The 50th week of the year was dominated by FED! As widely expected, the Federal Reserve Rate was increased by 50 bp to 4.25%-4.50% on Wednesday. After a relatively strong period in the past weeks (49, 48 ) worries about the future of Federal Reserve doing have intensified, fueling a substantial selloff on Wall Street on Thursday and Friday. In the past week every economic sector recorded losses with the exception of energy, which was supported by a partial rebound in oil prices.
(S&P 500) closed at 3834 (-137bp). The Nasdaq Composite index has closed at 10705 (-299bp).
S&P 500 daily candles
We see a sharp bearish trend has started. The picture becomes even more interesting on a weekly chart. S&P 500 index bumped into SMA 50 Line and into strong resistance at 4100 level and now heading south. The next support line is SMA 200 (green) but also we seem to have a strong support level of 3500.
S&P 500 weekly candles, SMA 50 (red) , SMA 200 (Green)
|Index||Closed at||Week Change||YTD %|
|Dow Jones Industrial Average||32920||-556||-9.41%|
It’s hard to identify strong bullish drivers for the next week. However the US Treasures US10Y show a very interesting picture. Now Fed interest rates are expected to reach 5.1% next year, but US 10 year maturity bonds seem to ignore that staying around yield of 3,5%. This tells us that the Smart Money is expecting the Fed’s rate also to go down relatively quickly.
Also the 1 Year duration US bonds seem to stabilize on the yield level of 4,5-4,7% in the last weeks
US 1 year government bonds yield, weekly candles
That is also very interesting, indicating that markets do not expect the FED to hold the rate above 5bp for a long time in face of recession fears.
Worth to mention the price of U.S. crude oil fell the week to less than $72 per barrel. This is good for the economy in the longer period (if it stays low), but at the moment it’s rather an indicator for recession.
Otherwise, we don’t have any major economic news until the end of the year and “Christmas rally” still may happen, when the markets get oversold in the next few days.
Maybe it’s this quote that sends markets down on Thursday and Friday:
“We need to be honest with ourselves that there’s inflation. 12-month core inflation is 6% CPI. That’s three times our 2% target. Now it’s good to see progress, but let’s just understand we have a long ways to go to get back to price stability,” Fed Chair Jerome Powell said during a press conference. “I don’t think anyone knows whether we’re going to have a recession or not, and, if we do, whether it’s going to be a deep one or not. It’s just - it’s not knowable… The historical record cautions strongly against prematurely loosening policy. We will stay the course, until the job is done.”
FED using verbal interventions, don’t underestimate their effect. And the following bearish factors are still with us:
- Money Supply is declining every month.
- Geopolitical problems
- U.S. retail sales report added to fears that further interest-rate increases could tip the economy into a recession
Furthermore, The Governing Council of the ECB decided to raise the three key ECB interest rates by 50 basis points. with effect from 21 December 2022:
- interest rate on the main refinancing operations becomes 2.50%
- the interest rates on the marginal lending facility: 2.75%
- the deposit facility: 2.00%
The Central Banks of United Kingdom and Switzerland also raised borrowing costs by the same amount.
Outlook (The week ahead)
Having it all together we expect falling markets in the beginning of the week with the first support level at 3660 S&P 500 and second around 3500 S&P 500.
Next week to be aware of
|.||Consumer Confidence Index, The Conference Board||Third-quarter U.S. GDP, Weekly unemployment claims|
We don’t indicate interesting Tickers for the next week because in view of a strong drawdown market trend many support levels will be broken and need to be redefined. I would like to avoid misleading interpretations. Please consider that macro trends are usually always stronger than one of the individual stocks.
Also keep in mind everything written here is not investment advice!
Stay careful! Happy investments!