Stocks digest inflation news

  • Hot jobs report follows Powell-speech gains, stocks edge higher
  • Yields drop, oil rebounds after hitting 10-month low
  • This week: Producer Price Index (PPI), factory orders, labor costs

Riding its second-biggest up day of the year last week, the US stock market enjoyed back-to-back up weeks for the first time since October.

The S&P 500 (SPX) jumped 3.1% last Wednesday after Federal Reserve Chairman Jerome Powell confirmed the central bank was ready to reduce the size of its upcoming rate hikes.1 Stocks retreated early Friday after an unexpectedly strong jobs report renewed concerns that the Fed’s inflation fight is still a work in progress, but the SPX erased most of its loss by the close:

Chart 1: S&P 500 (SPX), 9/30/22–12/2/22. S&P 500 (SPX) price chart. Up on Powell, down on jobs.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

The headline: Up week ends with question mark.

The fine print: The move toward smaller rate hikes (0.5% is expected for the December 13-14 meeting) may have reflected the Fed’s desire not to tilt the economy into recession, but Friday’s jobs report may have been seen as evidence that, so far, the Fed’s rate cuts haven’t done enough to cool off a still-hot (read: inflationary) employment market.

The number: 263,000, the number of new jobs the economy added jobs in November—much higher than the 200,000 that was expected. Also, October’s total was revised upward from 261,000 to 284,000.

The move: A day after wrapping up its biggest one-month decline of the year in November, the benchmark 10-year US T-note yield fell to 3.51% last Friday—its lowest level since September 21.

The scorecard: The Nasdaq 100 (NDX) tech index led the market (a hint of Morgan Stanley & Co.’s call on year-end leadership?2), while the Dow Jones Industrial Average (DJIND) took a rare turn at the end of the line:

US stock index performance table for week ending 12/2/22. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Sector roundup: The strongest S&P 500 sectors last week were communication services (+3.2%), consumer discretionary (+2%), and health care (+1.8%). The weakest sectors were energy (-2.2%), financials (-0.7%), and utilities (-0.1%).

Stock movers: Axsome Therapeutics (AXSM) +32% to $74.74 on Monday, Apollo Endosurgery (APEN) +68% on Tuesday. On the downside, Cincor Pharma (CINC) -47% to $14.11 on Monday, GIII Apparel (GIII) -45% to $11.97 on Tuesday.

Futures: After tagging its lowest price ($73.60/barrel) in nearly 11 months last Monday, January WTI crude oil (CLF3) bounced back to close the week above $80 despite a Friday pullback. February gold (GCF3) swung to a 14-week high of $1,818.40/ounce last Thursday and ended the week above $1,811. Week’s biggest up moves: December Micro ether (METZ2) +10.5%, March silver (SIH3) +8.5%. Week’s biggest down moves: January natural gas (NGF3) -14.8%, December ethanol (ZKZ2) -9.9%.

Coming this week

On Friday traders will find out if inflation at the wholesale level—courtesy of the Producer Price Index (PPI)—is continuing to ease:

Monday: S&P Global Services PMI, ISM Services Index, Factory Orders
Tuesday: Trade deficit
Wednesday: Productivity and Labor Costs, Consumer Credit
Thursday: Weekly Jobless Claims
Friday: Producer Price Index (PPI), Michigan Consumer Sentiment (preliminary), Wholesale Inventories

This week’s earnings include:

Monday: Science Applications International (SAIC), Gitlab (GTLB)
Tuesday: AutoZone (AZO), Toll Brothers (TOL), Casey's General Stores (CASY), HealthEquity (HQY)
Wednesday: Ollie's Bargain Outlet (OLLI), Campbell Soup (CPB), United Natural Foods (UNFI), Thor Industries (THO)
Thursday: Lululemon (LULU), Broadcom (AVGO), Costco (COST), Chewy Inc (CHWY), Ciena (CIEN)
Friday: Oracle (ORCL), Li Auto (LI)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

Lessons from the biggest days of the year

While it may seem like chance that the US stock market’s two biggest up days of the year occurred within three weeks of each other last month, it’s probably less of a coincidence that both days occurred after seemingly market-friendly news on the inflation/Fed front.

On November 10, the SPX closed up more than 5% after an unexpectedly mild Consumer Price Index (CPI) reading. Then, on November 30, the index jumped 3.1% after Fed Chair Powell’s comments about smaller rate hikes. After the November 10 jump, the SPX edged higher for three more days before dipping. But after last Wednesday’s rally, the SPX closed lower the next two days.

Last week’s immediate pullback was more representative of the SPX’s typical behavior after similar one-day rallies since 1950.3 More often than not (51.3% of the time) the index was lower two days later, with a slightly negative median return (-0.06%). After five days, the SPX was still down more than half the time and its median return was -0.2%—even though the index’s historical odds of rallying in a five-day period are 57%, and its median five-day return is +0.3%.


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1 Reuters. Fed's Powell: Rate hikes to slow, but adjustment just beginning. 11/30/22.
2 When Will Market Volatility Subside? 11/21/22.
3 Reflects S&P 500 (SPX) daily closing prices, January 1950–November 2022. “Similar one-day rallies” refers to a day that closes up 3% or more and is also the highest close of at least the past five trading days. Supporting document available upon request.

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