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Backing Up A Bit After A Big Move

Posted December 5, 2022 at 2:45 pm
Patrick J. O’Hare

There is some weakness in the futures market this morning that is looking for a cause. In other words, the line between the news and the futures market isn’t a straight one.

Currently, the S&P 500 futures are down 31 points and are trading 0.8% below fair value, the Nasdaq 100 futures are down 87 points and are trading 0.7% below fair value, and the Dow Jones Industrial Average futures are down 246 points and are trading 0.7% below fair value.

Rising oil prices ($82.70, +2.72, +3.4%) and a disappointing Caixin Services PMI reading for November (46.7 vs 48.4 prior) out of China are drawing some blame for the negative disposition, yet those excuses fall short knowing that the Hang Seng surged 4.5% on Monday and the Shanghai Composite jumped 1.8% on some hopeful COVID-related news.

Specifically, several major cities in China announced relaxed testing requirements to use public transportation and to buy certain medicines, according to Bloomberg

The relaxed guidelines have been viewed as another step toward pivoting the country from a zero-COVID policy approach. That, in turn, is a step in the right growth direction that should presumably stoke demand for oil, other goods, and services, which is why the Chinese markets traded well today and why rising oil prices and the soft Caixin Services PMI number fall short as excuses for the weakness in the futures market this morning.

That weakness is predominately a byproduct of the strength seen this quarter. Entering today, the Dow Jones Industrial Average is up 19.9% this quarter, the S&P Midcap 400 is up 16.8%, the Russell 2000 is up 13.7%, the S&P 500 is up 13.6%, and the Nasdaq Composite is up 8.4%.

With moves like that, it is natural for the market to encounter some consolidation activity as early arrivals to the rally effort move to take some money off the table.

It is worth pointing out that most of the mega-cap stocks are tipped lower in pre-market trading. Alphabet (GOOG), for example, is down 0.8%, and Microsoft (MSFT) is down 0.5%. Tesla (TSLA) is the biggest laggard, down 2.6% on a Reuters report that it is going to cut Model Y output at its Shanghai plant by at least 20% in December versus November.

Despite their struggles this year, the mega-cap stocks still have some outsized influence on the market.

The EU for its part is trying to exert some influence over the sale of Russian oil, having agreed to a $60.00 per barrel price cap over the weekend that preceded EU sanctions on seaborne Russian oil going into effect today.

In other developments, Delta Air Lines (DAL) has reached a tentative deal with its pilots union, according to CNBC, and apparel company V.F. Corp (VFC) announced a CEO transition at the same time it issued a FY23 warning, citing weaker than anticipated consumer demand across its categories, primarily in North America.

Today’s economic calendar features the ISM Non-Manufacturing Index ( consensus 53.5%; prior 54.4%) at 10:00 a.m. ET.

Originally Posted December 5, 2022 – Backing up a bit after a big move

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