Stocks declined modestly last week thanks to another surprisingly hawkish decision from a global central bank, stubbornly high employment data, and recession warnings, although an earnings-driven midweek rally helped to keep the losses modest. The S&P 500 declined 0.20% on the week and is down 19.33% YTD. Nasdaq is down 28% YTD,
Stocks started last week lower but most of the declines last Monday were driven by year-end positioning. Those early week losses were extended on Tuesday morning following the surprise “rate hike” announcement by the Fed.
Wednesday was the best day of the week for stocks as the S&P 500 rose 1.5% thanks to better-than-expected earnings from Nike (NKE) and FedEx (FDX). Earnings worries are becoming a headwind, and those results helped to ease those concerns and spark a solid rally.
However, that optimism was undone on Thursday by several factors, including bad earnings by Micron (MU), an imminent recession warning from the Conference Board, stubbornly high jobless claims (which will keep the Fed hawkish), and famed hedge fund manager David Tepper telling CNBC he’s “leaning short.” Those forces pushed the S&P 500 more than 2% lower intraday, although a late rally saw the index close with a 1.45% loss.
Bottom line is that the markets are struggling due to the Fed’s persistence to move interest rates up. Are they on the right path or are they pushing too hard? Only time will tell but until they take their foot off the peddle the markets will struggle.
We are positioned for this volatility in the markets with 50% in value stocks and 50% in small-cap stocks. This will help us reduce the downside and be positioned for the next move up. I know it takes patience to sustain this, but you don’t want to sell during this downturn and you want to be positioned when the markets begin moving up. Next week I will give my summary of next year and what to expect.
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