Bad News is Now Just Bad News; Inflation at Fed’s 2% Target (January 20 Market Recap).
Indices
- Dow 33,375, -926 or -2.7%.
- Nasdaq 11,140, +30 or +0.54%.
- S&P 3,972, +26 or +0.65%.
- USD10Y 3.484%, -8.5bp or –2.4%.
- WTI Crude $81.40/bbl, +$1.50 or +1.87%.
Bad News is Now Just Bad News?
The bad news is good news narrative seemed to reverse back to bad news is just bad news as there was a rash of bad data this week. In this environment, that data should have emboldened investors and the markets on assumptions that the Fed might begin to relent on its rate hike campaign to fight inflation. Instead, markets traded down and were saved from four consecutive down days by a Friday bounce back rally.
Inflation is at the Fed’s 2% Target.
Encouraging inflation news came from the December Producer Price Index (wholesale prices) which was down an unexpected -0.50% and December Retail Sales which declined -1.0% month over month. Both numbers demonstrate disinflation. Over the last six months, the PPI is exactly 2.0% on an annualized basis. Over the same time period the Consumer Price Index is 1.9% on an annualized basis. However, the Fed’s preferred measure of inflation, the Personal Consumption Expenditure (PCE), which will be released on Friday, is 4% over the last six months. The Fed continues to insist their decisions are data dependent and yet multiple Fed players continue to state that their terminal rate is above 5%. Why?
Heads I win, Tails you lose.
The market’s poor showing this week despite the well-received inflation data was due to mounting recession fears. The money center banks reported decent numbers last Friday and this week but they also set aside much more than expected ($6.2 billion) for bad loan provisions, in addition to warning of the increasing possibility of a mild recession. Furthermore, the markets had to digest the slowest annual growth rate seen out of China in decades (+3%), horrific manufacturing numbers out of New York and Philadelphia, and 40,000 layoffs between three tech giants (GOOG, AMZN, and MSFT). On the plus side, jobless claims declined much more than expected, but the market hated that news too. This week was truly a “heads I win, tails you lose” type of week.
Next Week
The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditure (PCE), will be released on Friday. Earnings continue.
Economic Calendar
- Monday – Leading Economic Indicators.
- Tuesday – S&P U.S. Preliminary January Manufacturing and Services PMI. Earnings: Microsoft (MSFT).
- Wednesday – Earnings: Boeing (BA) and IBM (IBM).
- Thursday – Initial Jobless Claims, Q4 GDP, December Durable Goods. Earnings: Southwest Airlines (SWA).
- Friday – December Personal Consumption Expenditure. Earnings: American Express (AXP)
If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.
January 20 Daily Trading Recap…
Monday – Markets Closed in Observance of Martin Luther King Jr Day.
Tuesday – Dow -391 to 33,910, Nasdaq +15 to 11,095, S&P -8 to 3,990, USD10Y –3.4bp to 3.535%.
- Seven of the eleven S&P sectors traded down today, led lower Materials, Communication Services, and Industrials.
- January Empire State Manufacturing was horrific at –32.9 vs –7.0 expected and –11.2 last month.
- Earnings: Morgan Stanley (MS) and United Airlines (UAL) beat their numbers. Goldman Sachs posted their worst earnings miss in a decade and traded down 6.44%.
- It was Chinese Annual Economic Growth number of 3%, historically one of the slowest growth rates in decades, that sent the market lower.
Wednesday – Dow -613 to 33,296, Nasdaq -138 to 10,957, S&P -62 to 3,928, USD10Y –16.0bp to 3.375%.
- All eleven S&P sectors traded down today, led lower by Utilities, Industrials, and Financials.
- December retail sales were down –1.1% vs expectations of a –1.0% decline.
- December Headline Producer Price Index (PPI) was down –0.5% vs an expected –0.1% decline and last month’s +0.2% increase.
- The bad news is good news narrative seemed to reverse back to bad news is just bad news as PPI was better than expected and Retail Sales were worse than expected. Both of those data points should’ve supported a market rally in anticipation of the Fed becoming more dovish as inflation data continues to demonstrate a cooling trend. Instead, the markets traded down aggressively.
Thursday – Dow -252 to 33,044, Nasdaq -104 to 10,852, S&P -30 to 3,898, USD10Y +2.2bp to 3.397%
- Eight of eleven S&P sectors traded down today, led lower by Industrials, Consumer Discretionary, and Financials.
- Jobless claims fell to 190,000 claims vs 214,000 expected and last week’s unrevised print of 205,000. Continuing claims rose 17,000 to 1.647 million.
- January Philadelphia Fed Manufacturing Index was better than expected at –8.9 vs –10 expected and last month’s -13.7 print.
- Earnings: Netflix (NFLX) missed numbers but traded up 6.3% on better-than-expected subscriber growth. Nordstrom (JWN) missed their numbers and traded down 6.5%.
Friday – Dow +330 to 33,375, Nasdaq +288 to 11,140, S&P +73 to 3,972, USD10Y +8.7bp to 3.484%.
- All eleven S&P sectors traded higher today, led by Communication Services, Consumer Technology, and Consumer Discretionary.
- Alphabet (GOOG) rose 5% after announcing 12,000 layoffs. This is on top of announcements earlier this week from Amazon (AMZN) and Microsoft (MSFT) laying off 18,000 and 10,000 workers respectively.
- Federal Reserver Governor Waller announced his support for a 25 bp rate hike at the February FOMC meeting.
If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.
Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.