Stock investors take a few steps back as January inflation comes in hotter than expected. The good news is that the Consumer Price Index (CPI) didn’t accelerate in January which is somewhat reassuring after other reports came in much stronger than expected.

Headline CPI declined to 3.1% year-over-year from 3.4% while the “core” rate, which strips out food and energy, held steady at +3.9%. Wall Street economists were expecting the rates to slow to +3.0% and +3.7%, respectively. The majority of the upside surprise came from “shelter,” which increased +0.6% month-over-month, led by “owners equivalent rent,” which also increased +0.6%. A +1.4% month-over-month increase in airline fares also stands out. A -3.4% decrease in used vehicle prices offset some of the gains but obviously not nearly enough to move the needle as much as expected.

Bears see the report supporting the Federal Reserve’s own outlook for just 3 rate cuts of 25 basis points each this year, rather than the bulls’ most recent hope for 4 or 5 cuts. The report also supports the view expressed by many Fed officials that it is still too soon to declare inflation has been defeated, and provides the central bank cover to continue its cautious approach. However, economic data coming up tomorrow could yet again shift investor sentiment.

Retail Sales and Industrial Production, both for January, will shed more light on how the US economy was doing last month. We’ll also get the first look at February data via manufacturing index updates from the Philadelphia and New York Feds. The manufacturing indexes may be particularly useful in determining whether “hot” January data was a fluke or indeed the start of a stronger growth trend. Investors will also be interested to hear what Fed officials have to say about the most recent data, and there are several scheduled to speak over the next couple of days, including Fed Vice Chair for Supervision Michael Barr today.

On the earnings front, Cisco, CME Group, Kraft Heinz, Owens Corning, and Sony are the highlights. Some Wall Street veterans are pointing out that there have not been many opportunities for “dip” buyers amid the tech-fueled rally this year, so this mild pullback may be short lived. Bottom line, the bulls had been hoping for between 4 and 6 rates cuts by the Fed in 2024.

Now that some of the inflationary and economic data is coming in a little hotter than expected, the trade is dialing back its expectations of rate cuts. In turn, we could argue that the stock market might have gotten a bit ahead of itself and is also now dialing things back in order to adjust. Bears argue that if the Fed keeps rates too high for too long we start to run a much greater risk of a significant economic downturn on the road ahead...

America’s ESG Hiring Boom Is Starting to Cool:  US companies are hiring fewer people for roles related to environmental, social, and corporate-governance issues as finance executives assess costs and seek faster returns on investments. ESG job departures outpaced arrivals for half of last year, marking the reversal of a multiyear trend. Companies had 3,071 ESG departures compared with 2,897 arrivals in December 2023, according to employment data provider Live Data Technologies, which reviewed more than 360,000 current and former ESG professionals at US companies. Companies are now facing investor pushback and political pressure targeted at ESG efforts, with shareholders cashing out billions in favor of higher returns elsewhere. Most businesses continue to follow sustainability commitments but are changing how they handle their ESG programs, in some cases adjusting diversity initiatives by scrapping legally risky and possibly discriminatory practices. A drop in new ESG hires hasn’t necessarily weakened companies’ investments in those areas. 92% of chief executives say they stand by their ESG programs, while the remaining 8% have ramped them down. Interesting... Source WSJ

"Score" the New Dating App Only for People with Good to Excellent Credit: There is a new dating app just in time for Valentine’s Day, but there’s a catch: You must have at least a 675 credit score to use it. Launched today by financial platform Neon Money Club, "Score" is a dating app for people with good to excellent credit, and it seeks to help raise awareness about the importance of finances in relationships.... and I thought I had seen everything! Source Techcrunch

