S&P 500 chart of the overnight session - Choppy session with no clear direction
Futures prices as at 8:10 am, AEDT
MAJOR HEADLINES
US stocks eke out modest gains overnight, after
S&P 500 posted longest stretch of losses to begin a month since 2011 amid economic growth concerns
Bond market points to Fed standing firm in battle against inflation
BofA's Subramanian warns tech a value trap, sees further rotation into energy
China Covid relaxation could spark unwanted surge in global inflation
White House advisor Deese argues US economy showing continued resilience
Citigroup's Fraser another bank executive seeing US conditions softening
Consumers continuing to spend down savings, though these are heading toward exhaustion
Japan's economy shrank less than initially estimated, driven by stronger export growth
Virus worries ramp up as China continues to tweak zero Covid
Beijing running out of medical supplies amid scramble to combat rapidly spreading Covid outbreak
Oil continues to slump with some focus on big increase in US fuel inventories
THE CALENDAR
Source: Forex Factory
Tonight we have US core Producer Prices and US consumer sentiment. A pretty important night in terms of data releases but really the entree into next week's all-important CPI data.
US Consumer Sentiment is set to show a downbeat mood among shoppers. The index came in at a low level of 56.8 points in November, and economists expect another slide to 53.3 in the preliminary read for December.
Looking ahead to next week's CPI print, this data series continues to have far-reaching impacts on the Fed's rate decisions, and this print will be no less important to the US economic narrative. This inflation report will be released just as the Fed meets to set interest rates, with an interest rate decision coming the next day. Suffice to say, next week will be a big week on the macro front.
THE CHART
Source: BNP Paribas
Today's chart comes from BNP Paribas, via MarketWatch. BNP Paribas recently released some research on 100 years of market crashes, to better understand the depth and length of a typical market fall.
The BNP Paribas team are expecting a capitulation event next year. “This would be a departure from the current bear market regime, which has been characterized by a grind lower in equities as P/E multiples have contracted,” they say.
The research note goes on to highlight that the BNP Paribas team consider a capitulation as a "move associated with a sense of panic that involves a rebasing of expectations, analysts aggressively cutting forecasts, volatility spiking and a repricing of tails." Over the last 100 years, the capitulations in volatility have, on average, come at the same time as the trough in the market notes the research, which is what is represented in the chart above. Bringing it back to today's market and putting things into relative (and useful) context, the research adds that a typical recession bear market in the US is 1.5 years in length, with a median drawdown of 38% and a median peak in the VIX of 40.5.
“If we apply those averages to the market today, it implies a trough in the middle of next year, the S&P bottoming close to 3,000, and with the VIX in the low 40s,” say BNP Paribas.
It's not all doom and gloom, however. The research note concludes by saying that companies that have maintained stock buybacks through a slowdown should fare better than most, whilst companies with earnings momentum should also hold up. Food for thought.
THE TECHNICALS
I am incredibly fortunate in my role at Livewire in that I get to talk to many highly intelligent market professionals. And almost to a person over the past few weeks, the comment around the XJO has been something along the lines of "I'm not sure why it's up so high given where inflation sits and the probability of a recession in the US". I guess many people realised that the party couldn't continue at the same pace, and that appears to have manifested itself over the past week, with the S&P 500 posting its longest stretch of losses to begin a month since 2011, and the XJO rolling over from near 7400, to sub-7200.
From here, there are two major levels technical levels of note as we hurtle into the end of the year. 7600 sits above the market, was the ultimate resistance. If we are sitting anywhere near that level but the end of the year/early Jan, I think we would all accept it as a solid result. The other key level is 7140 - the swing high from August and not far below the current market price. Ideally, the bulls will defend this level if and when tested. If they don't, we would find ourselves back in the muck that bound the market from January-June, and likely be in for another long, sideways grind.
STOCKS TO WATCH
Today's stocks to watch come from the good people over at Morgans, who have put (BHP Group ASX: BHP) and (Rio Tinto ASX: RIO) through their paces.
And Morgan's are pulling the reigns on both, downgrading them from add to HOLD. The team notes that whilst there are stable fundamentals in the iron ore markets, all the upside - particularly concerning China reopening - has already been priced in. The comment being that sentiment towards China has been rising over the last month on signals for an easing in covid restrictions and stimulus measures for the property market.
As a result, the target price for BHP comes down from $47 to $44.80, whilst the target price for RIO comes down from $108 to $107. Morgans also has a REDUCE call on Forstescue (ASX: FMG), which is unchanged in this update, although the target price comes down from $14.70 to $14.50.
If you've enjoyed this edition, hit follow on this profile to know when we post new content and click the like button so we know what you enjoy reading.
If you have a chart and/or a stat that you would like to see featured in a future edition of the newsletter, drop us a note at content@livewiremarkets.com.
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Livewire and Market Index's pre-opening bell news and analysis wrap. Available weekday mornings and written by Kerry Sun.
........
Livewire gives readers access to information and educational content provided by financial services professionals and companies ("Livewire Contributors"). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision, please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.
Never miss an update
Get the latest insights from me in your inbox when they’re published.
Sign In or Join Free to follow and be notified when I next publish
