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  • U.S. stocks could fall 10% as ‘pain trade’ takes hold before bouncing back later in the year

    U.S. stocks could fall 10% as ‘pain trade’ takes hold before bouncing back later in the year

    The year ahead is promising not to be an easy one for investors as a recession threat looms, but Bank of America is offering some advice on when things might get easier.

    The bad news is things might get harder first, even after global stocks have seen a strong start to the year.

    A team of strategists led by Michael Hartnett told clients in a note on Friday that U.S. stocks could fall 10% from current levels before rallying later this year as investors start to expect a less aggressive policy stance from the Federal Reserve.

    Stocks could slide as the U.S. economy slows and corporate earnings weaken. But there could be a light at the end of the tunnel.

    A “recession trade requires patience,” he said in a note to clients on Friday.

    He described the dynamic as a “pain trade,” meaning stock markets are at risk of losing ground until the Federal Reserve finally signals that it will start cutting interest rates.


    BofA Global Investment Strategy/Bloomberg

    The “pain trade is up ’til Fed rate forecasts, yields, credit spreads trough signal peak Goldilocks,” he said.

    Markets strategists sometimes use the term “goldilocks” to refer to a not-too-hot, not-too-cold economy that continues to grow without stoking intense bouts of inflation. Such an environment is typically ideal for risk assets, as investors experienced during the decade that followed the financial crisis.

    Following the economic data released Thursday, which showed the labor market chugging along as inflation continued to recede, Hartnett said it doesn’t get more “goldilocks” than that.

    Hartnett sees the S&P 500
    SPX,
    +0.27%
    positioned to trade between 3,600 and 4,200 but expects the former ahead of the latter. That’s actually the opposite of what Stifel Chief Equity Strategist Barry Bannister had to say earlier this week.

    Bannister sees a window for a stock-market rally in the first six months of this year, but then trouble in the latter half. Among his concerns are inflation turning back up later in the year, forcing the Fed to tighten financial conditions.

    And: The Fed has won its ‘war’ against inflation. Now it needs to stop hiking interest rates, JP Morgan analyst says

    A reminder that all really isn’t that rosy came from JPMorgan JPM CEO Jamie Dimon who rattled markets on Friday with his warning that geopolitical and inflation “headwinds” were real concerns and “they may not go away.”

    Read: JPMorgan, Wells Fargo, Bank of America and Citi beat earnings expectations, but worries about ‘headwinds’ remain

    Hartnett highlighted notable inflows to investment-grade bond funds and emerging-market bonds and stocks in his note as well. On the flip side, U.S. funds have seen outflows. European markets have outperformed the U.S. so far this year, with the Euro Stoxx 50
    FESX00,
    +0.26%
    up 6.2% in that time, compared with 3.5% for the S&P 500.

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  • Pentagon drops COVID-19 vaccine mandate for troops

    Pentagon drops COVID-19 vaccine mandate for troops

    WASHINGTON — The Pentagon formally dropped its COVID-19 vaccination mandate Tuesday, but a new memo signed by Defense Secretary Lloyd Austin also gives commanders some discretion in how or whether to deploy troops who are not vaccinated.

    Austin’s memo has been widely anticipated ever since legislation signed into law on Dec. 23 gave him 30 days to rescind the mandate. The Defense Department had already stopped all related personnel actions, such as discharging troops who refused the shot.

    “The Department will continue to promote and encourage COVID-19 vaccination for all service members,” Austin said in the memo. “Vaccination enhances operational readiness and protects the force.”

    Austin said that commanders have the authority to maintain unit readiness and a healthy force. He added, however, that other department policies — including mandates for other vaccines — remain in place. That includes, he said, “the ability of commanders to consider, as appropriate, the individual immunization status of personnel in making deployment, assignment, and other operational decisions, including when vaccination is required for travel to, or entry into, a foreign nation.”

    The contentious political issue, which has divided America, forced more than 8,400 troops out of the military for refusing to obey a lawful order when they declined to get the vaccine. Thousands of others sought religious and medical exemptions. Austin’s memo ends those exemption requests.

    Austin, who instituted the mandate in August 2021 after the Pfizer vaccine was approved by the Food and Drug Administration and as the coronavirus pandemic raged, was staunch in his desire to maintain it insisting the vaccine was necessary to protect the health of the force. He and other defense leaders argued that for decades troops, particularly those deployed overseas, had been required to get as many as 17 different vaccines. No other vaccine mandates were affected by the new law.

    But Congress agreed to rescind the mandate, with opponents reluctantly saying that perhaps it had already succeeded in getting the bulk of the force vaccinated. Roughly 99% of active-duty troops in the Navy, Air Force and Marine Corps had gotten the vaccine, and 98% of the Army. The Guard and Reserve rates are lower, but generally are more than 90%.

    Austin’s memo was unapologetic in his continued support for the vaccine, and his belief that the mandate kept the force healthy and able to protect America. The Pentagon’s vaccine efforts, he said, “will leave a lasting legacy in the many lives we saved, the world-class force we have been able to field, and the high level of readiness we have maintained, amidst difficult public health conditions.”

    In addition to ending efforts to discharge troops who refuse the vaccine, Austin’s memo says that those who sought exemptions and were denied will have their records updated and any letters of reprimand will be removed.

    Those who were discharged for refusing to obey a lawful order to take the vaccine received either an honorable discharge or a general discharge under honorable conditions. Austin’s memo says that anyone who was discharged can petition their military service to request a change in the “characterization of their discharge” in their personnel records. It does not, however, say what possible corrections could be awarded.

    Austin’s decision leaves some discretion to commanders, allowing them to decide whether they can require vaccines in some circumstances, such as certain deployments overseas.

    Military officials vividly recall the overwhelming crisis of the USS Theodore Roosevelt, the Navy aircraft carrier that was knocked out of duty and sidelined in Guam for 10 weeks in early 2020 as the emerging virus swept through the ship. More than 1,000 crew members eventually became infected, and one sailor died.

    Military leaders worry that if troops begin to refuse the vaccine in large numbers, similar outbreaks could occur. The risk is particularly high on small ships or submarines where service members are jammed into close quarters for weeks or months at a time, or on critical combat missions, such as those involving special operations forces that deploy in small teams.

    According to data compiled by the military as of early December, the Marine Corps leads the services with 3,717 Marines discharged. There have been 2,041 discharged from the Navy, 1,841 from the Army and 834 from the Air Force. The Air Force data includes the Space Force.

    What’s not clear is if the services, who are facing recruiting challenges, will want — or be able to — allow any of those service members to return to duty, if they still meet all necessary fitness and other requirements.

    Lawmakers argued that ending the mandate would help with recruiting. Defense officials have pushed back by saying that while it may help a bit, a department survey during the first nine months of last year found that a large majority said the mandate did not change the likelihood they would consider enlisting.

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  • Kevin McCarthy speaker drama enters fourth day: Watch the House vote here.

    Kevin McCarthy speaker drama enters fourth day: Watch the House vote here.

    Drama over who will be the next speaker of the U.S. House of Representatives entered a fourth day Friday, as California Republican Kevin McCarthy failed to win the gavel after 11 straight ballots but signs of a deal were reportedly emerging.

    Tune in here to watch all the action from the House floor:

    Watch live coverage of the Speaker of the House vote as Congress begins its 118th session.

    Also read: Fight over House speaker job offers ‘ominous portent of how the U.S. debt-ceiling fight will go,’ analyst says 

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  • Dow up 500 points as pace of jobs growth, wage gains cools in December

    Dow up 500 points as pace of jobs growth, wage gains cools in December

    U.S. stocks advanced Friday, with the Dow rising 500 points, as monthly Labor Department data showed the pace of job creation cooled in December while wage gains slowed, fueling hopes that the Federal Reserve’s interest rate hikes are starting to have the desired effect.

    How are stocks trading
    • The S&P 500
      SPX,
      +1.85%
      gained 61 points, or 1.6%, to 3,869.

    • Dow Jones Industrial Average
      DJIA,
      +1.85%
      climbed 528 points, or 1.6%, to 33,458.

    • Nasdaq Composite
      COMP,
      +2.93%
      advanced 155 points, or 1.5%, to 10,460.

    After several sessions of choppy trade stocks finished lower on Thursday. However, thanks to Friday’s strong rebound, the S&P 500 is on track to finish the week in the green after four consecutive weekly declines.

    What’s driving markets

    Stock-market bulls cheered Friday’s jobs report, which showed that the pace of job creation and wage growth cooled last month, contradicting labor-market data released earlier in the week.

    The December nonfarm payrolls report showed 223,000 jobs were created in December, above expectations for 200,000 new jobs, though the pace of job creation slowed from 256,000 during November. Wages grew by just 0.3% in December, down from 0.4% a month earlier.

    See: U.S. adds 223,000 jobs in December and jobless rate matches 55-year low of 3.5%

    While stocks advanced in the wake of the data, it seems the labor market has continued to confound expectations for an imminent recession, market analysts said. While the pace of wage growth has slowed slightly, workers continued to command higher pay, even if wages have lagged headline inflation.

