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End of Day Brief - Wednesday Nov 24 - Markets mixed

Dow35804.38-9.42(-0.03%)
Nasdaq15845.24+70.09(0.44%)
SP 5004701.46+10.76(0.23%)
10-yr Note +2/321.651
NYSEAdv 1796 Dec 1441 Vol 750.2 mln
NasdaqAdv 2733 Dec 1770 Vol 4.1 bln


Industry Watch

Strong: Energy, Real Estate, Information Technology
Weak: Materials, Consumer Staples, Financials


Moving the Market

-- Stocks close mixed but near session highs

-- FOMC Minutes, lowest level of initial claims since 1969, hot PCE data feed into expectations for more aggressive Fed

-- Growth stocks key off an intraday turnaround in the 10-yr yield


Stocks end mixed with the Fed in mind, nasdaq up

Dow -9.42 at 35804.38, Nasdaq +70.09 at 15845.24, S&P +10.76 at 4701.46

[BRIEFING.COM] The S&P 500 gained 0.2% on Wednesday, overcoming an early 0.7% decline, as the market adjusted to the thought of the Fed tightening policy more aggressively. The Nasdaq Composite (+0.4%) and Russell 2000 (+0.2%) also completed their own comebacks, while the Dow Jones Industrial Average (-0.03%) closed fractionally lower.

Six of the 11 S&P 500 sectors closed lower while five closed higher. The real estate (+1.3%) and energy (+1.0%) sectors outperformed in positive territory. The materials (-0.7%) and consumer staples (-0.3%) sectors underperformed with modest declines.

Expectations for a more aggressive Fed were corroborated by the latest economic data and Fed commentary: the FOMC Minutes from the November meeting noted that "some participants preferred a somewhat faster pace of reductions that would result in an earlier conclusion to net purchases." Weekly initial claims (199,000) fell to their lowest level since Nov. 15, 1969. The Fed's preferred inflation gauge in the PCE Price Index was up 5.0% yr/yr in October.

The market had already been pricing in this thinking, but it's worth noting that the probability for a rate hike in May 2022 increased to 54.9%, versus 45.4% yesterday, according to the CME FedWatch Tool. The fed-funds-sensitive 2-yr yield rose three basis points to 0.64%, leaving it up 13 basis points since Friday.

Strikingly, the 10-yr yield declined two basis points to 1.65% after brushing up against 1.70% in the morning. The U.S. Dollar Index rose 0.3% to 96.82. WTI crude futures were unchanged at $78.37/BBL.

This retracement happened not only in spite of the unemployment and inflation data, but a host of other data that increased on a sequential basis like personal income and spending for October, new homes sales for October, the second estimate for Q3 GDP, and the final November reading for the University of Michigan Index of Consumer Sentiment.

Nevertheless, the turnaround in the 10-yr yield was cited as a supportive factor for the rebound in the growth stocks, and in turn, the major indices.

Separately, Nordstrom ($JWN 22.66, -9.27, -29.0%) and Gap ($GPS 17.84, -5.67, -24.1%) were punished for reporting disappointing earnings results. Deere ($DE 367.86, +18.58, +5.3%), HP Inc. ($HPQ 35.44, +3.25, +10.1%), and Dell ($DELL 57.30, +2.63, +4.8%), on the other hand, pulled through for shareholders.


Reviewing Wednesday's economic data:

  • Initial jobless claims for the week ending November 20 plunged by 71,000 to 199,000 (Briefing.com consensus 265,000), which is the lowest level of initial claims since November 15, 1969. Continuing jobless claims for the week ending November 13 decreased by 60,000 to 2.049 million.
    • The key takeaway from the report is that, with initial claims hitting their lowest mark since 1969, it will play into the burgeoning narrative that the Fed is going to need to be more aggressive with its tapering plans.
  • Personal income increased 0.5% month-over-month in October (Briefing.com consensus +0.2%) while personal spending increased 1.3% (Briefing.com consensus +1.0%). The PCE Price Index jumped 0.6%, as expected, and the core PCE Price Index, which excludes food and energy, rose 0.4%, also as expected.
    • The key takeaway from the report is that prices increased at a pace faster than income, stealing the purchasing power of those income gains and leading to more spending out of savings. Real disposable personal income declined 0.3% month-over-month while the personal savings rate, as a percentage of disposable personal income, fell to 7.3% from 8.2%.
  • New home sales increased 0.4% month-over-month in October to a seasonally adjusted annual rate of 745,000 (Briefing.com consensus 800,000) from a downwardly revised 742,000 (from 800,000) in September. On a year-over-year basis, new home sales were down 23.1%.
    • The key takeaway from the report is that the growth in new home sales is concentrated in higher-priced homes, as inflation pressures, exacerbated by supply constraints and labor shortages, are curtailing the building of lower-priced homes and pinching affordability for lower-income buyers.
  • The final November University of Michigan Index of Consumer Sentiment increased to 67.4 (Briefing.com consensus 66.8) from the preliminary reading of 66.8. The final reading for October was 71.7.
    • The key takeaway from the report is that the Index of Consumer Expectations has been pressured to its lowest level in a decade due to rapidly accelerating inflation and little belief that steps are being taken to mitigate rising prices. Roughly 25% of respondents said that inflation eroded their living standards in November.
  • The second estimate for Q3 GDP showed an upward revision to 2.1% (Briefing.com consensus 2.2%) from 2.0%. The GDP Price Deflator was revised to 5.9% (Briefing.com consensus 5.7%) from 5.7%.
    • The key takeaway from the report is the understanding that the change in private inventories fueled the Q3 GDP increase. Real final sales of domestic product, which excludes the change in private inventories, were flat, slightly better than 0.1% decline reported with the first estimate.
  • The Advance report for International Trade in Goods for October showed a deficit of $82.9 billion, versus a revised $97.0 billion (from $96.3 billion) in September. The Advance report for Retail Inventories for October decreased 0.1%, while the Advance report for Wholesale Inventories for October increased 2.2%.
  • The Weekly MBA Mortgage Applications Index increased 1.8% following a 2.8% decline in the prior week.

As a reminder, the market will be closed tomorrow for Thanksgiving Day and will reopen on Friday with a 1:00 p.m. ET closure.

  • S&P 500 +25.2% YTD
  • Nasdaq Composite +22.9% YTD
  • Russell 2000 +18.1% YTD
  • Dow Jones Industrial Average +17.0% YTD

Source: (Briefing.com)

Disclosure: I may trade in the ticker symbols mentioned, both long or short. My articles represent my personal opinion and analysis and should not be taken as investment advice. Readers should do their own research before making decisions to buy or sell securities. Trading and investing include risks, including loss of principal.

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