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Markets Give Back Some Gains on Bank Holiday

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Friday, November 11, 2022

It’s Veterans Day today, formerly Armistice Day which signified the end of World War I more than 100 years ago. It’s since become a celebration of those who served in the U.S. Armed Forces, especially those who died in the line of service (the same recognition at the root of Memorial Day at the end of May). It’s also 11/11, and in China four straight lines in a row signifies “single people,” thus “Singles Day” is today as well. For the 14th straight year, companies like Alibaba (BABA - Free Report) offer discounts on merchandise and services, and is usually a retail bonanza.

We’ll see how it goes this year. China has experienced record-setting sales on Singles Day each subsequent year — including during the Covid era, which in China exists to this day. With mandated shutdowns from China’s central government ongoing, not only have e-commerce opportunities in the People’s Republic shrunk, but retail and the overall economy have, as well. So while Alibaba brought in $38.4 billion in 2019, $74.1 billion in 2020 and $84.5 billion in 2021, we’ll have eyes on how this year’s tallies accrue. Perhaps this impressive trajectory will continue, perhaps not.

For sure we’re seeing slack in the U.S. economy tighten — not only from the Fed raising interest rates, but overall inflation taking a sizable chunk out of everything, not just food and gas prices. We know from yesterday’s CPI report that core consumer prices are down month over month, though only marginally (30 basis points). Are American consumers hitting those record-setting savings accounts to pay for normal day-to-day goods? Most likely they are.

Of course, this is all good news for those of us waiting for the Fed to pump the brakes on draconian interest rate hikes. We’re currently teetering on 4% for the Fed funds rate with another hike coming a month from now. Will that hike bring us to a range of 4.50-4.75%, or will it be lower than that? Yesterday’s rally firmly asserted the possibility it will be the latter. And if a 50 basis-point (bps) hike in December speaks to lower hikes going into 2023 — perhaps even stopping by the following Fed meeting — then this is a positive for the market.

That flush of bullishness is tempering in the early trading session today. All major indices are down, but not significantly. We may be experiencing lower volume based on the Veterans Day holiday, but part of this may well be the markets self-governing ahead of the next potential market catalyst. What might that be? Next week brings us a wide array of economic prints, including Retail Sales, Producer Price Index, Housing Starts, Home Sales, etc. But none are of the magnitude we saw with this week’s CPI or last week’s payroll reports.

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