Scarlet buttons, and pale green disks,
Silver spirals and asterisks,
Shoot and tremble in a mist
Peppered with mauve and amethyst.
- "Fireworks" (excerpt), Amy Lowell (1915)
Glorious Wednesday
Time passed slowly early Wednesday morning. Each second, minute, and hour was to move as ice melts, grass grows, and paint dries. Somewhere else. As human minds drift. Into an accidental state of isolation.
Until...
The man spoke. In truth, he said nothing new. What he said, in theory, should have been priced in. That man, Fed Chair Jerome Powell, stated: "There is no doubt that we have made substantial progress. We have more ground to cover." Okay. "History cautions strongly against prematurely loosening policy. We will stay the course until the job is done." Uh oh. He has buried the markets often over the past six months. Is he here to crack down once again, on the perceived "wealth effect" of a people hoping he just won't?
Not this time, my little buckaroos. Powell said that he thought a soft-ish landing for the U.S. economy was "very plausible," but sounded somewhat less than convincing in sentiment. Powell expounded, "It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting."
Boom! Fireworks. Traders, investors, and algorithms alike all heard something that they had already been betting on. It mattered not that the terminal Fed Funds Rate might be higher than originally thought, or that the economy may have to contend with elevated rates for an extended period of time. Heck, every Fed speaker we've heard from of late has expressed the very same thoughts. What mattered in the moment was that markets thought they saw a light at the end of the rate-hiking tunnel and now, so did the Fed Chair. Fed Fund Futures quickly priced in a terminal rate of 4.75% to 5%, which is down 25 basis points.
Huzzah!! Portfolio managers added long side exposure, and shorts were covered in a newfound state of panic. The "take 'em" crowd climbed atop their faithful steads and rode. They rode like the wind. All while "end of month" flows... dressed windows already being dressed on their own. A blow-off top for the day. How nice.
I did tell you to disregard the false distribution days being spoken of elsewhere on Monday and Tuesday. I did tell you that the uptrend had been confirmed... and reconfirmed. There are other hurdles to our immediate front. No time to celebrate. Instead, we reform our perimeter, send out pickets, inventory our resources and prepare to carry on with the mission.
The Water's Fine
Everyone in the pool!
The S&P 500 gained 3.09% on Wednesday, closing up 5.38% for November. This came on top of the 7.99% gain for October as the index put together its first two-month winning streak since July and August... of 2021. That August was, by the way, the tail end of a seven-month winning streak.
The Nasdaq Composite ran 4.41% on Wednesday, closing the month with a 4.37% gain. Hmm. Talk about a two-minute offense. Most impressive perhaps was the 5.85% (not a misprint) sprint made by the Philadelphia Semiconductor Index on Friday resulting in an 18.55% gain (also not a misprint) for November. This index has rallied 35.28% (yup, no misprint) off of its October lows.
The entire spectrum of Treasury securities rallied as well. Maybe folks will notice next time I talk/write about tradable bottoms and volume-based confirmations. If you were with me, we have had a heck of a six-to seven-week run. Golf clap.
All 11 S&P sector-select SPDR ETFs shaded green on Wednesday, with 10 of the 11 gaining at least 1.65%. Growth led the markets as Technology ( XLK) and Communication Services ( XLC) screamed 5.02% and 4.23% higher, respectively. Interestingly, cyclicals lagged as Financials ( XLF) , Industrials ( XLI) , and Energy ( XLE) all lagged. Perhaps that was due to some of the dire-looking macro released ahead of Powell's speech. Talk about an upwardly revised Q3 GDP all you want. The current data are awful.
Minty Fresh
Winners beat losers by roughly 6 to 1 at the NYSE and by a little better than 3 to 1 at the Nasdaq. Advancing volume took an 88.4% share of composite NYSE-listed trade and a 73.9% share of composite Nasdaq-listed trade for the session. Even better than that, aggregate NYSE-listed trading volume increased 85% day over day while aggregate Nasdaq-listed volume increased 44.9% day over day. All as the S&P 500 pierced its 200-day simple moving average (SMA) for the first time since April:
Meanwhile, the Nasdaq Composite recaptured its 21-day exponential moving average (EMA):
Put plainly, professionals were buying stocks hand over fist on Wednesday, in what was very nearly a state of heated panic. Wednesday was the heaviest traded single session across the constituent membership for both the S&P 500 and Nasdaq Composite since September 16, and it all pretty much happened in less than two and a half hours. Meaning that the Beige Book provoked some activity ahead of the suddenly revered big dog.
