Stock investors take a few steps back after Federal Reserve Chair Jerome Powell indicates that March rate cuts are not likely. The Fed's policy statement said FOMC members (the Fed's voting committee ) are looking to gain "greater confidence that inflation is moving sustainably toward 2 percent," but Powell said he doubts they will get there by March. On the positive side, the Fed's updated policy statement removed language that left open the possibility for future rate hikes, which is the clearest signal yet that the central bank is readying to shift gears.
While there are not yet plans for rate cuts, the statement did say the FOMC "judges that the risks to achieving its employment and inflation goals are moving into better balance.” Powell was noncommittal in regard to how many cuts the Fed might make this year, saying only that it "would depend on the data.” I think it sounds like three rates cuts in 2024. Many economists believe Fed officials want to see more softening in the labor market before confidently declaring victory over inflation.
Data released yesterday points to a slowdown in both hiring and wage growth. Private payroll firm ADP reported that companies only added 107,000 new workers in January, versus +158,000 in December and below consensus of +145,000.
Separately, the Employment Cost index showed wage growth in Q4 slowed, bringing the year-over-year rate down to +4.2% from +4.3% the previous quarter.
The bigger test will be the January Employment Report due out on Friday, which is expected to show +170,000 jobs added and hourly wage gains running at a +4.1% annual rate.
Economic data today includes Construction Spending and ISM Manufacturing. Turning to earnings, the big fireworks happen when Amazon, Apple, and Facebook-parent Meta release results after the market close today.
Keep in mind, Google-parent Alphabet and Microsoft on Tuesday easily beat Wall Street estimates but investors don't seem to be impressed as both have traded lower ever since, even before the Fed statement.
Many Wall Street insiders argue that earnings expectations were already priced in, and then some. Before releasing results, Alphabet's stock had already gained +56% in the last 12 months while Microsoft had gained +70%.
They also warn that the same fate could await the rest of the big tech behemoths if they don't blow expectations out of the water. Tech bulls, however, point out that a good portion of last year's gains offset losses in 2022, when a number of big tech stocks suffered declines of -30% or more. Bulls further point out that the bulk of earnings gains analysts are forecasting for S&P 500 companies in Q1 2024 are expected to come from just four stocks - NVIDA, Amazon, Meta, and Alphabet, with projected year-over-year earnings growth of nearly +80%.
According to FactSet, excluding these four companies, the remaining 496 companies in the S&P 500 would be projected to report year-over-year earnings growth of just +0.3% for Q1 2024.
Overall, the estimated earnings growth rate for the entire S&P 500 for Q1 2024 is 4.6%.
Beyond tech results today, other Q4 earnings include Altria, Clorox, Deckers Outdoor, Hartford Financial, Honeywell, Merck, Royal Caribbean, Sanofi, Shell, SnapOn, and Tractor Supply. For full disclosure, I have sold my longer-term position in Amazon and Honeywell, but still hold position in Apple, Meta, and Tractor Supply.
India Set to be World’s Third Largest Economy by 2027: India's finance ministry said that in three years India could see their gross domestic product reach +$5 trillion, putting them firmly in place as the third largest economy in the world. In a report recently released, the finance ministry said the economy is poised to grow at or above +7% in the fiscal year 2024. If it meets this year’s target, it will be the third straight year of +7% GDP growth. India’s chief economic advisor, said the government’s goal is to become a developed country by 2047. He said investment in both physical and digital infrastructure helped boost the supply side and manufacturing. According to Goldman Sachs, India is poised to become the world’s second-largest economy by 2075, leapfrogging not just Japan and Germany, but also the U.S. Currently, India is the world’s fifth-largest economy, behind the U.S., China, Japan, and Germany. Source CNBC
Central Banks Buying Gold at a Record Pace, ETF's Net Sellers: Private-sector investors typically buy gold out of fear more than greed, surprisingly the amount of gold they bought in 2023 hit a ten-year low. The private-sector investors, however, who do buy gold tend to be buying it in the form of bars and coins, not in the form of ETFs, which have been net sellers of gold for three years running. On the flip side, central banks around the world have been gobbling up gold, collectively buying more than +1,000 tonnes for each of the past two years, a pace unprecedented in modern history. The People's Bank of China alone bought 225 tonnes of gold in 2023, worth +$15 billion at current prices. Its current holdings now stand at 2,235 tonnes and represent about 4% of its international reserves. Source Axios
