Stock bulls pushed the S&P and Dow up to new record highs this week. Nothing has fundamentally changed regarding Federal Reserve policy since a hotter-than-expected CPI read on Tuesday led Wall Street to further dial back rate cut expectations.

Most now expect a total of three or maybe four 25 basis point rate cuts starting at the Fed’s June meeting. Many bears are pointing to the fact that this was roughly the consensus at the end of August-beginning of September last year.

Yields on the 10-year Treasury note have also returned to about the same levels they were late last summer. The S&P 500, however, is more than +500 points higher and bears question whether stocks can realistically hold at these levels without more solid confirmation of rate cuts in the first half of 2024.

Bulls counter that investors last summer were worried about that the Fed’s tight monetary policy would push the economy into recession, which has not happened.

In fact, the economy has shown modest signs of growth even as inflation has significantly slowed. Many bulls are starting to argue that there’s no reason that trend can’t continue even if rates don’t come down as fast or as far as some are hoping. Bulls also argue that recent earnings from big tech companies support the growing profit expectations for all things AI-related, data that investors didn’t yet have last summer.  

Today, the top highlight is the January Producer Price Index (PPI) which economists expect to show a further pullback in wholesale costs. Housing Starts and Permits and Consumer Sentiment are also out today.

There are no earnings of note today.

Looking to next week, remember that stock, bond, and commodity markets are closed on Monday for President’s Day or shortened sessions via electronic trading.

That main economic highlights next week include the “minutes” of the Fed’s January policy meeting on Wednesday; and flash manufacturing and services PMI’s and Existing Home Sales on Thursday.

On the earnings front next week, the most anticipated release is Nvidia, which reports on Wednesday.

Expectations are absolutely crazy with earnings growth projected to come in north of +400% while sales growth is seen well above +200%. But that may not be out of line. In Q3, the company posted revenue growth of +206% and net income growth of a staggering +1,259%! Overall, the company’s earnings in Q3 topped expectations by almost +20%. Nvidia’s stock price no doubt currently reflects the enthusiasm for upcoming results, having gained more than +50% this year alone.

The company’s market capitalization this week surpassed Amazon on Tuesday, then jumped ahead of Alphabet on Wednesday. With a market cap of nearly $1.8 trillion, it is now the fourth most valuable company in the world behind Microsoft, Apple, and Saudi Aramco.

Investors next week are also anxious to see results from major US retailers Walmart and Home Depot on Tuesday.

Other earnings of note include Centerpoint Energy, CoStar, Diamondback Energy, Medtronic, Palo Alto Networks, and Toll Brothers on Tuesday; Analog Devices, Garmin, Marathon Oil, Nutrien, Rio Tinto, Rivian, and Suncor on Wednesday; Block, Booking Holdings, Dominion Energy, Intuit, Keurig Dr Pepper, Moderna, and Pioneer Natural Resources on Thursday;  and Berkshire Hathaway and Warner Bros. Discovery on Friday.

A little further out, there are growing concerns that stocks could face more serious headwinds toward the end of the month as deadlines for Congress to pass funding bills approach.

Lawmakers have until March 1 to prevent a partial government shutdown, which will expand even further on March 8 if a deal is not reached.

Bears are quick to remind that the persistent funding fights and shutdown threats in Washington have already dented the US’s credit rating and more dysfunction runs the risk of deeper credit downgrades. That of course would raise the cost of servicing the US debt even further at a time when many investors are already alarmed about the deficit.

First US Moon Landing in +50 Years to Happen Next Week:  Texas-based Intuitive Machines’ inaugural moon mission began early Thursday morning, heading toward what could be the first U.S. lunar landing in more than 50 years. Intuitive Machines’ Nova-C lander launched from Florida on SpaceX’s Falcon 9 rocket, beginning the IM-1 mission. “It is a profoundly humbling moment for all of us at Intuitive Machines. The opportunity to return the United States to the moon for the first time since 1972 is a feat of engineering that demands a hunger to explore,” Intuitive Machines vice president of space systems Trent Martin said during a press conference. The IM-1 lander, named “Odysseus” after the mythological Greek hero, is carrying 12 government and commercial payloads — six of which are for NASA under an $118 million contract. In an update eight hours after launch, Intuitive said the IM-1 spacecraft was in a stable position with its solar-powered batteries charging and had established contact with the company’s mission control in Houston. The IM-1 lander is expected to spend about eight days traveling to the moon before descending to the surface on Feb. 22. The mission is targeting the “Malapert A” crater, about 300 kilometers from the moon’s south pole. After landing, Intuitive Machines aims to operate Odysseus on the surface for up to seven days. Intuitive Machines’ stock (which trades under the symbol LUNR) rose in trading from Wednesday’s close at $4.98 a share. It’s about half of the price it was when the company’s stock debuted in February 2023 on the Nasdaq after a SPAC merger.  Source CNBC