Super Bowl 58 Was Most-Watched Television Show Ever With 123 Million Viewers:  CBS Sports said that figure included viewers across all platforms and was up 7% from last year’s 115.1 million average viewers, which was also the previous record. This year’s game was the most-streamed Super Bowl in history with a record audience on Paramount+, the network said. It added that the network saw its best postseason viewership since 1998. Sunday’s big game had a lot for audiences for tune in for, two of the best teams in the National Football League, a halftime show from Usher, wacky commercials and, of course, a very public love story. Live sports has shown strength even as TV viewership has fragmented and moved to streaming platforms. The value of sports rights showed this month as Disney’s ESPN, Fox, and Warner Bros. Discovery said they would launch a joint streaming platform later this year. ESPN later announced it would release its own streaming service in 2025. I should note, The Apollo moon landing in 1969, was actually the most viewed ever on TV, which was estimated to have drawn between 125 and 150 million US viewers back when the country’s population was just over 200 million. Source CNBC

The Brutal Reality of Plunging Office Values Is Here: The shakeout in the $20 trillion US commercial real estate market has long been delayed for a simple reason: No one could figure out just how much properties were worth. And, more crucially, few wanted to. For many, the time to wait it out is nearing its end. Across the country, deals are starting to pick up, revealing just how far real estate prices have fallen. That’s spurring widespread concern about losses that can ripple across the global financial system. In Manhattan, brokers have started to market debt backed by a Blackstone Inc.-owned office building at a roughly 50% discount. A prime office tower in Los Angeles sold in December for about 45% less than its purchase price a decade ago. Around the same time, the Federal Deposit Insurance Corp. took a 40% discount on about $15 billion in loans it sold backed by New York City apartment buildings. The magnitude of the crisis is up for debate. Treasury Secretary Janet Yellen said last week that losses in commercial real estate are a worry, but that the situation is “manageable,” a similar sentiment expressed by Fed Chair Jerome Powell in a 60 Minutes interview on Feb. 4. Others have more dire outlooks, with real estate investor Barry Sternlicht predicting $1 trillion in office losses.  Source Bloomberg

Where is Inflation Still Stubbornly High? Despite broad disinflation, there are specific categories where inflation remains relatively high. “Notable” categories include motor vehicle insurance (where costs are up +20.6% in the past year), recreation (+2.8%), personal care (+5.3%) and medical care (+1.1%), according to the Labor Department. Prices for motor vehicle insurance and auto repairs, for example, have risen rapidly following an earlier pandemic-era surge in prices for new and used cars, albeit with a lag. Additionally, shelter inflation is up +6% in the last 12 months. Shelter is the largest component of the average household’s budget, and stubbornly high inflation in the category has propped up overall inflation readings. Other categories have retreated significantly. Inflation for groceries, for example, has declined to +1.2% over the last 12 months, from a peak of around +13.5% in August 2022. Some categories — such as frozen noncarbonated juices and drinks, sugar, and beefsteaks — remain elevated, though. Their prices are up by +29%, +7.2% and +10.7%, respectively. Meanwhile, overall energy costs have decreased, or deflated, by -4.6% in the past year, with gasoline down -6.4%, natural gas -17.8% and fuel oil -14.2% Source CNBC

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Dunkin’s Star-Studded Super Bowl Ad Pays Off: Super Bowl LVIII delivered on its promises with thrilling action and equally amusing commercials. Dunkin' Donuts invested in a hilarious ad that featured Ben Affleck, Matt Damon and Tom Brady in Dunkin' tracksuits debuting their newly formed band. The company's investment paid off when the tracksuits featured were sold out 19 minutes after the suits were placed on the website. The advertisement featured Ben Affleck, Tom Brady and Matt Damon unexpectedly crashing his wife Jennifer Lopez's recording studio session with Fat Joe. The trio, known as the ‘DunKings,’ hoped to be included in Lopez's upcoming album. The Dunkin' Donuts clothing merchandise features their signature bright orange and pink colors and 'DunKings' across the chest with a large crown. The front and arms of the tracksuit also pay tribute to the Boston Red Sox. The Dunkin's track jacket and pants were put up for sale separately on the website for $60 each. As soon as they went live on Monday after the Super Bowl, they sold out instantly. Currently, the website offers a pre-order option for the next merchandise drop. Source USA Today

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Happy Valentines Day 

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