Missing Santa doesn't bode well for 2023

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Main U.S. indexes firm up, all now positive: DJI up ~0.7%
  
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Energy leads S&P 500 sector gainers; cons disc sole loser
  
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Dollar falls; gold, crude, bitcoin gain
  
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U.S. 10-Year Treasury yield rises to ~3.69%
  
 
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MISSING SANTA DOESN'T BODE WELL FOR 2023 (1345 EST/1845 GMT)
With nearly 14 trading days in the books for December and only seven sessions to go, the S&P 500 is down more than 
6% for the month and it's looking unlikely that Santa Claus will 
make an appearance with a year-end rally, which may spell 
trouble for equities next year. 
According to Jessica Rabe, co-founder at DataTrek Research in New York, since 1928, the benchmark S&P index has only been 
down on a total return basis 27% of the time for an entire year, 
in which it lost an average of 13.3%. This year, the S&P is down 
nearly 20% on a price basis. 
Narrowing it down further, Rabe notes the index has only seen a negative total annual return in two consecutive years on 
eight occasions since 1928 - during the Great Depression, World 
War II, the 1973-1974 oil crisis and recession, and the end of 
the dotcom bubble in 2000 to 2002. 
On only three occasions did the index see negative returns for three straight years and only once for four straight years. 
Rabe said this means the index has fallen for two consecutive years less than 10% of the time, and when the index 
did see a negative total annual return, it was positive the 
following year 68% of the time with an average gain of 12.6%, 
with the only multi-year declines due to a major economic or 
geopolitical event. 
However, when there is a negative annual return of less than 10% in the first year, which has happened 56% of the time, the 
average return was a negative 6%. The next year, the index was 
then positive 79% of the time with an average return of 17.5%. 
But in the 44% of instances the index was down 10% or more in the first year, with an average decline of 22.6%, the index 
only saw a positive return 55% of the time with average gain of 
6.4% the next year. 
Rabe's bottom line is that when the index is down in the double digits as it is today, the odds of it being positive next 
year are essentially a coin flip and the returns aren’t nearly 
as promising as they would be if it ended down less than 10%. 
"If there had been a real 'Santa Claus rally' this month, the S&P might have ended the year with less than a double-digit 
decline. Things have not turned out that way thus far, and this 
may be telling us something important about 2023." 
High-profile investor Cathie Wood's ARK Innovation ETF is trading at 2017 lows as rising interest rates dulled 
the allure for equities, especially high-growth stocks this 
year. 
ARKK has lost 66% so far in 2022, adding to its 24% drop last year, as higher yields hammered its components including 
Zoom Video Communications and Roku Inc, and 
other "innovative" growth stocks that Wood focuses on. 
The fund has a 7.4% exposure to Tesla, which alone has lost nearly half its market value this quarter as investors 
worry about chief executive Elon Musk's distraction with 
Twitter. 
The ARKK fund's total net assets have shrunk to $6.3 billion as of Dec. 19 from its month-end peak of $25.3 billion in June 
2021, according to Refinitiv Lipper data. 
Meanwhile, AXS Short Innovation daily ETF that tracks the inverse daily price performance of ARKK has jumped 
76% YTD. 
YTD performance of ARKK's top five holdings as of Dec. 20: Company                               YTD % change 
1. Zoom Video Communications          -63% 
2. Exact Sciences Corp                -35% 
3. Tesla Inc                          -59% 
4. Roku Inc                           -81% 
5. Block Inc                          -63%

AS 2022'S CURTAIN COMES DOWN, HERE'S WHAT 2023'S STAGE MAY LOOK LIKE -NUVEEN (1215 EST/1715 GMT)

With 2022 approaching its curtain call, Saira Malik, chief investment officer at Nuveen, says expect both more and less of the same in 2023.

Malik' outlook includes:

Malik believes S&P 500 2023 earnings estimates remain too high. Meanwhile, any recession, and its associated disinflation, will weigh on corporate revenue and earnings growth, and could lead to further equity market volatility through the first half of the year.

Given that household savings rates have shrunk, while there has been a dramatic in increase revolving credit, she says consumer balance sheets are now being weighed down by debt.

Malik sees an expected deterioration of economic activity and loosening of labor markets as red flags for certain equity market sectors, especially consumer discretionary.

That said, according to Malik, historically, equity markets begin their recovery three to six months before the end of a recession, so "we think investors should keep a keen eye out for industries and sectors that are well-positioned for a recessionary and post-recessionary economic environment."

Heading into year-end, Nuveen continues to prefer defensive equity positioning, allocating to dividend growth stocks and U.S. public infrastructure, which can serve as a hedge against inflation.

However, since Malik believes that the bulk of Fed’s hikes are in the rear-view mirror, it may be time to start dollar-cost-averaging into sectors that have been hurt the most this year, including semiconductors and software.

Lastly, Malik believes the materials sector may contain businesses that can protect margins during an economic downturn

by maintaining lower input costs and pricing power.

