State of the markets - Jan 3rd 2023
Markets: What I am watching and doing in the markets this week
This will be an abbreviated SOTM post as I wrap up my beachside vacation and head back stateside in a few days. I hope you took some time off to spend with loved ones. I am looking forward to getting back to my desk with a relaxed mind and a fresh perspective.
Next week, I will be doing another Twitter Spaces investing chat withand @Mezziapp. The previous meet-up in mid-Oct was very well received. We had a productive discussion about several investing topics. In fact, we planned for a 1-hour chat that ran past two hours. You can catch that recording here.
I will share the specific date and time once we have it calendared.
Looking at last year’s weekly chart of the SP 500, we clearly note the high of 4,819 tagged just about one year ago this week. Then there was the low of 3,492 set in mid-Oct. And finally closing out the year at 3,839. The index experienced it’s worst performance since 2008, falling 19%.
Over the past year, investor sentiment has swung in both directions multiple times, as is evident when looking at the index a year ago, a month ago, a week ago and today.
A few key learnings from last week floated to the top of my notes.
The US economy added 263,000 new jobs in Nov and the unemployment rate was 3.7%. There are still 10.3M job openings available. As I have said before, due to the great resignation and the redefinition of a “job” by the gig-economy, I do not expect these openings to be filled anytime soon.
Last week, 225k initial jobless claims were filed which was in line with expectations. 1.7M continuing claims slightly topped estimates of 1.68M, the highest level since Feb 2022.
According to Challenger, Gray & Christmas, U.S.-based employers announced 76,835 job cuts in Nov, a 127% increase from the 33,843 cuts announced in Oct.
US home prices declined -0.8%mom in Oct, the fourth straight monthly decline. However, prices are still up +8.6%yoy.
Nationally, almost 9% of sellers are swapping sale listings for rentals, due to rising mortgage rates and lack of buyer interest. Pending home sales dropped 4% in Nov and sales are -38%yoy...18 months of consecutive yoy declines.
Bitcoin’s hash rate dropped about 38% last week due to the major winter storm that affected most of the US. Miners powered off their equipment to reduce power consumption from the electrical grid. They have subsequently started up their servers and the blockchain is mostly back to regular operating levels. Remember, it only takes 2 computers to keep the Bitcoin blockchain running.
US consumers are expecting inflation to drop to 4.4% 12 months from now, according to the University of Michigan (UM) survey. In five years, they expect the CPI to be around 2.9%. These numbers should be somewhat comforting to the US Feds, because they closely track the UM survey to forecast future consumer spending patterns. About 70% of the US economy is driven by consumer spending.
Pandemic restrictions keep falling away, at least officially. Citizens seem to be imposing self-isolation out of fear of infections. The Govt. has stopped publishing infection and death counts. The U.S., India, Japan and many other countries are imposing new restrictions on travelers from China. Anecdotally, one plane that landed in Milan, Italy was found to have more than 50% of it’s passengers infected by the bug.
Key market events
Tue Jan 3rd - S&P Global Manufacturing PMI
Wed Jan 4th - ISM Manufacturing index, Job Openings and Labor Turnover Survey (or JOLTS report), US FOMC Dec meeting minutes
Thu Jan 5th - ADP employment report, Jobless claims, S&P Global U.S. Services PMI
Fri Jan 6th - US nonfarm payrolls report for Dec 2022, ISM Services index
The next US FOMC meeting is Jan 31st 2023
Here is what I plan to do with my portfolio…
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