> It’s Black Friday, but will inflation-battered shoppers show up? Today’s holiday-shortened trading session closes at 1 p.m. ET, so be on the lookout for possible sharp moves as volume is likely to be thin. However, next week brings a major delivery of critical data.
Stocks Rise Before Holiday-Shortened Session, But Expected Low Volume Could Trigger Volatility
SPX is Approaching its 200-Day Moving Average, But Summer Rally Stalled at 200-Day MA Level
Next Week Brings a Data Cornucopia, Including Nonfarm Payrolls, GDP, ISM Manufacturing, and PCE Prices
Shawn Cruz, Head Trading Strategist, TD Ameritrade
(Friday Market Open) Black Friday is here, putting focus on retailers once again after strong quarterly earnings from many big stores. Will door-busters end up dead as a doornail? Analysts wonder if this year’s inflation-battered consumer will pack a punch.
Stocks rose slightly in premarket trading after Wednesday’s solid performance, putting the major indexes on pace for weekly gains. The S&P 500® index (SPX) is now at its highest level since mid-August and within shouting distance of its 200-day moving average (MA), near 4,059. The SPX failed to move solidly above the 200-day MA in August on its last approach.
In corporate news, shares of Activision Blizzard (ATVI) slid 3% ahead of the opening bell as CNBC reported that the Federal Trade Commission (FTC) is likely to sue to block Microsoft’s (MSFT) planned $69 billion purchase of the video game publisher. There’s also news of a Tesla (TSLA) recall in China, and COVID-19 cases continue to rise there. In addition, Apple (AAPL) is lower after protests erupted over a pay dispute at an iPhone plant in China.
It’s a shortened session in observance of yesterday’s Thanksgiving holiday, and no major earnings or data are on the calendar. The market closes at 1 p.m. ET.
Next week’s data calendar is packed, so get some rest ahead of that. It’s been slow this week and today is likely to be a low-volume session without much excitement, but the market might hit the ground running Monday.
The Fed can “talk down” the economy all it wants, but it’s pretty clear the economy doesn’t always listen.
That thought occurred when looking over Wednesday’s data including Durable Goods, New Home Sales, crude supplies, and Consumer Sentiment. None of those reports showed much sign of consumers or businesses crying uncle in response to higher rates.
In case you were away Wednesday, here’s a quick rundown:
Initial Jobless Claims came in at 240,000, well above expectations of around 225,000. This could be a good sign for the Fed, which is trying to cool the hot labor market.
October Durable Goods rose a solid 1%, above analysts’ average 0.4% estimate. That was off a weak September report to put the sharp rise into context. The closely watched “non-defense excluding aircraft” category that many consider a proxy for business spending rose 0.7%. Seeing the number so strong signals that the economy is still trucking along.
October New Home Sales rose 7.5% to a seasonally adjusted 632,000 against analysts’ consensus of 578,000. This was something of a shock considering how soft housing has been lately.
University of Michigan November Consumer Sentiment saw its final reading tick up from the preliminary reading, reaching 56.8. The preliminary reading was 54.7, and analysts expected the final to be in that ballpark. Sentiment did fall, however, from October’s 59.9 and from the year-ago 67.4.
U.S. crude inventories dropped 3.69 million barrels, and refineries were running at 93.9% of capacity. Gasoline supplies rose, however. Falling crude inventories typically signal strong refiner demand, which in turn means people and businesses are going places.
The only flies in the ointment were a slight rise in weekly Initial Jobless Claims to 240,000 and the preliminary IHS Markit Manufacturing PMI coming in below 50, signaling a contraction. Jobless claims topped the four-week average of around 227,000 but could be read by the Fed as a sign of progress as it tries to “cool” the labor market.
One trend these reports revealed is that wealthy consumers continue spending. That evidence showed up in Durable Goods, which measures demand for more expensive products like washers and automobiles that people tend to buy when they feel financially secure. The new home sales data also revealed healthy demand among higher-end consumers, with the median sales price rising 15.4% to $493,000 and the average price up 11.5% to $544,000. Meanwhile, the percentage of “cheaper” new homes selling for $399,999 or less fell to 30%, down from 35% in September and 43% a year ago.
It’s likely that the wealthiest among us suffer less from inflation than those living more paycheck-to-paycheck. Higher-income consumers might not like paying more for cars, restaurant meals, and vacations, but their wallets can stretch far enough to accommodate the higher prices. And because wealthy people spend more money per capita than most, their behavior can have an outsized influence on consumer-related economic data. Even if many are closing their pocketbooks, big purchases at high prices by a few can prop up these numbers.
When interest rates remain high over long periods, however, even the wealthiest eventually pull back. That may be what the Fed is counting on to cool the economy next year. No one knows yet where rates might ultimately peak, but once they get there, don’t expect a quick pivot.
“The market still needs to digest that the span of time between a final interest rate hike and a final rate cut, barring some crisis, is probably going to be longer than the normal span because they want to make sure inflation is down sustainably,” Charles Schwab’s Chief Investment Strategist Liz Ann Sonders told Barron’s recently.
That slow wait could hurt the 2023 economy and stock market, meaning investors might want to look into possible defensive strategies.
That’s a good segue to November’s Federal Open Market Committee (FOMC) meeting minutes released late Wednesday. The minutes, from November 1-2, showed FOMC members are not recognizing much progress on the inflation front. At that time, however, the FOMC didn’t know then what we know now (October’s milder inflation readings).
