What’s Up, Doc?

Yesterday, Jay Powell finally took his shot. The market freaked out, which is kind of weird, considering how much effort there was to telegraph tapering and adjustments to the tapering timeline.

Perhaps the Street was caught off guard with the Omicron variant of Covid, which would have been a great excuse to take a more cautious tone. But the Federal Reserve Chairman could no longer ignore runaway inflation.

Ahead of the jobs report that the Street expects will see a 500,000 print, there is no longer room to hide behind employment (at least when it comes to fewer asset purchases), even if Covid-19 has been the wildcard.

Watching the relationship between Fed Chairs and the market has been like watching Elmer Fudd and Bugs Bunny. The Fed takes its shot, and the market goes into theatrics that eventually forces the Fed to rethink and pull back.

This strategy has worked like a charm against Greenspan, Bernanke, Yellen, and now it’s Powell’s turn.  The good news for the newly renominated Fed chair is he might have bought street creed with his forceful tone. But to paraphrase one of the best basketball players ever: “we talking ‘bout tapering.”

The market is taking the Fed seriously on tapering, although each day there are signs the big story in 2022 will be the need for accommodation. Lost in all the news was the latest in the Chicago-area business, which was a big miss with several glaring red flags.

Chicago Purchasing Managers Index (PMI)

• 61.8 actual
• 67.0 estimate
• 68.4 October

New orders, backlog, and employment declined while inventories surged to the highest level since fall of 2018. Prices paid were only slightly lower than in October, which was a multi-decade high.

It was not a good read, but the special question explained why stocks have held up (the last three sessions notwithstanding). This month’s special question asked, “Are you seeing any easing up in the supply chain blockages?”

• 64.9%: No
• 24.3%: Somewhat

The second question asked, “Are you managing to pass the higher costs of doing business onto customers?”

• 78.4%: Partially
• 21.6%: Unable

Golden Wave

Corporate profits have ridden the wave of stimulus and eager spenders, which has also lifted margins to the highest levels since the 1950s. However, both may have peaked as fewer companies can pass on these costs anymore.

Ocean of Red

Only seven stocks finished in the green yesterday, with Apple (AAPL) head-and-shoulders above the rest, followed by Pfizer (PFE) and Tesla (TSLA).

The most intriguing names were airlines, which finished lower but were among the fifteen best performers during the session.

Of course, all eleven sectors were lower on the session with Technology suffering the smallest decline.

SPX	-1.90%
Communication Services (XLC)	-3.17%
Consumer Discretionary (XLY)	-1.35%
Consumer Staples (XLP)	-2.56%
Energy (XLE)	-2.34%
Financials (XLF)	-2.39%
Health Care (XLV)	-1.96%
Industrials (XLI)	-2.53%
Materials (XLB)	-2.48%
Real Estate (XLRE)	-2.09%
Technology (XLK)	-0.83%
Utilities (XLU)	-2.92%

It was a tough session that saw two rally attempts fall short, which actually triggered more selling into the close.  

The 52-week lows continued to stack up, much like the carnage in March 2020.

Market Breadth	NYSE	NASDAQ
Advancing	707	1,398
Declining	2,711	3,330
52 Week High	26	46
52 Week Low	280	628
Up Volume	643.78M	1.98B
Down Volume	5.40B	4.37B

                                                 

On the Precipice

The “good news” is the S&P 500 held above Friday’s intraday low of 4,585 but only by a hair. Now, the index is hovering above its 50-day moving average as well. So, today is a big day – the market has to make a stand.  

Economic Calendar

• Automatic Data Processing (ADP)
• Institute of Supply Management (ISM)
• Construction Spending
• Beige Book

Last Thoughts

I think reactions to Omicron and Powell are extreme. Moreover, it probably will not take long to get over both, and when that dust settles, there could be a mad dash to get back into the market (turn those machines back on).

With that in mind, we are also approaching the tax-loss selling season., The idea is to take the pain with those names that aren’t coming back anytime soon (in some cases, never), build up some dry powder and get aggressive – again.

Portfolio Approach

There are no weighting changes this morning to our Hotline Model Portfolio.

 

Today’s Session

ADP job report comes in at 534,000 against consensus of 506,000.  The highlight are those dirty finger nail goods producing jobs:

• Mining 7,000
• Construction 52,000
• Manufacturing 50,000

There was some improvement in the pace of small business hiring but it’s still lagging its historic position as number one job producer.

Comments

I have been taking a beating in airline stocks . I am considering buying some more 🤔 . Charles Trantham on 12/1/2021 7:22:38 AM

Three were in the top 16 movers yesterday so even though down I sense "smart" money is accumulating shares - I would add Charles Payne on 12/1/2021 8:03:08 AM

Please keep me on your email list. Thanks, Bob Robert Munroe on 12/1/2021 11:42:38 AM

Jay is shooting blanks...and oh yeah, he's out of ammo also............ Patrick J Pedley on 12/1/2021 1:57:21 PM

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