Stocks receded yesterday as mostly-done-for-the-year washed hopes of a Santa rally fade away. Rising bond yields provided the strong headwind pushing all sectors into the red by the close.
Bonded. Remember those pesky bond yields that were the excuse for all the selling earlier in the year. Yeah, well, they are back… at least they have been in the past few sessions. This is an interesting time of year which is more typically associated with strong rallying. There is no definitive reason for the usual bullishness, but it is likely caused by low volume combined with… well, holiday spirit. Unfortunately, as we all well know by now, those types of conditions work in both directions. Low volume accentuates moves in both directions, and holiday spirit… um… holiday spirit… ok, it is present, but elsewhere. What exists in the markets these days are traders trying to pick up the pieces from a broken year and attempting, with not much ease, to find a new path for the year ahead.
It is very difficult to think positive thoughts as we watch whatever ground we have recovered in the past several weeks erode in the final days of the year, but there are many folks trying to make the best of the situation. Stocks have been on the climb for most of the past decade, and as a result many investors have forgotten about that annual event: the tax loss harvest. The last time I recall tax loss harvesting was in 2015! The last time I can recall harvesting losses in fixed income was… I can’t remember when. This year has been an interesting one and it is certainly going out with a bang. The multitudes of investors, retail and institutional ones, that continue to harvest losses through tomorrow’s close are greater than usual which serves to put additional pressure on the most beaten down, widely held stocks of the year. Can you say “tech”? If you are interested in learning more about tax loss harvesting, you can read my monthly newsletter on the topic here: https://www.siebert.com/blog/2022/11/30/financial-farming/ . But beware, it is not for everyone, and you should consult a tax expert, like your accountant, before rushing in… not that you have much time left.
As I am composing my year-end newsletter, I started by looking back at last year’s report. There were nearly 4 pages just dedicated to COVID-19, news of which barely even made headlines throughout this past year. It is still a big public health problem, but for most of the past year, it has been less of a financial problem… UNTIL NOW. “Of, course,” you are thinking, “perfect timing!” I am thinking that, as well. I am not going to preempt my year-end report, which will be released sometime next year… er, next week, but a new chapter in the story of COVID is just getting started… in China. COVID in China has been lurking around in the shadows of the markets all year. China, after all, is a major consumer of all things raw, like steel, copper, crude oil… you know, things that are required to make other things. The large population is also a large consumer of fuel and edible commodities such as soybeans, corn, wheat, etc. They buy cars, electric ones just like in the US, as well. When China is sick, locked down, quarantined, or in bed, it can affect the global economy. As China has just lifted its long-standing Zero-COVID policy, the country is about to experience what the US experienced in the second half of 2021, and with a lower vaccination rate, the results can possibly be far worse than what the western world experienced. Now, the magnitude of the impact is at this point, still conjecture, but it will certainly have a discernable impact on the markets going forward… IN ADDITION TO ALL THE OTHER HEADWINDS the market is still facing. We got a little taste of that revitalized COVID fear yesterday, which contributed to the selling in equities and crude oil, which fell yesterday and continued to slide overnight. One could hardly call it a selloff, but the pressure is certainly keeping it from breaching back into the $80/barrel range. Don’t get yourself too stressed out, 2023 is just days away. We can kiss this year goodbye and face the next one with as much optimism as we can muster and begin a new chapter… though it may contain some old themes.
WHAT’S SHAKIN’
Tesla, Inc (TSLA) shares are trading higher by +4.52% in the premarket after closing higher by +3.31% in yesterday's session. The overnight move came after Morgan Stanley lowered its price target but maintained its OVERWEIGHT rating, citing that the company is still likely to be a leader in the EV space. It has been a rough year for Tesla investors who lost some -68% year to date. Potential average analyst target upside: +118.9% (that’s not a typo).
Exxon Mobile Corp (XOM) shares are lower by -0.74% in the premarket. It joins others on the list of biggest premarket losers Devon Energy (DVN), Marathon Oil (MRO), Diamondback Energy (FANG), and EOG Resources (EOG), which all slipped in response to crude trading lower on fears of weaker Chinese demand. It is a COVID thing… see above. Dividend Yield: 3.52%. Potential average analyst target upside: +10.7%.
YESTERDAY’S MARKETS
Stocks traded lower yesterday in a low volume session as investors contemplated a new wave of COVID in China. The S&P500 fell by -1.20%, The Dow Jones Industrial Average traded lower by -1.10%, the Nasdaq Composite Index dropped by -1.35%, and the Russell 2000 Index declined by -1.57%. Bonds fell and 10-year Treasury Note yields gained +4 basis points to 3.88%. Cryptos lost -1.43% and Bitcoin declined by -1.05%.
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