Stock bulls are treading cautiously as they await data later this week that could clarify some of the conflicting signals in recent economic data.

Many on Wall Street are worried that a too-strong US economy will keep inflation elevated, which will in turn force the central bank to keep raising interest rates and push the economy into recession.

Others fear the US consumer is in worse shape than data indicates as inflation eats away at wages that haven't kept pace with inflation.

Consumer spending is the main driver of the US economy, accounting for around 70% of GDP. Most of the data for January showed strong economic activity all around but bulls believe a combination of unusually warm weather, low year-ago comparisons, and annual data revisions may have skewed the results.

February data starts rolling in this week and bulls are looking for any possible clues that the "disinflation" trend remains on track. However, Dallas Fed manufacturing data yesterday showed wage and price pressures continued to climb in February, a bad signal on the inflation front where climbing employee pay has been a key driver.

One area where things have been cooling off considerably is the US housing market, which is also a major inflation contributor. However, January Pending Home Sales blew past expectations yesterday as would-be buyers jumped at a brief dip in mortgage rates.

According to data from the National Association of Realtors, it was the largest monthly sales increase since June 2020.

Many housing experts have been warning that US housing prices aren't likely to see too much contraction due to the lack of supply and pent-up demand. Meaning that the degree to which a softer housing market can pull down inflation may be very limited.

Today, investors will be digesting the Case-Shiller Home Price Index, Consumer Confidence, Richmond Fed Manufacturing, and advance reads on International Trade, Retail Inventories, and Wholesale Inventories.

On the earnings front, Target and Ross Stores will be in the spotlight as investors tune in for updates on consumer spending and more insights into the health of the overall retail sector. AutoZone, J.M. Smucker, Monster Beverage, Rivian, and Rocket Companies also report today.

Fighting ‘Woke AI,’ Musk Recruits Team to Develop OpenAI Rival: Elon Musk has approached artificial intelligence researchers in recent weeks about forming a new research lab to develop an alternative to ChatGPT, the high-profile chatbot made by the startup OpenAI, according to two people with direct knowledge of the effort and a third person briefed on the conversations. In recent months Musk has repeatedly criticized OpenAI for installing safeguards that prevent ChatGPT from producing text that might offend users. Musk, who co-founded OpenAI in 2015 but has since cut ties with the startup, suggested last year that OpenAI’s technology was an example of “training AI to be woke.” His comments imply that a rival chatbot would have fewer restrictions on divisive subjects compared to ChatGPT and a related chatbot Microsoft recently launched. Source Information

Younger People Are More Likely To Get Over Their Heads In Debt: As of the fourth quarter of 2022, household debt rose to $16.9 trillion, according to the Federal Reserve Bank of New York. That was an increase of $394 billion. These aren’t just rebounds, but rather new records. Credit card balances were up by $61 billion in the fourth quarter of 2022 to $986 billion, when the previous high was $927 billion in pre-pandemic times. With pandemic aid, they had declined to $770 billion in the first quarter of 2021. After all the Covid-19 relief, things are now worse than what they ever were before. Mortgage balances were up to $11.92 trillion, almost a trillion-dollar increase over all of 2022. Auto loan balances reached $1.55 trillion, up $28 billion in just the last quarter and $94 billion in the last year, meaning that at the end of 2021, that total was only $61 billion. Student loan balances, $1.6 trillion versus $1.41 trillion a year before. Data now shows that younger borrowers are struggling with credit card and auto loan payments, according to the New York Fed. The percentage of borrowers moving into a 90-day past-due category is shown by age and younger people are feeling the sharpest pain of all. Source Forbes

China's Local State May be on the Verge of a Debt Crisis: Tales of extravagantly wasteful spending have circulated in China for years, as cities and provinces accumulated debts to build infrastructure and boost the country’s gdp. These debts have reached extraordinary levels—and the bill is now arriving. Borrowing often sits in local-government-financing vehicles (lgfvs), firms set up by officials to dodge rules which restrict their ability to borrow. These entities’ outstanding bonds reached 13.6trn yuan ($2trn), or about 40% of China’s corporate-bond market, at the end of last year. Lending through opaque, unofficial channels means, in reality, debts are much higher. An estimate in 2020 suggested a figure of nearly 50trn yuan. Borrowing on this scale appeared unsustainable even during China’s era of rapid growth. But disastrous policymaking has pushed local governments to the brink, and after the rush of reopening the long-term outlook for Chinese growth is lower. Meanwhile, a property crisis last year led to a 50% fall in land sales, on which local governments rely for revenue. Although both problems are now easing—with zero-covid abandoned and property rules loosened—a disastrous chain of events may have been set in motion. About a third of local authorities are struggling to make payments on debts, according to a recent survey. The distress threatens government services, and is already provoking protests. Defaults could bring chaos to China’s bond markets. Source The Economist

