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Why Stocks Are Falling (It’s Not Just the Fed)

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What’s in Today’s Report:

  • Why Stocks Are Falling (It’s Not Just the Fed)

Futures are sharply lower on momentum from Thursday’s selling as investors further digest the hawkish ECB decision and yesterday’s lackluster economic data.

Despite weaker stock prices this morning, economic data overnight was mildly encouraging.  EU and UK December flash PMIs both slightly beat estimates while the EU HICP wasn’t any worse than feared at 10.1% y/y.

Today there are two important economic reports, the Flash Manufacturing PMI (E: 47.7) and Flash Services PMI (E: 46.5) and markets will need to see those data points show 1) Resilient activity and 2) Declining price pressures (more dis-inflation) if they are going to help stocks stabilize.  We also get one Fed speaker, Daly (12:00 p.m. ET), but she shouldn’t move markets.

Finally, today is a Quadruple Witching options expiration and it could cause some intense volatility as many traders had been positioned for a year-end rally, and as those hopes are being dashed, some book-squaring is likely in order.  Point being, don’t be surprised by an uptick in volatility this afternoon and into the close.

Sevens Report Analysts Quoted in Market Watch on December 12th, 2022

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Oil ends higher as a major pipeline shutdown and improving Chinese demand outlook feed supply worries

Oil traded lower into the weekend, but the pace of declines “slowed as WTI approached technical support between $70 and $72,” said analysts at Sevens Report Research in Monday’s newsletter. Click here to read the full article.

Tom Essaye Quoted in Blockworks on December 9th, 2022

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Volatility Index Paints a Gloomy Picture for Bitcoin, Equities

“We remain in a liquidation phase of the market cycle during which more sophisticated, institutional investors are selling their long-term equity holdings,” Tom Essaye, founder of Sevens Report Research said. Click here to read the full article.

Sevens Report Co-Editor Tyler Richey Quoted in Market Watch on December 8th, 2022

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Oil prices down 5 sessions in a row, at their lowest in nearly a year

The report “pointed to some further deterioration in consumer demand as we approach the end of the year,” Tyler Richey, co-editor at Sevens Report Research wrote in Thursday’s newsletter. Click here to read the full article.

CPI Day and FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview
  • CPI Preview (Abbreviated Version)
  • Chart – NY Fed Survey Inflation Expectations Fall Sharply

Stock futures are extending yesterday’s gains as traders await today’s CPI report amid mixed news from overnight.

In China, a $143B stimulus package aimed at the semiconductor industry helped offset the delay of an economic/Covid policy meeting due to a surge in Covid cases.

Economic data was mixed overnight but there were no surprises material enough to derail the tentative pre-CPI rally this morning.

Today, traders will be keenly focused on the November CPI report at 8:30 a.m. ET with the headline expected to come in at 0.3% M/M and 7.3% Y/Y while the Core figure is expected to be 0.4% M/M and 6.1% Y/Y. Bottom line, a print below 7.3% on the headline and below 6.1% in the core figure will be well received by investors but an upside miss in either could trigger a sharp reversal of this most recent move higher in the broader stock market.

Once markets digest the CPI report, money flows are likely to take on a positioning tone with tomorrow’s Fed decision looming and a limited list of catalysts for the remainder of the day. There is a 30-Yr Treasury Bond auction at 1:00 p.m. ET that could move rates and have a mild impact on stocks.

Sevens Report Analysts Quoted in MarketWatch on December 7th, 2022

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Gold futures up a second straight session, but hold below $1,800 an ounce

The technical outlook remains bullish for gold near term, but “if we see rates and the dollar begin to rise, we are likely to see much of the November rally retraced in the weeks ahead,” analysts at Sevens Report Research wrote in Wednesday’s newsletter. Click here to read the full article.

Tom Essaye Quoted in CNBC on December 7th, 2022

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Bond yields fall as Wall Street worries about higher Fed rates

“Bottom line, the economic outlook is turning for the worse (outside of the labor market) and if that continues, it will support the long end of the curve,” wrote Tom Essaye of the Sevens Report. Click here to read the full article.

Sevens Report Co-Editor Tyler Richey Quoted in S&P Global on December 7th, 2022

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Stock market’s ‘fear gauge’ plunges as investors shift hedging strategies

Still, the VIX has not behaved in its typical fashion for much of this year, said Tyler Richey, a co-editor at Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in The Washington Post on December 6th, 2022

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PepsiCo layoffs could indicate broader economic woes

The company, which has a market cap of $252.3 billion, is simply signaling the headwinds to come. This is really confirming so many other signs that we are headed toward a potentially pretty significant economic slowdown, said Tom Essaye, president of Sevens Report Research. Click here to read the full article.

Market Multiple Table: December Update

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What’s in Today’s Report:

  • Market Multiple Table December Update: Macro Improvement But It’s More Than Priced In
  • November ISM Services Index Takeaways

Futures are little changed this morning despite a stabilizing bond market and mostly positive global news flow overnight as yesterday’s hawkish money flows are digested.

Economically, German Manufacturer’s Orders rose 0.8% vs. (E) -0.2% in October suggesting that factory demand may be stabilizing.

In China, new Covid cases have declined for 8 consecutive days and the government is reducing testing requirements, bolstering optimism about a move away from the crippling Zero Covid policies.

Today is lining up to be a fairly slow day of news with just one lesser followed economic release: International Trade in Goods and Services (E: -$80.0B) and no Fed speakers as they remain in their pre-meeting blackout period. That said, equity markets will likely queue off of Treasuries and if we see a further rise in shorter-duration yields due to rising terminal rate expectations, yesterday’s declines could very well continue.

 

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