You better not pout: Wall Street ends green for a change

YOU BETTER NOT POUT: WALL STREET ENDS GREEN FOR A CHANGE (1605 EST/2105 GMT)

Wall Street snapped out of its losing streak on Thursday.

One reason all three major U.S. stock indexes gained ground could be an uptick in jobless claims, which provided some reassurance that the Fed's hawkishness is working as intended.

Another reason might be as simple as the ol' buy-the-dip, as bargain hunters sifted through the wreckage of consecutive sell-offs.

At any rate, the S&P 500 had its first green day in six. As for the Dow and the Nasdaq, they enjoyed their first up day in three and four, respectively (the Dow ended Wednesday's session unchanged).

Tech S5INFT, and more pointedly, chips SOX were the day's biggest winners, while Apple AAPL, Nvidia NVDA and Microsoft MSFT provided the most muscle to the S&P 500's upside.

Communication services S5TELS and energy stocks SPN were the days losers, both shedding about 0.5%.

In the midst of a central bank tightening phase, market participants find themselves in a new bad-news-is-good-news normal - data signaling economic softness could sway Powell & Co to ease the size and duration of their interest rate hikes.

With the Labor Department's producer prices (PPI) report tomorrow, investors will get a second take on November inflation, following last Friday's jobs report, which showed annual wage growth creeping in the wrong direction, to 5.1%.

UMich will also offer its first stab at December Consumer Sentiment, which will provide near- and long-term inflation expectations.

It's all prologue to the Tuesday-Wednesday double-header, with CPI data and the Fed's rate decision, accompanying statement, and subsequent Q&A hogging investor focus for now.

Financial markets currently see a 79.4% likelihood of a 50 basis point interest rate hike on Wednesday, according to CME's FedWatch tool.

Here's your closing snapshot:

(Stephen Culp)

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S&P 500 TO REVISIT LOWS AS U.S. FACES RECESSION (1345 EST/1845 GMT)

The S&P 500 SPX is likely to fall to a new cyclical low by spring 2023 as a shallow recession occurs in the U.S., as bottoms typically only end shortly before the end of an economic downturn, according to Capital Economics.

“The S&P 500 peaked about eleven months ago, and we haven’t seen a recession yet. But it isn’t unusual for the index to top out well before one has begun,” John Higgins, chief markets economist at the firm said in a note on Thursday.

However, “since 1960, the typical recession in the US was preceded by the onset of a big drop in the stock market there, which only ended shortly before the economic downturn was over.”

Capital Economics expects a mild economic downturn in the U.S. between the first and third quarter next year. As a result, the S&P is likely to revisit its October 2022 low (it bottomed at 3,492) and possibly drop a bit below it in the first half of the year. But stocks are likely to rebound in the second half of the year, Higgins said.

(Karen Brettell)

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INSTITUTIONS EYE 60/20/20 PORTFOLIOS AS RECESSION LOOKS INEVITABLE: NATIXIS SURVEY (1256 EST/1756 GMT)

Holiday cheer might be hard to come by for institutional investors preparing their 2023 strategies, as they gear up for a difficult 2023, according to a survey from Natixis Investment Managers.

The survey of 500 institutional investors, collectively managing around $20.1 trillion in assets, found 58% think their economies will be in a recession next year, while 65% see stagflation as a significant risk.

This even as most doubt global central banks can control inflation without denting growth, with almost half assuming an engineered "soft landing" is unrealistic and 57% expecting equity volatility to jump higher next year.

With that in mind, over two-thirds of those surveyed eschew the traditional 60/40 portfolio in favor of one composed of 60% stocks, 20% fixed income and 20% alternative investments.

Over 70% of those surveyed think rising interest rates will boost traditional fixed income, with 49% looking to increase exposure to government and investment-grade bonds, compared to 37% and 29% who are increasing allocations to riskier high-yield and emerging market bonds.

In alternative investments, which 61% of investors said were being used as a yield replacements, infrastructure, private equity and private debt were the most popular with survey respondents.

Around 53% of respondents to the survey are de-risking their portfolios, however, most are not lowering their expectations for returns. Around 77% said they will either maintain or increase an average return assumption of 7.9%.

Despite a rough year for equities, 51% of investors are bullish on stocks, with U.S. equities ranking above other regions.

Fewer are upbeat on European equities, however, with 43% planning to maintain current allocations and 30% expecting to cut them.

Green finance also looks set for a boost, with 46% of investors saying energy supply worries this year have prompted an increase in renewable energy allocations, including 13% upping investments in nuclear power. Half of investors owning green bonds plan to increase these investments.

In terms of risk factors, investors are most concerned about war, global trade issues and central bank policy errors.

(Lisa Mattackal)

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RESILIENT LABOR MARKET MEANS HIGHER FED FUNDS RATE (1154 EST/1654 GMT)

A still tight labor market is likely to translate into a higher terminal rate, even as the Federal Reserve slows the pace of increases, according to Bank of America.

“The economic outlook has not changed materially since the November meeting. Although the housing slowdown appears to be spreading into manufacturing, the labor market remains red hot, leaving the Fed with plenty of work to do,” the bank's economists said.

The Fed is expected to slow the pace of its hikes to 50 basis points next week, and the big question is how large will further rate hikes be and where and when will they ultimately end.

Bank of America expects an additional 50 basis point increase in February, but notes that soft inflation prints for November and December could “tip the scales towards 25bp.” It then expects another 25 basis points increase in March, before the Fed will pause, bringing the terminal rate to 5%-5.25%.

