26th November – 2nd December 2022 | Another week in the markets
| S&P 500 | Nasdaq | VIX | DJIA | Russell 1000 | NYSE |
| 4,071.70 | 11,461.50 | 19.06 | 34,429.88 | 2,235.67 | 15,767.02 |
| 1.13% | 2.09% | -7.02% | 0.24% | 1.20% | 1.03% |
| Nifty 50 | Gold | Silver | Brent crude | USD-INR | EUR-INR |
| 18,696.10 | $1,811.40 | $23.36 | $85.42 | 81.42 | 85.84 |
| 0.99% | 3.21% | 8.75% | 1.88% | -0.30% | 1.06% |
Source: MarketWatch
Hello Saturday,
This week the US jobs report for November comes out stronger than expected, the Dow exits bear market territory, and China eases pandemic restrictions after social unrest.
- Rail strike and supply chain chaos averted in the US as the House passes a bill to include paid sick leaves for rail workers, revising the Biden administration’s previously proposed contract.
- Federal Reserve signals a slower pace of interest rate hikes from December onwards. However, in the absence of significant signs of slowing inflation, the rate hikes will continue.
- Salesforce Inc. suffers a selloff as its fourth-quarter revenue projections fail to meet analysts’ estimates, and the CEO announces his plan to step down in January 2023.
- The dollar is directly impacted by the Fed’s interest rate hikes, and its strength over the next few months will be a key determinant of market direction.
- After several protests, China eases its severe COVID-19 restrictions in various cities allowing citizens to return to a sense of normalcy after multiple lockdowns.
Taking stock | Back on track | Hike unspike | A Salesforced hand | $ee-$aw | The blank paper talks | Invest wisely
Taking stock
Stocks on Wall Street ended lower on Friday, even as investors took in a strong November jobs report that showed the resilience of the US labour market despite the Fed’s interest rate hikes. For the week, all three major indices booked weekly gains. Nasdaq saw the largest increase at 2.09%, S&P climbed 1.1%, and the Dow rose 0.24%. This marked the first time since October that the indexes posted back-to-back weekly gains.
Back on track
This week, the House passed a bill aimed at averting a nationwide rail strike that could have a crippling impact on the US economy. President Biden personally requested Congress to clear such legislation as railway workers had threatened to go on strike if an agreement was not reached by December 9. A US freight rail strike would create supply chain chaos and cost the country an estimated $2 billion a day.
Earlier this year, the Biden administration had negotiated a tentative deal that included a wage increase and a more flexible schedule. However, four out of 12 unions rejected it. The original agreement did not include paid sick leaves, something the workers felt necessary as the strict attendance policies since the pandemic outbreak to deal with labour shortage negatively impacted their physical and mental health. The revised agreement adds seven paid sick leaves to the contract.
Had no agreement been reached in time, the strike would have impacted domestic transportation significantly during the retail-heavy holiday season, as rail carriers are the second-largest mode of freight transportation in the US. It would also have adversely impacted the supply of crucial commodities like coal, ore, lumber, and chemicals. Such a supply shock would only further worsen the record-high inflation the country is currently suffering. Anyway, crisis averted.
Hike unspike
On Wednesday, Federal Reserve Chair Jerome Powell said in a speech to the Brookings Institution think tank in Washington that the central bank would ease the pace of its rate hikes from its policy meeting in December. This news made investors happy and the S&P 500 ended its three-day losing streak on Wednesday while the Dow officially entered a bull market.
While the pace of interest rate hikes may slow, the hikes themselves will continue as inflation remains much too high. Though inflation showed some signs of easing in housing and the cost of goods, the labour market remains tight. In fact, the November jobs report released on Friday revealed higher-than-expected job additions – 263,000 instead of the 200,000 forecasted. After this data came out, US stock index futures fell sharply. Another thing that’s interesting to note is that the third-quarter GDP increased at an annual rate of 2.6% as compared to the 0.6% increase in the second quarter. This is primarily due to increased consumer spending, exports, and imports despite high inflation. Hence, unless substantial evidence shows that inflation is truly declining, the Fed’s rate hikes will continue.
Source: U.S. Bureau of Economic Analysis (BEA)
A Salesforced hand
Salesforce Inc. released its third-quarter financials this week, and while the cloud-based software company performed better than expected, its fourth-quarter forecast triggered a massive selloff on Thursday. Instead of analysts’ estimates of $8.02 billion fourth-quarter revenue, the company’s revenue projection came out to be $7.98 billion. This, along with the news of Bret Taylor, the co-CEO, stepping down in January 2023, sent the shares tumbling more than 8%. This weighed on the Dow as it closed Thursday 0.56% lower.
$ee-$aw
Last month, the dollar posted its biggest one-month drop since 2009 after rallying for the most part of this year. Interest rate hikes directly impact the dollar’s strength. So, it had been dramatically appreciating against other major currencies as the Fed kept increasing the rates at a historic pace. Earlier this week, however, when investors celebrated Jerome Powell’s announcement of slowing the pace of rate hikes, the dollar extended declines. The Bloomberg Dollar Spot Index fell 0.4% in Asia on Thursday. But on Friday, a stronger-than-expected jobs report led the dollar to jump as such data gives the Fed incentive to continue being aggressive with rate hikes. The strength of the dollar is key to market direction over the next few months.
The blank paper talks
After recent protests in over 20 cities in China over severe COVID-19 restrictions, the government finally eased curbs in several cities on Friday. However, this was met with both relief and worry. Lockdown interruptions in the country have impacted not only factory output and global supply chains but also the citizens’ mental health and well-being. However, a majority of the elderly who are the most vulnerable to the virus are still unvaccinated and feel unsafe.
Invest wisely
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Warm regards,
Another week
in the markets
