Stock indexes are on track to close out another winning week with all three of the major indexes also in positive territory for the year. So far, the S&P 500 is up +3%, the Nasdaq is up more than +4%, while the Dow has gained a little over +2%.
Investors this morning have all eyes on the January Employment Report, the results of which could have a big impact on investor expectations for Federal Reserve policy. Wall Street insiders are expecting to see job gains of around +170,000 vs. +216,000 in December, with the unemployment rate inching up to 3.8% from 3.7% previously.
The closely-watched "wage gains" component is expected to remain unchanged from December at an annual rate of +4.1%. It's worth noting that December's "wage gain" marked an increase from November, which is not the right direction as far as Fed policy goes.
Fed officials have continued to express concerns that the labor market may still be too tight and wage gains too strong to get inflation down to the central bank's 2% target rate. It's also worth noting that Powell yesterday did say, "If we saw unexpected weakening in the labor market, that would make us cut rates sooner."
Other data today includes Consumer Sentiment and Factory Orders. Bulls are hoping yesterday's big tech earnings released after the market close will provide the bulls with more upward momentum. Keep in mind, results from Amazon, Apple, and Facebook-parent Meta all topped Wall Street expectations, though investor reaction is looking mixed due to some of the underlying details.
In particular, Apple's -13% decline in China sales during Q4 coupled with a weak outlook for iPhone sales is not sitting well with investors. Meta was a real standout with sales jumping +25% while operating margins more than doubled. The company also announced its first ever dividend and a $50 billion share buyback. Wall Street also seems impressed with Amazon results that included a record-breaking Holiday shopping season, a +27% jump in advertising sales, and a better-than-expected outlook for Q1 2024.
With the exception of NVIDIA, which releases earnings 2/21, all the members of the so-called "Magnificent Seven" group of stocks have now reported Q4 results. AbbVie, Bristol Myers Squibb, Cigna, Chevron, Exxon, Regeneron Pharmaceuticals, and Southern Copper are today's key earnings.
Looking to next week, the earnings calendar remains packed with the top highlights beinging Caterpillar, Estee Lauder, McDonald's, ON Semiconductor, Palantir, Simon Property Group and Tyson Foods on Monday; Amgen, BP, Carrier Global, Chipotle, Edwards Lifesciences, Fiserv, Ford, Gilead Sciences, Eli Lilly, Nintendo, Snap, Spotify, and Toyota on Tuesday; Alibaba, Arm Holdings, CVS, Disney, Duke Energy, Hershey, Hilton Worldwide, O'Reilly Automotive, PayPal, Roblox, Uber, and Yum Brands on Wednesday; AstraZeneca, ConocoPhillips, Siemens, T. Rowe Price, and Unilever on Thursday; and Enbridge and PepsiCo on Friday.
Economic data next week is very light with ISM Non-Manufacturing on Monday and Consumer Credit on Wednesday being the only notable releases.
Additionally, next week investors are likely to be paying very close attention to the situation in the Middle East as the US considers strikes on Iranian-backed militia targets in Iraq and Syria.