Next week, “we expect Chair Powell to push back against easing in financial conditions and remind investors that a slower pace of hikes does not mean a lower terminal rate, and the Fed's job is far from done,” they said.

The resiliency of the labor market also raises the risk that the Fed could keep hiking into the spring. However, “for now, we think there is enough uncertainty around the economic outlook that most FOMC participants are not penciling in hikes beyond 1Q.”

(Karen Brettell)

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SECRET SANTAS: EMPLOYERS GIVE THE GIFT OF NOT FIRING WORKERS, CONSUMERS PUT IT ON PLASTIC (1115 EST/1615 GMT)

Data released on Thursday showed employers remain reluctant to give their workers pink slips for Christmas. And a report released late Wednesday shows consumers have very little reluctance when it comes to whipping out their Visas and Mastercards.

The number of U.S. workers filing first-time applications for unemployment benefits (USJOB=ECI) inched up last week to 230,000, hitting the consensus bull's eye.

While that number sits comfortably within a range associated with healthy labor market churn, it would appear that the Fed's hawkish attempt to throw cold water on the economy has not resulted in a deluge of pink slips - yet.

"Anecdotally, it seems that news and rumors of layoffs have picked up in recent months, but the tangible impact on first-time jobless claims has been limited thus far," writes Jim Baird, CIO at Plante Moran Financial Advisors.

It goes beyond anecdote. A week ago, the most recent Challenger report showed pre-announced layoffs doubled last month, and are up 417% year-on-year.

Ongoing claims (USJOBN=ECI), reported on a one-week lag, delivered an upside surprise, jumping 3.9% to 1.671 million, the highest reading since February, zeroing in on the pre-pandemic level of around 1.7 million.

This indicates that the freshly jobless are taking longer to new gigs, and suggests early rumblings of a loosening labor market.

Separately, late Wednesday afternoon the Federal Reserve released its report on outstanding consumer credit (USCRED=ECI), which increased by $27.08 billion in October, a 4.9% acceleration.

Behind the headline, non-revolving credit outstanding - which includes big-ticket items such as cars and tuition - grew by $16.98 billion, a 5.3% deceleration.

But revolving credit, which covers credit card spending, jumped 28%.

And that can't be entirely blamed on the holiday shopping season. Revolving credit outstanding is up 10.4% year-on-year, having erased the "great paydown" dip back in April.

The resiliency of American consumers, who carry about 70% of the economy on their weary shoulders, continues to impress despite dour sentiment readings.

And while a great deal of savings was accumulated and credit card balances were paid down amid social distancing mandates, those things have reversed since inflation soared to four-decade highs.

As Nancy Vanden Houten, lead U.S. economist at Oxford Economics, puts it: "Some of the increase likely reflects an increased reliance on borrowing to finance spending in an environment of high inflation."

Indeed, while a great deal of savings was accumulated and credit card balances were paid down amid social distancing mandates, those things have reversed since inflation soared to four-decade highs.

"We anticipate credit card borrowing to decline as consumer spending slows and as lending standards become more restrictive as the economy navigates a mild recession," Houten adds.

The graphic below shows the saving rate sinking. Typically, that's a sign of rosy consumer expectations, but that's not the case this go-around. And outstanding plastic debt has zoomed to $1.171 trillion. That's a state of affairs that cannot go on forever.

Wall Street appears to have dragged itself out of its funk, with the three major U.S. stock indexes on course to snap their respective losing streaks.

All three major indexes were sharply higher, with Apple AAPL and Amazon.com AMZN boosting the Nasdaq to the strongest gain.

Economically sensitive chips SOX, smallcaps RUT, and transports DJT were outperforming.

(Stephen Culp)

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ONE IN THREE AMERICANS SAY THEY'RE WORSE OFF FINANCIALLY - FIDELITY [1025 EST/1525 GMT]

Surging inflation of the last year has made its presence known in American wallets and minds, with many feeling less-than-optimistic about the coming year.

More than a third of respondents say they’re in a worse financial situation than last year, likely due to inflation concerns, according to a Fidelity Investments’ study.

Adding to concerns, only 65% believe they’ll be better off in the coming year, down from 72% in the last study.

Nevertheless, resilience remains. About half of the respondents said they’re ready to "live sensibly" or "plan ahead."

"After the stresses of the last few years, Americans are understandably taking a pragmatic view of their financial situation," said Stacey Watson, senior vice president of Life Event Planning, Fidelity Investments.

Their top financial resolutions include - save more money (39%), pay down debt (32%), and spend less money (28%).

(Bansari Mayur Kamdar)

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STOCK INDEXES UP, BUT FED POLICY KEEPS JITTERS HIGH (0950 EDT/ 1450 GMT)

Wall Street opened in a better mood on Thursday as investors were lured by lower prices even as jitters over continuing Federal Reserve rate hikes and the probability of a recession remained.

Data on Thursday showed that the number of Americans filing new claims for unemployment benefits rose moderately last week, but the labor market remains tight, which is underpinning expectations that the Fed will keep raising rates, albeit at a slower pace.

The U.S. central bank is widely expected to increase rates by an additional 50 basis points when it concludes its two-day meeting next Wednesday. A possible wildcard, however, will be highly anticipated consumer price data for November, which is due on Tuesday.

The Dow Jones Industrial Average DJI was the best performing major index, rising by 0.4%, while the Nasdaq Composite IXIC lagged. Energy SPN led gains among the major S&P 500 subsectors, while utilities S5UTIL was the worst performer.

Here is where markets stand in early trading: