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Morning Commentary

BRUTAL - THE FEDíS WISH IS MARKET SUCCUMB

By Charles Payne, CEO & Principal Analyst
12/20/2022 9:36 AM

Yesterday was more of the same as the market continues to stumble over the fear of a recession and questions on what could possibly change the trajectory. Ironically, the market becoming oversold will set the stage for a bounce. But to be more than another bear market bounce, there must be confidence Powell & Co. won’t go too far. 

That’s a tough one when members of the Fed go out each day and promote pain.

Bond yields are trying to turn higher, and an inversion keeps getting deeper. The ten-yield year is back above 3.50%, although it’s still more vulnerable to the downside than the upside.

Fed Rate Hikes Probabilities

While stocks are getting kicked around daily, the Street still sees two-25 basis points (bps) moves and a pause. And sometime in late 2023, a couple of rate cuts.

Builder Sentiment

The Home Builder Confidence report declined for twelve straight months, although at a slower pace.  Nevertheless, there were a few tiny silver linings, and the National Association of Home Builders (NAHB) thinks the worst may be over.

I’m not sure that isn’t a case of wishful thinking. There is still a lot more room for home prices to decline from here.

Tough Session

Only Energy (XLE) managed to eke out a gain yesterday, as growth got slammed again with Communication Services (XLC) getting waylaid.

What’s so interesting is the Energy sector is trading a million miles above typical bear market levels, and Communication Services is changing hands well below.  A contrarian would say sell Energy and buy Communication Services, and at some point, that will work. The problem with those kinds of observations is they don’t ring a bell and then automatically reverse.

Heat Map

So, for now, it’s Energy and everyone else, although it came off the boil big time over the past six weeks.

More intriguing than Energy being slightly higher were the big Mega-cap names being markedly lower.

Ouch!

Lots more economic data will be out this week.

Today’s Session

Massive decline in multi-family homes, and to lesser extent single family, sent housing permits -11.2 against estimates of -3.0%.

Shocker!

Experts in the bond market are tossing around words like “shocker” and “brazen” to describe a 25 bps move in the range of Bank of Japan cap on its 10-year bond yield to 0.5%, raising the rate that bonds can trade.  It did however leave its short term interest rates at minus -0.1%.

Many are comparing it to the heartless hike on Christmas Day 1989. Right now, I do not understand all the ramification and whether they will match the hyperbole.

US equity futures slipped a little but not so much I would say the world is coming apart now that another central bank has hiked rates.

US bond yields are higher, however, and bare watching closer than normal today.


Comments
S&P 500...3,250 by middle February,...count on it.

W W on 12/20/2022 9:55:45 AM
 

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