Stock Market Starts Trading Week with Bloodbath

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Stocks are off session lows at the close Monday, but that’s literally the only positive thing we can say about it. Downside trading volume reached an incredible 98% in one of the deepest “buyers strikes” we’re ever likely to see. The Dow closed -875 points (briefly tripping quadruple-digits 10 minutes before the bell), -2.79%, the S&P was -3.87%, the Nasdaq -4.68% and the Russell 2000 -4.89%.

Roughly an hour before the end of the regular trading session, a scoop from the Wall Street Journal sent equities hurtling downward at an even more harrowing clip: reportedly, the Fed is now considering a 75-basis-point (bps) rate hike this week. Until a couple trading days ago, it was considered a done deal that 50 bps would be the top.

As you likely already know, the Fed members go into a “blackout period” a week and a half prior to a new meeting on monetary policy. This means that when Friday’s Consumer Price Index (CPI) report was released, neither Fed Chair Powell nor any other members were allowed to make a public statement about whether there was a change in consideration regarding the Fed fighting very high and stubborn inflation with higher rate hikes.

There are some market participants who would like the Fed to be even more aggressive than simply a 75 bps hike — to a full percentage point this Wednesday — in order to really give inflation a thwack to the skull. Given the cautious and methodical nature of Powell’s tenure, however, this is not very likely; the debate from now until Wednesday afternoon whether the Fed will stay at 50 or move to 75.

Also, the higher the jolt in interest rates — and 75 bps is a doubling of the Fed funds rate already — the highest the chance of setting the U.S. economy on a path to recession. This for a long time has been the conundrum for the Fed, going back to its slow moving on monetary policy, which a plurality of money managers were hoping to see a year ago.

All this said, another -3-5% drubbing — following a -5% shellacking from the prior two sessions last week — looks to be pricing in a clear recession as of today’s close. The Nasdaq is back to -33% from its early November ’21 highs; the S&P is -22%. There is no reasonable way to look at this bloodbath and see anything other than a bleak outlook for the near- to medium-term economy.

Want some good news? Oracle ORCL has posted fiscal Q4 earnings results, and the software giant posted a strong beat on both top and bottom lines: earnings of $1.54 per share topped the Zacks consensus of $1.38, and matched exactly the year-ago quarterly figure, while revenues of $11.84 billion surged nicely ahead of the $11.65 billion expected.

Even better, it was Oracle’s cloud space driving business — something of a question mark going into quarterly results with so much competition in the space these days. Not only does Oracle look to have kept up with the Joneses, but it would appear enterprise business investment in cloud computing overall is fairly robust — something quite inconsistent with a burgeoning recession on the horizon.

Shares of Oracle shot up +9% on the earnings release before moderating a tad in the late session. Shares had already been down -27% year to date, but in our current climate, that makes it a market-beater for the Tech industry. Oracle did not issue guidance for the coming quarter and fiscal year; look for this on the pending conference call.

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