    “This is not going to push the Fed off its agenda one iota,” said Brad Conger, deputy chief investment officer at Hirtle, Callaghan & Co., in commentary about Friday’s data.

    Numerous Fed officials have made clear that they want to see unemployment climb in order to help suppress inflation and engineer a return to the Fed’s 2% target. Senior Fed officials expect unemployment to rise by nearly a percentage point in 2023, according to projections released in December.

    “The release was a win-win from the Fed’s perspective, as it signaled that wage inflation is moderating while job growth remains steady,” said Peter Essele, Head of Portfolio Management, Commonwealth Financial Network. “Coupled with the fact that headline inflation continues to move in the right direction, there’s a growing chance the Fed may be able to navigate a soft landing in the economy. If it meets its target, 2023 could be one of the best years for markets given the amount of negative investor sentiment currently weighing on prices.”

    The S&P 500 index is down more than 19% from its 52-week high after the Fed raised interest rates by 4.25 percentage points in 2022 in an attempt to crush inflation that hit a four-decade high of 9.1% in June, according to the consumer-price index.

    Jobs data released earlier in the week painted a picture of a labor market that had remained robust despite the Fed’s best efforts, and it’s not clear whether Friday’s data have meaningfully changed this perception, market strategists said.

    JOLTS data released Tuesday showed more than 10 million jobs remained open. Analysts noted that the ADP private sector employment report released on Thursday was stronger than expected, which triggered a selloff in stocks.

    Later Friday morning in New York, the ISM services sector index for December turned negative for the first time since May 2020, indicating a slowdown in the all-important services sector. The ISM services index slowed to 49.6% in December from 56.5%, below forecast.

    The drumbeat of cautious Fedspeak continued on Friday, with Federal Reserve Governor Lisa Cook saying that inflation “remains far too high, despite some encouraging signs lately.” The pace of inflation has cooled in recent months, according to the consumer-price index.

    Atlanta Fed President Raphael Bostic said on CNBC Friday that the December jobs data “doesn’t really change my outlook at all.”

    A number of other Fed speakers are expected Friday, including Richmond Fed President Tom Barkin at 12:15 p.m. and Kansas City Fed President Esther George at 1 p.m.

    Single-stock movers
    • Technology stocks may be under pressure on Friday after Samsung Electronics KR:005930 said quarterly profits fell to an eight-year low as it saw weaker demand for chips and smartphones.

    • Southwest Airlines Co. 
      LUV,
      +2.51%
      shares are worth watching after the airline warned Friday that it expects to report a surprise net loss for the fourth quarter after canceling thousands of flights over the holidays.

    • Tesla Inc. shares are sinking lower after the electric vehicle maker cut prices in China again.

    • World Wrestling Entertainment 
      WWE,
      +22.56%
      shares soared as founder Vince McMahon returned to the company.

    • Shares of Bed Bath & Beyond Inc.
      BBBY,
      -21.60%
      slumped as the company said it was likely to file for bankruptcy.

    • Costco Wholesale Corp. 
      COST,
      +6.77%
      shares climbed on strong holiday sales. 

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  • U.S. adds robust 223,000 jobs in December, but wage growth slows in sign of ebbing inflation pressures

    U.S. adds robust 223,000 jobs in December, but wage growth slows in sign of ebbing inflation pressures

    The numbers: The U.S. generated 223,000 new jobs in December to mark the smallest increase in two years, but the labor market still showed surprising vigor even as the economy faced rising headwinds.

    The unemployment rate, meanwhile, slipped to 3.5% from 3.6%, the government said Friday.

    The jobless rate has touched 3.5% several times since 2019. That matches the lowest rate since 1969.

    One good sign for Wall Street and the Federal Reserve. Hourly pay rose a modest 0.3% last month, suggesting wages are coming off a boil.

    The increase in wages over the past year also slowed to 4.6% from 4.8%, marking the smallest gain since the summer of 2021.

    U.S. stocks
    DJIA,
    -1.02%
     
    SPX,
    -1.16%
    rose in premarket trades and bond yields edged higher after the report.

    Economists polled by The Wall Street Journal had forecast a smaller increase in new jobs of 200,000.

    The resilient labor market is a double-edged sword for the Federal Reserve.

    For one thing, a scarcity of workers has driven up wages and threatens to prolong a bout of high inflation. The Fed wants the labor market to cool off further to ease the upward pressure on prices.

    Yet the strong labor market also offers the best hope for the Fed to avert a recession as it jacks up interest rates to the highest level in years. Higher rates reduce inflation by slowing the economy.

    James Bullard, president of the St. Louis Federal Reserve, said on Thursday the odds of so-called soft landing have gone up in part because of the sturdy labor market. He was referring to a Goldilocks scenario in which the central bank vanquishes inflation without causing a recession.

    Senior Fed officials still want to see the jobs market slacken some more, however. They are likely to keep raising rates — and keep them high — until demand for labor, goods and services ease up.

    Big picture: The U.S. economy has shown more fragility, especially in segments like housing and manufacturing that are sensitive to high interest rates. Many economists predict a recession is likely this year due to the higher cost of borrowing.

    The Fed, for its part, is trying to thread the needle: Bring down high inflation and keep the economy out of recession.

    Whatever the outcome, one thing is virtually certain: The unemployment rate is expected to rise as U.S. growth wanes. Whether it’s enough to help the Fed achieve is far from clear. 

    Key details: Health care providers, hotels and restaurants accounted for most of the increase in employment last month. They added a combined 150,000-plus jobs.

    Hiring was weaker in most other sectors, suggesting that the labor market is likely to soften further.

    High-tech has been hit particularly hard and is experiencing a wave of layoffs.

    Employment in so-called professional businesses, which includes some tech, fell by 6,000, largely reflecting fewer temps being hired. It was the only major category to post a decline.

    The share of working-age people in the labor force — known as the participation rate — rose a tick to 62.3%.. A lack of people looking for work is a chief source of the labor shortage.

    Hiring in November and October was little changed after government revisions. The economy added 256,000 jobs in November and 263,000 in October.

     Market reaction:  The Dow Jones Industrial Average DJIA and S&P 500 SPX were set to open higher in Friday trades.

    Investors worry a strong labor market will push the Fed to take sterner measures to slow the economy. The slowdown in hiring and wage growth is likely to be seen in a positive light.

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  • What happens while there’s no House speaker? Salaries in limbo, taxpayers’ requests turned away

    What happens while there’s no House speaker? Salaries in limbo, taxpayers’ requests turned away

    If you’ve got a problem that you want your member of Congress to help solve, you may have a bigger problem at the moment: getting a response from their office.

    With business at a standstill in the House of Representatives as the chamber tries again, and again, to elect a speaker, the ramifications of half of Capitol Hill not functioning are spreading.

    From staffers’ salaries in limbo to the direct impact on the District of Columbia, here are a few key ways the failure to settle on a speaker is affecting life inside and outside Washington.

    Who’s getting paid — and when?

    House committee staffers are looking at a deadline of Jan. 13 for the speaker fight being wrapped up and a package of rules being passed, or face not getting paid.

    “Committees need to be aware that should a House Rules package not be adopted by end of business on January 13 no committee will be able to process payroll since the committee’s authority for the new Congress is not yet confirmed,” according to a memo sent out to House committees, as Politico reported.

    The pay period for members-elect began on Jan. 3, as CNN wrote, citing House precedents — but some members have questioned if they’ll see checks or healthcare.

    Who’s answering your calls?

    Former Republican Rep. Billy Long of Missouri on Tuesday tweeted a list of services that could be frozen as members-elect are waiting to be sworn in — including queries about passports, the Internal Revenue Service or immigration. By Thursday, reporters were tweeting about business grinding to a halt because newly elected members haven’t been officially seated.

    What about the District of Columbia?

    The District of Columbia — home to the Capitol building in which the speaker fight is playing out — is dependent on Congress for passing its own laws, since it’s not a state. With the House frozen, the District can’t make new laws.

    Can any bills be passed?

    No. Republicans won the House with promises to investigate the Biden administration, rein in the Internal Revenue Service and extend former President Donald Trump’s tax cuts. No work can start on any of that until a speaker is chosen.

    As of early Thursday afternoon, California Republican Kevin McCarthy had suffered a seventh defeat in his quest to become speaker, and an eighth tally was expected.

     

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  • House adjourns until Thursday as new rounds of voting keep failing to elect speaker

    House adjourns until Thursday as new rounds of voting keep failing to elect speaker

    The U.S. House of Representatives voted on Wednesday night to adjourn until 12:30 p.m. Eastern on Thursday, with the move coming as lawmakers have been unable to elect a new speaker for a second day in a row.

    That vote came after House Republicans briefly reconvened at 8 p.m. Eastern following a flurry of meetings that attempted to find room for compromise.

    Top House Republican Kevin McCarthy keeps hitting resistance in his push to become speaker, falling short of a majority in three rounds of voting on Wednesday afternoon and three earlier rounds of voting on Tuesday.

    CNN and Axios reported Wednesday night that McCarthy offered significant concessions to the defecting Republicans but it was unclear if that would be enough to sway enough of their votes. “No deal yet,” McCarthy said after a closed-door meeting Wednesday night, according to the Associated Press, “But a lot of progress.”

