EB Daily Market Report - Wednesday, January 4, 2023
Executive Market Summary
- Futures were higher for a second straight day to open 2023
- Unfortunately, morning selling kicked in once again as well
- We did rally back late on Tuesday and we're trying to do the same today as we head into the final hour
- Fed minutes were released at 2pm ET and the market was extremely volatile during the hour after the announcement, which is nothing unusual
- The Fed suggested further rate hikes ahead in 2023 and that once again spooked traders, but let's see how we finish
- Salesforce.com (CRM, +3.90%) announced it would lay off 7000 employees and the stock is the best-performing Dow Jones component stock
- Microsoft (MSFT, -4.59%) was downgraded and is the Dow's worst performer
- Cruise lines are strong today, with Carnival Corp (CCL, +9.35%) leading to the upside
Market Outlook
Yesterday, I provided a very short-term outlook, providing key levels on the Volatility Index ($VIX) that I'll be keeping an eye on. But throughout the past week to ten days, I've spent much of my time looking at the long-term, big picture charts and studying the history of bear markets. I'll be discussing many things related to my overall market forecast on Saturday, but I wanted to share a couple quick facts with you a little early.
Since 1950, we've had 14 bear markets where we've seen 20% declines (or more) from all-time highs. 11 of those bear markets are categorized as "cyclical" bear markets, where the duration of the entire bear market tends to be less than one year and is usually in the 20% to 30% decline range. The 3 secular bear markets have seen declines in excess of 50% and these longer-term bear markets tend to last 1-3 years and they're part of a very long period - usually 10-12 years - where we do not see fresh all-time highs. I am currently including the 2022 bear market in the cyclical category.
Here's a very interesting fact. Of the 13 previous bear markets, 7 have ended during the month of October. The S&P 500 low of 3491.58 occurred on October 13th. I also identified 3 corrections within secular bull markets - 1953, 1959, and 2015 - and one of those ended in October, while another ended in September. My point here is that history shows that bear markets DIE in October. Obviously, another low on the S&P 500 beneath 3491.58 would negate the possibility of October 2022 becoming the 8th (out of 14) bear market to die in October.
Sector/Industry Focus
I believe banks ($DJUSBK) will hold an important key to how well the stock market holds up. The ability to borrow is always critical during periods of economic expansion. So if we want to avoid a nasty recession, I think it's important for banks to at least perform as well as the S&P 500. We do not want bank underperformance. If Wall Street believes we're heading into a very deep recession, banks will be sold hard. Currently, this is how the banks look:
Relative strength has been holding above the August low and we're actually in a very strong relative uptrend right now. I've circled today's price action, because we're attempting to climb back above the early-December reaction high and the 50-day SMA. Both are necessary before the $DJUSBK can challenge its neckline resistance. I also like the very solid AD line, which signals the likelihood that this group is being accumulated, not sold.
ChartLists/Strategies
The Fed minutes were just released and volatility has increased as a result. There wasn't any major surprises, but the fact that the Fed still sees more rate hikes ahead spooked traders when the news was released. We could see much whipsaw action into the close, so I'll pass on trading candidates until tomorrow.
Earnings Reports
Here are the key earnings reports for the next two days, featuring stocks with market caps of more than $10 billion. I also include several companies with market caps below $10 billion. Finally, any portfolio stocks that will be reporting results are highlighted in BOLD. If you decide to hold a stock into earnings, please understand the significant short-term risk that you are taking. Please be sure to check for earnings dates for any companies you own or are considering owning.
Wednesday, January 4:
UNF, SLP
Thursday, January 5:
STZ, WBA, CAG, LW, RPM, MSM, SMPL, HELE, LNN, NEOG, DCT, SCHN
Economic Reports
ISM manufacturing: 48.4 (actual) vs. 48.1 (estimate)
FOMC minutes released at 2pm ET
Happy trading!
Tom