Stocks had a mixed close on Friday as Thanksgiving revelers napped to forget the overindulgence of the day before. Speaking of overindulging, now might be a good time to set some goals for 2023… that’s right, it’s still 2023.
Got plans? It’s still November, but it may as well be December on Wall Street. This is a time where traders struggle to focus on the markets; it may be easier to get a 1st grader to focus on calculus while an ice cream truck is careening down your street.
This is an interesting time of year for the markets. This is the week where big-name investment banks’ big-name chiefs opine on where the everything will end up at year-end. That’s a bold move with the end of year just weeks away. I say that partially in jest, because clearly forecasting where markets will end the year last January would be a more difficult undertaking. But in reality, getting it right in these last few weeks of the year is not so simple.
Somewhere in the deep recesses of the Colorado’s Cheyenne Mountain a highly trained NORAD professional is dusting off a radar screen to begin tracking Santa Claus’ journey while somewhere in the deep recesses of a Wall Street building analysts are dusting off radar screens to track a Santa Claus Rally. This is the time of year where traders focus on cleaning up portfolios in hopes of yet a better year ahead. Cleaning up, for the record, can include buying as well as selling. Volume is typically lower as many focus on the holidays and start to wind down their trading. That all makes the market vulnerable to big swings, hopefully in the direction we would like.
Right now, the VIX Index sits around 13, which is relatively low. By “low,” I mean it hasn’t been this low since January of 2020. Remember that? Don’t worry, I don’t either. I will take it a step further for you. The VIX is a measure of the expected volatility of the S&P500. It is an annualized number, so we can do some quick math to come up with an expected daily volatility. That math implies daily expected swings in the S&P500 of 0.80%, which you probably recognize as tame compared to 2022 and earlier this year where 1.5% daily swings were more common. You are probably thinking, “Mark, you just told us that things get volatile in December, but you are now showing us numbers that suggest the opposite.” On the contrary, when the VIX hits a low or spends some time in the low teens or single digits, traders are said to be complacent, which translates into “easily startled.” If you watch market volatility closely, you will notice that it tends to swing rather sharply from low to high. Throw in low volume, and those swings become even more pronounced.
This has been a challenging year for investors. Many are sitting on disappointing, losing positions, while others are likely to have missed the rally in the past few weeks. That means that there are sellers AND buyers looming in the shadows… likely to be startled by a pronounced move in the markets. In just a few weeks, the FOMC will meet for the last time in 2023, and while futures imply a very small chance of a rate hike, anything the Fed says can push the markets in one direction… or the other. Later this week, we will get the last PCE Deflator inflation gauge of the year. That can also be a catalyst. We will also get a final read of Consumer Price Index / CPI just before the FOMC meeting, also a potential market mover. Oh, and there is just one more monthly employment number next week. All of these things have the potential to cause volatility to jump in the weeks and days ahead. Remember, that I always remind you that volatility works in both directions; it can be blissful, and also painful. There is one way to avoid all of this stress. Simply focus on your long-term investment goals. It is difficult to say where the market will go in the next few weeks, but it is far easier to know where the market will be in the longer term. Stay focused on what is important.
WHAT’S GOING ON BEFORE THE MORNING BELL
GE HealthCare Technologies Inc (GEHC) shares are lower by -4.00% in the premarket after UBS lowered its rating from NEUTRAL to SELL while also lowering its price target to $66 from $86. In the past 30 days, 3 analysts have lowered their price targets, while 7 analysts have held steady. Dividend yield: 0.16%. Potential average analyst target upside: +10.8%.
Mondelez International (MDLZ) shares are higher by +1.09% in the premarket after RBC upgraded the stock to OUTPERFORM while raising its price target to $83 from $75. Mondelez’s forward P/E of 21.9x is slightly higher than the 17.64x median P/E of its peers. While that may imply that the stock is expensive, it does not mean that it will not continue to climb. Dividend yield: 0.16%. Potential average analyst target upside: +10.8%.
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