    The House must kick off the new congressional session with the election of a speaker, and it’s required to keep voting until one is chosen. There hasn’t been a need for multiple votes for a speaker’s election since 1923, when nine rounds of voting were required. 

    McCarthy can handle no more than four GOP defections given his party’s 222-212 majority, but more than that number have repeatedly opposed the California congressman.

    In all three rounds of voting on Wednesday, 20 Republicans opposed him and voted instead for Rep. Byron Donalds of Florida, while Rep. Victoria Spartz of Indiana voted “present” after backing McCarthy on Tuesday.

    In Tuesday’s third vote, the number of Republican lawmakers voting against McCarthy rose to 20, up from 19 in the first two rounds. Those 20 backed GOP Rep. Jim Jordan of Ohio on Tuesday, even as Jordan gave a speech in support of McCarthy and didn’t vote for himself.

    Analysts have been warning that the tensions over what’s typically a ceremonial election could signal that the GOP-run House will be dysfunctional throughout 2023 —and that might affect markets eventually.

    “If the House deadlock continues for weeks — or longer — the markets may have to worry about fiscal policy uncertainty,” said Greg Valliere, chief U.S. policy strategist at AGF Investments, in a note.

    “If House Republicans can’t even elect a leader, how will they respond when a debt default crisis looms later this year?”

    Former President Donald Trump offered support for McCarthy in a post on Wednesday morning on Truth Social, his social network.

    “It’s now time for all of our GREAT Republican House Members to VOTE FOR KEVIN, CLOSE THE DEAL, TAKE THE VICTORY,” Trump wrote.

    “DO NOT TURN A GREAT TRIUMPH INTO A GIANT & EMBARRASSING DEFEAT. IT’S TIME TO CELEBRATE, YOU DESERVE IT. Kevin McCarthy will do a good job, and maybe even a GREAT JOB — JUST WATCH!”

    Betting market PredictIt on Wednesday evening was giving McCarthy around a 42% chance of becoming speaker, while No. 2 House Republican Steve Scalise’s chances were around 38%.

    Related: How betting markets got the midterms wrong, and why Biden’s a ‘great bet’ for 2024

    Republicans have taken control of the House thanks to wins in November’s midterm elections, returning to power in that chamber after four years in the minority.

    But the GOP’s hopes for a strong red wave two years into President Joe Biden’s term were dashed, as the party has claimed just a small House majority and Democrats have maintained their grip on the Senate.

    McCarthy has been drawing opposition from about 10% of his fellow House Republicans in large part because he’s viewed as not having done enough to oppose Democrats — as well as being part of the Washington establishment.

    From MarketWatch’s archives (November 2022): McCarthy’s House speaker bid may be in trouble due to Republican objections: ‘He’s not a true conservative’

    GOP Rep. Scott Perry of Pennsylvania, who heads the House Freedom Caucus, described voting against McCarthy as a vote against business as usual in Washington.

    “Everybody came here because they said to their constituents, “This town is broken, and I want to fix it,’” Perry said, as he gave a speech Wednesday on the House floor.

    “Well, how are you going to fix it, if you come to this town and just step right in line and keep doing the same things that everybody has done before?”

    The Freedom Caucus, known for helping to bring about former Speaker John Boehner’s departure from his post in 2015, is made up of several dozen of the chamber’s most conservative Republicans.

    U.S. stocks 
    SPX,
    +0.75%
     
    DJIA,
    +0.40%
    closed with gains on Wednesday. The main equity gauges finished lower on Tuesday in 2023’s first session, after the S&P 500 benchmark fell 19% in 2022, hit by the Federal Reserve’s interest-rate hikes as the central bank tries to rein in inflation.

    Now read: Isolated and humiliated, Russia is biggest geopolitical threat of 2023, analysts say

    Plus: Brace yourself: Your tax refund could shrink in 2023. Here’s why.

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  • U.S job openings stay high at 10.5 million and show labor market still very strong

    U.S job openings stay high at 10.5 million and show labor market still very strong

    The numbers: Job openings in the U.S. fell slightly to 10.46 million in November, but workers were still quitting in droves in a sign the labor market remains quite strong — too strong for the Federal Reserve.

    Job listings declined from 10.51 million in October, the Labor Department said Wednesday. But openings in October were also revised higher.

    The number of job openings is seen as a cue on the health of the labor market and broader U.S. economy. Job postings have slowly receded since hitting an all-time high of 11.9 million last spring.

    The jobs market is still too hot for the Fed, however. The Fed is worried high inflation will persist unless hiring slows and a rapid increase in wages tapers off.

    There were 1.7 job openings for each unemployed worker in November, well above pre-pandemic levels of 1.2. The Fed is watching that ratio closely and wants to see if fall back to pre-pandemic norms.

    Key details: The number of people hired in November dipped to 6.06 million, marking the smallest increase since February 2021.

    Rising interest rates, a slowing economy and worries about recession have spurred businesses to fill fewer open jobs.

    Yet the number of job quitters edged up to 4.17 million. Quits have topped 4 million for a record 18 months in a row. People quit more often when they think it’s easy to get a better job.

    The so-called quits rate among private-sector workers rose to 3% from 2.9%. It peaked at 3.4% near the end of 2021.

    Big picture: The Fed is raising interest rates to slow the economy and reduce the demand for labor as part of a broader strategy to rein in the worst inflation in 40 years.

    Fed officials say the appetite for labor is still too strong and needs to slacken. The ratio of job openings to unemployed workers has slipped from a record 2.0 last spring, but that’s still too high for the central bank.

    Market reaction: The Dow Jones Industrial Average
    DJIA,
    -0.03%
    and S&P 500
    SPX,
    +0.13%
    fell after the job-openings report.

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  • Dow futures jump more than 300 points as traders start 2023 on a bullish note

    Dow futures jump more than 300 points as traders start 2023 on a bullish note

    U.S. stock index futures rose Tuesday as investors returned from the festive break in a generally bullish mood.

    How are stock-index futures trading
    • S&P 500 futures
      ES00,
      +0.49%
      advanced 41 points, or 1.1%, to 3902

    • Dow Jones Industrial Average futures
      YM00,
      +0.42%
      gained 332 points, or 1%, to 33617

    • Nasdaq 100 futures
      NQ00,
      +0.67%
      climbed 122 points, or 1.1%, to 11144

    On Friday, the Dow Jones Industrial Average
    DJIA,
    -0.22%
    fell 74 points, or 0.22%, to 33147, the S&P 500
    SPX,
    -0.25%
    declined 10 points, or 0.25%, to 3840, and the Nasdaq Composite
    COMP,
    -0.11%
    dropped 12 points, or 0.11%, to 10466. The Nasdaq Composite fell 33.1% in 2022, the largest one year percentage decline since 2008.

    What’s driving markets

    After Wall Street’s S&P 500 benchmark dropped nearly 20% in 2022, equity investors appeared determined on Tuesday to start the new year of trading on a positive note.

    Activity in index futures was choppy, however, with the S&P 500 contract wobbling in a 55 point range in early-hours action.

    “The calendar year may have changed, but the themes remain the same as the U.S. and U.K. markets reopen for 2023,” said Richard Hunter, head of markets at Interactive Investor.

    “Recessionary concerns will again top the agenda, underpinned by high inflation and rising interest rates. This in turn could point to a troubled January as investors search for positive indications that the tightening policies of the central banks may begin to ease given weakening economic data,” Hunter added.

    Indeed, the International Monetary Fund greeted the new year with a warning that a third of the global economy will suffer recession in 2023, a downturn that will likely trim corporate profits.

    In addition, a burst of fresh strength in the U.S. dollar
    DXY,
    +1.16%
    on Tuesday – a common reaction to global economic slowdown worries – was likely to further crimp earnings of U.S. multinationals.

    Still, Julian Emanuel , strategist at Evercore ISI, reckoned that such concerns don’t necessarily mean stocks can’t rally.

    “Forecasting an earnings recession in 2023 to accompany the economic recession that now seems inevitable, along with a 2023 year end S&P 500 price target of 4,150, would seem impossible,” he said in a note to clients.

    “Yet not only is there a long history of earnings down/stocks up years (1970, 1982 and 1985 stand out, but there is also the tendency for strong stock/bond return years to follow historically forceful tightening cycles (1982, 1985) particularly in years (1995) following ‘havoc being wreaked’ on a 60/40 portfolio such as 2022’s declines.” Emanuel added.


    Source: Evercore ISI

    U.S. economic updates set for release on Tuesday include the December S&P U.S. manufacturing PMI at 9:45 a.m. and the November reading of construction spending at 10 a.m., both times Eastern.

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  • How a House speaker is elected — and how steep a hill Republican Kevin McCarthy will need to climb

    How a House speaker is elected — and how steep a hill Republican Kevin McCarthy will need to climb

    WASHINGTON (AP) — Kevin McCarthy is set to face a case of déjà vu come Tuesday. The political future of the 57-year-old will once again be at stake as Republican lawmakers decide if he should become House speaker.

