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Weekly Economic and Stock Market Commentary – December 19, 2022


December 19

Note: The US investment markets, and my office, will be closed Monday, December 26th, for obvious reasons. Normal operations resume Tuesday, December 27th.
As for the stock market specifically:

Last week I neglected to mention was the quarterly quadruple witching week, and that it normally has more volatility than other weeks. I should have done that, and there was volatility in both directions. The bad news is that the bears have not gone into hibernation just yet, and they won the week.

The last stated reason for the bad week was that the economy isn’t doing well because consumer is not spending money (there will be more about this later).

We saw some changes last week worth mentioning. The changes were for the worse unfortunately. The bad news comes with the action of the NYSE Bullish Percent index. It flipped to a column of O’s last week, and is on defense. The gives us a split recommendation WEALTH PRESERVATION for NYSE stocks, and WEALTH ACCUMULATION – at least for the time being – for OTC stocks. For those who recall my distribution curve indicator (Weekly Distribution for the S&P 500), it rose to a reading of 45.xx%. Simply stated, the “market” was 45% to the over-bought side of the bell-curve. As of this morning it’s come into a more normalized reading at – 2% (negative 2%), or basically at equilibrium. Translation: the pull-back we’ve just experienced while gut-wrenching perhaps, was quite normal.

Remember, X’s mean OFFENSE or wealth accumulation, while O’s mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of December 16, 2022 (Courtesy Dorsey, Wright, and Associates).

December 19

On a general note:

The Department of Commerce released information for November retail sales. The American consumer kept the credit cards and cash in the wallet, driving retail sales down 0.6% compared to October. That was the largest decline in retail sales this year. As a country, we slowed our spending on automobiles and home purchases. Another line in the report said gift purchases were lower, but I will take that with a grain of salt since I started getting “Black Friday Prices NOW” emails in July, so some of the typical gift purchases may have been pulled forward into the summer.

The Labor Department announced November Consumer Prices rose “only” 7.1%. While we should be happy about the decrease in inflation since the summer, we still are paying substantially more for things since last year. While I am not in the prediction business, I believe the seasonality effect concerning gasoline price has us near the end of the declining trend.

The Federal Reserve met last week. They once again raised interest rates. This time the rate increase was 0.50%, which is a reduction from the rate increases earlier in the year of 0.75%. After the meeting, Federal Reserve Chairman Jay Powell gave a press conference where he reiterated his commitment to bringing the inflation rate down to 2%. Right now, short-term interest rates are at 4.5%, while inflation is at 7%. This suggests that there are likely more interest rate increases coming.

The Treasury Department reported the budget deficit in November was a record $249 billion due to a combination of record spending, and decreased tax receipts. Spending was a record $501 billion during the month. That amount was $28 billion higher than October. Meanwhile, tax receipts dropped by $13 billion. The report showed that debt service cost the American taxpayer an additional $53 billion in interest payments in November 2022 compared to November 2021. As far as I am concerned, it is a sign of economic weakness that tax revenues declined compared to the prior year. Tax revenues have a strong correlation to overall economic conditions. I know it is too much to expect “our friends in Washington” who overwhelmingly were re-elected to stop spending like sober elected officials.

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