HOUSING STARTS, PERMITS GROAN UNDER THE WEIGHT OF RISING INTEREST RATES (1125 EST/1625 GMT)

Data released on Tuesday sang a familiar tune; the housing market's boom has been dragged back to earth by the weight of

its pandemic-assisted success.

A report from the Commerce Department showed groundbreaking on new U.S. homes inched down 0.5% last month to 1.427 million units at a seasonally adjusted annualized rate (SAAR), landing north of the 1.4 million expected.

The drop was largely attributable to a 4.1% drop in single family projects, which accounts for the lion's share of the total and offset a 4.8% increase in projects with more than five units.

And building permits - considered among the most forward-looking housing market indicators - tumbled by 11.2% to 1.342 million units SAAR, a far bigger drop than the 1.8% economists predicted.

"The drop in permits, along with pessimistic homebuilder sentiment, point to further weakness in housing construction in the months ahead as high interest rates side-line many buyers," writes Nancy Vanden Houten, lead U.S. economist at Oxford Economics.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, suggests more downside for permits in the coming months.

"The number of authorized projects which have not been started remains extremely elevated, so permits likely will fall further still; in the face of falling demand, developers don’t need to keep adding to their pipeline at the current pace," Shepherdson says.

The housing sector, which was the life of the COVID-era party, as homebuyers fled for the suburbs amid social distancing restrictions and the new work-from-home normal, has since come crashing to earth as record low inventories launched home prices into orbit and tighter financial conditions sent mortgage rates hiking in the Himalayas.

Many potential homebuyers, especially at the lower end of the market, now find the prospect of making monthly mortgage payments has slipped beyond the realm of affordability.

This sorry state of affairs was reflected in Monday's homebuilder sentiment data, which has now notched 12 consecutive months of declines, dipping in December to a rounding error above the short-lived pandemic panic of April 2020.

Tomorrow brings weekly mortgage demand data and the National Association of Realtors' existing home sales number for November, which consensus has sliding 5.4% to 4.20 million units SAAR.

But while building permits are indeed a decent gauge of where residential construction will be a month or three down the road, housing stocks are the most forward looking indicators of them all.

While the Philadelphia SE Housing index and the S&P 1500 Home Building index both largely underperformed the broader market for much of 2022, that gap has since narrowed, suggesting the battered has-been sector might be nearing a state of equanimity:

Wall Street was mixed after reversing its initial dip, with the Dow slightly positive while the S&P 500 and Nasdaq were modestly lower, after a four-day sell-off which saw the S&P 500 fall about 5%.

U.S. STOCKS SHAKE OFF BOJ MOVE TO CLIMB FROM INITIAL LOWS (1002 EST/1502 GMT)

After opening slightly lower, major U.S. indexes are now showing slight gains, putting them on track to snap a four-session losing streak after a surprise policy change by the Bank of Japan.

The BoJ tweaked its bond yield curve control which will allow long-term interest rates to rise more as the central bank attempts to tamp down the costs of prolonged monetary stimulus.

The move pushed the yen to its highest level against the dollar since August, while U.S. Treasury yields climbed, putting the 10-year yield on track for its third straight session of gains.

Shares of General Mills are down nearly 5% even after the maker of breakfast cereals reported earnings and raised its full-year outlook.

Below is your market snapshot:

S&P 500 INDEX: DARKNESS BEFORE THE DAWN? (0900 EST/1400 GMT)

The shadow of the bear has loomed large in 2022. In fact, the S&P 500 index is on track for its biggest yearly decline since 2008.

And just since its December 13 high, the benchmark index has fallen more than 7% on an intraday basis. It now stands down nearly 20% so far this year on a closing basis.

That said, with the arrival of the winter solstice in the Northern Hemisphere this week, traders will be watching closely to see if it kicks off a flurry of even darker days, or if instead, market action begins to brighten.

Proponents of Gann Theory, or methods of technical analysis developed by W.D. Gann, as well as other traders with an astro-focus, may look for either an acceleration of the prevailing trend, or a reversal, around the summer and winter solstices, as well as the fall and spring equinoxes.

Just looking back over the past five years or so, a number of major reversals in the S&P 500 have developed around these potential turn dates:

The 2022 winter solstice, or the day with the least amount of daylight/longest night of the year, occurs on Wednesday, December 21 at 4:48 PM EST.

Thus, it now remains to be seen if last week's high came under the solstice's orb of influence, and the SPX is in the early stages of a fresh collapse, or if instead, a significant low may be at hand. Action over the next several weeks or so may provide clarity.

So far, the SPX is holding the 3,815-3,810 support zone on a closing basis. On Monday, it fell to 3,800.04 before closing at 3,817.66. Overnight, the futures slid more than 40 points, but are now just slightly lower on the day.

In terms of next significant SPX support, there is a weekly Gann Line, now around 3,758, and the Nov. 3 low was at 3,698.15.

If an upward reversal is to come, it may be marked by heightened volatility, and/or a violent snap higher.

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