    It’s a journey the California lawmaker took once before in 2015, fruitlessly, facing the same opposition from the right flank of the party he is expected to meet this week. His first speakership run came when then–House Speaker John Boehner, a Republican from Ohio, resigned after an internal party battle with members of the ultraconservative House Freedom Caucus.

    More than seven years later, he is the party’s nominee for speaker after leading the Republican Party to a slim majority in the November midterm elections. He secured the support of most of the conference during a closed-door leadership vote shortly after and overcame a challenge from Rep. Andy Biggs of Arizona.

    While McCarthy is as of now facing no serious Republican challenger for the constitutionally mandated office, which would make him second in line to the presidency, his ascension to speaker is an open question — even as, according to an MSNBC report, he has already moved into the speaker’s opulent suite of offices. He is facing entrenched opposition from a small number of conservative lawmakers who in a 222-213 majority could well tank his nomination.

    It is believed his candidacy could absorb no more than four defections. Some 14 Republicans, in the wake of a Sunday letter signed by nine House Republicans, have publicly vowed or suggested continued opposition to a McCarthy speakership.

    House Democrat Eric Swalwell suggested those nine letter signers would ultimately return to the McCarthy fold, while the other five holdouts have characterized themselves as “never Kevin” Republicans.

    See: McCarthy’s longtime ambition of becoming House speaker to come to head on Day 1 of new Congress

    Here’s what you need to know about how the House elects a speaker:

    No speaker, no House

    Choosing a speaker will be the first vote the House will take before new and returning lawmakers are even sworn into office on Tuesday. As set out under the Constitution, the session will begin at noon on Jan. 3, with all the lawmakers seated on the House floor and members from both parties joining in the vote for speaker. It is not a secret ballot.

    The chamber cannot organize until it has a speaker since that person effectively serves as the House’s presiding officer and the institution’s administrative head.

    The House can elect a new speaker at any time if the person occupying that role dies, resigns or is removed from office. Barring that, a speaker is normally elected at the start of a new Congress.

    Lawmakers call out the name of their choice for speaker from the floor, a rare and time-consuming roll call that heightens the drama on the floor. Members often liven up the proceedings by shouting or standing when casting their vote.

    Who can be nominated for speaker?

    In the weeks after an election, the Republican conference and the Democratic caucus hold an informal vote among their members to decide who they want to nominate to lead their party in January. McCarthy won the majority of the Republican vote in a closed-door November meeting. Weeks later, Democrats unanimously chose Rep. Hakeem Jeffries, a New York Democrat, to become their leader as the party transitions into the minority.

    But, once Jan. 3 comes along, members are not obligated to vote for the party’s chosen candidate. While it has been the tradition for the speaker candidate to be a member of the House, it is not required. In past years, President Joe Biden, former President Donald Trump and even a senator, Republican Rand Paul of Kentucky, have received votes for House speaker.

    To be sure, none of them came close to a majority of the vote.

    Let the voting begin

    Once the House is in a quorum — meaning the minimum number of members are present to proceed — the speaker nominee from each party will be read aloud by the respective leaders before a roll call vote to elect a new speaker. The clerk then appoints lawmakers from each party as tellers to tally the votes.

    The candidate to become speaker needs a majority of the votes from House members who are present and voting.

    Historically, the magical number has been 218 out of the 435 members of the House. But many previous speakers, including outgoing Speaker Nancy Pelosi, have ascended to the dais with fewer votes than that, as some members voted present instead of calling out a name. Every lawmaker voting “present” lowers the overall tally needed to reach a majority.

    See: Nancy Pelosi portrait unveiling at Capitol reduces John Boehner to tears

    Also: House Democratic caucus confers ‘speaker emerita’ title on Pelosi as Jeffries takes up party leadership reins

    Many are skeptical that McCarthy will reach a majority to become speaker on the first ballot. Should he come up short, it is likely the clerk will repeat the roll call several times until he is able to garner a majority. McCarthy is expected to be making concessions and compromises with the holdouts until the moment he is able to grasp the gavel, telling reporters on Monday at the Capitol that he expected to “have a good day” on Tuesday.

    From the archives (July 2021): Trump and allies work to rebrand Jan. 6 rioters as patriots, heroes and martyrs

    Also (January 2022): Toeing of party line outweighs deliverables for constituents for many of today’s congressional Republicans

    Also (February 2021): Rep. Marjorie Taylor Greene removed from House committees; 11 Republicans cross aisle in vote

    Gavel passing

    Once a speaker candidate won a majority of the vote, the clerk will announce the results of the election.

    A bipartisan committee, usually consisting of members from the home state of the chosen candidate, will then escort the speaker-elect to the chair on the dais where the oath of office is administered. The oath is identical to the one new members will take once a speaker is chosen.

    The outgoing speaker will usually join the successor at the speaker’s chair, where they will pass the gavel as a nod to the peaceful transition of power from one party leader to another. This time around, that will be Pelosi, the California Democrat who has held the gavel for the last four years.

    MarketWatch contributed.

    Read on: U.S. Rep.–elect Santos should consider quitting over résumé lies, says veteran House Republican

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  • U.S. stocks fall on last trading day of 2022, booking monthly losses and worst year since 2008

    U.S. stocks fall on last trading day of 2022, booking monthly losses and worst year since 2008

    U.S. stocks ended lower Friday, booking their worst annual losses since 2008, as tax-loss harvesting along with anxieties about the outlook for corporate profits and the U.S. consumer took their toll.

    How stock indexes traded
    • The Dow Jones Industrial Average
      DJIA,
      -0.22%
      slipped 73.55 points, or 0.2%, to 33,147.25.

    • The S&P 500
      SPX,
      -0.25%
      shed 9.78 points, or 0.3%, to 3,839.50.

    • The Nasdaq Composite dipped 11.61 points, or 0.1%, to 10,466.48.

    For the week, the Dow fell 0.2%, the S&P 500 slipped 0.1% and the Nasdaq slid 0.3%. The S&P 500 dropped for a fourth straight week, its longest losing streak since May, according to Dow Jones Market Data.

    All three major benchmarks suffered their worst year since 2008 based on percentage declines. The Dow dropped 8.8% in 2022, while the S&P 500 tumbled 19.4% and the technology-heavy Nasdaq plunged 33.1%.

    What drove markets

    U.S. stocks fell Friday, closing out the last trading session of 2022 with weekly and monthly losses.

    Stocks and bonds have been crushed this year as the Federal Reserve raised its benchmark interest rate more aggressively than many had expected as it sought to crush the worst inflation in four decades. The S&P 500 ended 2022 with a loss of 19.4%, its worst annual performance since 2008 as the index snapped a three-year win streak, according to Dow Jones Market Data.

    “Investors have been on edge,” said Mark Heppenstall, chief investment officer at Penn Mutual Asset Management, in a phone interview Friday. “It seems as though the ability to drive down prices is probably a bit easier given just how crummy the year’s been.”

    Stock indexes have slumped in recent weeks as hopes for a Fed policy pivot faded after the central bank in December signaled that it would likely wait until 2024 to cut interest rates.

    On the final day of the trading year, markets were also being hit by selling to lock in losses that can be written off of tax bills, a practice known as tax-loss harvesting, according to Kim Forrest, chief investment officer at Bokeh Capital Partners.

    An uncertain outlook for 2023 was also taking its toll, as investors fretted about the strength of corporate profits, the economy and the U.S. consumer with fourth-quarter earnings season looming early next year, Forrest said.

    “I think the Fed, and then earnings in the middle of January — those are going to set the tone for the next six months. Until then, it’s anybody’s guess,” she added.

    The U.S. central bank has raised its benchmark rate by more than four percentage points since the beginning of the year, driving borrowing costs to their highest levels since 2007.

    The timing of the Fed’s first interest rate cut will likely have a major impact on markets, according to Forrest, but the outlook remains uncertain, even as the Fed has tried to signal that it plans to keep rates higher for longer.

    On the economic data front, the Chicago PMI for December, the last major data release of the year, came in stronger than expected, climbing to 44.9 from 37.2 a month prior. Readings below 50 indicate contraction territory.

    Next year, “we’re more likely to shift towards fears around economic growth as opposed to inflation,” said Heppenstall. “I think the decline in growth will eventually lead to a more meaningful decline in inflation.”

    Read: Stock-market investors face 3 recession scenarios in 2023

    Eric Sterner, CIO of Apollon Wealth Management, said in a phone interview Friday that he’s expecting the U.S. could fall into a recession next year and that the stock market could see a new bottom as companies potentially revise their earnings lower. “I think earnings expectations for 2023 are still too high,” he said.

    The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite booked modest weekly declines, adding to their December losses. For the month, the Dow fell 4.2%, while the S&P 500 dropped 5.9% and the Nasdaq sank 8.7%, FactSet data show.

    Read: Value stocks trounce growth equities in 2022 by historically wide margin

    As for bonds, the U.S. Treasury market was set to record its worst year since at least the 1970s.

    The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.879%
    has jumped 2.330 percentage points this year to 3.826%, its largest annual gain on record based on data going back to 1977, according to Dow Jones Market Data.

