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It was a terrible end to a terrible week, with markets suffering another big loss on Friday. Recession fears continue to mount, with today’s services and manufacturing data only adding to concerns over a slowing economy. And hawkish talk from Federal Reserve officials only reinforced Fed Chair Jerome Powell’s message from Wednesday’s press conference that the central bank is willing to keep raising interest rates and hold them higher for longer in order to tame inflation. But in addition to rising recession worries, there was another factor that likely amplified the selloff.
Beginning with that economic data. The preliminary reading for the S&P Global U.S. services sector index fell to a four-month low of 44.4 in December from November’s reading of 46.2. Additionally, the S&P Global U.S. manufacturing index fell to 46.2 from 47.7, marking its lowest reading in 31 months. The data show that activity in both the services and manufacturing sectors continue to fall further into contraction territory.
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Meanwhile, New York Fed President John Williams and San Francisco Fed President Mary Daly said in separate interviews that the central bank needs to continue with its aggressive campaign of interest rate hikes to bring inflation down even further. “We’re going to have to do what’s necessary,” Williams said in an Bloomberg TV (opens in new tab) interview, adding that the federal funds rate “could be higher than what we’ve written down.” The most recent dot plot showed that most Fed policymakers are targeting a terminal rate of 5.0% to 5.25%, about 75 basis points higher than where it currently stands.
In addition to the economic data and Fed speak, today marked quadruple-witching expiration, which is when index futures, index options, stock options and individual-stock futures all expire at once. “After yesterday’s market selloff, the tone of today’s market could be affected by the approximately $4 trillion of options that could expire in today’s trading session,” says Quincy Krosby, chief global strategist for LPL Financial. “Market volume increases during major expiration days, and that can usually move a nervous market in one direction or another.”
The S&P 500 Index was the biggest loser today, shedding 1.1% to 3,852. But the Nasdaq Composite (-1% at 10,705) and the Dow Jones Industrial Average (-0.9% at 32,920) weren’t far behind.
Will the market see a Santa Claus rally this year? That’s what is top of mind after the major market indexes just wrapped up their first back-to-back weekly losses since September.
The prospect of a Santa Claus Rally, which technically encompasses the last five trading days of the year and the first two of the new year, “is fading as we near the end of 2022, very much in keeping with how the rest of the year has unfolded,” says Craig Erlam, senior market analyst at currency provider OANDA (opens in new tab). “Going into December, there was growing optimism that policymakers could be a source of optimism going into the new year but instead, they’ve taken on the role of grinch, bringing a swift end to the celebrations.”
Still, “Santa could arrive next week to provide holiday greetings and help underpin an even deeper ‘oversold’ rally, even if it’s not within the technical definition of when he’s supposed to arrive,” Krosby says. “The market doesn’t care when he arrives, just that he actually shows up!”
For those that are keeping with the holiday spirit, there are plenty of opportunities for upside among the best value stocks. Among them is Facebook parent Meta Platforms (META (opens in new tab)). META stock managed to buck today’s broad-market selloff in a big way, climbing higher after another analyst upgraded the one-time mega cap. Read on as we take a closer look at the investment case for META stock.
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