Stock indexes continue to bounce around the same levels with investors treading cautiously ahead of key economic data and a slew of Federal Reserve speakers. Investors this morning are anxious to see the second estimate of Q4 2023 GDP (gross domestic product) amid some worries that growth could be revised upward from the +3.3% annualized rate estimated last month.

Keep in mind, recent data have suggested the economy is much stronger than economists anticipated, and possibly too hot for the Federal Reserve to feel comfortable cutting interest rates.

Remember, this is where good news about the economy is somewhat bad news about interest rates, meaning the Fed will be less likely to cut. That’s prompted a well-broadcast adjustment to Fed rate cut expectations on Wall Street, with most now expecting three quarter-point rate cuts in 2024 rather than the the five or six quarter-point rate cuts many were penciling at the start of the year. However, markets seem to have barely noticed the readjustment with major indexes near all-time highs.

That’s a stark difference from 2022 and 2023 when fading expectations for rate cuts led to widespread market selloffs. Bulls have argued that strong January jobs and inflation data may have been distorted by seasonal factors, among other things, and are counting on softer February data to confirm that view.

Bears believe this may be delusional thinking that’s setting bulls up for a hard fall if upcoming data comes in hotter or better-than-expected and investors further walk back rate cut expectations. Even so, bulls point out that there is a lot of time between now and the end of the year for the economy to fall in-line with the Fed’s goals and for the expected rate cuts to happen.

In other words, bulls think hawkish Fed sentiment is overblown and believe it will take more than a couple of months of stronger-than-expected data to alter the central bank’s policy trajectory, which is ultimately lower rates.

The more important data this week will be the PCE Prices Index, due out tomorrow, and ISM Manufacturing Index on Friday. Notably, the ISM Index will be the first look at February data.

Investors today will also be tuning in to a number of Fed speakers, including Atlanta Fed President Raphael Bostic, Boston Fed President Susan Collins, and New York Fed President John Williams.

On the earnings front, today’s highlights include HP, Monster Beverage, Salesforce, and TJX. I'm still playing the game from the conservative side of the table, trimming positions and banking profits on big rally days.

Apple Ends Quest to Build Its Own Electric Vehicle:  Apple has put an end to its decades-long push to build its own electric vehicle, an effort once seen as having the potential to transform the auto industry. That transformation, which has been under way for years without Apple, continuously increased the level of difficulty Apple faced as it spent billions trying to catch or exceed the capabilities made available during a revolution led by Tesla. The secret group inside the iPhone giant, known internally as Project Titan, has been informed that Apple would be shutting down its efforts in building a car while the company ramps up investments in the area of generative artificial intelligence, a person familiar with the situation said. Apple has spent billions of dollars on research and development on the car project. The car group inside Apple was the subject of several rounds of restructuring and shifting strategies over the years as Apple struggled to figure out a path forward, people who worked on the project said. Source WSJ

Macy's to Close 150 Stores Over Next Three Years: Macy's announced plans to close 150 stores by the end of 2026, representing more than 30% of its locations. The retailer has been under pressure from activist investors who want the entire company put up for sale. Arkhouse Management last week nominated nine candidates to the Macy's board after it rejected Arkhouse's $5.8 billion takeover offer. Macy's laid out the store closures as part of what it calls a 'A Bold New Chapter,' which includes leaning into its high-end brands. The plan includes the addition of 15 new Bloomingdale stores and 30 new Bluemercury stores over the next three years. Source Axios

US Army Cutting More Than 20,000 Posts Amid Recruiting Shortfalls: The U.S. Army is slashing the size of its force by about 24,000, or almost 5%, and restructuring to be better able to fight the next major war, as the service struggles with recruiting shortfalls that made it impossible to bring in enough soldiers to fill all the jobs. The cuts will mainly be in already-empty posts — not actual soldiers — including in jobs related to counterinsurgency that swelled during the Iraq and Afghanistan wars but are not needed as much today. About 3,000 of the cuts would come from Army special operations forces. At the same time, however, the plan will add about 7,500 troops in other critical missions, including air-defense and counter-drone units and five new task forces around the world with enhanced cyber, intelligence and long-range strike capabilities. According to an Army document, the service is “significantly overstructured” and there aren’t enough soldiers to fill existing units. The cuts, it said, are “spaces” not “faces” and the Army will not be asking soldiers to leave the force. Instead, the decision reflects the reality that for years the Army hasn’t been able to fill thousands of empty posts. While the Army as it’s currently structured can have up to 494,000 soldiers, the total number of active-duty soldiers right now is about 445,000. Under the new plan, the goal is to bring in enough troops over the next five years to reach a level of 470,000. Source AP