    Two-year Treasury yields
    TMUBMUSD02Y,
    4.423%
    soared 3.669 percentage points in 2022 to 4.399%, while the 30-year yield
    TMUBMUSD30Y,
    3.971%
    jumped 2.046 percentage points to end the year at 3.934%. That marked the largest calendar-year increases ever for each based on data going back to 1973, according to Dow Jones Market Data.

    Outside the U.S., European stocks capped off their biggest percentage drop for a calendar year since 2018, with the Stoxx Europe 600
    SXXP,
    -1.27%    ,
    an index of euro-denominated shares, falling 12.9%, according to Dow Jones Market Data.

    Read: Slumping U.S. stock market lags these international ETFs as 2022 comes to an end

    Companies in focus

    —Steve Goldstein contributed to this article.

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  • Trump warns sharing his tax returns will ‘lead to horrible things for so many people’

    Trump warns sharing his tax returns will ‘lead to horrible things for so many people’

    “‘The Democrats should have never done it, the Supreme Court should have never approved it, and it’s going to lead to horrible things for so many people.’”

    That was former President Donald Trump’s reaction to his tax returns being made public.

    The Democratic-controlled U.S. House Ways and Means committee released six years of Trump’s tax returns on Friday, after several years of legal wrangling with Republicans opposed to the publication, in an effort to provide transparency and help improve tax laws. Experts will be looking closely at large business losses reported by Trump that significantly reduced his tax liability. 

    Read more: What could be learned from Trump’s tax returns

    And: Trump paid $0 taxes in 2020. He’s not alone

    In his statement following the release, Trump countered that America’s partisan divide “will now grow far worse.”

    “The radical, left Democrats have weaponized everything, but remember, that is a dangerous two-way street!” he added.

    What’s more, the real estate mogul and former reality TV star turned commander-in-chief suggested the returns will demonstrate his business savvy. Trump and his wife, Melania, paid $0 in income taxes for 2020, according to a previous  report released by the congressional Joint Committee on Taxation.

    “The ‘Trump’ tax returns once again show how proudly successful I have been,” he continued, “and how I have been able to use depreciation and various other tax deductions as an incentive for creating thousands of jobs and magnificent structures and enterprises.”

    So why were Trump’s tax documents released? House Ways and Means Committee Chairman Richard Neal (a Democrat from Massachusetts) said in his opening statement on Friday that, “A president is no ordinary taxpayer. They hold power and influence unlike any other American. And with great power comes even greater responsibility.”

    He added that, “Our work has always been to ensure our tax laws are administered fairly and without preference, because at times, even the power of a president can loom too large.”

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  • Trump’s tax returns are now public after long fight with Congress

    Trump’s tax returns are now public after long fight with Congress

    The U.S. House Ways and Means Committee released six years of former President Donald Trump’s tax returns on Friday.

    Experts will be looking closely at large business losses reported by Trump that significantly reduced his tax liability. For instance, he paid no federal taxes in 2020.

    “Trump paid miniscule income taxes in 2015-2020, and almost no income taxes for the prior three decades,” said Steve Rosenthal, a senior fellow at the Tax Policy Center in Washington, in an email.

    “We also have learned that, in the 1990s and 2000s, Trump claimed business losses of tens and sometimes hundreds of millions annually. I studied these a few years ago and found some real, and some fake,” he added.

    “It is still early to determine how much of Trump’s most recent losses were real or fake,” Rosenthal said.

    Read: Trump paid $0 taxes in 2020. He’s not alone

    Analysts are also going to pore over the documents for any details of Trump’s foreign business dealings.

    Some certified public accountants who looked at the documents say the returns show that the U.S. tax system has been written to “incentivize” real estate investing.

    Bottom line: In order to generate these kinds of losses, you need to be super rich. It’s not a poor man’s game,” said Jonathan Medows, managing member of Medows CPA PLLC in New York.

    Read: CPAs have questions about Trump’s tax returns

    David Cay Johnston, a Pulitzer Prize winning author and longtime Trump critic, in a post on his non-profit news organization DC Report, called the former president’s tax returns “a rich environment in which questionable conduct is found throughout the filings and needs only seasoned auditors to uncover fictional expenditures.”

    He said that Trump was warned by two New York state judges in trials about his 1984 taxes not to deduct huge expenses in businesses with no revenue.

    “That Trump persisted in using the same fraudulent technique in six years of recent tax returns is powerful evidence of criminal intent,” Johnston wrote.

    In a statement, Trump said his returns show “how I have been able to use depreciation and various other tax deductions as an incentive for creating thousands of jobs.”

    Key words: Trump on release of his tax returns

    Some experts said they were going to look at the returns for details about Trump’s foreign sources of income. The documents show that Trump had foreign bank accounts while he was president.

    See: What could be learned from Trump’s tax returns

    Democrats on the Ways and Means Committee said they voted to release the Trump tax returns to help improve the tax laws. Republicans warned that the release would set a precedent where political parties routinely release the tax returns of their opponents.

    Another question is why the Internal Revenue Service failed to audit Trump’s tax returns as it routinely does for U.S. presidents.

    See: Trump taxes could rev up fight over IRS funding

    On Jan. 3, Republicans will take control of the House along with the tax-writing committee.

    Rep. Don Beyer, a Democrat from Virginia who is a member of the Ways and Means Committee, said the Trump tax returns “underscore the fact that our tax laws are often inequitable and that enforcement of them is often unjust.”

    Rep. Kevin Brady, the Republican from Texas who was the minority leader of the Ways and Means panel and is leaving Congress in January, said Democrats did not release the Trump tax records for any legislative purpose but wanted to “unleash a dangerous new political weapon” at the former president.

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  • U.S. stocks close sharply higher in year-end rally after jobless claims data deemed ‘welcome news for the Fed’

    U.S. stocks close sharply higher in year-end rally after jobless claims data deemed ‘welcome news for the Fed’

    U.S. stock indexes finished sharply higher on Thursday, the second-to-last trading session of the year, with the Nasdaq Composite jumping 2.6%, erasing losses from earlier in the week.

    The three main indexes built on premarket gains after U.S. weekly jobless claims data showed the number of workers receiving benefits has climbed to the highest level since February, a tentative sign that the Federal Reserve’s interest-rate hikes might be slowing economic growth and inflation.

    How stocks traded
    • The S&P 500
      SPX,
      +1.75%
      rose 66.06 points, or 1.8%, to end at 3,849.28.

    • Dow Jones Industrial Average
      DJIA,
      +1.05%
      added 345.09 points, or 1.1%, finishing at 33,220.80.

    • Nasdaq Composite
      COMP,
      +2.59%
      climbed 264.80 points, or 2.6%, to finish at 10,478.09.

    On Wednesday, the Nasdaq Composite dropped 1.4% to 10,213, its lowest closing level of the year. The S&P 500 is up more than 6% from its 2022 low from mid-October, but the large-cap index remains down 19.2% year-to-date, FactSet data show.

    What drove markets

    The penultimate session of 2022 showed tentative signs of delivering some much needed festive cheer for the stock market as a hope for “Santa Claus rally” had earlier failed to materialize.

    MarketWatch Live: Is that you, Santa Claus?

    Stocks advanced on Thursday as data showed the number of Americans receiving more than a single week of unemployment benefits had climbed by 41,000 last week to 1.71 million, the highest level in 10 months.

    The jobless-claims data “points to a loosening in the labor market, which is welcome news for the Fed,” said Larry Adam, chief investment officer at Raymond James, in a tweet.

    However, analysts at Citi still think the claims data indicates a still-very-tight labor markets compared to historical levels.

    “While both initial and continuing claims increased this week, they remain within the levels of late 2019,” wrote Gisela Hoxha, U.S. economics research analyst at Citi. “Anecdotes of company layoffs have increased in recent months, particularly in the tech sector. While it could be hard to disentangle the seasonal effects from the announced layoffs, in our view there is no significant evidence of them showing up in the claims data yet.”

    Some of those layoffs could be taking effect a couple months later as employees might be kept on payroll for some time after the announcement, which will become significant signs of weakness in the labor market in 2023, Hoxha added.

    See: Did 2022 break Wall Street’s ‘fear gauge’? Why the VIX no longer reflects the sorry state of the stock market

    Stocks were on track to finish what’s set to be the worst year since 2008 not far from 2022 lows. The S&P 500’s 52-week closing low at 3,577.03 was hit on Oct. 12.

    Still, the three indexes managed to erase losses from earlier in the week on Thursday. Nasdaq Composite was down 0.2% this week, while the S&P 500 gained 0.1% and the Dow was nearly flat as of Thursday’s close. If the S&P 500 can hold on to weekly gains through Friday, it would mark the end of a three-week losing streak that has been the index’s longest since September, FactSet data show.

    Companies in focus
    • Tesla Inc.
      TSLA,
      +8.08%
      shares finished 8.1% higher on Thursday after posting its first rise in eight sessions Wednesday. The electric-vehicle maker’s shares had declined in seven consecutive sessions, their worst losing streak since a seven-session run that ended on Sept. 15, 2018.

    • Southwest Airlines 
      LUV,
      +3.70%
      remains in focus as the airline tries to recover from logistical issues that caused thousands of flight cancellations over the past week. The stock fell 11% over the past two days, but rose 3.7% in Thursday session.

