FEAR if the Fed
Posted: Fri Dec 16, 2022 9:13 am
FEAR and GREED drive the markets. This has to be the most advertised recession in history. Will it be a big R or a little r?
Worries about the future of Federal Reserve policy are intensifying, fueling a substantial selloff on Wall Street on Thursday. The Dow Jones Industrial Average tumbled 764 points to log its worst day in three months, while the S&P 500 and Nasdaq dropped 2.5% and 3.3%, respectively. As mentioned on yesterday's Wall Street Breakfast, Fed Chair Jerome Powell could not have been more clear about the long fight ahead to get back to price stability and that the central bank "will stay the course, until the job is done."
Don't fight the Fed! The hawkish tone is not only prevalent in the U.S. The European Central Bank and Bank of England hikes rates by a similar half a percentage point yesterday, opening up a new chapter for the world economy. Whispers of a recession have turned into screams, while the last big batch of economic data for 2022 is worrying traders as they begin to leave the office for the holidays.
U.S. retail sales were weaker-than-expected for November, pointing to a sluggish start to the holiday shopping season. The figure, which includes spending at stores, online and at restaurants, slipped 0.6% last month, compared to the 0.2% drop that economists had expected. At the same time, the Philly Fed Manufacturing Index and Empire State Manufacturing Survey both came in below expectations, with both posting a negative reading for December.
Stir the brew: Don't forget that today is quad witching day, which refers to the simultaneous expiration of market index futures, stock futures, market index options and stock options at the end of every quarter. The event can lead to higher trading volumes and more volatility, giving speculators an opportunity for quick arbitrage opportunities from last-minute swings. This time around, $4T in options contracts are set to expire, possibly making Friday the busiest session for options traders this year, noted Rocky Fishman, head of index volatility research at Goldman Sachs.
Worries about the future of Federal Reserve policy are intensifying, fueling a substantial selloff on Wall Street on Thursday. The Dow Jones Industrial Average tumbled 764 points to log its worst day in three months, while the S&P 500 and Nasdaq dropped 2.5% and 3.3%, respectively. As mentioned on yesterday's Wall Street Breakfast, Fed Chair Jerome Powell could not have been more clear about the long fight ahead to get back to price stability and that the central bank "will stay the course, until the job is done."
Don't fight the Fed! The hawkish tone is not only prevalent in the U.S. The European Central Bank and Bank of England hikes rates by a similar half a percentage point yesterday, opening up a new chapter for the world economy. Whispers of a recession have turned into screams, while the last big batch of economic data for 2022 is worrying traders as they begin to leave the office for the holidays.
U.S. retail sales were weaker-than-expected for November, pointing to a sluggish start to the holiday shopping season. The figure, which includes spending at stores, online and at restaurants, slipped 0.6% last month, compared to the 0.2% drop that economists had expected. At the same time, the Philly Fed Manufacturing Index and Empire State Manufacturing Survey both came in below expectations, with both posting a negative reading for December.
Stir the brew: Don't forget that today is quad witching day, which refers to the simultaneous expiration of market index futures, stock futures, market index options and stock options at the end of every quarter. The event can lead to higher trading volumes and more volatility, giving speculators an opportunity for quick arbitrage opportunities from last-minute swings. This time around, $4T in options contracts are set to expire, possibly making Friday the busiest session for options traders this year, noted Rocky Fishman, head of index volatility research at Goldman Sachs.