The S&P 500 and Nasdaq Composite ended with gains on Friday, but still posted a loss for the week as recession fears continue to weigh on investors. Sentiment has been dampened by worries over the future of interest rate hikes by the Federal Reserve. Economic data released through the week pointed to a still robust economy and tight labor market that is only now beginning to show some signs of cooling due to the central bank’s aggressive rate hikes. On the political front, the House of Representatives passed the $1.7T bill to fund government operations. The S&P 500 ended the week down about 0.2% for the week to post its third successive weekly decline. Of the 11 S&P 500 sectors, six ended the week in the green, led by energy. The Nasdaq Composite lost 2% for the week to also record a third straight weekly decline. The Dow posted a 0.5% gain on Friday and was in positive territory for the week. For the month, the S&P 500 has lost 5.8%, while the Dow has shed 4% and the Nasdaq is down 8.5%. Read Seeking Alpha’s Catalyst Watch for a preview of events for the holiday-shortened week ahead.
Elon Musk confirmed this week he will step down as head of Twitter (TWTR) once he finds a replacement.
“I will resign as CEO as soon as I find someone foolish enough to take the job! After that, I will just run the software & servers teams,” Musk tweeted on Tuesday night.
Musk launched a referendum poll on his leadership at the social media company over the weekend. In then end, more than 10M users, or 57.5%, voted that he should step down. Musk said he would abide by the results of the poll. He had also said that Twitter would put major policy changes at the social media company up to a vote by users in the future.
But Musk did cast some doubt on the results indirectly and said Twitter would narrow who could vote in future polls.
A Twitter user posted on Monday that “Blue subscribers should be the only ones that can vote in policy related polls. We actually have skin in the game.” In response, the Tesla (TSLA) CEO and Twitter chief said: “Good point. Twitter will make that change.” Musk also replied with “interesting” to a tweet that suggested bots had dominated the poll yesterday where Musk asked if he should remain at the top spot of Twitter.
“Dear Santa, please bring equities for next year” is the simple message from the latest Seeking Alpha poll. More than 2,300 readers responded to this week’s Wall Street Breakfast poll. Asked where they would deploy most of their investing capital in 2023, a vast majority of readers said “stocks.”
More than 62% of respondents will tilt most of their investments to equities (SPY) (QQQ) (IWM) (URTH), according to the results. For the more risk-averse, cash (SPRXX) at 17.5% was a favorite over bonds (TBT) (TLT) (SHY) (JNK) (LQD) (BNDW) at 12.2%, indicating that those investors are skeptical of Fed rate cuts coming next year.
The latest Summary of Economic Projections “shows the ‘median’ FOMCer expects short rates to rise to 5.1%, and remain there for the entirety of 2023, inflation to remain hundreds of basis points above target through the end of next year, the yield curve to remain in inversion for two more years (given the current level of long rates) and the unemployment rate to ‘only’ rise 110 bps from recent trough to prospective peak,” MKM strategist and economist Michael Darda wrote in a note (emphasis his).
Rounding out the results, 5.4% said they will put most of their capital to work in commodities (USO) (GLD) (DBC), nudging out crypto (BTC-USD) (ETH-USD) (OTC:GBTC) at 2.7%.
Wall Street skeptical: The confidence in stocks from those surveyed is in sharp contrast to the expectations from Wall Street strategists.
Strategists expect below-average returns for the S&P 500 (SP500) (SPY) in 2023, with many of their colleagues on the economics side predicting a global recession. On average, the 2023 end price target for major Wall Street shops is 4,080, a little less than a 7% rise from current levels.
On the top end, Fundstrat’s Tom Lee is the most bullish with a target of 4,750. BNP Paribas’ Greg Boutle is the most bearish, predicting a drop to 3,400. Among other notable calls, J.P. Morgan’s Dubravko Lakos-Bujas is expecting the S&P to close out next year at 4,200, a view also shared by Wells Fargo’s Chris Harvey. Goldman Sachs’ David Kostin, Citi’s Scott Chronert and BofA’s Savita Subramanian all predict a mostly sideways year with a target of 4,000.
No Santa yet: The stock market would need a major rally on this Friday for a Santa Claus rally to appear. The S&P is currently down 1.45% for the week leading into Dec. 25 and the three-day Christmas weekend. But opinion is divided on when exactly a Santa Rally appears.
