Market Review: December 19, 2022

Closing Recap

Monday, December 19, 2022





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     Stocks fall as the Santa Claus rally remains on pause with major averages struggling into year-end, as decelerating inflation the last two-months has being overshadowed by rising recession fears given signs of a slowing economy. Investors have spent 2022 largely focused on the Federal Reserve and its rapid series of large rate hikes aimed at bringing inflation lower. While many have suggested that weaker growth could lead the Fed to pause rate hikes or slow them, last week’s FOMC meeting dashed any of those hopes, with calls from the Fed for longer and deeper hikes into 2023 with no “pivot” until 2024. That viewpoint has since pressured stocks with the S&P falling below its 50-day MA resistance of 3,876 today, and below its 200-day MA 4,025 and 100-day MA as well 3,935 over the last week. Note the S&P 500 is now down 10 of the last 13-sessions and Bespoke Investment noted at -6.7%, this is the 2nd worst start to December (13 trading days in) for the S&P since 1953 when the 5-day trading week began. Only 2018 was worse with a 10.6% drop at this point in the month.

·     Stats: 1) According to WSJ stats, it’s the worst year for buying the dip since 1979 as the S&P 500 has on average fallen another ~0.7% the week after a 1% decline —Dow Jones Market Data; 2) the monthly federal deficit was a record-setting $249 billion in November, $57 billion wider than the same month last year, per Reuters; 3) AMZN shares are trading at lowest levels since the Covid selloff in March 2020 while Tesla (TSLA) shares to trade at their March 18, 2020 intraday lows from current prices, they would need to lose -84% from here (intraday lows were $23.37).

·     Morgan Stanley’s Mike Wilson continues his cautious view on the stock market, warning the coming earnings recession could prove like the 2008/2009 downturn, while in 2023, "price declines for equities will be much worse than what most investors are expecting”. Recall the strategist has been one of the biggest bears over the last few months, bucking the trend with much of Wall Street and remains widely followed.

·     Meanwhile Goldman Sachs recommended in a strategy note to shun industrials stocks despite the sector’s stellar 18% rally since the start of the fourth quarter, according to David Kostin, the investment bank’s top equity strategist. Kostin reiterated his underweight rating on the industrials sector in a note to clients dated Dec. 16 arguing that investors are too optimistic about how China’s economic reopening and federal support for certain large capital projects might impact the sector, among other factors.

·     More weak data – the U.S. December NAHB Housing market index 31 versus 33 in November (12th straight month of declines and lowest reading since 2012 – but smallest drop in 6-months) as current single-family home sales 36 versus 39 in November and the index of home sales over next six months 35 versus 31 in November. Homebuilder sentiment from NAHB fell to 31 this month, which is just 1 point above its low of 30 seen in April 2020.


Commodities, Currencies & Treasuries

·     Oil prices finish higher, with WTI crude rising $0.90 or 1.21% to settle at $75.19 per barrel. Treasury yields jumped, finishing near the highs of the day with the 10-year yield bouncing over 10-bps to 3.59% with no Fed speakers this week to sway markets and no major economic data today outside of a weaker housing data point. Gold prices reverse to finish lower by -$2.50 and settle at $1,797.50 an ounce. The US dollar index (DXY) rises initially after breaking below Friday’s 104.21 low overnight – but failed to hold gains ending lower on the day around 104.50. The euro holds above 1.06. Rebalancing into year end can be explained possibly for moves.






WTI Crude















10-Year Note





Sector News Breakdown


·     Consumer, leisure; Retailers: VFC is considering the potential sale of its Jansport backpack business in a transaction that may value it at about $500 million, according to a Bloomberg report from late Friday; retailers were broadly lower as consumer discretionary spending concerns continue given higher inflation and recession fears – apparel, sporting good, broadlines all lower into expected slowing Christmas retail spending; leisure products and travel such as cruise, gaming and theme parks tumble

·     Auto sector: TSLA CEO Elon Musk polled users on Twitter over whether he should step down as CEO of the social-media company, with the result so far leaning toward yes (58%); KNDI said that its wholly owned subsidiary SC Autosport’s has received a letter of intent from Coleman Powersports to purchase 4,800 crossover golf carts in the first quarter of 2023


Energy, Industrials and Materials

·     Energy stock movers: Citigroup lowered its oil price forecasts for 2023, seeing risks skewed to the downside as weak demand and ample supply from Russia and OPEC+ would keep prices lower. The bank cut its 2023 Brent price forecast from $88 per barrel to $80 saying a "soft floor" could be found at $70 per barrel. Energy stocks among top gainers early, helping minimize losses in the S&P while solar stocks also outperformed (FSLR, ENPH). In coal, (ARCH ), the world is on pace to use more coal than ever this year, with demand rising above 8 billion tons for the first time ever, 1.2% above last year’s levels, according to the International Energy Agency. The growth of coal has benefited producers, whose stocks soared in 2022.

