Day Traders Diary

12/27/22

The major averages closed mixed on Tuesday, at the start of the holiday-shortened week, as bond yields climbed and investors weighed the economic outlook for 2023. The Dow Jones Industrial Average rose 37 points, or 0.11%, to finish at 33,241. The S&P 500 fell 15 points or 0.4% to settle at 3,829 while the Nasdaq Composite shed 144 points or 1.38% to end at 10,353.

China-linked stocks advanced as the country loosened Covid restrictions. Tesla dropped more than 11% on news of an extended production pause, with the stock on pace for its worst year ever. Southwest shed nearly 6% as the airline canceled thousands of flights.

Bond yields also pushed higher, putting pressure on growth stocks like technology. The yield on the 10-year Treasury note was last up nearly 11 basis points to trade at 3.85%. Apple's stock was among the worst performers in the Dow, falling to levels not seen since June 2021 and closing 1.4% lower.

"It's basically the continuation of high yields depressing growth, with redistribution into other sectors that are smaller, but not big enough to change the headline index," said Keith Lerner, Truist's co-chief investment officer.

The combination of tax-loss selling, portfolio rebalancing and investors deciding where to position for 2023 may also be weighing on the indices, said Sameer Samana, senior global market strategist for Wells Fargo Investment Institute.

Stocks are headed for their worst yearly performance since 2008, with the Dow and S&P off by 8.5% and 19.7%, respectively, in 2022. The Nasdaq's fallen 33.8%.

For December, the S&P has dropped 6.2%, while the Dow and Nasdaq have tumbled 3.9% and 9.7%, respectively. The major averages are on pace for their biggest monthly declines since September.

After a brutal year consumed by inflation and recession fears, investors hoped to cap off 2022 on a positive note. Friday kicked off the period for a Santa Claus rally, which is typically considered the final five-day trading stretch in the current year, as well as the first two trading days in the new year.

Questions also lingered over whether the volatility will continue into 2023 and what the economy, and inflation, will bring as the calendar year turns a corner.

Markets were closed Monday for the Christmas holiday. In this shortened trading week, investors are expecting either relative quiet or further volatility due to low trading volumes.

The folks at Birinyi Associates on Tuesday needed to play Scrooge and throw cold water on the idea that a Santa Claus Rally is an investment approach that has proven profitable in the past generation.

Their conclusion? The Santa Claus Rally is a myth, at least as shown in data going back to 2000.

In only two years (2001 — almost +6%, and 2009 — more than +7%) would investors have seen an appreciable return during that supposed, sure-thing, can't miss stretch starting at Christmas and running through the first two trading days of the following year.

The average gain since 2000? 0.76%.

"In effect if you buy JPM at $130 you should according to the SCR yield 98 cents...Making 98 cents on a $130 investment does not strike us as a good investment policy or approach," the note from Birinyi's Joshua Rubin said.

The selloff in Tesla shares continued Tuesday, putting the electric vehicle stock on pace for its worst month, quarter and year on record.

For December, the stock's down more than 42%. The stock's also slumped more than 57% since the start of the quarter and almost 68% in 2022.

The drop in shares follows a report from the Wall Street Journal saying that the electric vehicle maker will extend a week-long production halt at its Shanghai facility as Covid cases mount. Shares have also taken a beating this year amid CEO Elon Musk's takeover of Twitter.

The stock also sits more than 70% from its November 2021 high.