Tesla 69% Down Bad from Record High

Good morning,

Hope your holidays are going better than this year for Tesla investors (except for you, Cathie Woods) which is now down 69% from its record high. Yesterday's markets were about as subdued as your Hinge matches, the US is taking a pummeling from this winter storm, and the pound sterling is taking a mental health day from its recent pounding. 

Let’s dive into the market news buried over the market holiday, and preview the news you actually need to care about for the short week ahead.

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Bad News Dumpster Dive

Market movers like to bury bad news, so we've decided to excavate them. 👀 = degree of sus. 

👀👀👀

• China's National Health Commission to stop publishing daily COVID figures (Reuters)

• Americans' personal savings rate has hit the lowest since 2005 (Axios)

• Michael Bloomberg is interested in acquiring either the Dow Jones (WSJ’s parent company) or The Washington Post (Yahoo)

• The judge overseeing SBF’s trial recused herself, citing her husband’s law firm previously advised FTX (CNBC). Tough she just noticed the conflict of interest after granting him bail.

👀👀

• The IRS says it will delay the requirement to report $600 in gig work from Paypal, Venmo on taxes for one year (CBS)

• Russia threatened to reduce its oil output by up to 7%, or 700,000 barrels a day by early next year (WSJ)

• Forbes accused TikTok of spying on its journalists, “repeatedly accessing US user data” (Forbes)

• Elon Musk ordered his staff to “please give Bari [Weiss] full access to everything at Twitter. No limits at all.” IT refused to onboard Weiss, worried of breaking the law (WSP)

• Southwest canceled ~3,000 flights and had hundreds of delays, disrupting more than 80% of its schedule in the wake of the winter storm pummeling the US (BBG)

👀

• Meta agreed to pay $725M to settle the lawsuit over claims it illegally shared user data with the research firm Cambridge Analytica (BBG)

• Elon Musk sold ~$40B of Tesla stock this year (CNBC)

• An estimated 1.9 million UK households missed payments in the run-up to Christmas, including rent, mortgage or credit card bills (Morningstar)

• 33% of adults aged 65 and up reported applying for food stamps or visiting a food pantry over the past 12 months (MarketWatch)

• US natural gas supplies are still constrained after wells and pipes froze due to extreme cold (BBG)

Signal to Noise

Next week’s market outlook and whether you should actually care. 

Signals 

• Equity outflows 

• Equal- vs. cap-weighted strategies

• Housing (SAAR 12/27; Pending home sales index 12/28) 

• Jobless claims (12/29)

• Margin debt

Noise

• A pound sterling rebound 

• Chicago PMI (12/30)

• Holiday spending

• S&P WACC

• China COVID cases

Signals 

Equity outflows 

• Both passive equity and value funds experienced their biggest outflows on record last week

• The heavily shorted stock basket, tracked by Goldman, is having its worst month since April 2022. 

• Morgan Stanley analysts expect an S&P between 3,000 and 3,300 some time in “probably the first four months of the year.” That’s when they think the de-acceleration on earnings revisions will reach its “crescendo” (tool terminology for “peak”).

Equal- vs. cap-weighted 

• It's unusual to see the equal-weighted S&P 500 index outperform the cap-weighted version for an extended period – like it is now. The only similar comparison is the Dotcom bust.

• Going back 5+ decades, few years have seen as many 1% daily swings as 2022. None saw fewer days with new highs outweighing new lows. (2008 & 1974 were the most similar). 

Housing (SAAR 12/27; Pending home sales index 12/28) 

• Housing has been left manning the data desk in the last week of the year. This week’s releases include the S&P Case-Shiller U.S. home price index (SAAR), FHFA U.S. home price index (SAAR), and pending home sales index

• Last week, sales of new homes jumped unexpectedly (again), increasing 5.8% in November (vs. -4.7% expected).

• New home sales (finally) adjusted for home builder cancellation rates. The second half of 2022 told a much different story, as buyers started canceling in droves.

• Buying conditions improved (very) marginally, but home-buying attitudes remain near multi-decade record lows. 

Jobless claims

• The US jobs report due the first Friday of the year will be monitored closely. That means analysts stuck on the desk this Thursday are tracking jobless claims this week for crumbs. 

• for insights into labor market conditions with the Fed closely monitoring wage inflation.

• Amid the growing attention on wages, the employment conditions will be scrutinised though flash PMI indications have so far given early indications of slowing jobs growth as demand slumped.

• Alongside the slowdown in inflation had been easing jobs growth in the US. The official jobs report will therefore be watched for confirmation of the trend in the first week of the year particularly given its growing importance in guiding monetary policy in the US.

Margin debt

• Margin debt balances fell to $644 billion in November, the lowest level since July 2020.

Noise

A pound sterling rebound 

• The pound saw a recent rebound against the dollar, but signs of the UK’s economic downturn continue to pile up. 

• The pound is down 11% in 2022, headed for its worst year since the Brexit vote in 2016.

• Room for gains may be limited by divergence in central bank policy, with the BoE looking increasingly dovish. 

• The UK economy is reeling, the budget deficit has rocketed and double-digit inflation has led to the sharpest drop in living standards on record, curbing spending and giving rise to the worst industrial unrest in decades. 

• Oh, and its housing market looks vulnerable to a sharp correction too.

Chicago PMI (12/30)

• Recent PMI indicators show signs the easing price pressures will continue. This week’s Chicago PMI is expected to tell us what we already know. 

• So, watch for the Worldwide PMI data release next week, which is expected to reveal more on the global supply chain situation. 

• Flash PMIs reflect worsening developed market economic growth in December, with the downturn especially sharp in the US. (Other 'G4' economies showed tentative signs of moderation in decline.) 

• Final numbers from the G4 economies and more globally are hotly anticipated at the start of 2023 for the earliest snapshot of conditions at the end of 2022.

Holiday spending

• If you’re one of the Americans who contributed to the statistic that the personal savings rate has hit its lowest since 2005, that splurging was most likely for nothing. Bloomberg reported most millennials and Gen Z expected to be let down with their gifts this year. 

• Americans' spending rose less than expected while income rose slightly more than expected (with real spending disappointingly unchanged MoM). 

• YoY Spending growth is at its slowest since Feb 2021

• As for the PCE: There's some degree of progress in goods inflation, which is encouraging. But services continue to rise, up 0.4% MoM. That’s the last thing Powell wants to see ahead of the next FOMC meeting.

S&P WACC 

• One year ago, the weighted average cost of capital for S&P 500 firms equaled 4.1%, close to the lowest level in history. 

• During the past 12 months, the cost of capital for US firms surged by the largest amount in 40 years.

China COVID cases 

• Chinese national health officials took a note from Goldman’s HR last year during last year’s holiday parties and COVID outbreaks – maybe if you stop sending updates, the numbers will disappear. 

• Amid a new wave of infections, China’s National Health Commission said it would stop publishing daily case numbers for the coronavirus, complicating investors’ attempts to assess the economic impact.

• The offshore yuan added slightly to its advance overnight and the Thai baht rose on China’s announcement that it would drop quarantine for inbound travelers early next month. A gauge of dollar strength declined. 

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