If the post-minutes rally was any indication, investors appeared to focus instead on the part where FOMC members suggested slower rate increases in the future. In fact, the minutes said “a substantial majority” of FOMC members believed slowing the pace of rate increases would be appropriate. Doing that may give the economy a bit more time to adjust and the Fed more time to assess the progress its policy has had on price stability and employment.
Those comments melded well with what Fed speakers said in the weeks following the November meeting, and the CME FedWatch Tool ended Wednesday showing 76% odds of a 50-basis-point hike during the December 13-14 FOMC meeting, down from 75 basis points the last four meetings. That’ll likely be followed by another 50-point hike in February. Futures trading points toward a peak rate of between 5% and 5.5% sometime next summer.
On to Next Week. After your big Thanksgiving meal, be ready for a smorgasbord of fresh economic data. The main entrée: next Friday’s November Nonfarm Payrolls report, which we’ll discuss in more detail early next week.
Manufacturing will also be in next week’s spotlight with the November Chicago PMI report on Wednesday and November ISM Manufacturing Index on Thursday. Both could offer updates on industrial health and will be closely watched, especially after that weak IHS PMI number Wednesday that appeared to weigh on both Treasury yields and the dollar. Weakness in any of next week’s PMI reports could do the same.
We’ll also be on the lookout next Wednesday for the government’s second estimate of Q3 Gross Domestic Product (GDP) and Thursday for October Personal Consumption Expenditure (PCE)prices. The latter is the inflation report closely watched by the Fed, and investors should check to see if it backs up the milder inflation shown by October’s Consumer Price Index (CPI) and Producer Price Index (PPI) reports. Slower inflation could mean the Fed is more likely to moderate future rate hikes.
Here’s how the major indexes performed Wednesday:
Talking Technicals: The SPX finished Wednesday just a point below the old November intraday high of 4,028. It did venture slightly above 4,028 earlier in the session, posting a new November peak at 4,033. That could set up the index for a possible test of the 200-day MA of 4,059 at some point in coming days, though the SPX and other major stock indexes remain in a downtrend.
In fact, the rally may be vulnerable to a reversal, research firm CFRA warned Wednesday, based on patterns in advance/decline lines and net volume. This data indicates “lackluster” support for the advance from the October low, CFRA said in a note to clients, “and is not typically evidence of a sustainable uptrend.” We shall see.
CHART OF THE DAY: IS GOLD TRYING TO TELL US SOMETHING? Gold futures (/GC, candlesticks) topped out at $2,078 per ounce back in March, right around the time the Federal Reserve began its series of aggressive hikes to the federal funds rate. As the Fed kept its foot on the gas, the yellow metal hit the brake, spending several months below its 100-day MA (purple line) and its 200-day MA (blue line). But after the early November Fed meeting, gold popped above the 100-day MA and came within a hair’s length of the 200-day MA. Data source: CME Group. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
Holiday Spending, Holiday Debt: As shoppers hit the stores, investors might want to focus on a grimmer activity: watching consumer debt. With inflation rocketing to 40-year highs in 2022, New York Fed research said home mortgages now account for 71% of household debt balances, up from 69% back in pre-pandemic Q4 2019. Credit card balances as of Q3 2022 were up 15% from a year ago, the biggest jump in more than 20 years. More household debt at higher rates? Generally, this is not good news with so much recession talk in the air. Demographics in this data are also worth a look. Older borrowers—those between 60 and 79 years old—saw their average credit card balances rise by Q3, but those balances remain beneath Q4 2019 levels. Those between 30 and 59 years old are in somewhat worse shape and closer to those pre-pandemic levels. As for borrowers under 30 who generally have less household wealth to cushion unexpected expenses or rising debt costs, they’re back to debt levels not seen since the start of the COVID-19 pandemic.
It’s important to note that credit card delinquencies are also increasing slightly but remain at historic lows. That said, New York Fed researchers said to not take your eyes off future late payment data: “Is this simply a reversion to earlier levels, with forbearances ending and stimulus savings drying up, or is this a sign of trouble ahead?”
Nov.28: No important earnings or data scheduled
Nov. 29: November CB Consumer Confidence and expected earnings from Hewlett Packard Enterprise (HPE)
Nov. 30: Chicago PMI, October Pending Home Sales, Q3 Gross Domestic Product (second estimate), and expected earnings from Hormel Foods (HRL) and Salesforce (CRM)
Dec. 1: October Construction Spending, October Personal Consumption Expenditure (PCE) prices, November ISM Manufacturing Index, October Construction Spending, and expected earnings from Kroger (KR)
Dec. 2: November Nonfarm Payrolls and expected earnings from Cracker Barrel (CBRL)
Dec. 5: November ISM Non-Manufacturing Index and October Factory Orders
Dec. 6: October Trade Balance and expected earnings from AutoZone (AZO) and Casey’s General (CASY).
Helpful Educational Content and Programming
Check out our upcoming Webcasts or watch any of our hundreds of archived videos, covering everything from market commentary to portfolio planning basics to trading strategies for active investors. You can also deepen your investing know-how with our free online immersive courses. No matter your experience level, there’s something for everybody.
Looking to stay on top of the markets? Check out the TD Ameritrade Network, live programming which brings you market news and helps you hone your trading knowledge. And for the day’s hottest happenings, delivered right to your inbox, you can now subscribe to the daily Market Minute newsletter here.
TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc., are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Holding Corporation is a wholly owned subsidiary of The Charles Schwab Corporation. TD Ameritrade Media Productions Company is not a financial advisor, registered investment advisor, broker-dealer, or futures commission merchant.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold. unaffiliated companies, and are not responsible for each other’s policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2022 Charles Schwab & Co. Inc. All rights reserved.