DEDUCED RECKONING: Expect December selling to continue as bulls retreat

·3 min read
Joan Lappin
Joan Lappin

I always like to check in on the University of Michigan Consumer Sentiment survey every now and again. It is important because 70% of our U.S. economy is consumer driven, as much as we like to think of our country as an industrial juggernaut. Think of all the consumer services we value now if we can afford them like manicures, massages, haircuts and a gym membership.

Travel is another important category. After two years of Zoom, one wonders if business travel will be coming back anytime but we know that, personally, we want to get on planes, trains and cruise ships after our painful pandemic lockdown. It is one reason I favor the travel sector for patient investors.

Here are the Michigan numbers for the last year: 11/20: 76.9; 12/20: 80.7; 1/21: 79; 2/21: 76.8; 3/21: 84.9; 4/21: 88.3; 5/21: 82.9; 6/21: 85.5; 7/21: 81.2; 8/21: 70.3; 9/21: 72.8; 10/21: 71.7. Last month the number dropped sharply to 67.4. That is 20 points lower than the recent peak reading in April at 88.3.

For now, the economic outlook remains solid. Wages and benefits are rising. Companies are allowing workers to continue to work from home. Unemployment is still falling and anyone who wants a job can find one. A just published CNBC poll shows that the average person plans to spend an average of $1,004 this year for holiday gifts. That is up 13% from a year ago but still lower than the $1,118 reported in 2018. Interestingly, half of shoppers plan to shop online but there is a sharp decline in fear of mall visits, airplane travel, attending in person entertainment, and visiting. A year ago when nobody was yet vaccinated, 60% were afraid to go out. Now that number is 34%.

We know people are worried about higher gas prices, dramatic inflation numbers, and talk of the Federal Reserve Board accelerating tapering its money pumping operations. I view this as a much bigger deal than raising interest rates that are super low starting now in the spring, not the summer.

What is surprising is that as the year has progressed the number of vaccinated Americans has steadily risen. The number of sick people plummeted as efforts to get a jab in every arm escalated and warm summer weather in the northern states allowed people to be outside. That is why news of the arrival of omicron on our shores caused such a sharp selloff last week.

Once, Pfizer and others announced that omicron might be less severe than feared, the markets rallied back strongly. Notice that even as the Dow surged on Monday, the number of new highs on the NYSE was just 51, offset by 120 new lows. That same day, the new highs on the NASDAQ was a paltry 39, trounced by 642 new lows. That is far from what you would expect to see if the market was preparing to break higher. The 1,182 new weekly lows on the NASDAQ last week were the worst since March 2020 when the markets had lost 38% of their value in just three weeks.

At this moment, the P/E multiple on the S&P 500 for 2022 earnings is 21x. That is hardly a bargain level. I expect tax loss selling to persist throughout December. Some are taking dramatic gains in tech stocks that are uncoupled from earnings because they have none. I’m remaining cautious. There is too much carnage under the surface to be a bull.

Joan Lappin CFA has been called an “investment guru” by Business Week and a “top manager” by the Wall Street Journal. The Sarasota resident founded Gramercy Capital Management, a registered investment adviser, in 1986. Email her at Follow her on twitter: @joanlappin. Her past columns appear at

This article originally appeared on Sarasota Herald-Tribune: JOAN LAPPIN: Expect December selling to continue as bulls retreat

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