Stock indexes are coming off their worst week of 2023 so far, although they remain in positive territory for the year.

The Nasdaq leads the pack, up +12%, followed by the S&P 500 up +6.5%, and the Dow up +2.2%. In fact, the S&P 500 is very close to getting back to its midpoint between the 2022 all-time high of 4,797 and the 2022 low of 3,577. The Nasdaq's rally has been led largely by the tech sector as investors scooped up beaten down shares that got pummeled in last year's selloff. That's despite a pretty lackluster Q4 earnings season for tech companies, many of which also offered disappointing guidance.

About three-quarters of S&P 500 companies have now reported Q4 results. The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings decline for the fourth quarter is now -4.9%, versus -3.3% at the end of Q4, according to FactSet.

Only 4 of the 11 sectors are reporting year-over-year earnings growth - Energy, Industrials, Real Estate, and Utilities. Around 69% of companies have topped analyst estimates. That's below the average of 76% over the past for quarters, according to Refinitiv, and also against pretty low analyst expectations heading into the reporting season.

Bears warn that profit trends are unlikely to improve, pointing to still-high operating costs, a tight labor market, and consumer budgets strained by inflation. What's more, bears see the tight labor market forcing the Fed to continue raising rates longer than many - including central bank officials - are currently penciling. And they don't see rates coming down anytime soon outside a major economic crisis.

Higher interest rates can obviously mean higher borrowing costs for companies. They also make less-risky investments like bonds and money markets look much more attractive, meaning less money flowing into stocks.

Bulls on the other hand still believe inflation is on the way out and the Fed will be cutting interest rates by the end of the year.

Bulls also increasingly believe the US economy can withstand the Fed's higher interest rates, pointing to the labor market that gained half a million jobs in January and a still expanding services sector that had been trailing the recovery in consumer goods. Q4 results from several consumer staple companies this week might provide more clarity into the health of US consumers and changing spending patterns.

Those include Coca-Cola today, as well as Kraft-Heinz on Wednesday, and Hasbro on Thursday. Other highlights today include Airbnb, Marriott International, Suncor, and Zoetis.

There is no economic data today but investors are anxious to see the January Consumer Price Index (CPI) tomorrow. It's worth noting that this report will reflect changes to how the government weights different goods and services, based on Americans' recent buying patterns.

These tweaks aren't expected to affect the actual inflation numbers but economists say it could make forecasts less accurate, at least until analysts adjust for the new weights. In general, the report could cause some confusion as to where price pressures are being felt the strongest.

US Shoots Down More Unidentified Object Over North America: U.S. and Canadian officials were seeking Sunday to determine the origin and purpose of two objects shot down by military jet fighters over Alaska and Canada in the wake of increased aerial surveillance following the discovery of a suspected Chinese spy balloon. The two latest objects shot down—one over Alaska on Friday and the other over Canada’s Yukon territory Saturday—were described privately by U.S. and Canadian officials as balloons. Senate Majority Leader Chuck Schumer said Sunday that U.S. officials have also described the objects to him as balloons, although smaller than the Chinese balloon destroyed Feb. 4. Canadian Defense Minister Anita Anand described the object over the Yukon as cylindrical to reporters Saturday night. Ms. Anand said she wouldn’t speculate on where the object originated. She added this marked the first time in the history of NORAD that jet fighters shot down an object. Officials have yet to determine who launched them and what their purpose was. The suspected Chinese balloon that traveled over the U.S. led the North American Aerospace Defense Command, or NORAD, to more closely examine raw radar data, the officials said, leading to the discovery of radar signatures previously unseen. Mr. Schumer said U.S. officials are now focused on a comprehensive analysis of the balloons. In another incident, the Federal Aviation Administration closed airspace near Havre, Montana, on Saturday after NORAD detected a “radar anomaly” and sent jet fighters to the area. No object was found and the area was reopened late Saturday night. Source NBC News

Babysitting Costs Skyrocket: Babysitting rates rose +9.7% nationally in 2022, a bit less than the +11% hike seen in 2021, but still outpacing inflation for the second year in a row, according to survey results from caregiver-finding platform UrbanSitter provided first to Axios. A shortage of babysitters and other childcare workers and the higher pay those remaining are able to command is creating seismic ripples in the labor market, keeping some parents at home or in precarious care arrangements. It's also attracting teachers, nurses, and other trained professionals into the career which in turn drives up rates, because of their experience. In the other direction, daycare workers are quitting for higher pay elsewhere, including at custodial jobs. Rates are up across all categories of care, from casual babysitting to full-time nannies to daycare, where it can be hard to even get on a waitlist. Per a 2022 survey, 51% of U.S. parents were spending over +20% of their income on child care, far more than the 7% that the federal government deems "affordable." Last year's national average babysitting rate was $22.68 an hour for one child, $25.37 an hour for two, and $27.70 an hour for three. Source Axios

