1. Moving the markets

While moderate bullish sentiment dominated market direction throughout the day, traders decided to shift upward momentum into overdrive during the last hour of the session, thereby pushing equities sharply higher.

The major indexes sported solid gains in the end, indicating that tomorrow’s CPI number is expected to come in lower than had been assumed. Should that be the case, we will see the bullish theme grow stronger and provide us with the much longed-for Santa Claus rally.

Bond yields jumped with the 10-year adding 12 bps to close at 3.62%. Rate trajectory expectations rose, as ZeroHedge pointed out, with the terminal rate now back up to 5%.

The US Dollar rode the rollercoaster but managed to eke out a small gain, Crude Oil rebounded after the recent drubbing, and Gold lost its $1,800 level by a small margin.   

All eyes are on tomorrow’s CPI release and Wednesday’s FOMC meeting, after which Fed head Powell will likely again elaborate his hawkish stance—higher rates for longer—which may not go over well with the Wall Street crowd, because they have almost desperately anticipated a pause or pivot in rate policy.

1. Moving the markets

After 4 days of declines, the major indexes vacillated around their respective unchanged lines and, despite several breakout attempts, nothing was gained or lost. The exception was gold, with the precious metal adding 1% and closing right at its $1,800 level.

Worries about a worsening recession in 2023 remained on traders’ minds, along with critical upcoming data releases. Jobless claims on Thursday, November’s PPI and preliminary consumer sentiment on Friday will set the stage for next week’s highlights.

On Monday, we will find out whether the CPI has worsened or improved, and on Wednesday, the Fed will either deliver an expected 50 bps rate hike or an unexpected 75 bps. Either one will have an influence on market direction.

Today, even a plunge in bond yields was not enough to support equities, even though the 10-year dropped 11 bps to 3.43%, which caused the US Dollar to stumble and Gold to rise.

We may see some churning and grinding in the indexes until guesswork and uncertainty about the above-mentioned upcoming data sets are removed.   

1. Moving the markets

Yesterday’s downward momentum carried over into today’s session and accelerated throughout the day, but a last hour rebound prevented a worse outcome.

This is now the 4th straight day of declines for the S&P 500, which has now retreated clearly below its 200-day M/A, thereby nullifying its recent break above it. Looking at the bigger picture, all the massive gains following Powell’s alleged “dovish” speech have now been surrendered.

Traders are back to the drawing board, as bullish hope based on a Powell pivot, or pause, has now made room for the bitter reality that a recession, the depth of which remains unknown, will have consequences on earnings and, by association, stock prices.

Round after round of layoffs is proof that, economically speaking, a hard landing is being accepted as likely, while inflation and its impact on consumers remains a wild guess.

Despite the Fed being expected to slow the pace of interest rate hikes from 0.75% to 0.5%, when they meet next week, traders fear that the fallout from any hike will increase recessionary pressures.

Bond yields dipped a tad but not enough to exert a positive influence on equities, with the 10-year dropping down towards its 3.5% level. The US Dollar vacillated around its 200-day M/A, while Gold gained a tad but did not manage to reclaim its $1,800 level.

Updating the 2008-2009 analog, it appears history is back on schedule for a possible two-peat.