The market is stumbling along without vim or vigor, and it’s more reflective of a collective angst that mimics Main Street. Something isn’t right, or should I say, it doesn’t feel right. I must highlight right out front this is a holiday week absent of major economic data. Volume is anemic as 79% of S&P 500 constituents traded below their average daily volume (90%, the same as last Friday). This light volume tends to create exaggerated moves.

All eleven sectors were lower, as only 28 names avoided closing in the red. Interestingly, Bank of America (BAC), JP Morgan (JPM), and Citigroup (C) eked out gains.

Par for the Course in 2022

The 1%+ decline for the S&P 500 brings the full-year tally to 65, which was last seen in 2008 – during the throes of a monster selloff and mass fear over a housing meltdown and the great financial crisis. 

The S&P 500 has enjoyed a walk in the park compared to the NASDAQ Composite, which closed at a new 2022 low. But, unfortunately, the destruction is also par for the course – when the pendulum swings too far in the other direction. Each day puts more pressure on investors to bail, and when they go down, the weakness created in that wake puts fresh pressure on holders.

It’s a huge test. A subscriber emailed last night about why we are holding CrowdStrike (CRWD). It’s a giant paper loss, but at the same token, the stock checks all our boxes and is a screaming buy for longer-term investors. For the broad market, conviction is fading, and dismay has settled in, nudging out resolve.

Recession Watch

All the modeling for 2023 is predicated on when one assumes the recession began or will begin. Those that see it in the first half of 2023 also see the market staging a rally into the second half. The school of thought that sees a recession in the second half of 2023 (2H23) mostly sees the market marking time. The tiny minority that sees a soft landing are aggressive buyers right now. We are in the camp of a shallow recession in the first half of 2023, but we see individual names making bottoms in the first weeks of the new year.

Today’s Session
The market was already edging higher before initial jobless claims were released.  The weekly tally of 225,000 was in line with consensus, but continuing claims came in at 1.71 million +41,000 and above consensus of 1.69 million.

The differences aren’t great, but the trajectory is adding to the notion the labor force is feeling the impact of all those rate hikes.  That’s all the Fed cares about these days.  It’s not inflation data per se, it is just the idea people are on the path to being tapped out and jobless.  Or worried enough about job security they refrain from spending, even if they still have some free money laying around.

With this, I do not think we will see a repeat of yesterday, but to be sure there is no sense of urgency for deep pocketed investors to buy right now.  That urgency can materialize quickly, however, in the first week of the New Year.