December 16, 2022

Markets:

Stock futures were lower Friday morning as investors continued to dump stocks into year-end on fears a recession is ahead next year because of the Federal Reserve’s unrelenting rate hiking.

Thursday’s disappointing retail sales report spurred investor fears that consumer spending is slowing amid rising inflation, a sign that the economy is weakening.

With these latest declines, the indexes are poised to notch a second consecutive week of losses. The S&P 500 is off 1% for the week and 4.5% for the month of December as hopes for a year-end rally fizzle.

Trading could be especially volatile Friday with a large amount of options set to expire. There are $2.6 trillion worth of index options set to expire, the highest amount “relative to the size of the equity market in nearly two years,” according to Goldman Sachs.

Stocks have been falling this week in the wake of the Federal Reserve’s 50 basis point interest rate hike on Wednesday — the highest rate in 15 years. The central bank said it would continue hiking rates through 2023 to 5.1%, a larger figure than previously expected.

They will also look for any hints on future Fed policy from speakers John Williams, Michelle Bowman and Mary Daly. Investors are trying to gauge the pace of future rate hikes and the central bank’s view of the economy.

There also will be data coming in the morning with December’s purchasing managers’ indexes within services and manufacturing.

Portfolio:

What an absolute wild week for the markets and price activity taking place. Throw in we have a large number of options set to expire, roughly $2.6 trillion worth of index options set to expire. Should be a wild session of swings. We enter the session holding positions in ZIM, UNG, and ASAN.  Please remain patient here and allow it to continue to develop. Keep in mind what the market faced this week with the Fed and the amount of options expiring today. Technically, we broke below the key level of 3900. Until the bulls recapture and hold 3900 again, market could continue to break. But we are in a seasonal period beginning Monday. Really curious to see how the market behaves next week with no fed or key data points to worry about for a while. Will be very interesting to see. One big tell could be how we trade into the close today as traders prepare to position themselves for yearend close.   May look to add. Be ready, the next trend cycle is now building. Let's make sure we take advantage of it.