Buzz on Business for Thursday, January 4^th, 2023

Some mixed economic news, along with the release of the Minutes of the Fed’s Meeting last month, is getting blamed for another rough day on Wall Street. Maybe, but maybe it’s profit-taking, and maybe after coming so far in such a short time, we’re due for a correction. The question is how far and how fast?

Stock Market Report

We’re not gonna sugar-coat it for ya because that’s not what we do here at the Buzz on Business. Stocks had a rough day. They gapped down at the open, ground lower throughout the day, and closed at or near their lows.

• The Dow Jones Industrials were off 285 points. That’s eight-tenths of one percent, and they closed at 37,430.
• The S+P 500 also was off eight-tenths. It closed at 4,705, down 38 points.
• The Nasdaq Composite closed at 14,592. Remember when it was above 15,000? Me neither. It was down 1.2 percent or 174 points.
• The RSP, the Equal Weight S+P 500, which is supposed to be less volatile than the S+P itself wasn’t on Wednesday! It was down 1.5% (compared to eight-tenths of a percent for the SPX) and closed at $155.52, off $2.33.
• The SOXL, the 3-to-1 leveraged Semiconductors, got crushed for the second day in a row. It was off 6.38% and closed at $26.25, off $1.79.

Bond Markets

Bonds were mixed, mostly lower, rates higher, but mostly little change among interest rates.

• The yield on the two-year Treasury was up one basis point. It closed at 4.333%.
• The rate on the twenty-year was up a tick. It closed at 4.226%

Oil and Gold

• Oil was up and appeared to be drawing out a bullish pattern on the Giant Quote Machine. It closed at $72.93, up $2.49.
• Gold was down $30.60 and now trades hands at $2,049.80 a troy ounce!

Minutes Spark Market Jitters: Was December's Rally All Smoke and Mirrors?

The Fed released the minutes of their meeting from last month. You remember the one. The meeting that sent the stock market rocketing skyward? Well, the minutes—we read them, or at least scanned them—said nothing new. It’s the same stuff we heard, more or less, on December 13^th.

Except this time, it supposedly caused stocks to fall off a cliff.

From the low of 4104 on October 27^th to the December 28^th high of 4793, the S+P 500 was up 17% in nine weeks. 17% is a pretty good year.

In October, it was becoming clear that inflation was on the run and that third-quarter earnings were coming in gangbusters and stocks went up. The fed had nothing to do with it. Or not much.

Now, well now, the market needs a breather. Maybe there’s some profit-taking. Maybe now sellers have the stronger hand.

Navigating the Potential Correction

So, what might we reasonably expect if the market has begun a correction? We fired up the Giant Quote Machine here at World Headquarters and laid a Fibonacci Retracement Calculator on top of a chart of the S+P. Well, this is interesting.

This indicator calculates where a market might retrace to and where it might stop going down.

From its peak last Friday, the S+P has retraced around 2%. Retracements of 24%, 38%, and 50% are common, or so the theory goes. Now, this doesn’t mean the S+P loses 38% of its value, no. It means it gives back 38% of its rally.

And 38% seems likely to us. That would take the S+P down to around 4,530, a level where it saw some resistance on the way up. Resistance on the way up often functions as support on the way down.

4,530: A Pivotal Level for the S&P 500?

Basically, the S&P could be in for a bumpy ride. Recent gains were big and fast, so a pullback is natural. If things play out as they often do, the market could slide about 7%, dropping the S&P to around 4,530. Seven percent is not a big deal; it’s not a freefall, but it's definitely not smooth sailing either. Keep your eye on the 4,530 level – if the market holds there, it might just be a blip on the radar. But if it breaks through, things could get choppier.