Neutrality prevails - for the moment, with analysts appropriately noting that back-to-back annual declines are 'seldom'. Note we've mentioned this before, and unlike the debates as to whether 2023 would be the '2nd down year', we believe it's less likely to be negative, partially as it would be a '3rd down year'.

Pixabay

This entire exercise relates to whether the Fed controls the markets by pulling (or adding) liquidity, while the Fed does 'not' dominate global growth. Just as a for-instance, that's where the Chinese official weekend comments about the necessity of reviving business and overall economic growth, matters globally.

For now the trend remains down, interspersed by failing rebounds. The erratic 'complex bottom' engineering with the June and October lows remains intact, but clearly the 'behavior' of the broad market leaves a 'heavy tone'. That must be weighed not just against inflation or the Fed, but year-end behavior too.

Also: I heard yesterday from an acquaintance in Belgrade that they were on a 'war footing' and now it's confirmed that Serbia has ordered 'a total army high alert' for possible action against Kosovo. 2nd war in Europe next? It's insane, and that brings memories of the Balkans war or even how WW 1 started..

Many of the critiques involving supply-chains and lower demand (like iPhones and so on) are related to China. So Beijing's capitulation on COVID restrictions, makes a difference, as they pull-forward their reopening cycle within months. I add one caveat: if the millions of COVID cases sweeping China daily freaks the Beijing regime into re-imposing restrictions, that changes the dynamics.

The important part of Vice Premier Wang's comments I listened to yesterday, was that he talked about the need to resume maintained global relationships. I took that as a favorable response to the so-called 'Washington/Beijing reset' and that matters if the worst of the geopolitical fallout is behind, not ahead.

Of course we can't be certain about this, but 'if' normalization is the outlook for 2023, it's definitely not discounted by markets, so argues against a down year.

I realize investors get bombarded with bearish Armageddon predictions more or less constantly, and polyannish outlooks from very few these days. Both of the extremes are unlikely, and often efforts to defend ongoing rigidity in either direction. I try to be flexible and this past year was indeed the periodic rallies, within context of an overall downward trend, that internally dates to 'last' year.

It won't be a 'walk in the park' to get the Senior Indexes higher, because they were ludicrously advanced when we warned about how 'buybacks' damaged the future (for short-term gain in 2021), and invited insider selling after stocks were often bolstered by such moves beyond any sane valuation levels. Those were the 'Generals' out-in-front of the 'troops', retreating for nearly two years.

In-sum: 

That relationship as the last holdouts surrender, can result in a period of nursing wounds while hunkered-down in the trenches, especially as yields rise while tech sags, then things should gradually emerge.

The crash in some stocks (like Tesla which we've been bearish on for 2 years but now that there was a stunning decline we won't encourage more negative trading on it)... some of this was not the fire started by Musk with Twitter and more.. though part of it. For that matter I think the debacle in crypto and what is a little reported linkage of major banks/brokers/funds in that 'space' had an impact on investors, but financially and demoralizing. Still, China reopening is inflationary in a way, but also resolves some problems. 'Fluid dynamics'.

Damage is done, regaining footing is still pending and we'll see in Q1 of 2023, especially for the impact of Musk's follies and Putin's war (not to contrast, but it all impacts evaluations of the stability and 'resilience' -or lack). What we like is the S&P's overall ability to hold (so far) the complex June/Oct. low patterns, but again the outcomes remain variable, with hints of liquidations (such as we saw with crypto). So there is more going on than the noted albatrosses.

Most leading indicators suggest a slowing here or coming, and that takes the rates lower, because the Fed will have to 'rest' at least. Bears will argue that's a negative for earnings, and it is. But guess what, that's not how discounting in the market works. Many disruptive stocks (that can stay solvent without too much dilution) should have interesting years, many so-called defensive haven stocks (big caps, dividend plays or such) will likely stabilize, but managers will likely flip back to technology (not older COVID themes or crypto machine CPU stocks, which pretended to have broader appeal rather than limitations).

Bottom-line: as bond yields have moved up, tech and semiconductors have moved down. That's true virtually across the Board in tech, and to yields, it's reasonable to add more tax-loss selling, and well as China reopening seen as 'inflationary', which is also inferred by the expected rebound in Oil.

This is a complex market in search of a bottom in several sectors, although S&P holds, while the 'chip overhang' has impacted tech broadly (Micron was first to holler, but they are memory), and even lower semiconductor gear has been assumed to be needed.

For now it's a messy market (technical term hah), with many crosscurrents. If the technicians suddenly talking about NASDAQ going to a 'dark place' are at all credible, they need to acknowledge this is a more than a year-long decline, hence sure, you 'can' extend the meltdown in big-cap tech primarily because it was a sector heavily bought at the highs in a low-rate environment. Growth, even in the most solid of them, will not grow as fast as in the past...parts of the so-called 'tech is dead' segment will show life, just timing it remains variable.

I think a lot of this is vestiges of negativity in the year's final moments, and one more time has some symbiosis with 2018, but prices came off a higher delta in a sense. So you have lots of institutions very deep into loss territory with a concurrent experience joining their debacle investing in crypto. Hard to correlate the two, but I do. And I think it demoralized many on Wall Street. 

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