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Pre-Markets Give Back Some of Friday's Rally

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Monday, December 5, 2022

It’s very early in a new trading week, but this is no way to sustain a holiday-season stock-market rally. Last week, we saw indices all moving higher — from +0.67% on the Dow to +1.72% on the S&P 500 and +2.43% on the Nasdaq. But this morning, market participants are in a giving mood: the Dow -250 points, the S&P -30 and the Nasdaq -75 points at this hour.

OPEC+ (Middle Eastern oil producers and Russia) decided to keep production curbed, which is expected to bring gasoline prices higher at the pump, throwing a virtual monkey wrench into initiatives to bring inflation metrics lower — higher auto fuel prices makes its way into Transportation and the cost of Goods sold in stores. How long until we’re all driving electric vehicles (EVs) again?

Speaking of EVs, Tesla (TSLA - Free Report) plans to cut 20% of vehicles produced at its Shanghai plant on a burgeoning supply glut as the Chinese economy continues to suffer from Covid shutdowns periodically in important regions across the country. This is after more than 100K+ new cars were sold from the Chinese Tesla plant in Q3 — a new record. We wouldn’t suggest EVs in China are peaking (and elsewhere — Teslas are now imported in many places throughout Asia), but we might expect a cooling-off period for Tesla in Q4 deliveries.

After today’s opening bell, S&P PMI and ISM Services for November are out. While ISM is expected to continue above the 50-mark that represents expansion versus contraction, S&P PMI is expected to stay under that threshold, and even come in slightly lower than the October headline. In last week’s sister reports on Manufacturing, S&P slightly beat expectations while ISM came in below.

We’re slower with economic data this week — certainly less active than last week’s tally of monthly jobs reports, JOLTS and PCE numbers. Productivity and Unit Labor Costs for Q3 are out, along with Producer Price Index (PPI) figures at the end of the week. But the next Fed monetary policy meeting doesn’t occur until mid-next week, and the voting Fed members are in a blackout period until a week from Wednesday afternoon, when its new interest rate is unveiled.

Still, we’ll keep our eyes open for signs of a run-up to close 2022, though this has been a good year to be disappointed by market activity. In fact, each new rally peak throughout the year has been lower than the previous peak thus far (and, not to be too worrisome about it, but each trough throughout the year has been lower than the previous low. In short, we have plenty of possibilities before us; fingers crossed we break with 2022 precedent and get some unexpected good news.

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