Apartment Rents Fall as Crush of New Supply Hits Market: Apartment rents fell in every major metropolitan area in the U.S. over the past six months through January, a trend that is poised to continue as the biggest delivery of new apartments in nearly four decades is slated for this year. Renters with new leases in January paid a median rent that was 3.5% lower than they would have paid last August, according to estimates from listing website Apartment List. It was the first time in five years that rent fell every month over a six-month period, according to the same estimates. Four other market measures by housing-data companies also show that new-lease rents either fell or remained flat in January compared with the previous month, extending a streak of monthly rent declines that began at the end of the summer. While some seasonal stalling in rents is normal, the market faces a significant headwind in the biggest delivery of new supply since 1986, according to projections from CoStar Group. Nearly half a million new apartments are coming on line this year as developers seek to cash in on the high rents that tenants have been paying. The opening of those new units will give renters more choices, making it more difficult for landlords to raise rents at rates seen early in 2022, when rent growth was at a near 20% annual clip. Source WSJ

Tesla Halts Rollout of Self-Driving Tech: Tesla confirmed it has suspended deployment of its controversial Full Self-Driving technology that it sells for $15,000 pending the outcome of a recall. Elon Musk had been asked by the National Highway Traffic Safety Administration in mid-February to fix FSD software problems across 362,758 vehicles sold in the United States that could infringe upon local traffic laws and increase risk. “Until the software version containing the fix is available, we have paused the rollout of FSD Beta to all who have opted in, but have not yet received a software version containing FSD Beta,” it said in an undated statement. Tesla agreed with NHTSA to issue a voluntary recall, a confusing misnomer that suggests a nonmandatory physical return of vehicles to a mechanic. In reality, it simply means a regulatory procedure conducted by the company—but supervised by the federal agency—to enforce compliance that includes remotely issuing an over-the-air software patch. Source Fortune

Study Finds Common Artificial Sweetener May Increase Risk for Stroke, Blood Clots: A sweetener found in nature and often added to diet products, particularly for the ketogenic diet, may actually contribute to clogged arteries and strokes, a new study suggests. People with the highest level of the sugar substitute erythritol in their blood were shown to have twice the risk for stroke, blood clot or death compared with those with the lowest level. Animal and lab studies reinforced the idea that erythritol might cause clots, said Dr. Stanley Hazen, who led the research and chairs the department of cardiovascular and metabolic sciences at the Cleveland Clinic. Erythritol, considered a sugar alcohol, has no calories and is found naturally at low levels in some foods, including grapes, mushrooms, pears, watermelon, beer, cheese, sake, soy sauce, and wine. The sugar substitute is added to many processed foods and beverages and is commonly found in products targeting people on the ketogenic diet because it does not affect blood glucose. Erythritol is also an ingredient in the sweetener Truvia. Source USA Today

Corporate Stock Buybacks Projected to Top $1 Trillion for First Time: U.S. stocks have received support from a key source during 2023’s shaky market environment: companies repurchasing their own shares. Stock buybacks by companies in the S&P 500 are projected to top $1 trillion in 2023 for the first time in a calendar year, according to S&P Dow Jones Indices. Authorizations for repurchases are picking up pace: As of Feb. 17, they totaled more than $220 billion, a record for that point in the year, according to a Goldman Sachs. Although share repurchase programs are typically executed at the company’s discretion and over several years, they are viewed as a vote of confidence by management. And the buyback spree has supported stocks while dueling views about the path of monetary policy play out in the market. The fewer shares outstanding on the market as a result of buybacks also have the effect of lifting a company’s per-share earnings. As profit margins are squeezed, some investors expect firms to continue doing buybacks in a bid to maintain earnings-per-share growth. Companies can more easily adjust share buybacks to respond to bumps in the markets and economy, compared with dividends and capital expenditures, which are more set in stone once initiated. Source WSJ

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