[Chart courtesy of MarketWatch.com]

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.  

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After last week’s rebound, that resulted in the S&P 500 finally breaking through its 200-day M/A, which has served as a glass ceiling since April, none of that feel good bullish sentiment was present today.

From the opening bell, the major indexes headed south caused by sudden fears that the Fed may not only not pivot but continue its hawkish policies, even as the economy slides further into recession territory.

That took the starch out of any remaining bullish momentum, as the broad market tumbled, including heavyweights like Tesla, Microsoft, and Amazon, with the retreat being broad based and leaving no place to hide.

Rising bond yields supported the equity bears, with the 10-year gaining 7 bps to close at 3.6%. The S&P “lost” its 200-day M/A again, which it had just reclaimed, bringing up the question whether conquering this resistance level was simply a head fake.

Fed whisperer Nick Timiraos appeared to walk back some of the market’s post-Powell exuberance, as ZeroHedge called it, in this morning’s WSJ article, as the “higher rates for longer” narrative was pushed, which caused terminal Fed rate expectations to surge.   

The stand-by and usually reliable bullish ammo failed today, because the most shorted stocks tanked as well, with no bailout squeeze attempt in sight. The US Dollar rebounded, and Gold dropped back below $1,800.

After a temporary bullish diversion, will the S&P 500 now sync up again with the 2008-2009 analog?

[Chart courtesy of MarketWatch.com]

1. Moving the markets

A variety of events combined forces to pull the markets out of their doldrums, while not only creating a new “Buy” signal for our Trend Tracking Indexes (section 3) but also breaking the S&P 500’s glass ceiling, namely its 200-day M/A (+0.57%).

We also were re-acquainted with the fact that bad news is good news, as poor economic data releases were seen as putting pressure on the Fed regarding their hawkish interest rate policy.

As ZeroHedge pointed out, Job Openings fell by 353k, as hiring, quits tumbled to multi-year lows. US Pending Home Sales plunged to their biggest annual drop ever, and the Chicago PMI collapsed to Covid-lockdown lows.

But the big assist came from the Fed, when Powell presented his prepared remarks, while talking out of both sides of his mouth:

Dovish:

• The time for moderating the pace of rate increases may come as soon as the December meeting.

Hawkish:

• FED WILL NEED RESTRICTIVE POLICY FOR `SOME TIME’
• RATE PEAK LIKELY `SOMEWHAT HIGHER’ THAN SEPT. FORECASTS
• “Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.”
• CONSIDERABLE UNCERTAINTY OVER WHERE RATES WILL PEAK
• WILL REQUIRE SUSTAINED PERIOD OF SLOWER DEMAND GROWTH. It will take substantially more evidence to give comfort that inflation is actually declining. By any standard, inflation remains much too high.”
• HISTORY CAUTIONS AGAINST PREMATURELY LOOSENING POLICY

There you have it. The caution that higher rates are here to stay far outweighed his lonely dovish comment. However, the latter was all the markets wanted to hear, and off to the races we went with the Dow scoring a 700-point gain, the S&P 500 storming ahead +3.09%, all of which now looks to be the beginning of the much hoped for Santa Claus rally.  

Once the bulls got the upper hand, it comes as no surprise that shorts were squeezed adding to the late session Ramp-A-Thon. Bond yields dropped sharply, the US Dollar got slammed, while gold was the beneficiary with the precious metal spiking +1.14% and having its best month since July 2020.

Back to the 2008-2009 analog. Have we now reached a point where 2022 will diverge and start a new bull market?

We will soon find out.