Market Wrap
Narratives
Real disposable income fell from the spring of 2021 through the summer of 2022 as inflation outran wage growth and special transfer payments included in pandemic relief packages expired. We see real income turning positive in 2023, and ultimately rising 3.5%, supported by positive real wage growth, large cost-of-living adjustments on transfer payments including Social Security and food stamps, a jump in interest income, and a decline in the effective tax rate as a spike driven by capital gains and bracket creep reverses. An optimistic view on consumption, relative or otherwise, means harboring a hawkish view on the likely trajectory of monetary policy. However, we expect some of the spending impulse to be restrained by a higher savings rate. Higher interest rates have reduced household wealth by lowering home and equity prices. And, lower and middle-income families that tapped excess savings to support their spending this year as transfer payments expired will have less to draw on next year. While gains from interest income and tax rate normalization will accrue mostly to high-income households and have less impact on spending, the turnaround in real income is nonetheless a key reason that we have a relatively optimistic 2023 consumer outlook - David Mericle and Alec Phillips, Goldman Sachs
Week Ahead
The first week of 2023 will be dominated in the US by non-farm payrolls report, and the Federal Reserve December meeting minutes. In December, the economy likely added 200k jobs, with unemployment sticking to 3.7% and annual wage growth remaining strong at 5%. Meanwhile. The FOMC meeting minutes should provide further clues on how long the policymakers plan to keep interest rates elevated and if any big adjustments would be necessary. Also, investors will follow closely ISM PMI: the manufacturing PMI is likely to remain in the contractionary territory while the non-manufacturing gauge may show services growth slowed in December. Other important releases include trade balance, JOLTs Job Openings, and factory orders 7- TradingEconomics
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Earnings
Metric | UpDn | This Week | Prior Week | Baseline | Baseline TF |
---|---|---|---|---|---|
Forward 12-mo Estimate | 🔴 | 222.91 | 223.31 | 223.25 | December 31, 2021 |
Forward 12-mo PE | 🔵 | 17.22 | 17.2 | 22 | December 31, 2021 |
Nominal Earnings Yield | ⚪️ | 5.81 | 5.81 | 4.77 | December 31, 2021 |
Options
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG |
---|---|---|---|---|---|
Implied Volatility | 🔵 | 20.5 | 19.17 | 1.33 | 6.94% |
Call Skew | 🔴 | -2.9 | -2.7 | -0.2 | -7.41% |
GEX Flip | ⚪️ | 3,897.5 | 3,897.5 | 0 | 0% |
Total GEX | 🔴 | -10,003,463,670 | -9,346,963,113 | -656,550,557 | -7.02% |
Skew Adjusted GEX | 🔴 | -1,963,679,919 | -1,834,808,859 | -128,871,060 | -7.02% |
Put/Call Ratio | ⚪️ | 1.89 | 1.9 | -0.01 | -0.53% |
Futures
E-mini S&P 500 futures were lower Friday with the March contract finishing the session at 3861.00, down 10.75. Across all maturities, a light 1,404,431 contracts were traded, with 1,401,810 done in the March maturity. Overall open interest gained 18,160 (0.91%), with March gaining 17,070, or 0.86%, to 2,002,559.
Option volumes were greatest for the Jan E1B 3950 call (4,809) and the Jan E1B 3250 put (32,637). High volumes in Jan option trading were seen in the 4000 calls (1,326) and the 3400 puts (2,735). Calls with the largest open interest are the Jan EW3 100 strike (22,062), and for the puts are the March 3600 strike (34,820).
Implied Volatility ended the day slightly down with the 30-day at-the-money dropping 0.28%, to finish the session at a one week low of 19.96%. Dropping by 0.0048%, historical volatility (as measured by the 30-day) finished the day at 19.25%.
Bull v Bear
This Week (30d ATM 19.96% v 19.55% p)Bulls will seek to maintain bid above Friday’s closing spike and target the (pair of) weak WHI 3900.50 (+1.02%) → WHI.1 (+1.5%). Upside: 50d MA and GEX Flip Point 3885.75 (+0.64%); OCT HI 3955.75 are both within +1σ (W).Bears will seek to offer below (the poor and weak) WLO 3804.50 (-1.45%) → WLO.1 3788.50 (-1.88%), respectively. Downside: JUL LO 3772.00 (-2.31%); -20% ATH 3748.00 (-2.93%); NOV LO 3735.75 (-3.24%) are within -2σ (W).
Last Week (3861.00 MAR23 -0.23%)Bulls will seek to quickly bid > the weak THU & FRI HI and initially target the liquidation singles between (BBZ) 3872 → 3892.50, above which the weak WHI 3918.75 (+1.27%) will be targeted. Upside: WVPOC.1 3927.25 (+1.49%); recapture of OCT HI 3955.75 (+2.22%) both within +1σ (W).Bears will seek to offer below back into THU VA, and create scope for a sweeping the prior week VA 3826.75 (-1.11%), below which the WLO (& DEC LO) 3788.50 (-2.10%) will be targeted. Downside: W45 VAL 3781.00 (-2.41%); WLO 3788.50 (-2.10%); NOV LO 3735.75 (-3.46%) are within -2σ (W).
Indicators
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