MARKETS TODAY Dec 5 (Vica Partners) – The U.S. indexes all fell Monday following Friday’s stronger-than-expected wages data and today, U.S. services sector activity report is keeping pressure on the Fed to further tighten monetary policy.
The Dow Jones Industrial Average fell 483 points. The S&P 500 declined 1.79%, and the Nasdaq declined 1.93%.
Key Market Statistics
- Dow, S&P 500 and Nasdaq all declined today
- 10-year Treasury yield up at 3.592%, the 2 year Treasury yield up at 4.402%
- S. Dollar Index (DXY) up at $105.36, gaining 0.78%
- Bitcoin down at $16,956, declining 0.87%
- Oil prices fall after opening higher in session with Brent crude $83.02, declining 2.98%, and US West Texas Intermediate at $77.35, declining 3.29%
Last week the Fed indicated that inflation has hit its peak and is slowing
The Fed is now open to pausing the pace of future interest rate hikes as rising inflation is now under control. It’s however nowhere close to the Fed’s 2% target. BIG picture is that Fed is tasked for avoiding an economic slowdown, aka a deep recession.
U.S. services sector activity sharply rose in November
The ISM Services PMI unexpectedly jumped to 56.5 in November of 2022, rebounding from a more than 2-year low of f 54.4 hit in October and beating market forecasts of 53.3.
The ISM surveys non-manufacturing (or services) firms’ purchasing and supply executives. The services report measures business activity for the overall economy; above 50 indicating growth, while below 50 indicating contraction.
The S&P Global US Services PMI in November signaled a faster contraction in business activity across the US service sector.
The S&P Global US Services PMI registered 46.2% in November of 2022, a fifth straight month of falling services activity and the second-sharpest decline since May of 2020. A reading below 50 indicates contraction in the private sector. Not bad news as weak economic demand could signify declining inflation
United States Services PMI (Purchasing Managers’ Index) captures business conditions in the services sector. As the services sector dominates a large part of total GDP, the services PMI is an important indicator of the overall economic condition in US.
The S&P 500 had gained about 14% from its lowest close of the year hit in early October through Friday
November’s inflation data is due Dec. 13, and the Fed rate .50 or.75 rate hike decision is set for Dec. 14. We expect markets to trade sideways until then.
Vica Momentum Stock Report (reiterate)
China Automotive Sys (CAAS) (Grade A+) 50 Day Average +105.82, 100 Day Average +173.95%, 200 Day Average +191.39, YTD +190.30%
China Automotive Systems is a holding company and has no significant business operations other than their interest in Genesis in which they manufacture power steering systems and other component parts for automobiles.
IMPORTANT TO READ; Low interest rates will return!
The Federal Reserve gave guidance that back in August of 2022 that they would raise rates to 4% and have. Rate adjustments have begun to drive down inflation and slow the pace of the economy.
Company earnings will remain mixed with stronger support for Communication services, Consumer staples, Energy, Financials and Health care. As these sectors tend to perform well during recessions
In 2023 we expect the Central Bank to initially raise rates and then by early Q3 of 2023 ease rate to avoid a deep recession. Vica analyst’s see a significant policy change coming in late 2023 with Powell reversing direction.
Energy is the Top Performing Sector in the S&P 500 Year to Date and will continue through 2023
Yearly commodity prices will continue to rise “as there are still production shortages” which include: iron, copper and crude oil – upside should continue.
Our analysts forecast global energy consumption will grow by about 1.9% in 2023 even with a slowing economy and rising energy prices. Strained gas supplies, averse weather and wars will force many countries to rely further on fossil fuels.
Energy outlook for 2023: Of the total U.S. fossil fuel production in 2021, dry natural gas accounted for 46%, the largest share. Crude oil accounted for 30%, coal for 15%, and natural gas plant liquids (NGPLs) for 9%. We expect those shares to slightly increase through 2023.
We see continued upside for investors in the fossil fuel sector, as it will significantly outpace the S&P 500 Index over the next 18 months.
Solid strategy for these type of market days include…
- Investing in companies that have solid balance sheets and offer dividends.
- Look to Communication services, Consumer staples, Energy, Financials and Health care as these sectors tend to perform well during recessions.
- When buying value and growth DON’T try to time market lows as its best to cost average buy companies that have solid profits.
- Try to resist most all tech and growth stocks where companies have negative margins.
*** Continue to watch for our daily momentum company recommendations as they are built by on our industry leading data base
*** Look to Index ETF’s like SPY to outperform stocks and most managed funds
*** Energy is the Top Performing Sector in the S&P 500 Year to Date and will continue through 2023
*** Banks will profit from higher interest rates on new loans and other products which will offset defaults