    • General Electric’s 
      GE,
      +2.17%
      spinoff of GE HealthCare Technologies will join the S&P 500 index when it begins trading as a separate public company on Jan. 4. GE HealthCare will replace Vornado Realty Trust 
      VNO,
      +1.63%      ,
      which will move to the S&P MidCap 400. Vornado will replace logistics company RXO
      RXO,
      +8.39%      ,
      which will move to the S&P SmallCap 600. GE HealthCare — trading on a when-issued basis — rose 0.9%, while Vornado gained 1.6% and RXO jumped 8.4%.

    • Cal-Maine 
      CALM,
      -14.50%
      shares ended 14.5% lower after its quarterly earnings came in below Wall Street forecasts. Cal-Maine reported record sales for the quarter as an avian flu outbreak continued to limit the supply of eggs, driving prices sharply higher. The company also said there were no positive tests for avian flu at any of its production facilities, as of Wednesday.

    — Jamie Chisholm contributed to this article

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  • Did 2022 break Wall Street’s ‘fear gauge’? Why the VIX no longer reflects the sorry state of the stock market

    Did 2022 break Wall Street’s ‘fear gauge’? Why the VIX no longer reflects the sorry state of the stock market

    U.S. stocks are about to cap off their worst year since 2008. But investors wouldn’t know it by glancing at what’s often referred to as Wall Street’s favorite fear gauge, which has recently failed to reach new heights as stocks tumbled to fresh lows.

    The Cboe Volatility Index
    VIX,
    -3.16%    ,
    better known as the VIX, is on track to finish 2022 not far off its long-term average despite widespread pain across markets. The VIX, based on trading in S&P 500 index options, serves as an indicator of expected volatility in the index over the coming 30-day period.

    After topping out at 36.45 on March 7, it repeatedly failed to make new highs for the year, according to data from FactSet, even as stocks tumbled to their lowest levels in years in June and again in September and October.

    Nicholas Colas, co-founder of DataTrek Research, highlighted the phenomenon in several research notes to his clients this year.

    Not only is the S&P 500 on track to finish the year down roughly 20%, 2022 has also been the most consistently choppy year for stocks in more than a decade by at least one measure.

    The index has recorded 46 moves of 2% in either direction since the start of the year, the most since 2009, according to Dow Jones Market Data — narrowly surpassing the number from 2020. That’s roughly four times the 10-year average of 11.3 per year.

    The VIX fell 3% on Thursday to 21.46 in afternoon trading as the S&P 500
    SPX,
    +1.75%    ,
    Dow Jones Industrial Average DJIA and Nasdaq Composite COMP all headed for daily gains after the Nasdaq booked its lowest closing level of the year on Wednesday.

    A ‘really terrible year’

    Perhaps counterintuitively, Colas and others see the subdued VIX as a potential cause for concern. This is because a spike in the fear gauge has typically preceded stock-market bottoms in recent decades.

    Colas and others refer to the phenomenon as “capitulation,” meaning that a surge in the VIX means that sentiment in the market has grown so dire that the beginning of a market turnaround is likely at hand.

    The VIX surged above 80 before stocks bottomed out in March 2009, and again in March 2020. Colas has said in the past that levels above 40 are needed to signal that capitulation is at hand. Volatility typically rises fastest when stocks are falling, market strategists said.

    The lack of a clear signal that bears are reaching a point of exhaustion has made some analysts wonder if the market’s lows might still lie ahead.

    See: Wall Street’s ‘fear gauge’ still not signaling stock-market bottom is near, analysts say

    “Volatility seems too low,” said Danny Kirsch, head of the options desk at Piper Sandler, during a phone interview with MarketWatch this week. “I’d say the VIX should be in its mid-to-high 20s, as opposed to barely 20.”

    “We had a really terrible year. There was massive wealth destruction, and yet the cost to hedge going forward hasn’t really changed,” Kirsch added.  

    Is the VIX ‘broken’?

    Comparing the VIX’s 2022 performance to 2008 recently led Michael Kramer, founder of Mott Capital, to conclude that the gauge may be “broken” in a tweet published on Wednesday.

    Others have pushed back against this notion, arguing that while the VIX has been “somewhat low,” it’s still elevated compared with recent market history.

    To wit, the VIX’s current level is still more than twice its record low from Nov. 3, 2017, when the volatility gauge closed at 9.14, according to data from FactSet. This occurred at a time when U.S. stocks were drifting consistently higher. The S&P 500 went on to finish 2017 with a gain of more than 20%.

    “It’s been a high VIX year, just not as high as some people think it should have been, given volatility elsewhere in markets,” said Rocky Fishman, the head of index volatility research at Goldman Sachs Group Inc.

    The VIX has also maintained its strong inverse correlation to the S&P 500, as Callie Cox, a U.S. equity analyst at eToro, pointed out. Data shared by Cox showed that the VIX has moved inversely with the S&P 500
    SPX,
    +1.75%
    roughly 80% of the time since its inception in 1990.

    Why so low?

    So, why has the VIX been so subdued? Cox, Kirsch and others rattled off several factors that might be contributing to its malaise.

    One popular explanation is that as institutional investors dumped stocks and shifted more of their portfolios to cash this year, they were left with smaller levels of long-equity exposure in need of hedging.

    “VIX is basically a measure of demand for hedges by the biggest investors in the market. But when institutional investors are liquidating their equity positions, they no longer have a need for the associated hedges, so they unwind those positions in the derivatives markets and ultimately that pressures” the VIX, said analysts at Sevens Report Research in a note entitled “Is the VIX broken?” published earlier this month.

    Also, a generally bearish outlook for markets means that institutional investors are “fairly well hedged,” Kirsch said, which helps keep a lid on the VIX when large selloffs materialize.

    Others cited traders’ increasing reliance on short-term options for tactical trades.

    While the VIX is designed to interpret increased options buying as a sign that investors are growing more anxious, it specifically incorporates only options with roughly one month left until expiration.

    This has become an issue as trading in shorter-dated options, including contracts with less than one day left until they expire, has surged in popularity this year, according to data from Goldman Sachs.

    Trading in zero-day to expiration S&P 500 options has surged in the fourth quarter to more than four times its average level from 2021, according to data shared by Goldman in a research note dated Dec. 15.

    “The VIX doesn’t accurately measure fear these days because there’s so much trading in short-dated options,” said Steve Sosnick, chief strategist at Interactive Brokers.

    Is a blowup looming?

    The question for investors now is whether a subdued VIX might lead to a volatility-inspired reckoning for markets, like what happened in February 2018, when a popular short-volatility trade rapidly unwound, contributing to the death of short-volatility products like the VelocityShares Daily Inverse VIX Short Term ETN.

    It’s possible that markets could undergo a volatility-driven “washout” as some of the trades helping to suppress the VIX are unwound, Kirsch said. Although he doesn’t expect the impact on markets to be as severe as it was in 2018 or 2020, he told MarketWatch.

    But whatever happens, it’s possible analysts who rely on the VIX to inform their trading might need to adjust their expectations around what constitutes a capitulation signal, Cox told MarketWatch. Still, this doesn’t necessarily mean that the VIX is “broken.”

    “It’s still measuring what it’s intended to measure,” she said. “This is more a story of how much the options market has evolved over the past few years.”

    “People just aren’t using classic one-month options to hedge or speculate as much. Investors are choosing to get more precise with their options strategies, which makes a lot of sense — it’s cheaper and more adaptable,” Cox added.

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  • Trump subpoena withdrawn by Jan. 6 select committee

    Trump subpoena withdrawn by Jan. 6 select committee

    WASHINGTON (AP) — The House Jan. 6 committee has dropped its subpoena against former President Donald Trump as it wraps up work and prepares to dissolve next week.

    Mississippi Rep. Bennie Thompson, the committee’s Democratic chairman, wrote in a letter to Trump lawyer David Warrington on Wednesday that he is formally withdrawing the subpoena. “As you may know, the Select Committee has concluded its hearings, released its final report and will very soon reach its end,” Thompson wrote. “In light of the imminent end of our investigation, the Select Committee can no longer pursue the specific information covered by the subpoena.”

    The committee had voted to subpoena Trump during its final televised hearing before the midterm elections in October, demanding testimony and documents from the former president as it has investigated his role in the Jan. 6, 2021, insurrection and efforts to overturn his 2020 defeat.

    Lawmakers on the panel have acknowledged the subpoena would be difficult to enforce, especially as Republicans are poised to take over the House in January. But the move had political and symbolic value.

    “We are obligated to seek answers directly from the man who set this all in motion,” Rep. Liz Cheney of Wyoming, the panel’s vice chair and one of two Republicans on the nine-member committee, said at the time. “And every American is entitled to those answers.”

    Trump then sued the panel in November to avoid cooperating. The lawsuit contended that while former presidents have voluntarily agreed to provide testimony or documents in response to congressional subpoenas in the past, “no president or former president has ever been compelled to do so.”

    The committee’s request for documents was sweeping, including personal communications between Trump and members of Congress as well as extremist groups. Trump’s attorneys said it was overly broad and framed it as an infringement of his First Amendment rights.

