Market at a Glance - 12/22/2022

By: Christopher Mistal

December 22, 2022

Seasonal: Bullish. January is the #1 S&P 500 and NASDAQ month in pre-election years, second best for DJIA. Average pre-election year gains since 1950 range from 3.9% from DJIA and 6.8% by NASDAQ (since 1971). “As January goes, so goes the year.” Our Santa Claus Rally ends on January 4, the First Five Days finish on the nineth and our January Barometer gives its read at month’s end. When all three are positive, our January Indicator Trifecta is nearly perfect with 28 S&P 500 full-year gains in 31 years.

Fundamental: Improving. Final Q3 GDP was revised higher to 3.2%. Q4 GDP estimate from Atlanta Fed’s GDPNow is 2.7%, slightly slower growth but still respectable. Headline CPI has declined from its June peak of 9.0% to 7.1% in November. Unemployment is at 3.7% while weekly initial claims data remains firm. Corporate earnings are still forecast to slow, but not retreat in 2023. Housing is a mess, but the easing of Treasury yields from their earlier highs is translating into lower mortgage rates. Supply chains are also improving with China’s easing of Covid-19 policy.

Technical: Consolidating. Still awaiting confirmation of the new bull market. DJIA did briefly exceed its August closing high and its 50-day moving average has climbed back above its 200-day moving average creating a historically bullish golden cross. However, NASDAQ’s struggles persist, and tech weakness lingers over the entire market. Relative strength, stochastic and MACD indicators applied to DJIA, S&P 500 and NASDAQ are currently at or near oversold levels. Should NASDAQ’s October low hold, another leg higher could be the market’s next move.

Monetary: 4.25 – 4.50%. We could debate endlessly whether the Fed has gone far enough with rates or not, but why bother when they have already explained their plan. At the conclusion of this December’s FOMC meeting, the updated Fed dot plot basically told us that the Fed is going to tighten until they get to 5.00 – 5.25%. This suggests another 0.50% increase on February 1, 2023, and a final 0.25% hike on March 22.

Sentiment: Neutral. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 37.5%. Correction advisors are at 29.2% while Bearish advisors numbered 33.3% as of their December 21 release. Over the last month sentiment is relatively unchanged with only a small increase in the percentage of bearish and correction advisors which is consistent with recent market weakness.