America Has Never Had So Many 65-Year-Olds and They’re Redefining the Milestone:  More Americans are turning 65 this year than any prior time in history. Today’s 65-year-olds are redefining a milestone long associated with retirement parties and the end of productive years. They are wealthier and by many measures, healthier, and expected to live another 20 years. A growing share are divorced. Many turn their focus to what they want in this next stage. Being 65 is not just thinking about who you were, but what you might become in a new chapter, says Ken Dychtwald, CEO of Age Wave, a California-based consulting firm specializing in aging-related issues. Our own parents and grandparents, he says, weren’t typically thinking of new ventures and possibilities at 65. They were winding down, he says. About 4.1 million Americans will reach 65 years old this year, reaching a surge that will continue through 2027, according to an analysis by Jason Fichtner, executive director of the Retirement Income Institute and chief economist at the Bipartisan Policy Center. That is about 11,200 a day, compared with the 10,000 daily average from the previous decade, he says Source WSJ

Recession Reality Comes for Major Economies: Japan and the U.K. each saw their economies shrink for two consecutive quarters, meeting the technical definition of a recession, according to data out Thursday. Meanwhile, in Europe, officials said they expect weaker economic growth across the bloc. This year may see more global economic turmoil than last as nations struggle to rebound from slowdowns that are worse than previously known. The effects of these slowdowns — together with one in China — could ripple around the rest of the world in unknown ways. Europe and the U.K. are feeling the sting from the worldwide inflation shock — and from the decades-high interest rates in response that have crimped demand. Bottom line, even as the U.S. economy remains resilient, other major economies look weaker than initially thought. If it continues, it's a grim combination for countries with still-sticky inflation (or, in Japan's case, inflation that might not be sticky enough).  Source Axios

Has Red Sea Ocean Freight Inflation Peaked? The Red Sea crisis has fueled a sharp spike in ocean freight inflation over the past two months, but there are signs that upward pressure on shipping rates on key trade routes may have peaked. Shipping rates on ocean routes from Asia to the U.S. are beginning to decline, based on analysis of the latest cargo data from Xeneta, a leading ocean and air freight benchmarking platform. Europe and the Mediterranean rates had already started to decline at the end of January. While this is a welcome development for U.S. importers, U.S. East Coast spot rates are still up +146% compared to December 14, and 186% into the U.S. West Coast. The decline in shipping rates also comes amid a recent decrease in demand for Asian manufacturing, and during the Lunar New Year period which is a time of lower freight volumes as Chinese manufacturing slows down in observance of the holiday. Volumes are expected to move higher once manufacturing factories are back up and running, and that could influence pricing over the rest of the year.  Source CNBC

Retail Sales Drop by Most in Nearly a Year: US retail sales broadly declined in January, indicating consumers took a breather after a strong holiday shopping season. The value of retail purchases, unadjusted for inflation, decreased 0.8% from December after a downward revision to the prior month. The drop was the biggest in nearly a year. Separate data showed US factory production fell for the first time in three months in January. The two reports pointed to a loss of momentum last month, but they’re not necessarily a sign of significant deterioration in the economy.  Source Bloomberg

NYC Mayor Tackles Social Media: New York City Mayor Eric Adams has sued Meta, Alphabet, Snap, and ByteDance over their social media platforms’ alleged efforts to “purposefully manipulate and addict children and teens to social media applications.” Reuters reports that the suit was filed in the California Superior Court, and that Meta and Google strenuously deny Adams’ allegations. Source Reuters

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