    While the panel never gained Trump’s testimony, the committee interviewed more than 1,000 witnesses, including most of his closest White House aides and allies.

    Many of those witnesses provided substantive detail about his efforts to sway state legislators, federal officials and lawmakers to help him overturn his defeat. And White House aides who were with him on Jan. 6 told the panel about his resistance to tell the violent mob of his supporters to leave the Capitol after they had broken in and interrupted the certification of President Joe Biden’s victory.

    In its final report issued last week, the committee concluded that Trump engaged in a “multipart conspiracy” to upend the 2020 election and failed to act on the violence. The panel also recommended that the Justice Department investigate the former president for four separate crimes, including aiding an insurrection.

    On social media Wednesday evening, Trump and his lawyers construed the move as a victory. “They probably did so because they knew I did nothing wrong, or they were about to lose in Court,” Trump wrote on his social-media site. He called the panel “political Thugs.”

    On Twitter, Trump lawyer Harmeet Dhillon said the panel had “waved the white flag.”

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  • U.S. stocks close sharply higher in year-end rally after jobless claims data deemed ‘welcome news for the Fed’

    U.S. stocks close sharply higher in year-end rally after jobless claims data deemed ‘welcome news for the Fed’

    U.S. stock indexes finished sharply higher on Thursday, the second-to-last trading session of the year, with the Nasdaq Composite jumping 2.6%, erasing losses from earlier in the week.

    The three main indexes built on premarket gains after U.S. weekly jobless claims data showed the number of workers receiving benefits has climbed to the highest level since February, a tentative sign that the Federal Reserve’s interest-rate hikes might be slowing economic growth and inflation.

    How stocks traded
    • The S&P 500
      SPX,
      +1.75%
      rose 66.06 points, or 1.8%, to end at 3,849.28.

    • Dow Jones Industrial Average
      DJIA,
      +1.05%
      added 345.09 points, or 1.1%, finishing at 33,220.80.

    • Nasdaq Composite
      COMP,
      +2.59%
      climbed 264.80 points, or 2.6%, to finish at 10,478.09.

    On Wednesday, the Nasdaq Composite dropped 1.4% to 10,213, its lowest closing level of the year. The S&P 500 is up more than 6% from its 2022 low from mid-October, but the large-cap index remains down 19.2% year-to-date, FactSet data show.

    What drove markets

    The penultimate session of 2022 showed tentative signs of delivering some much needed festive cheer for the stock market as a hope for “Santa Claus rally” had earlier failed to materialize.

    MarketWatch Live: Is that you, Santa Claus?

    Stocks advanced on Thursday as data showed the number of Americans receiving more than a single week of unemployment benefits had climbed by 41,000 last week to 1.71 million, the highest level in 10 months.

    The jobless-claims data “points to a loosening in the labor market, which is welcome news for the Fed,” said Larry Adam, chief investment officer at Raymond James, in a tweet.

    However, analysts at Citi still think the claims data indicates a still-very-tight labor markets compared to historical levels.

    “While both initial and continuing claims increased this week, they remain within the levels of late 2019,” wrote Gisela Hoxha, U.S. economics research analyst at Citi. “Anecdotes of company layoffs have increased in recent months, particularly in the tech sector. While it could be hard to disentangle the seasonal effects from the announced layoffs, in our view there is no significant evidence of them showing up in the claims data yet.”

    Some of those layoffs could be taking effect a couple months later as employees might be kept on payroll for some time after the announcement, which will become significant signs of weakness in the labor market in 2023, Hoxha added.

    See: Did 2022 break Wall Street’s ‘fear gauge’? Why the VIX no longer reflects the sorry state of the stock market

    Stocks were on track to finish what’s set to be the worst year since 2008 not far from 2022 lows. The S&P 500’s 52-week closing low at 3,577.03 was hit on Oct. 12.

    Still, the three indexes managed to erase losses from earlier in the week on Thursday. Nasdaq Composite was down 0.2% this week, while the S&P 500 gained 0.1% and the Dow was nearly flat as of Thursday’s close. If the S&P 500 can hold on to weekly gains through Friday, it would mark the end of a three-week losing streak that has been the index’s longest since September, FactSet data show.

    Companies in focus
    • Tesla Inc.
      TSLA,
      +8.08%
      shares finished 8.1% higher on Thursday after posting its first rise in eight sessions Wednesday. The electric-vehicle maker’s shares had declined in seven consecutive sessions, their worst losing streak since a seven-session run that ended on Sept. 15, 2018.

    • Southwest Airlines 
      LUV,
      +3.70%
      remains in focus as the airline tries to recover from logistical issues that caused thousands of flight cancellations over the past week. The stock fell 11% over the past two days, but rose 3.7% in Thursday session.

    • General Electric’s 
      GE,
      +2.17%
      spinoff of GE HealthCare Technologies will join the S&P 500 index when it begins trading as a separate public company on Jan. 4. GE HealthCare will replace Vornado Realty Trust 
      VNO,
      +1.63%      ,
      which will move to the S&P MidCap 400. Vornado will replace logistics company RXO
      RXO,
      +8.39%      ,
      which will move to the S&P SmallCap 600. GE HealthCare — trading on a when-issued basis — rose 0.9%, while Vornado gained 1.6% and RXO jumped 8.4%.

    • Cal-Maine 
      CALM,
      -14.50%
      shares ended 14.5% lower after its quarterly earnings came in below Wall Street forecasts. Cal-Maine reported record sales for the quarter as an avian flu outbreak continued to limit the supply of eggs, driving prices sharply higher. The company also said there were no positive tests for avian flu at any of its production facilities, as of Wednesday.

    — Jamie Chisholm contributed to this article

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  • ‘Five days that killed the year’: These trading sessions accounted for 95% of the S&P 500’s losses in 2022

    ‘Five days that killed the year’: These trading sessions accounted for 95% of the S&P 500’s losses in 2022

    Just five trading sessions accounted for more than 95% of S&P 500 index losses in 2022, according to an analysis by Datatrek co-founder Nicholas Colas in a note published Wednesday, as stocks headed for their worst year since 2008.

    He described them in the note as the “five days that killed the year”: Two were caused by disappointing inflation data, while the others were triggered by weak corporate earnings and commentary from Federal Reserve Chairman Jerome Powell.

    September 13 (-4.3%)

    On the worst day for stocks since 2020, the release of the August U.S. consumer price index report sent traders into a panic when the data showed annual headline and core inflation running hotter than expected.

    The headline number came in at 8.3% for the 12 months through August, while core inflation — which strips out volatile food and energy prices — accelerated at 6.3%.

    Economists and analysts were particularly rattled by the monthly core inflation number, which came in at 0.6%, double the expected rate of 0.3%, stoking concerns about stubbornly high housing costs as energy prices began to decline after earlier being the biggest driver of this year’s inflation.

    May 18th (-4.0%). 

    Retail giant Target Corp.
    TGT,
    +0.04%
    missed first quarter earnings expectations by a wide margin, elevating worries about the U.S. consumer’s ability to cope with inflation into a full-blown panic one day after Walmart Inc.
    WMT,
    -1.64%
    highlighted similar concerns.

    Adding to the pressure on the market, during an event hosted by the Wall Street Journal Powell acknowledged that “there could be some pain involved” as the FOMC raised interest rates.

    June 13 (-3.9%)

    This day’s punishing selloff was also triggered by the release of CPI data, as the numbers for the month of May came in higher than expectations. The S&P 500 finished the session in bear-market territory for the first time in 2022, down 21.8% from the record highs reached in early January.

    April 29 (-3.6%)

    The market’s decline on this day was also triggered by a corporate earnings disappointment. However, this time, the focus was on e-commerce, and the ripple effects sent many of the megacap technology stocks reeling.

    Amazon.com Inc.
    AMZN,
    -1.16%
    — which like both Target and Walmart is a member of the consumer discretionary sector of the S&P 500 — missed earnings expectations for the first quarter while reducing its guidance. The stock ended the day down 14%, its biggest single-session decline since 2006. Apple Inc.
    AAPL,
    -2.94%    ,
    Microsoft Corp.
    MSFT,
    -0.68%
    and Google owner Alphabet Inc.
    GOOGL,
    -1.48%
    were also down sharply.

    May 5 (-3.6%)

    Markets tumbled one day after Powell assured investors during a post-meeting press conference that the Fed wasn’t considering interest-rate hikes of greater than 50 basis points. Of course, this statement didn’t age well, as the central bank went on to hike interest rates by 75 basis points at the following four consecutive meetings.

    According to Colas, investors can glean some helpful insights about the root causes of this year’s market misery from these five sessions.

    To wit, investors had clearly realized by the spring that stubbornly high inflation would force the Fed to raise its benchmark interest rate more aggressively than it was letting on. Also, inflated expectations for corporate earnings helped contribute to the pain as U.S. consumer spending waned.

    U.S. stocks sold off far more often than they traded higher this year, a deviation from the historic pattern since World War II whereby stocks typically climb far more often than they fall. Through Tuesday’s session,  the index fell during 141 trading days (including Tuesday), while finishing higher during 107 up days.

