Yesterday, late in the session, there was a rumor that the Consumer Price Index (CPI) release must have been leaked a day earlier. How else can it explain the move in the market ahead of the CPI and the Federal Open Market Committee (FOMC)?  The simplest answer is anecdotal signs that inflation is waning (yesterday, the NY Fed and Friday loss of household wealth). But there has been lots of champing at the bit, so the most probable answer is buying begets buying. 

Moreover, leadership was focused on safe haven sectors, although Technology (XLK) caught a bid.

Market breadth was good but not great, as 73% of names finished the session higher on the S&P 500.

Market Breadth	NYSE	NASDAQ
Advancers	2,006	2,690
Decliners	1,135	1,872
New Highs	48	87
New Lows	90	295
Up Volume	2.80 billion	3.46 billion
Down Volume	1.05 billion	1.32 billion

Heat Map

Oh, man, I have no idea why Tesla (TSLA) got whacked! The stock ran afoul of Tony Soprano. Oil stocks made a nice bounce, but for the most part, buying was evenly distributed. 

Oil producers dominated the top mover’s list along with Industrials (XLI). But, again, it was a blue-collar session.

Odd Behavior

The market made a big move at the same time the CBOE Volatility Index (VIX) made a gargantuan move.  This is very odd and suggests lots of bears changed their minds. One must go back to 1995 for a similar combination.

Compound

CPI Watch

Over the course of the year, the Consumer Price Index report has triggered massive moves in the stock market, especially for the NASDAQ Composite, which has been most sensitive to higher yields and rates.  JP Morgan (JPM) says a ‘soft’ CPI release could spark a 10% move today. Conversely, Morgan Stanley (MS) thinks any rally should be sold.

I think everyone is on the same page regarding inflation, with the only debate on how fast it takes to return to normalcy.

Portfolio Approach

We added a new position in Materials yesterday afternoon in our Hotline Model Portfolio.

Today’s Session

The FOMC meeting begins today, and the street is still looking for a 50 bps hike tomorrow, and then two 25 bps hikes, a pause, and then rate cuts after the CPI report came in below consensus.

CPI Release

CPI Year to Year	Actual	Consensus	Prior
Headline	7.1%	7.3%	7.7%
Core	6.0%	6.1%	6.3%

CPI Month to Month	Actual	Consensus	Prior
Headline	0.1%	0.3%	0.4%
Core	0.2%	0.3%	0.3%

The market gapped open big time, but we are not going to chase - have been positioning.  As the session goes on the focus will shift to the Fed and Jay Powell, who is reluctant to take an early victory lap.  The irony of this morning’s news is it might make Powell more intransigent.

Let’s remain disciplined and deal like there are still hurdles to come; although, the economic trend is our friend and Powell can ill-afford to misread the tea leaves for too long (transitory).

Also, the Sam Bankman-Fried (SBF) – FTX scandal is hurting some publicly traded companies, including Coinbase (COIN) and Microstrategy (MSTR), where company bonds are trading at a big discount.

Last Friday’s selloff was accompanied by rumors of more institutional exposure to FTX.   It’s a cause for concern as we try to get more information.

 

Comments

Usually I like your commentary.....this morning I loved it. robert brush on 12/13/2022 9:59:00 AM

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