December Selloff Resumes, World Markets On Edge

Barry Adams
22 Dec, 2022
New York City

What is good for Main Street turned out to be too-good for Wall Street.

Major averages dropped as much as 3% after the third quarter's economic growth was revised higher, sending another signal to the Federal Reserve to continue its rate hikes in 2023. 

Investors fearing recession or economic slowdown were hoping for the Fed to pause rates at its next meeting on Jan 31 but the latest upward revision of the third quarter GDP contradicts the recession scenario. 

Moreover, weekly jobless claims continue to hover near multi-year low, consumer spending remains healthy and holiday shopping is likely to be ahead of lowered expectations. 

All these points to strong labor market and resilient consumer and elevated inflation for months to come, despite the recent decline in gasoline prices at the pump stations to the level last seen a year ago. 

The S&P 500 index declined 1.8% to 3,822.39 and the Nasdaq Composite index dropped 2.2% to 10,476.12. 

Crude oil closed down after 3-day rally and drifted lower. 

Crude oil decreased 28 cents to $78.02 a barrel and natural gas futures fell 28 cents to $5.03 a thermal unit. 

Lumber prices dropped to $378.30 per one thousand board feet, the low last seen in June 2020.  

The yield on 2-year Treasury notes edged higher to 4.27%, 10-year Treasury notes edged lower to 3.67% and 30-year Treasury bonds inched lower to 3.73%. 

 

Q3 GDP Revised Higher 

Real third quarter GDP growth was revised higher to 3.2% annual pace from the previous estimate of 2.9% after nonresidential fixed investment and consumer spending accelerated, the U.S. Bureau of Economic Analysis said Thursday.

Current dollar Gross Domestic Product increased at an annual pace of 7.7%, or $475.5 billion, in the third quarter to a level of $25.72 trillion, an upward revision of $25.0 billion from the previous estimate.

 

Weekly Jobless Claims Drop 

Initial claims of jobless benefits rose 2,000 to 216,000 in the week ending December 17 and continuing claims fell 6,000 to 1,672,00 in the week ending December 3, the Dept of Labor said Thursday.

 

U.S. Stock Movers 

AMC Entertainment Holdings Inc plunged 14.5% to $4.51 after the company announced a plan to raise $110 million through a preferred share unit. 

The company plans to hold a board meeting to approve a reverse stock split at a 1-to-10 ratio. 

The movie theater chain operator said it will use the proceeds to repay debt. 

Micron Technology Inc declined 2.8% to $49.75 after the company reported weak quarterly results and announced a plan to trim its workforce by 10% and suspend bonus in 2023. 

Revenue in the fiscal first quarter ending in November fell to $4.09 billion from $6.6 billion in the previous quarter and $7.7 billion in the quarter a year ago. 

The semiconductor chipmaker swung to a quarterly loss of $195 million from $2.3 billion a year ago and diluted loss per share was 18 cents from a profit of $2.04 a year ago. 

The company guided revenue in the fiscal second quarter of 2023 of $3.8 billion with a band of $200 million and gross margin between 5% and 10% and diluted earnings per share range between -$0.79 and $0.10. 

CarMax, Inc declined 7.2% to  $55.17 after the used-car retailer reported weaker-than-expected results. 

Revenue in the third quarter ending in November declined 23.7% to $6.5 billion after combined retail and wholesale used vehicle unit sales fell 28% to 298,807.

Net earnings plunged to $37.6 million from $269.4 million and diluted earnings per share dropped to 24 cents from $1.63 a year ago. 

Tesla Inc plunged 9.8% to $124.10 on the demand worries in the U.S. and China and rising production costs and distracted chief executive after his recent purchase of Twitter Inc. 

Tesla is offering $7.500 discount for the U.S. delivery of Model 3 and Model Y before the end of December, according to the order form on the company website.  

The discount offer also comes with 10,000 miles free supercharging. 

 

European Markets Drop 1%

European markets accelerated declines after rapid rate hike worries resurfaced. 

Benchmark indexes opened higher on China optimism and after state controlled media reported a series of government initiatives in speeding up construction projects and accelerating spending in new equipment and systems.  

Major indexes turned lower after the U.S. revised third quarter economic growth to 3.2% annual rate from the previous estimate of 2.6% according to the U.S. Bureau of Economic Analysis Thursday. 

The sharp upward revision to the economic growth raised the fears of the Fed continuing its campaign of lifting rates and keeping the higher rates longer. 

Rate sensitive stocks led the decliners in the region following sharp losses in New York trading.   

The DAX index dropped 1.3% to 13,914.07, the CAC-40 index declined 1% to  6,517.97 and the FTSE index dropped 0.4% to 7,469.28.

 

Ural Oil Drops Below Price Cap $60 Level 

Russian benchmark oil dropped below $55 a barrel and lower than the price cap imposed by the G7 member nations, the European Union and Australia since December 5. 

The Russian oil price dropped to the level last seen in January 2021 and is trading at more than $24 a barrel discount to Brent crude oil price.  

Russian oil flows to China, India and Turkey have also dried up in the recent months according to the data available from Turkey maritime authorities. 

The price for immediate month delivery of Brent crude fell $1.36 to $80.83 a barrel and Dutch TTF natural gas dropped 4% to