02.12.2022 – Has Wall Street shifted up a gear? The ongoing bull market almost looks like it. Or is the year-end rally simply already underway? And a lot of capital is flowing into the market as many expect things to normalise. As always, a lot depends for traders and investors on the US economy and the Federal Reserve’s possible reaction. Today, Friday, important jobs data arrive in this regard.
In view of the current general weather situation, one can already feel queasy when looking at the Dow Jones. The daily chart clearly shows the euphoria of the past few days – the gap speaks volumes. And the index has easily left behind both the 50-day and the 200-day moving average (above).
Source: Bernstein Bank GmbH
Yet the situation is not all that rosy. Corona seems to be over, but as the example of China shows, the issue has by no means disappeared. A recession is still possible. So the old economy is taking a big leap of faith from investors.
Soft tones from the Fed
Above all, the nice interim rally on Wednesday stands out. It was triggered by Jerome Powell. Let’s let an expert from an investment boutique have his say again: Kenny Polcari, Managing Partner at Kace Capital Advisors and Chief Market Strategist at SlateStone Wealth, judged that Powell had communicated that the speed of the rate hike would slow down and that there would only be a 50 basis point increase in the key interest rate in December.
Especially important: Powell and his colleagues did not want to tighten the screw too much. The danger of this “overtightening” had repeatedly put the brakes on the buying mood in recent months. Now the brake seems to have been removed. Moreover, Powell said that some sectors of the economy were already reacting to the past six interest rate hikes – especially the real estate market and rents. The Fed chief’s appearance before the Hutchins Center on Fiscal and Monetary Policy has attracted special attention because it was the last public speaking engagement before the blackout period to the December 13-14 Fed meeting.
New jobs data
The bulls could get new fodder from today’s jobs data. By the time you read this, you may already know more about the Nonfarm Payrolls for November. If the labour market continues to boom, the Fed would have to counteract a wage-price spiral with higher interest rates. However, Powell’s recent words tend to suggest that employment is flagging and that wages are not overheating. We are intrigued.
John Flood, trader at Goldman Sachs, judged that the market is still stuck in a “bad is good” mood. He summed up the possible reaction to the November numbers for the SPX like this – where we assume a similar reaction in the Dow:
– >261k (aka higher than last print) S&P down at least 2%.
– 175k – 261k: S&P down 1 – 2%
– 125k – 175k: S&P up 50bps – 1%
– 0 – 125k: S&P up 1 – 2%
– <0: S&P down 1 – 2% on R word fears
Our conclusion: On the one hand, the market is wavering between hopes of an easing of inflation – ergo a scaling back of tightening by the Fed. And on the other hand, fears of a recession. Whether long or short: Bernstein Bank wishes you good luck!
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