State of the markets - Jan 9th 2023
State of the markets - Jan 9th 2023
Markets: What I am watching and doing in the markets this week
I am now back home in the midwestern US, having luckily book-ended my travel about 24 hours beyond a major snow storm in both directions. No flight cancellations, no delays, no lost luggage. The only glitch was that our Uber driver cancelled at the last minute and we had to use a regular taxi cab from the airport to our house. And now the jet lag sucks.
Twitter Spaces event
The Twitter Spaces investing chat with
and @Mezziapp has been calendared for Jan 12th (Thu this week) at 10am CT. Please monitor my twitter profile @Iwannabeontheb2 for a link to the event. I will also send out the link via email as soon as I have it.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.
Current state
Almost 80% of SP 500 companies are now in their pre-earnings blackout period, which should end by early Feb.
The index rose 0.8% during the 2022-2023 Santa Claus rally period—the last five trading sessions of last year and first two of the new year. Santa did a quick drive-by and did not stay too long, but at least he made an appearance. Whenever he did not show up in the past, markets have closed down those years and recessions have taken a hold of the economy. Look at 2000 and 2008 as examples.
So what’s next? …This is important
We now have to monitor returns for the first 5 days of the new year. Over the last 50 years, 83% of the time, markets closed the year higher when the first 5 trading days of the year were positive. And the average annual return for those positive years was about 14%. I will take that!
Friday Jan 6th was a nice positive day. I like how the RSI is trending upwards and the MACD oscillator is also pivoting higher.
Sentiment
The equities fear and greed index improved slightly towards a neutral position.
Other indicators
US $DXY - remains in a downtrend.
Oil - stays volatile with conflicting reports about China re-opening, China COVID spreading, OPEC shortages, Russia selling below the sanction caps to India and China. However, oil is still within the $70-80 range where we like it for our economies and inflation.
Natural gas - continues to drop as European winter temperatures stay moderate and supplies remain ample. This is good for the European and global economy.
Commodities - Bloomberg Commodity Index BCOM and several other commodity indexes are close to their 52-week lows.
Last week
A few key learnings from last week floated to the top of my notes.
Manufacturing
Dec ISM manufacturing index clocked 48.4, below expectations of 48.5. It has continued to trend lower with Nov's reading at 49.0
Dec ISM services index fell to 49.6 from 56.5 in Nov and well below expectations of 55.1. That was quite a drop in one month
US manufacturing PMI fell to 46.2 for Dec. This was in line with estimates, but lower than the Nov reading of 47.7
Labor
Several labor related updates last week:
US unemployment rate dropped to 3.5% (from 3.7%)
Nonfarm payrolls rose by 223,000 in Dec, higher than the 200,000 expected
Private payrolls increased 235,000 in Dec, much higher than the 153,000 expected. Most job gains were concentrated in small and medium businesses
Wage growth slowed down. It rose 0.3%mom and 4.6%yoy. Estimates were 0.4%mom and 5%yoy
Job changers received an average of 15% pay raise
Job stayers received about 7% in pay raises
Jobless claims fell 19,000 to 204,000 ending Dec 31st
Meanwhile, layoffs continue with Amazon almost doubling their previous layoff target to 18,000 (mostly in retail and corporate) and Salesforce announcing a 10% headcount reduction. LinkedIn is reporting a spurt in new registrations, profile updates and networking activity on their site.
Real estate
Mortgage applications dropped by 42% in the last week of 2022 while rates rose to their highest levels. The average rate on the 30-year fixed-rate mortgage rose to 6.48%.
Crypto
Crypto lender, Genesis Global Trading, laid off 30% of their staff and is preparing for bankruptcy. Some of my small crypto holdings are stuck over there. I am expecting a total loss on that front.
Consumers
Mastercard announced that between Nov 1st and Dec 24th, adjusted for inflation, shopping was up 7.6%yoy. Online and restaurants was stronger. Electronics was weaker. Costco also reported a similar 7%yoy increase for Dec with food being the winner and electronics being the loser.
China
It is very hard to get a good read on what is going on in the Chinese economy. Information is closely controlled and selectively released and even tweaked to make things look better than they are. According to a Nikkei report, their supply chains are in chaos due to the spread of COVID infections. Apple has told it’s suppliers to build less product in Q1 due to weakening demand and manufacturing slowdowns.
Europe
EU’s Dec CPI (inflation) report came in at 9.2%yoy versus a 9.7% expectation and lower than Nov’s 10.1% reading . Core CPI was slightly higher than expectations as well as compared to Nov. Similar to the US, their services and manufacturing PMIs are in sub-50 slowdown mode.
SPACs
Remember these bad boys? About 85 SPACs closed down in Dec with losses of about $750M. They shut down to take tax loss benefits, however the US govt. made a surprise announcement that SPAC liquidations would not be taxed. So no tax benefit and real losses….double/triple whammy. For most of 2022, SPACs had a tough time finding acquisition targets due to elevated valuations and fears of going public. I wonder if sentiment has changed among start ups, especially those that need a cash lifeline.
Key market events
Thu Jan 12th - Dec CPI report, Jobless claims report, Earnings - TSM, **Beachman’s Twitter Spaces event!**
Fri Jan 13th - UofMich Consumer Sentiment report, Earnings - JPM, BAC, C, WFC, UNH, DAL
The next US FOMC meeting is Jan 31st.
Beachman’s plan
Here is what I plan to do with my portfolio…
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