction in retail volumes has been -4.1% since the peak in November 2021. The purchasing power decline is thanks to high inflation, but also the overspending on goods during the pandemic and reopening spending on services have put retail volumes under significant pressure in recent years.A turnaround is realistic to expect, but the degree to which that is the case remains uncertain. The changing labor market could dampen the real wage recovery we’re currently experiencing. And with economic uncertainty increasing, the savings rate could trend up again. While some rebalancing of the consumption mix towards goods seems realistic, which is a boon for retail, overall household consumption is likely to remain under pressure, at least at the start of 2024.”Freepik In the crypto universe contributor Christopher Lewis notes Ethereum Forecast: Market Dynamics Reflect Uncertainty.”In the end, Ethereum’s market is at a crossroads, influenced by its recent breakout, correlation with Bitcoin, bond market dynamics, and the broader economic environment.A critical focus for Ethereum traders is the $2100 level, which previously acted as a resistance barrier and now may serve as a potential support level. The concept of “market memory” is particularly relevant here, as past resistance levels often transform into support in future market movements. While the general sentiment leans towards buying, finding value in the market is crucial for making informed investment decisions.Crypto investments require an influx of speculative capital, often referred to as “hot money,” to drive prices upward. This characteristic makes cryptocurrencies an investment on the extreme end of the financial spectrum – offering high potential returns but equally significant risks.Currently, the perceived “floor” of the market for Ethereum is around the $1925 level, which is the base of the previous consolidation area and coincides with the 50-Day Exponential Moving Average. This level might act as a critical juncture for determining Ethereum’s future movements.Investors are advised to stay vigilant, focusing on value and patience rather than succumbing to impulsive trading strategies. The coming days and weeks will be crucial in ascertaining Ethereum’s trajectory in the ever-changing landscape of cryptocurrency markets.That’s a wrap for today.Peace.More By This Author:Thoughts For Thursday: No Pre-Santa Rally Correction In Sight But No Rally Either
Tuesday Talk: A Pause Before The Santa Claus Rally
Tuesday Talk: Thanksgiving Week


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