‘Tis the season for stock market gains, yet the gains have been conspicuously absent this December. Entering today, the Russell 2000 is down 4.5%, the Nasdaq Composite is down 4.4%, the S&P Midcap 400 is down 3.9%, the S&P 500 is down 3.6%, and the Dow Jones Industrial Average is down 2.9% since the start of the month.
The selling started on day one and it has carried over in every session so far, which is to say the S&P 500 has opened this December with five consecutive losses. According to Bloomberg, that is the longest stretch of losses to start a month since 2011.
This weakness has been fueled by growth concerns that are rooted in concerns about the Fed overtightening and driving the U.S. economy into recession.
Those concerns, as we have been pointing out for some time, have manifested themselves in a deepening inversion across the Treasury yield curve, whereby short-term rates are higher than long-term rates.
The concerns have made their way into stock prices, which have been in a downtrend since the start of the year. The start of December has respected the downtrend and the risk to earnings estimates that exists with a deteriorating economic environment.
That is largely why the seasonal spirit normally seen this time of year has been lacking. There is an attempt this morning, however, to rediscover some of that seasonal cheer.
Currently, the S&P 500 futures are up 24 points and are trading 0.6% above fair value, the Nasdaq 100 futures are up 66 points and are trading 0.6% above fair value, and the Dow Jones Industrial Average futures are up 147 points and are trading 0.4% above fair value.
The impetus for today’s positive disposition is the negativity that has been accruing since Fed Chair Powell’s speech last Wednesday. The bullish response to that speech proved to be a one-hit wonder, as it has been pretty much straight downhill since then. At yesterday’s close, the S&P 500 was down 3.6% since the November 30 close, which happens to be the only session in the last nine sessions that the S&P 500 closed higher.
What we have today, then, is a little rebound spirit — an assumption that the stock market is due for a bounce after behaving so poorly in more recent action that has seen support give way at the 200-day moving average.
The latest initial and continuing jobless claims report has provided a little clearance to wage a rebound effort. It was relatively good on the initial claims side to support the soft landing view and relatively bad on the continuing claims side to support the idea that the labor market might be getting a little more challenging, which is what the Fed would like to see.
Initial claims for the week ending December 3 increased by 4,000 to 230,000 (Briefing.com consensus 220,000) and continuing claims for the week ending November 26 increased by 62,000 to 1.671 million.
The key takeaway from the report is that continuing jobless claims hit their highest level since February 2022, suggesting perhaps that it is becoming more difficult to find a job as employers are taking a more cautious-minded approach with their hiring plans.
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Originally Posted December 7, 2022 – Trying to rediscover seasonal spirit
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