US Officials Say China is Preparing Potentially Deadly Cyberattacks Against US Infrastructure: The U.S. government said it had disrupted a uniquely dangerous and potentially life-threatening Chinese hacking operation that hijacked hundreds of infected routers and used them to covertly target American and allied critical infrastructure networks. Senior officials described the operation in unusually blunt terms as part of an evolving and increasingly worrisome campaign by Beijing to get a foothold in U.S. computer networks responsible for everything from safe drinking water to aviation traffic so it could detonate, at a moment’s notice, damaging cyberattacks during a future conflict, including over Taiwan. Though officials didn’t specify the types of critical infrastructure targeted in the router campaign whose disruption was revealed Wednesday, Federal Bureau of Investigation Director Christopher Wray said Chinese hackers had recently been spotted targeting “our water treatment plants, our electrical grid, our oil and natural gas pipelines, our transportation systems.” Most state-sponsored foreign hacking activity from China and other adversaries is designed to collect intelligence. But officials and industry experts have said the hacking campaign, dubbed Volt Typhoon, is more concerning because of its apparent destructive intent. Source WSJ
Architecture Firms Report Eighth Straight Month of Decline: Architecture firms finished off the year with another chilly month of declining billings, a lagging indicator of the greater building industry. According to survey data collected by the American Institute of Architects, firms who participated in the survey in December reported an eighth straight month of decline. But there’s reason to be optimistic. Most surveyed firms also reported that they signed more contracts in December than in November. Inquiries were down in October, way up in November, and still positive in December. Those are signals that the design industry could be turning the page on a rough chapter. Looking across the industry, no specific type of firm appears to be doing worse than any other. Apartment-building designers, improving on several months of steep decline, were right in line with designers for commercial and institutional projects in December. Fewer architects in the West and Northeast reported a dip in December than in November, which is a positive development. Firms in the Midwest actually reported an increase in billings in December — so the turnaround has already arrived in parts of the US. But architects in the South reported their worst month of billings in more than a year. Source Bloomberg
Starbucks Rethinks Price Hikes as Biz Slows: Starbucks fans may be getting a break on their bills in 2024. The coffee giant is trying to get its drinkers to come back more frequently amid ongoing issues like unionization efforts, declining sales growth in the US and abroad, and flattening foot traffic. With US same-store sales up only 5% last quarter — and after missing analyst estimates on its top and bottom lines on Tuesday — Starbucks will leverage pricing and promotional strategies as it looks to regain its footing this year. While Americans had previously brushed off higher prices, Starbucks CFO Rachel Ruggeri indicated to Yahoo Finance Live that the company plans to pull back on price hikes. Source YahooFinance
Walmart Announces Expansion Plans: Walmart already has a huge U.S. footprint. But the retail giant sees room to get even bigger. The company plans to build or convert more than 150 large-format stores over the next five years, it said Wednesday. Some of the locations will be expanded from a smaller location into a Supercenter with a full range of groceries and merchandise, but the majority will be new stores, Josh Havens, a company spokesman, said. Sam’s Club also is in expansion mode, with plans to open more than 30 new stores in the U.S. About 90% of the U.S. population already lives with 10 miles of a Walmart store. With the expansion, Walmart is signaling that it sees its brick-and-mortar locations as a key part of the future, despite heightened competition with online players like Amazon and Shein, and its own push for growth of online sales and its third-party marketplace. Source CNBC
Mysterious Bass Sounds Irking Florida Residents Might Just Be Fish Mating Loudly: A strange noise is keeping Tampa, Florida, residents up at night. The thrumming is so loud that, at times, it sends tremors through their homes. Now, a local scientist has come up with one possible explanation for the disruption: mating fish. As it turns out, residents might be eavesdropping on black drum fish as they reproduce. The animals can produce low frequency drumming sounds by flexing their muscles against their swim bladder. Black drum fish tend to mate—and fill the sea with their amorous racket—on winter nights, which might explain the uptick in noise residents hear around this time of year. Source Smithsonian Mag
Retail Space Running Low as Construction Dries Up: Retail landlords are running low on available space despite a recent spate of high-profile store closures. In the third quarter, the amount of retail space available for lease plunged to an all-time low since CoStar Group began tracking the figures in 2007, says Brandon Svec, director of retail analytics. That was down by 0.13 percentage points over the last year and down 1.5 points over the past three years. Several factors are playing into the decline, according to CoStar. Nontraditional tenants are snapping up storefronts, including medical services, fitness studios and grocery stores. Additionally, construction of new space has dwindled to its lowest point in decades, and rising interest rates are making it increasingly cost prohibitive. Some 140 million square feet of retail space has been demolished in the last decade. Source Axios
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