The only issue that really matters for the market today is whether or not positive seasonality occurs. Over the last 61 years, the Wednesday before Thanksgiving, the S&P 500 has been positive about 77% of the time. That is pretty good odds, but that doesn't relieve traders of the obligation to have a clear strategy and be ready to exit if it doesn't work.
One of the major differences this time is that the market is still in the jaws of a bear market. The macroeconomic concerns that have been weighing on the market all year have not subsided. There are still major concerns about inflation and growing confidence that a recession awaits.
Wall Street strategists are coming out with their predictions for 2023, and few are expecting a substantial gain. Both Goldman Sachs (GS) and Bank of America (BAC) are predicting that the S&P 500 will reach 4000 in a little over a year from now, which is almost exactly the same level that it closed at on Tuesday night.
The minutes of the last Fed meeting will be released at 2 pm ET on Wednesday afternoon, but after the steady stream of Fed speakers recently, they are unlikely to hold any major surprises. The main focus will likely be the potential for higher peak interest rates than previously forecasted and the potential for a hike of 0.5% in December.
These macroeconomic headwinds are going to matter as we move forward but maybe not today. Today is about holiday trading, and we will see if speculative traders can stir up some action in individual stocks. Positive sentiment typically continues during the half-day session on Friday after Thanksgiving, but then there is a high risk of some giveback on Monday.
Market players are more likely than normal to use seasonal strength to reposition because of current market conditions. This is not a bull market where the rising tide will provide some measure of safety. The potential for negative news is elevated, and that means traders will be more cautious than usual.
The bulls are hopeful that a combination of end-of-the-year seasonality combined with poor positioning and short squeezes will give the market some upside momentum. There was a very energetic bounce back in July and August that lasted for a month, and the bulls would like to see a replay.
For now, we will focus on holiday trading, but this is not an environment for bullish complacency.