Stocks tanks After Wednesday’s Intermediate Rally
3:22 pm Thursday, December 22nd, 2022
The upside bias in yesterday’s trade completely dissipated today. The major indices are all registering sizable losses, albeit amid thinner holiday trading conditions. Investors are reacting to disappointing earnings results and commentary from Micron (MU) and CarMax (KMX), a dour Leading Economic Indicators report, and some cautious-sounding remarks from influential hedge fund manager David Tepper on the market’s prospects.
The market, which moved noticeably lower at the open, had gotten into a sideways groove through midmorning but took another leg lower when the S&P 500 broke below the 3,800 level and Tuesday’s low (3,795).
Notwithstanding today’s disappointing price action, market participants received some good news in the third estimate to Q3 GDP, which showed an upward revision to 3.2% (consensus 2.9%) from the second estimate of 2.9%, and weekly initial claims, which held at a remarkably low level of 216,000 (consensus 225,000) for the week ending December 17 that is consistent with a tight labor market.
Those reports, however, weighed on sentiment on the belief that they are likely to keep the Fed on a tightening path. In turn, the following factors have exacerbated the market’s concerns about the months ahead being more challenging for the economy and the market:
The November Leading Economic Index was down 1.0% (consensus -0.4%), logging its ninth straight monthly decline.
David Tepper said he is leaning short the equity markets as he expects the Fed and other central banks to keep tightening and for rates to remain high for a while, making it “difficult for things to go up.” His comments are resonating with market participants who recall the hugely successful “Tepper Bottom” call he made in March 2009.
The selling efforts have been broad-based. Semiconductors and mega cap stocks are particularly weak, though. The PHLX Semiconductor Index is down 5.8% following Micron’s report and the Vanguard Mega Cap Growth ETF (MGK) is down 3.3%.
All 11 S&P 500 sectors trade down by at least 1.0%. The steepest losses are in the heavily weighted information technology (-3.7%) and consumer discretionary (-3.5%) sectors. The latter has been undercut by continued selling pressure in Tesla (TSLA). This comes after news that Tesla will offer $7,500 discounts on Model 3 and Model Y cars this month, according to Reuters.
The Treasury market trades in mixed fashion. The 2-yr note yield is up two basis points to 4.24% and the 10-yr note yield is down one basis point to 3.66%.