·     Aerospace & Defense: LHX signed a definitive agreement to acquire AJRD for $58 per share, in an all-cash transaction valued at $4.7 billion, inclusive of net debt. ; LMT was awarded a U.S. Navy contract valued at up to $302.2 million; the AJRD deal comes a day after Advent International agreed to buy MAXR in a deal that values the satellite owner and operator at about $4 billion, where Advent is paying $53 a share for Maxar

·     Industrial & Machinery: TEX announces $150M share buyback; in research, PNR upgraded to Buy from Hold at Stifel and raise tgt to $57 from $46 as expect investor focus to turn to the transformation savings coming over the next 3 years; WM was downgraded to Hold from Buy at Stifel to account for the accelerated capital spending for recycling modernization and renewable natural gas; XYL was downgraded to Hold from Buy at Stifel saying the demand prospects remain strong for most of Xylem’s businesses and the more cyclical ones in industrial and commercial are likely to be less cyclical than people think; overall though, industrials outperformed today

·     Transports: in airlines, MESA said it is finalizing a 5-yr agreement to operate regional flights for UAL after an announcement it will wind down flights for AAL, it said on Monday, confirming a Reuters report from Saturday. MESA’s AAL operations will end on April 3, 2023; UAL aircraft expected to be placed by March 2023

·     Metals & Materials: CLW cuts Q4 adjusted EBITDA view to $28M-$34M from $38M-$48M citing higher-than-expected major maintenance related costs at the company’s Lewiston, Idaho mill, and other operational issues, the company now expects lower Ebitda; in paper stocks (IP, WRK, PKG), Jefferies notes containerboard prices fall another $20, Linerboard prices are down $40/ton in two months, relative to the $220 increase experienced in 17 months, due to soft demand and elevated inventory – said absent of several large mill closures, see further pricing pressure, noting prices in past downturns fell $110-120 / ton and every $50 decline translating to a 20-30% headwind to EPS for IP, PKG, and WRK (remain Underperform on IP & PKG).



·     Pharma movers: PFE opts to develop and commercialize LIAN’s sisunatovir, a respiratory syncytial virus (RSV) therapeutic candidate, in Mainland China, Hong Kong, Macau – LIAN to receive $20M upfront payment; ARDX said that the FDA may need up to a few more weeks to finalize its response to the company’s appeal over the complete response letter for its new drug application for its kidney disease therapy XPHOZAH; VRTX downgraded to Hold from Buy at Jefferies and removes from Franchise Pick List on valuation after having a strong +40% YTD vs XBI -27% and been a well-liked consensus long; AZN won European endorsement for its blockbuster drug dapagliflozin, as a treatment for all forms of heart failure – but said its drug Imfinzi failed the main goal of a late-stage study in patients with a form of late-stage lung cancer.

·     Biotech movers: MDGL shares surge after saying its experimental drug Resmetirom treating Nonalcoholic Steatohepatitis (NASH) met both main goals in late-stage study as the drug was safe and well-tolerated; achieved clinically meaningful effects at 80 and 100 mg once a day dosing vs placebo (ETNB, AKRO decline in sympathy); MRNA upgraded to Buy from Hold at Jefferies and raise tgt to $275 from $170 citing significant new pipeline story and catalysts ahead; ZYME reports positive data from mid-stage stage trial of antibody Zanidatamab as monotherapy in treating biliary tract cancer as antibody’s safety profile is consistent with prior studies; BLUE receives partial clinical hold for Lovo-Cel lifted by FDA

·     Healthcare Services & MedTech Equipment: BAX was downgraded to Neutral at JPMorgan saying coming off a difficult year for MedTech as a whole and Baxter in particular, and unfortunately for the latter, they don’t think the coast is completely clear into 2023; CERE said it saw positive results from a Phase 1 trial studying the effect of emraclidine on 24-hour ambulatory blood pressure over an eight-week period in people living with schizophrenia; PKI was upgraded to OW from Sector Weight at Keybanc saying following the sale of the analytical instruments business (DAS), PKI will likely be one of the fastest-growing and highest-margin companies in the Life Science Industry; CTLT was downgraded to Sector Weight from OW at KeyBanc


Technology, Media & Telecom

·     Media, Internet & Telecom: DIS ‘Avatar: The Way of Water’ failed to live up to box office expectations on its opening weekend, as Disney cut its forecast from above $150 million to between $130M and $150M; the European Commission has closed its antitrust investigation into GOOGL and META for online display advertising services, it announced on Monday; AT downgraded to Underperform from Market Perform by MoffettNathanson, while the firm upgraded VZ to Market Perform after underperformance; Fortnite video game maker Epic Games to pay more than half a billion dollars over FTC allegations of privacy violations and unwanted charges


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.