Everyone Expects 25bp, but What’s Next (January 27 Market Recap)
Indices
- Dow 33,978, +603 or +1.8%.
- Nasdaq 11,621, +481 or +4.3%.
- S&P 4,070, +98 or +2.5%.
- USD10Y 3.5187%, +3.5bp or +1.0%.
- WTI Crude $79.38/bbl, -$2.02 or -2.48%.
Everyone Expects 25 Basis Points
It was a week of mixed economic data. While both Manufacturing and Services PMI were firmly in contraction territory, and Leading Economic Indicators were negative, Durable Goods Orders, Q4 GDP, and weekly initial jobless claims were all better than expected. Perhaps the best news of the week was Friday’s much anticipated Personal Consumption Expenditure (PCE), the Fed’s preferred measure of inflation. December’s Headline PCE declined to +5.0% vs +5.5% last month and the Core number decreased to +4.4% from +4.7% last month. Interest rate traders have now baked in a 98.4% probability of a 25-basis point hike in the Federal Funds rate when the Fed meets next week.
But What’s Next?
Last week we noted that over the last six months, the Producer Price Index (PPI) is exactly 2.0% on an annualized basis. We also noted that over the same time period the Consumer Price Index (CPI) is 1.9% on an annualized basis. With today’s print, headline PCE is +2.2%, just 0.2% above the Fed’s +2% target if one annualizes the last six months of data. With the Fed almost certainly raising rates by 0.25% next week, the question remains, how many more hikes must the economy endure before the Fed declares victory over inflation and stops or at least pauses this current rate hike cycle?
Next Week
Of course, the main course next week will not be the Fed’s 25bp rate hike but Fed Chair Jerome Powell’s press conference that follows the interest rate decision. Will he give clues as to when the much-awaited Fed pivot (when the Fed may pause rate hikes or even begin to cut rates) might occur? Or will the Fed continue with their hawkish language and increase the possibility of pushing the economy into a recession? We also have an exciting week of earnings with a who’s who of mega-cap tech reporting on Thursday; Amazon (AMZN), Apple (APPL), and Alphabet (GOOG).
Economic Calendar
- Monday – N/A.
- Tuesday – January Consumer Confidence Index. Earnings: Caterpillar (CAT), Advanced Micro Devices (AMD).
- Wednesday – January ADP Employment Report, January S&P Manufacturing PMI (final) January ISM Manufacturing Index, December JOLTS, FOMC Interest Rate Decision and Press Conference. Earnings: Meta Platforms (META).
- Thursday – Initial Jobless Claims. Earnings: Ford (F), Apple (APPL), Amazon (AMZN), Alphabet (GOOG).
- Friday – January Non-Farm Payrolls, January S&P U.S. Services PMI (final), January ISM Services Index, January Average Hourly Earnings. Earnings: N/A.
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 27 Daily Trading Recap…
Monday – Dow +254 to 33,629, Nasdaq +224 to 11,364, S&P +47 to 4,019, USD10Y +4.1bp to 3.525%.
- Ten of the eleven S&P sectors traded higher today, led by Technology, Communication Services, and Consumer Discretionary.
- December Leading Economic Indicators were down –1.0% vs expectations of down –0.7% vs the previous month’s -1.1% print.
- Stocks jumped on hopes of the Chinese further lessening Covid restrictions.
Tuesday – Dow +104 to 33,733, Nasdaq -30 to 11,334, S&P –3 to 4,016, USD10Y -5.6bp to 3.469%.
- Six of the eleven S&P sectors traded higher today, led by Industrials, Utilities, and Real Estate.
- January Preliminary S&P US Manufacturing PMI was slightly better at 46.8 vs expectations of 46 and last month’s 46.2 print. However, anything below 50 represents contraction.
- January Preliminary S&P US Services PMI was also slightly better but still in contraction at 46.6 vs 45 expected and last month’s 44.7 print.
- Earnings: Microsoft (MSFT) beat their numbers, but revenues grew at their slowest pace since 2016.
Wednesday – Dow +9 to 33,743, Nasdaq -21 to 11,313, S&P -1 to 4,016, USD10Y –0.7bp to 3.462%.
- Six of eleven S&P sectors traded higher today, led by Financials, Consumer Discretionary, and Consumer Staples.
- Earnings: Tesla (TSLA) beat revenues and guidance although its margins were the lowest in the last five quarters. IBM (IBM) beat their estimates and announced 4,000 job cuts. The freight train company, CSX (CSX) beat their estimates. Boeing (BA) missed their numbers.
Thursday – Dow +205 to 33,949, Nasdaq +199 to 11,512, S&P +44 to 4,0060, USD10Y +3.1bp to 3.493%
- Ten of eleven S&P sectors traded up today, led by Energy, Consumer Discretionary, and Technology.
- Jobless claims continued to fall to 186,000 claims vs 205,000 expected and last week’s slightly revised higher print of 192,000 (originally 190,000). Continuing claims rose by 28,000 to 1.647 million.
- December Durable Goods Orders rose sharply to +5.6% vs +2.4% expected and vs November’s -1.7% print.
- Q4 GDP (1st estimate) grew +2.9% vs expectations of +2.8% and vs Q3’s +3.2% pace.
- Earnings: Despite losing $220 million in the 4th quarter due to its flight cancellations fiasco, Southwest Air (SWA) was profitable in 2022 and expects to be so again in 2023.
Friday – Dow +28 to 33,978, Nasdaq +109 to 11,621, S&P +10 to 4,070, USD10Y +2.6bp to 3.5187.
- Six of eleven S&P sectors traded higher today, led by Consumer Discretionary, Real Estate, and Communication Services.
- December Headline Consumer Price Expenditure (YoY) was +5.0% vs last month’s +5.5% print. Month over month (MOM) was +0.1%.
- Core PCE (YoY) was +4.4% vs last month’s +4.7% print and MoM was +0.3% vs +0.2% last month.
- University of Michigan 1 and 5-year inflation expectations decreased from last month; 1-year expectation was +3.9% vs +4.0% and the 5-year expectation decreased to +2.9% vs +3.0%.
- Earnings: American Express (AXP) missed but traded up on positive guidance. Intel (INTC) reported a miserable quarter and traded down 6%.
- Futures markets now place a 98.4% probability of a 25bp rate hike during the Fed’s meeting next week.
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.