The Dow and the stock market fall. So much for an end of year rally

New York

Christmas is just 10 days away and investors are still hoping for a Santa Claus rally. There have been little holiday cheer on wall street so far this month.

The Dow fell more than 800 points, or 2.4%, on Thursday, and is down about 4% in December following solid gains the previous two months. Verizon

was the only one of the Dow’s 30 stocks in positive territory.

The S&P500 fell 2.6% and the Nasdaq was 3% lower on Thursday. The S&P 500 is now down more than 4% for the month while the Nasdaq is down nearly 5.5%.

Shares slipped Thursday as investors continued to worry about the Federal Reserve’s latest economic forecast. The The Fed raised rates of “only” a half point on Wednesday, as expected. The Bank of England and the European Central Bank followed suit on Thursday morning with half point hikes of their own.

But the Fed has also indicated that it expects the US economy to barely grow in 2023. The new Fed forecast also calls for a bigger rise in the unemployment rate, a bigger rise in consumer prices and interest rates. higher interest rates than expected in September.

It didn’t help that the Commerce Department reported a much larger drop in retail sales in November than expected on Thursday. All of this has led some to worry about the dreaded stagflation scenario of stagnant growth and persistent inflation. Equities could therefore experience a difficult period.

“It’s not a buy day. 2022 has not been a year of buying. if you did, you lost money,” said Judith Lu, CEO of Blue Zone Wealth Advisors. “Inflation is way too high and the Fed has this monstrous job of trying to get it under control.”

Lu said she thinks stocks are overvalued right now, given that analysts expect earnings to rise only around 5% in 2023. Those projections are likely “wishful thinking.” and “too ambitious,” she added.

Of course, fears of a slowdown might not come true. The economy could avoid plunging into a recession and inflationary pressures could end up easing faster than expected. But at the very least, market volatility could be back for the foreseeable future.

Investors fear that the Fed (and possibly other global central banks) will also continue to act, even though there is already evidence that consumers are starting to feel the pinch of higher prices and rising prices. interest rate. For its part, the labor market remains solid: weekly jobless claims have just reached their lowest level since September.

Jefferies economists Aneta Markowska and Thomas Simons paraphrased TS Eliot in a report on retail sales figures Thursday, saying “the holiday shopping season didn’t start with a bang, but with a whimper” .

“This year’s Black Friday sales clearly fell short of expectations,” they added.

It also doesn’t help that Powell made the mistake of acting too belligerent ahead of the holidays, a time when market moves are often amplified due to lower trading volume at the end of the month. year.

“Let’s not forget that Jay Powell destroyed a Santa Claus rally in 2018 when he got very hawkish and hiked rates and then the market basically went into a bear market until Christmas Eve,” he said. said Nancy Tengler, CEO of Laffer Tengler Investments, in a report. “So I think you want to stay vigilant and focused on the long term.”

Some experts hope the economic jitters will soon ease. After all, a recession would not be a major surprise at this point. Businesses, consumers and investors have been preparing for this for months.

“The market has priced in a recession very well all year,” said Eric Marshall, portfolio manager at Hodges Capital. “It could be a less deep recession.”

Marshall said investors should look to battered stocks in the technology, healthcare and consumer sectors. They may be the first to bounce back.

Leave a Comment