Wealthy Boomers are Trading in their Nikes for Skechers: Skechers is gaining serious momentum on Americans' list of favorite casual sneakers to wear, according to the Investment bank Cowen, who said in a note on Monday that 19% of the US consumers it surveyed preferred Skechers as their lifestyle footwear of choice in 2022. That's second behind only Nike at 24% in its Proprietary Consumer Tracker Survey. Adidas ranked third among respondents. Skechers is seemingly taking customers away from Nike and Adidas, as high inflation prompts consumers to buy more affordable shoes, Cowen said. Besides inflationary reasons, demand for Skechers is also being fueled by more affluent consumers. The company gained most of its market share in casual footwear from consumers earning well over +$100,000 last year. Consumer preference for Skechers among respondents who earned less than $100,000 in 2022 was flat year over year. Source Yahoonews

The Super Bowl’s Biggest Winner Might Just Be Sports-Betting Apps: Fans flooded Phoenix on Sunday to watch Super Bowl LVII between the Philadelphia Eagles and the Kansas City Chiefs. And millions also bet on the outcome—a total of $16 billion was expected to be wagered, according to the American Gaming Association. While it’s too late to scoop up any sports betting stocks before kickoff, now is a good time to zero in on the industry and which companies are players. Sports-betting stocks have tumbled from the peaks reached after the initial wave of state legalizations of betting, as fierce competition for customers took its toll on profits. Now the first U.S. sports-betting operations are edging toward profitability. Some companies are moving at a faster pace than others and are worth considering. Penn Entertainment (ticker: PENN), a leading sports-betting operator, surprised investors earlier this month when its interactive gambling business reported a profit in the fourth quarter. Penn executives said in an earnings call that they benefited from a “more rational” approach to promotions which appears to be playing out across the industry. The push for profitability should be helped by less competition. Some smaller operations are closing up their sportsbooks, such as FuboTV (FUBO), which said it would close its sportsbook last October. That was followed by MaximBet a month later. The industry is also awaiting larger scale consolidation. Source Barrons

Investors Exiting US Stock Funds During 2023 Rally: Investors have pulled a net $31 billion from U.S. equity mutual funds and exchange-traded funds in the past six weeks, according to Refinitiv Lipper data through Wednesday. That marks the longest streak of weekly net outflows since last summer and the most money pulled in aggregate from domestic equity funds to start a year since 2016. Over the same period, investors have funneled roughly $12 billion into international equity funds, about $24 billion into taxable bond funds and nearly $3 billion into municipal bond funds. Flows toward funds outside of domestic equities indicate a level of apprehension from investors who aren’t buying the 2023 rebound in U.S. stocks, some analysts say. The outflows provide little reassurance to investors wrestling with fears that market sentiment could be turning. Elevated interest rates have sent some investors reaching for bond funds as fixed-income assets offer the highest yields in more than a decade with minimal risk. The yield on the Bloomberg U.S. Aggregate Bond Index is 4.5%, outpacing the 1.7% dividend yield on the S&P 500. And investors are rotating toward international equity funds as shares of companies overseas have outperformed U.S. peers in recent months, boosted by a weakening dollar, optimism about China’s reopening and attractive valuations. Source WSJ

Brand of Eye Drops Linked to Drug-Resistant Bacterial Infections: Concern is rising about the outbreak among people who used artificial tears sold by closely held EzriCare LLC based in Lakewood, New Jersey, according to the CDC. Clusters of infections linked to the use of the eye drops have been found in four states, according to US health officials tracking the outbreak that’s already led to the death of one person. At least 35 of 56 cases related to the recalled eye drops have been reported from California, Connecticut, Florida and Utah, according to US Centers for Disease Control and Prevention spokesperson. Eight other states have also tallied infections, the CDC said, with some leading to permanent vision loss. Patients have presented with a variety of conditions ranging from eye infections to blood poisoning, often called sepsis, the CDC said. The infections are caused by a rare strain of Pseudomonas aeruginosa bacteria that’s resistant to many commonly used antibiotics. The resistant strain had never been seen in the US until the current outbreak, the CDC said. The products were manufactured overseas by Indian firm Global Pharma Healthcare Pvt Ltd, which has initiated a voluntary recall of all unexpired lots of EzriCare’s Artificial Tears, as well as another product marketed by New York-based Delsam Pharma LLC. Source Bloomberg

Most Jobs Now Demand Digital Skills: Over the last two decades, the American labor market has undergone a rapid transformation, with most jobs today requiring at least a fair amount of computer skills and digital knowledge. These may not be considered “tech jobs,” but being a schoolteacher, a medical assistant or in the construction field in 2023 now calls for a fluency with an ever-growing array of software and devices. As of 2020, more than three-quarters of US jobs are considered medium- or high-skilled when it comes to facility with technology. That’s compared to 2002, when workers in low digital skill-level jobs made up more than half of the labor force, according to a new Brookings Institute report. The report assigns a digital score to each occupation, which is derived from the occupational survey and is calculated based on how much time a worker spends on a computer on the job and the complexity of the tools, among other things. The range of the report doesn’t include the effects of Covid-19, which forced millions of white-collar workers to go remote in mid-2020, supercharging the digitalization process further. But from 2002 to 2020 the share of high digital skilled occupations in particular — in industries like software development, financial management and computer analysis — nearly tripled, constituting 26% of all jobs today. The growth of digital jobs, however, has been geographically and demographically uneven across the nation, with smaller and rural areas most likely to be left behind by the expansion. Source Bloomberg

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