Fire & Ice
So neat and pretty.
The Commerce Department revised Q3 GDP to growth of 2.9% (q/q, SAAR) on Wednesday, up from an initial estimate of 2.6%. The Atlanta Fed's GDPNow model still shows Q4 running at growth of 4.3%. (This model will be revised on Thursday in response to ISM Manufacturing (Nov.), Construction Spending (Oct.) and Personal Income and Spending (Oct).)
One might think all is well, if one were not to pore through the minutiae of the day's various macroeconomic data points. First, private payrolls as seen through the prism of the ADP Employment Report, missed badly for the month of November, printing at 127K. Economists were looking for about 200K. Then the U.S. goods trade balance for October printed at -$99B versus expectations for- $91B. November Chicago PMI? Oh, brother. 37.2 (50 is the line in the sand between expansion and contraction.) A third consecutive month in contraction and the worst print for this series since the pandemic-driven lows of July 2020.
Moving along, October JOLTs Job Openings printed at a still lofty 10.33M. However, this number is down significantly from just one month earlier and down more than 1.5M job openings from the April high. Additionally, October Pending Home Sales hit the tape in a state of month-over-month contraction for a fifth consecutive month and an eleventh month in the past twelve.
Finally, the Beige Book, which is an anecdotal aggregation of economic conditions and viewpoints across the Fed's 12 regional districts. Overall, the Beige Book showed economic growth having eased this autumn. Businesses have expressed greater uncertainty and increased pessimism as prices and interest rates have increased. Seven districts report no change to modestly declining economic activity, while five districts reported slight to modest gains in activity. Tighter monetary conditions have weighed on spending across the report. Additionally, construction and real estate spending have slowed as well. Tourism, however, remains a bright spot.
All in all, the U.S. recession by late Q1 to early Q2 thesis remains very much intact.
Trading Update
1. Multiple early week Disney ( DIS) adds look good right now.
2. My CrowdStrike ( CRWD) trade is an immediate triple. Did not get enough shares at my price, however (That's why it's not already a home run.) I may have to turn this intended investment into a trade if it does not come back in to meet me.
3. I covered Gilead ( GILD) short at an immaterial loss ($-0.09).
Notice?
The Board of General Electric ( GE) has approved a spinoff of the firm's healthcare business known as GE Healthcare Holding. Shareholders will receive one share of GE Healthcare for every three shares of GE held. Distribution occurs after the closing bell on January 3, 2022. Trading in the new issue commences on the Nasdaq on January 4, 2022 under the symbol GEHC.
Shares of both Salesforce ( CRM) and Snowflake ( SNOW) are both trading sharply lower overnight as both firms reported third-quarter adjusted earnings and revenue that beat Wall Street expectations. However, both firms guided current-quarter revenue below consensus view. Additionally, Salesforce announced the departure of co-CEO Bret Taylor.
Onward, my friends.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 235K, Last 240K.
08:30 - Continuing Claims (Weekly): Last 1.551M.
08:30 - Personal Income (Oct): Expecting 0.4% m/m, Last 0.4% m/m.
08:30 - Consumer Spending (Oct): Expecting 0.8% m/m, Last 0.6% m/m.
08:30 - PCE Price Index (February): Expecting 5.9% y/y, Last 6.2% y/y.
08:30 - Core PCE Price Index (February): Expecting 5.0% y/y, Last 5.1% y/y.
09:45 - S&P Global Manufacturing PMI (Nov-F): Flashed 47.6.
10:00 - ISM Manufacturing Index (Nov): Expecting 49.8, Last 50.4.
10:00 - Construction Spending (Oct): Expecting -0.2% m/m, Last 0.2% m/m.
10:30 - Natural Gas Inventories (Weekly): Last -80B cf.
The Fed (All Times Eastern)
10:00 - Speaker: Dallas Fed Pres. Lorie Logan.
14:00 - Speaker: Reserve Board Gov. Michele Bowman.
14:00 - Speaker: Reserve Board Gov. Michael Barr.
