Wall Street had a mixed performance on the last Triple Witching Day of 2023, a quarterly event that causes increased volatility due to the simultaneous expiration of stock options, index options, and index futures. The Dow Jones rose by 60 points, the Nasdaq advanced by 0.3%, and the S&P 500 closed slightly lower.
The market was also influenced by NY Fed President Williams’ comments on interest rates, which dampened hopes for a March rate cut. Despite some uncertainties, the major indices continued their upward trend for the week.
Weekly Performance of Major Indices
The S&P 500 and Nasdaq extended their winning streak to seven weeks, gaining 2.4% and 3%, respectively. The Dow Jones increased by 2.7%, marking its ninth consecutive week of gains.
Private Sector Activity
The S&P Global US Composite PMI, a measure of the private sector activity, showed growth for the third month in a row, reaching 51.0 in December. A reading above 50 indicates expansion, while below 50 signals contraction. The services sector led the growth, while the manufacturing sector struggled with a drop in new orders. Employment improved, especially in the service sector, but manufacturers kept cutting jobs. Input prices surged, adding to inflationary pressures.
The S&P Global US Services PMI beat expectations, rising to 51.3 in December. This was the 11th month of expansion, driven by higher new orders due to increased advertising spending and easier financial conditions. The service sector added more jobs, while facing higher input costs. However, output prices rose at a slower pace, suggesting a fragile balance in the pricing power.
On the other hand, the S&P Global Flash US Manufacturing PMI fell to 48.2 in December, the lowest level in four months. This reflected a sharper deterioration in the operating conditions, with declines in output, new orders, employment, and inventories. Manufacturers faced weaker demand, leading to lower input purchases and higher stocks of finished goods.
Manufacturing Production and Capacity Utilization
Manufacturing production in the United States increased by 0.3% in November, boosted by a recovery in automotive output. However, excluding automobiles and parts, the index fell by 0.2%. The year-on-year manufacturing output declined by 0.8%, indicating ongoing challenges in the sector.
Capacity utilization in the US rose slightly to 78.8% in November, with manufacturing at 77.2%. Despite these small improvements, both figures stayed below their long-run averages. The NY Empire State Manufacturing Index plunged to -14.5 in December, the lowest level in four months, signaling a decline in business activity in New York.
US Dollar and Foreign Exchange
The US dollar index soared to near 102.5 after NY Fed President Williams’ remarks on interest rates, lowering expectations for a March rate cut. The dollar’s strength was evident against the Euro and the British pound, leading to a 1.5% drop in the overall value of the dollar for the week.
The Canadian dollar traded below 1.34 per USD, reaching its highest level since early August. Hawkish comments by the Bank of Canada Governor, along with a weaker US dollar, supported the loonie. Higher foreign demand for commodities priced in dollars also boosted the Canadian dollar.
Bitcoin and Ether declined, with Ether falling by 2.58% and Bitcoin by 2.46%, reflecting the persistent volatility in the cryptocurrency market.
Economic Indicators to Watch Next Week
In the coming week, the market will closely monitor key economic indicators in the United States, including the personal income and outlays report, PCE price index, Q3 GDP growth, CB consumer confidence, and durable goods orders. Internationally, the focus will be on UK inflation and retail sales, Japan’s BOJ interest rate decision, inflation rates, and foreign trade data, Germany’s Ifo Business Climate Index, GFK consumer confidence, and producer inflation figures, Canada’s inflation rates and GDP growth rate, and the Turkish Central Bank’s update on monetary policy.
Conclusion and Call to Action
The last Triple Witching Day of 2023 was a mixed bag for Wall Street, with some gains and some losses. The market was also affected by the NY Fed’s stance on interest rates, which reduced the chances of a rate cut in March. However, the major indices maintained their positive momentum for the week. As the private sector showed signs of growth, especially in the services sector.
The manufacturing sector, however, faced challenges with weak demand and falling output. The US dollar strengthened, while the Canadian dollar reached its highest level in months. The cryptocurrency market remained volatile, with Bitcoin and Ether losing value. Next week, the market will pay attention to key economic indicators in the US and abroad, which will provide more insights into the global economic outlook.
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Triple Witching Day
Triple Witching Day is a financial term that refers to the last day of the quarter when three types of derivative contracts expire at the same time. These contracts are stock options, index options, and index futures. They give the right or obligation to buy or sell stocks or indexes at a certain price and date. When they expire, traders may need to adjust their positions, which can cause increased trading volume and volatility in the market. Triple Witching Day happens four times a year, on the third Friday of March, June, September, and Decembe