Number of 401(k) Millionaires Swells Back Toward Record: The amount of 401(k) millionaires is within striking distance of an all-time high. The number of seven-figure 401(k) accounts at Fidelity Investments jumped +20% in 2023’s final quarter to 422,000, marking a sharp recovery from the previous quarter’s -7.7% drop, an analysis released by Fidelity on Tuesday shows. Gains in the stock market helped swell retirement balances last year as the S&P 500 advanced +24% following 2022’s -19% decline. The only time when the ranks of 401(k) millionaires at Fidelity was higher was in 2021’s fourth quarter, when there were 442,000 such accounts. Elsewhere, the number of seven-figure IRAs is at a record 391,600 accounts. The average age of 401(k) millionaires at Fidelity skews older at around 59. However, Gen Xers also hit a nice milestone in the last few months of 2023. Those who have had the same 401(k) plan for 15 straight years saw average balances hit $501,000. That said, the average overall retirement balance at Fidelity is far from the millionaire mark, at $118,600. Source Bloomberg


Proposed Virginia “Tech Tax” Sparks Backlash: Trade associations representing hundreds of companies that do business in Virginia have come out swinging against a proposal to expand the state sales tax to cover digital goods, something Republican Gov. Glenn Youngkin proposed and Democrats endorsed in their budget legislation. Both chambers of the legislature included the new sales tax on purchases like streaming subscriptions, cloud storage and online downloads in the two-year budget plans they passed last week. The Senate went beyond the House of Delegates in also applying it to business-to-business transactions. In a letter sent to lawmakers beginning Tuesday, the Northern Virginia Technology Council and other business-focused lobbying and trade organizations warned the proposed tax “would put Virginia companies at a significant competitive disadvantage in industries where global competition is high and margins are narrow.” If it passes, it could provide a roadmap for other states to follow with similar digital sales tax plans.  Source AP

Mexico Vows to Retaliate if US Imposes Steel Tariffs: Economy Minister Raquel Buenrostro said on Tuesday that Mexico will impose tariffs on steel if the United States enacts such measures first. Buenrostro said at a news conference that U.S. calls to impose tariffs on steel imports from Mexico have been politically motivated and are not good for commerce. Buenrostro met virtually earlier this month with U.S. Trade Representative Katherine Tai, who during the call asked Mexico to address an "ongoing surge" in U.S. steel and aluminum imports from Mexico and said U.S. steel and aluminum tariffs could be reinstated. The United States has alleged a lack of transparency regarding the country of origin of steel and aluminum products imported from Mexico. Mexico in recent months has used tariffs to target steel imports from China, which has been accused of selling surplus steel abroad at below-market rates, a practice known as dumping.  Source Reuters

World Economy Has Growing Chance of Soft Landing, G-20 Says: The global economy has a growing chance of pulling off a soft landing, finance chiefs said in a draft of the G-20’s closing statement at this week’s meeting in Brazil, citing faster-than-expected disinflation as one of the upside risks. The text isn’t final and wording is subject to intensive negotiations in Sao Paulo, before the arrival of finance ministers on Wednesday. The G-20 gathering has already been marked by sharp divisions, especially over the wars in Ukraine and Gaza that are roiling global politics. The group includes Russia and China, as well as the US and Western allies.  At a press conference in Sao Paulo on Tuesday, Treasury Secretary Janet Yellen emphasized the US role in the rosier global outlook, saying that “America’s path to a soft landing has underpinned global growth.” She noted that “inflation has been coming down in many countries,” while stopping short of suggesting that interest-rate cuts might now be appropriate.  Source Bloomberg

Americans’ Views on New Weight Loss Drugs: A new Pew Research Center survey examines Americans’ attitudes about a new class of drugs being used for weight loss, including Ozempic and Wegovy. About three-quarters of Americans say they have heard a lot or a little about these and other similar drugs that are being used for weight loss. Some experts have heralded the drugs as a breakthrough for treating obesity in America and a catalyst for changing the way excess weight conditions are understood. For now, the public has modest expectations for the impact they will have on obesity in the United States. Only 16% of those familiar with these drugs think they will do a great deal or quite a bit to reduce obesity, while 35% think they will do some and 33% expect they will do not much or nothing at all to reduce obesity in the U.S. One modest difference in views: Those who have heard a lot about these drugs are somewhat more optimistic than those who have heard a little to say they will reduce obesity in the U.S. a great deal or quite a bit (27% vs. 11%). The boom in popularity of Ozempic and other similar drugs has become part of a broader societal discussion about weight and the factors that shape it, including behavior. On balance, Americans do not believe willpower alone is enough to lose weight and keep it off. About two-thirds (65%) say willpower alone is usually not enough for people who are trying to lose weight and keep it off. By contrast, 34% think that willpower is usually enough for most people who are trying to lose weight.  Source Pew Research


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