The 1-Minute Market Report is tailored for those who want a quick recap of what's going on, without the usual fluff and filler. I try to focus on the main drivers of the current market action, and offer some brief commentary along the way.
A quick summary
- The employment report was good. Perhaps a little too good.
- The market valuation bubble is leaking but hasn't popped.
- The market has dipped below its 50-day moving average.
- We have racked up 66 new highs this year - a near record.
- Consumer confidence is falling.
- Lockdown fears have been revived due to Omicron.
- Inflation is rattling consumers but they are still out there spending.
- The Treasury yield curve is flattening.
The employment report was good
The chart below can be deceptive. It looks like we're almost back to full employment, but we're not. We are still short 3.9 million employees, compared to the pre-Covid number. And we only added 210 thousand persons in November. I don't think this report, as good as it was, will cause the Fed to speed up their tapering/rate hike timetable.
The S&P 500 has dipped below its 50-day moving average.
Market technicians like to make a big deal about this, but cooler heads don't. Watch for a quick rebound next week. If we don't get a rebound, it could spell trouble.
The elephant in the room - inflation
The two most popular narratives today are Omicron and inflation. I think Omicron will be handled because we're better prepared this time. But inflation looks sticky and could cause the Fed to raise rates sooner than they said.
Consumer Confidence is falling.
The post-lockdown consumer confidence and spending binge peaked in April and has been trending lower. Blame it on Covid, or the end of stimulus checks, or the end of enhanced unemployment benefits. But so far this dour outlook hasn't stopped them from spending like drunken sailors.
The new high count has stopped, at least temporarily. We have 66 new highs so far, second only to the 77 from 1995.
The blue bars in this chart are new highs. We've only had two of them over the past 4 weeks. I expect that we'll see a few more before the end of the month.
The Treasury yield curve is flattening.
As stock investors seek safety in the Treasury bond market, the rates have fallen, putting the squeeze on the yield curve. When the Fed starts to increase the Fed Funds rate, the curve will flatten even faster.
Final Thoughts
As bad as the market action has been during the last couple of weeks, it hasn't killed the bull yet. The market has doubled since the March 23, 2020 low. I'm advising clients to stay invested until the music stops. How will we know when the music has stopped? Watch the Fed and watch the dip-buyers.
For the past year they have rarely allowed the market to decline by more than 5% before stepping in to save the day. Watch for a decline of 5-6%, followed by a rally that fails to make a new high.
If the market then declines to, or close to, 8%, it could mean that the dip-buyers have lost confidence. And without them, the sheer weight of high valuations and massive debt could stop the music.