For those in the camp that it is the week leading up to Jan. 2, there is a chance bulls could prompt some outsize gains in next week’s holiday-shortened, low-volume trading. (10 comments)
Consumers are looking more miserly than expected into the year-end, according to Wall Street channel checks. Nearly across the board, analysts are voicing concerns on consumer belt-tightening, coupled with a shift away from goods consumption. While e-commerce spending was noted as on the rise nominally, as reflected in Adobe Black Friday sales data, inflation dampens enthusiasm on that front. Meanwhile, retail sales data overall indicates brick-and-mortar spending is slowing substantially as well.
“Inflation is pinching consumers at a record level, credit is harder to find, while job strength is the only thing better than a year ago,” Evercore ISI told clients in a downbeat note on holiday sales. “To save money, consumers are going Scrooge by trading down (cheaper items), trading out (fewer gifts), and waiting until the last minute for markdowns and deals.” The firm added that consumers are spending more on staple categories at retailers like Walmart (WMT), Costco Wholesale Corporation (COST), and Kroger (KR) and cutting spending on products in the electronics, sporting goods, and apparel categories. Best Buy (BBY) and Target (TGT) were cited as prominent retailers on the “naughty list.”
Bank of America data reflected a similar dynamic, with a particular focus on the hit to apparel sales ahead of Christmas. According to the bank data, retail spending on clothing slumped over 9% year over year in November despite Black Friday sales. Increasing spend on experiences versus goods as well as inflationary impacts were cited as factors driving the trend in addition to the overall pull-back pinpointed by Evercore. (34 comments)
Tesla (TSLA) shares approached a 70% drawdown for 2022 this week and CEO Elon Musk promised investors he would not sell any more TSLA shares for the next two years.
“I won’t sell stock until, I don’t know, probably two years from now. Definitely not next year under any circumstances and probably not the year thereafter,” Musk said in a Twitter Spaces chat.
Analysts warned that Elon Musk’s Twitter role has created a large overhang on the stock, even though has confirmed he is looking for a CEO replacement for the social media company.
Shares of Tesla have been in a strong downtrend over the last few weeks and carved out a new multi-year low of $135.89 on Thursday. Still, retail net buyers of TSLA stock has been on the rise since October per tracking by Vanda Research and some longtime bulls on Wall Street are seeing value at the reduced price.
Notably, Morgan Stanley reiterated its Overweight rating on Tesla and price target of $330 (139% upside). Analyst Adam Jonas and team are looking for Tesla to use its cost and scale advantage as a competitive force.
“Tesla’s price cuts started in China and we expect them to quickly spread to Europe and the US. While circular in nature, lower EV prices are important for the next leg of mass adoption, but depress the returns of many of the companies expected to compete against Tesla.”
On Seeking Alpha, author Brett Ashcroft Green said a recessionary environment entering 2023 should give investors a greater chance to buy Tesla at a discount for possibly the first two quarters of the year before a Fed pivot in the summer sends tech and growth stocks bouncing well off the bottoms.
SBF makes bail, associates flip
FTX co-founder and former CEO, Sam Bankman-Fried was released after posting bond of $250M and will be allowed to live in his parents’ house in California while waiting for his trial on charges of fraud. Assistant U.S. Attorney Nicolas Roos had proposed the bail terms and alleged that Bankman-Fried “perpetrated a fraud of epic proportions.”
Also this week, Caroline Ellison, the former CEO of Alameda Research, and Gary Wang, an FTX (FTT-USD) co-founder and former chief technology officer, both of whom have close ties to former FTX CEO Sam Bankman-Fried, pled guilty to federal criminal fraud charges.
In a Wednesday night statement posted on Twitter, US Attorney for the Southern District of New York Damian Williams said that the duo were charged due to “their roles in the fraud that contributed to FTX’s collapse.” Ellison and Wang are also cooperating with the Southern District as the feds build their case against Bankman-Fried.
Williams also sent a warning to others. “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it. We are moving quickly and our patience is not eternal.” On Dec. 12, SBF was charged by a federal court in New York with multiple charges including wire fraud, securities fraud, money laundering, and violations of campaign finance laws.
The SEC complaint against Ellison and Wang alleges that Ellison, under direction from Bankman-Fried, manipulated the price of FTT, an FTX-issued exchange crypto security token, by buying large amounts on the open market to artificially inflate its price. The SEC alleges that Wang created FTX’s software code that allowed Alameda to divert FTX customer funds, and that Ellison misused these funds for Alameda’s trading activity.
“When FTT and the rest of the house of cards collapsed, Mr. Bankman-Fried, Ms. Ellison, and Mr. Wang left investors holding the bag,” SEC Chairman Gary Gensler said in a statement. (50 comments)
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