Shadow War With Iran Risks Turning Into a Direct Conflict: President Biden has approved plans for multiday strikes in Iraq and Syria against multiple targets, including Iranian personnel and facilities, according to U.S. officials. But the response, expected to begin as soon as this weekend, will be “tiered,” mixing military actions with other steps that can be adjusted to signal that Washington doesn’t seek further escalation. The goal, U.S. officials say, is to get Iran and its proxies to dial back their attacks across the region as the White House and its allies pursue talks on a cease-fire between Hamas and Israel that they hope will de-escalate tensions. The strikes are in response to a drone strike by Iranian-backed militias that killed three American soldiers last weekend. Iran has sent its own signals, insisting it didn’t order the attack and warning that U.S. reprisals against Iranian territory or personnel deployed around the region would prompt it to strike back. By signaling its intention well in advance of any strikes, the White House may give Iran time to reposition personnel and equipment, limiting the effectiveness of the U.S. attacks, analysts said. But it could also ease pressure on Tehran to respond. Source WSJ
Cheap Canadian Oil Might Find New Home, Could Cause Jump in US Gas Prices: Drivers in the Midwest may soon have to pay a bit more for gas at the pump. The reason? Cheap Canadian oil will soon have a new set of buyers. Canadian oil companies will soon have the option to ship crude through a long-delayed, 715-mile pipeline expansion to the Pacific Ocean. That will allow traders to sell more oil to the U.S. West Coast and to fast-growing Asian economies. The Trans Mountain expansion, which will nearly triples the capacity of an existing pipeline to 890,000 barrels a day, promises to give Canadian companies more pricing power and boost the country’s position as a global energy powerhouse. This is a big deal that’s been 10 years in coming, said Kevin Birn, an analyst with S&P Global Commodity Insights. It does allow Canada, for the first time in its history, as the fourth-largest oil producer in the world, direct access to international markets. But this could come at the expense of Canada’s largest trading partner, the US. Keep in mind, that Americans have continued to guzzle Canadian oil even as US crude output has ballooned in recent years. Oil imports from Canada into the US surpassed +4 million barrels a day during some months last year. Interestingly, Benchmark Canadian crude cost about $18 a barrel less than its US counterpart. Back in 2018 it was running more than -$40 less than US crude. Source WSJ
U.S. Job Cuts More Than Double in January: Job cut announcements in January increased to its highest level in 10 months as employers in the financial and technology sectors launched restructuring efforts. Announced layoffs reached 82,307 in January, a +136% surge from December’s 34,817, according to recent data. It was the highest monthly total since March 2023. Employers in the financial industry announced 23,238 job cuts, more than double the number from a year earlier. Source Yahoofinance
Cash Bids Help Drive Luxury Home Prices to All-Time Highs: Prices of luxury homes rose at twice the pace of non-luxury homes at the end of 2023, partly because elevated mortgage rates are irrelevant to many affluent buyers. Low inventory is another factor driving prices up: Even though luxury new listings rose, overall supply is still below pre-pandemic norms. The typical U.S. luxury home sold for a record $1.17 million in the fourth quarter, up +8.8% from a year earlier. Prices of non luxury homes increased at half the pace, rising +4.6% year over year to a record $340,000. A record-high share of all-cash luxury home purchases drove the relative strength of the high-end housing market: Nearly half (46.5%) of the fourth quarter’s luxury purchases were made in cash, up from 40% a year earlier. Low inventory is another factor pushing luxury prices up. Even though the supply of luxury homes surged from a year earlier, it’s still well below pre-pandemic levels, leading to competition from well-heeled buyers over a limited number of homes. New listings of luxury homes jumped 19.7% year over year in the fourth quarter, the biggest increase in over two years. The increase brings the number of U.S. new luxury listings to just under 53,000, comparable to fourth-quarter levels in 2018 and 2019, just before the pandemic started. Source Redfin
One of America’s Hottest Commodities Is Probably in Your Trash: Paper mills at home and abroad are gobbling up America’s recycled cardboard, driving up prices for old pizza boxes and other corrugated containers that they pulp and make into new packaging. The price of old corrugated containers, or OCC, surged during the pandemic e-commerce boom and then came crashing down in 2022 when rising interest rates prompted businesses to slow ordering and reduce inventories. Over the past year, though, OCC prices have rebounded, more than tripling in some parts of the country. The latest rise is being driven by the opening of several new mills that need used cardboard to make fresh containerboard for corrugated shipping boxes and paperboard, which is folded into cereal boxes and coffee cups. Mills are vying for recycled boxes at a time when there are fewer available because of lower cardboard production while businesses were destocking. Meanwhile, recent research suggests that Americans aren’t recycling nearly as many of their old boxes as they could, particularly at home. Source WSJ
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