“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” – Warren Buffett
Good evening:
Markets closed down for the third consecutive week. But our Mark Newton, Head of Technical Strategy, noted the pattern of the market hasn’t been all that bullish or bearish. Instead, we’ve been quite range-bound. Across our firm, we expect this continued volatility into year-end. Defensive groups (Utilities, Energy, Financials) continued to outperform this week, while technology struggled. But maybe a Santa Claus rally is in store.
For much of this week, investors primarily focused on recession worries, debating whether Fed’s tightening efforts had gone too far. On Wednesday, we saw a brief respite: positive results from Nike and FedEx buoyed markets.
Nike beat top- and bottom-line expectations and reported YoY progress in clearing the significant inventory surplus it had accumulated due to previous supply-chain difficulties. The company also reported improvement in its strategic shift away from wholesalers toward direct online sales. While FedEx revenues missed expectations, EPS results beat estimates. Perhaps more importantly, the company announced that it had found an additional $1 billion in potential cost cuts for fiscal 2023, a 37% increase over its previous $2.7 billion cost-cutting plan.
Tech shares continued to take a beating. Micron Technology on Thursday posted disappointing quarterly results. Along with a 47% YoY drop in revenue, the memory-chip manufacturer sent semiconductor shares down with its warning of weaker overall semiconductor demand.
The week’s labor-related data releases did not bode well for the Fed’s efforts to fight inflation. The New York Fed’s SCE Labor Market Survey on Tuesday showed that the average expected annual salary of job offers in the next four months hit a record high in November, going from $60,310 in July to $61,187.
Meanwhile, the average reservation wage—the lowest wage respondents would be willing to accept for a new job—increased from $72,873 in July to $73,667 in November, a new record high. Higher wage demands were most commonly seen in respondents below age 45.
New unemployment claims rose by less than expected to 216,000 (220,000 expected), but the number of people on unemployment fell slightly. Some economists suggested that the weekly numbers show that the labor market remains strong, possibly as employers “hoard” workers due to recent memories of labor shortages.
Sam Bankman-Fried returned to the U.S. to face federal charges after his short sojourn in the Bahamas’ notorious Fox Hill prison. He was released on $250 million bail, mostly confined to his parents’ home in Palo Alto, California, until trial. Also Thursday, federal prosecutors announced that SBF associates Caroline Ellison (co-CEO of Alameda Research) and Gary Wang (FTX and Alameda co-founder) had pleaded guilty to an array of criminal fraud and conspiracy charges as part of their plea deals.
Elsewhere
Life expectancy in the U.S. has sunk to its lowest level since 1996. Life expectancy at birth has now fallen to 76.4 years. Among the big culprits are Covid and opioid drug overdoses, according to new federal data.
On Tuesday, the Bank of Japan abruptly changed its yield-curve control policy, widening the target range for its 10-year bonds to 50bps in either direction (instead of 25 bps) of its 0% target. The Japanese central bank said its decision was designed to “improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions.” That sent the Nikkei 25 down for the day and week.
The House committee investigating the Jan. 6, 2021, attack on the Capitol on Monday referred former President Donald Trump to the Department of Justice for potential prosecution, accusing him of obstruction of an official proceeding; conspiracy to defraud the United States; conspiracy to make a false statement; and conspiracy to defraud the U.S. by assisting, aiding or comforting those involved in an insurrection. It was the first time a former President has faced such a Congressional action.
Ukrainian President Volodymyr Zelenskyy traveled to the U.S. on Wednesday and met President Biden in the White House before addressing a joint session of Congress. President Biden asserted that “the American people are with you every step of the way. And we will stay with you.” President Zelenskyy urged the United States to continue supporting Ukraine, invoking past American triumphs such as the Battles of Saratoga and the Battle of the Bulge and framing U.S. assistance as “not charity,” but an “investment.”
President Zelenskyy’s visit coincided with a $45 billion package of military and economic aid to Ukraine that was being considered in Congress at the time amid declining support for Ukraine among Congressional Republicans. It coincides with an official announcement that the United States will send one of its advanced Patriot systems to help Ukraine defend against Russian drone and missile attacks. (Some observers have suggested that given the sheer volume of Russian missile attacks, the decision to send a single Patriot battery was more symbolic than tactically meaningful.)
And finally: the Bank of England on Tuesday unveiled final designs for the first paper currency (£5, £10, £20 and £50 notes) to feature the likeness of King Charles. (50p coins with his profile entered into circulation on December 8, 2022.) The new notes will be released in mid-2024.
With extreme cold, dangerous weather, and winter weather alerts affecting almost two-thirds of Americans, we wish our readers smooth travels this holiday season. From all of us here, please stay safe and warm, and have a wonderful holiday.
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