    The S&P 500 was on track to finish 2022 down more than 20% as of midday on Wednesday as all three of the main indexes were trading in the red, with the S&P 500
    SPX,
    -1.03%    ,
    Nasdaq Composite
    COMP,
    -1.20%
    and Dow Jones Industrial Average
    DJIA,
    -0.88%
    adding to their losses with just two more trading days left in the year.

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  • Dig-out begins after deadly winter storm claims 27 lives in western New York alone

    Dig-out begins after deadly winter storm claims 27 lives in western New York alone

    BUFFALO, N.Y. (AP) —  The death toll from a pre-Christmas blizzard that paralyzed the Buffalo area and much of the country has risen to 27 in western New York, authorities said Monday, as the region dug out from one of the worst weather-related disasters in its history.

    The dead have been found in cars, in their homes and in snowbanks. Some died while shoveling. The storm that walloped much of the country is now blamed for at least 48 deaths nationwide, with rescue and recovery efforts continuing Monday.

    Living With Climate Change: Climate change and the polar vortex: Winter storms are normal, but this string of severe Christmas weather isn’t typical

    The blizzard roared through the western New York state on Friday and Saturday, stranding motorists, knocking out power and preventing emergency crews from reaching residents in frigid homes and idled vehicles.

    “ Buffalo, N.Y., was experiencing its longest sustained blizzard conditions ever, said New York Gov. Kathy Hochul, a native Buffalonian. ”

    Huge snowdrifts nearly covered cars Monday, and there were thousands of houses, some adorned in unlit holiday displays, darkened by lack of power.

    The massive storm is expected to claim more lives because it trapped some residents inside houses and knocked out power to tens of thousands of homes and businesses.

    Extreme weather stretched from the Great Lakes near Canada to the Rio Grande along the border with Mexico. About 60% of the U.S. population faced some sort of winter weather advisory or warning, and temperatures plummeted dramatically below normal from east of the Rocky Mountains to the Appalachians.

    The National Weather Service said Sunday that the frigid arctic air “enveloping much of the eastern half of the U.S.” would move away slowly.

    Hurricane-force winds and snow causing whiteout conditions paralyzed emergency response efforts in Buffalo.

    New York Gov. Kathy Hochul, a Buffalo native, said almost every fire truck in the city was stranded Saturday and implored people Sunday to respect an ongoing driving ban in the region. The National Weather Service said the snow total at the Buffalo Niagara International Airport stood at 43 inches (1.1 meters) at 7 a.m. Sunday. Officials said the airport would be shut through Tuesday morning.

    With snow swirling down impassable streets, forecasters warned an additional 1 to 2 feet (30 to 60 centimeters) of snow was possible in some areas through early Monday morning amid wind gusts of 40 mph (64 kph). Police said Sunday evening that there were two “isolated” instances of looting during the storm.

    Two people died in their suburban Cheektowaga, N.Y., homes Friday when emergency crews could not reach them in time to treat medical conditions. Erie County Executive Mark Poloncarz said 10 more people died there during the storm, including six in Buffalo, and warned there may be more dead.

    “Some were found in cars. Some were found on the street in snowbanks,” Poloncarz said. “We know there are people who have been stuck in cars for more than two days.”

    The Margin: Why you should always keep cat litter in your car — and other winter storm tips

    Freezing conditions and power outages had Buffalonians scrambling to get to anywhere with heat amid what Hochul described as the longest sustained blizzard conditions ever in the city.

    Ditjak Ilunga of Gaithersburg, Md., was on his way to visit relatives in Hamilton, Ontario, for Christmas with his daughters Friday when their SUV was trapped in Buffalo. Unable to get help, they spent hours with the engine running, buffeted by wind and nearly buried in snow.

    By 4 a.m. Saturday, their fuel nearly gone, Ilunga made a desperate choice to risk the howling storm to reach a nearby shelter. He carried 6-year-old Destiny on his back while 16-year-old Cindy clutched their Pomeranian puppy, following his footprints through drifts.

    “If I stay in this car I’m going to die here with my kids,” Ilunga recalled thinking. He cried when the family walked through the shelter’s doors. “It’s something I will never forget in my life.”

    Travelers’ weather woes continued, with hundreds of flight cancellations already and more expected after a bomb cyclone — when atmospheric pressure drops very quickly in a strong storm — developed near the Great Lakes, stirring up blizzard conditions, including heavy winds and snow.

    The storm knocked out power in communities from Maine to Seattle. But heat and lights were steadily being restored across the U.S. According to the website poweroutage.us, fewer than 200,000 customers were without power Sunday at 3 p.m. Eastern time — down from a maximum of 1.7 million.

    The Margin: Five tips for staying safe and warm during a power outage

    The mid-Atlantic grid operator had called for its 65 million consumers to conserve energy amid the freeze Saturday.

    Storm-related deaths were reported all over the country, from six motorists killed in crashes in Missouri, Kansas and Kentucky to a woman who fell through Wisconsin river ice.

    In Jackson, Miss., city officials on Christmas Day announced residents must now boil their drinking water due to water lines bursting in the frigid temperatures.

    MarketWatch contributed.

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  • Asian shares rise in thin holiday trading, with U.S., European markets closed

    Asian shares rise in thin holiday trading, with U.S., European markets closed

    BANGKOK (AP) — Shares rose Monday in Asia in thin post-Christmas holiday trading, with markets in Hong Kong, Sydney and several other places closed.

    Tokyo’s Nikkei 225 index
    NIK,
    +0.65%
    gained 0.6% to 26,393.32 and the Kospi
    180721,
    +0.15%
    in Seoul added 0.2% to 2,318.54. The Shanghai Composite index
    SHCOMP,
    +0.65%
    rose 0.5% to 3,061.93 and the SET
    SET,
    +0.47%
    in Bangkok added 0.6%.

    Bank of Japan Gov. Haruhiko Kuroda indicated in a widely watched speech Monday that the central bank does not intend to alter its longstanding policy of monetary easing to cope with pressures from inflation on the world’s third-largest economy.

    Last week, markets were jolted by a slight adjustment in the target range for the yield of long-term Japanese government bonds, viewing it as a sign the Bank of Japan might finally unwind its massive support for the economy through ultra-low interest rates and purchases of bonds and other assets.

    A widening gap between interest rates in Japan and other countries has pulled the Japanese yen sharply lower against the U.S. dollar and other currencies and accentuated the impact of higher costs for many imported products and commodities.

    But the BOJ has kept its key lending rate at minus 0.1%, cautious over risks of recession.

    Kuroda told the Keidanren, the country’s most powerful business group, that with economies facing likely downward pressure, and with Japan’s economy not fully recovered from the impacts of the pandemic, the BOJ “deems it necessary to conduct monetary easing and thereby firmly support the economy. …”

    On Friday, the S&P 500
    SPX,
    +0.59%
    reversed a 0.7% loss to close 0.6% higher, at 3,844.82. With one week left of trading in 2022, the benchmark index is down 19.3% for the year. The Dow Jones Industrial Average
    DJIA,
    +0.53%
    rose 0.5% to 33,203.93, while the tech-heavy Nasdaq
    COMP,
    +0.21%
    edged 0.2% higher, to 10,497.86.

    Small company stocks also rose. The Russell 2000 index
    RUT,
    +0.39%
    picked up 0.4% to 1,760.93.

    Mixed economic news weighed on stocks early on, but the indexes rebounded by late afternoon amid relatively light trading ahead of the long holiday weekend. U.S. and European markets will be closed Monday.

    Markets are in a tricky situation where relatively solid consumer spending and a strong employment market reduce the risk of a recession but also raise the threat of higher interest rates from the Federal Reserve as it presses its campaign to crush inflation.

    The government reported Friday that a key measure of inflation is continuing to slow, though the inflation gauge in the consumer spending report was still far higher than anyone wants to see. Also, growth in consumer spending weakened last month by more than expected, but incomes were a bit stronger than expected.

    Last week’s reports were the last big U.S. economic updates of the year. Investors will soon turn their focus to the next round of corporate earnings.

    The Fed has said it will keep raising interest rates to tame inflation, even though the pace of price increases has continued to ease. The Fed’s key overnight rate is at its highest level in 15 years, after beginning the year at a record low of roughly zero.

    The key lending rate, the federal funds rate, stands at a range of 4.25% to 4.5%, and Fed policymakers have forecast that the rate will reach a range of 5% to 5.25% by the end of 2023.

    Given the persistence of high inflation, “many are starting to believe the main story is that there will be no scope for Fed cuts in the year ahead and that central banks will maintain these relatively high rates until underlying inflation is truly cracked — and that process will take time,” Stephen Innes of SPI Asset Management said in a commentary.

    The Fed’s forecast doesn’t call for a rate cut before 2024, and the higher rates have raised concerns the economy could stall and slip into a recession in 2023. High rates have also been weighing heavily on prices for stocks and other investments.

    In currency dealings, the U.S. dollar
    DXY,
    -0.10%
    slipped to 132.62 Japanese yen from 132.82 yen late Friday. The euro rose to $1.0629 from $1.0614.

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