Market Strategy 11/21/2022
A time to reflect and consider whether things are getting better even as challenges remain
- With 95% of the S&P500’s companies having reported Q3 results, earnings are up 3.2% on the back of 11.6% revenue growth.
- Of the 11 sectors, three have reported double-digit earnings growth, one has reported triple-digit earnings growth, and five have reported negative earnings growth. All 11 sectors have reported positive revenue growth thus far this season.
- Data on retail sales released last week points to renewed spending vigor from US consumers that is likely to fuel a positive GDP growth rate for the fourth quarter.
- Three double-digit rallies this year in the S&P 500 argue a case that as difficult as 2022 has been for equity markets, there’s enough resilience to suggest that this year could be a harbinger for better times ahead.
The Thanksgiving holiday-abridged week ahead should see lighter data flow and trading volume with markets closed on Thursday and with the stock exchanges closing at 1pm (Eastern time) on Friday.
The last few weeks have brought an improvement in news on inflation with recent Consumer Price Index and Producer Price Index data suggesting that the Federal Reserve’s fed funds hike cycle (with six moves now implemented) have had in aggregate some positive effect at slowing inflation from its 40-year high levels.
Employment and consumer spending remain at levels higher than the Fed would like to see before the authorities consider a pause or a reduction in the rate cycle currently underway.
Fed speak (comments from Fed officials at events) suggests that opinions among US monetary policy officials vary in terms of where the Fed should stand this far in the hike cycle. There’s enough hawkish and dovish commentary to keep even seasoned Fed watchers guessing.
Our expectations are that the Fed is likely to raise 50 basis points or perhaps as much as 75bps at its last FOMC meeting of the year on December 14 with no small degree of consideration of key economic data released from now until then.
Based on the strength of the job openings data from the JOLTS report and last month’s nonfarm payrolls gain as well as other recent data we would expect that the Fed is likely to continue hiking its benchmark rate into next year but in smaller increments (compared to the last three hikes of 75 bps each)—so long as the rate of inflation continues to ebb lower.
In our view, the Fed will be looking to avoid pushing the US economy into a recession if it can avoid it and might even be able to skirt a recession this cycle so long as factors over which it has little or no control keep improving.
With the US elections moving into the rearview mirror fiscal policy, commodity prices (particularly oil), and indicators of the resilience of the consumer and business will be key items for investors and traders to monitor in the coming weeks.
While broad declines experienced by both equities and fixed income assets this year could define 2022’s results through last Friday as an annus horribilis for stock market bulls, three double digit rallies (3/11/22- 3/29/22; 6/16/22-8/16/22 and 10/12/22) with respective gains for the S&P 500 of 10.99%, 17.41% and 10.86% would argue a case that as difficult as the year has been enough resilience has been evident to suggest that this year could be a harbinger of better things ahead.
Happy Thanksgiving to our readers from the Market Strategy Radar Screen Team!
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