Stock bulls continue to believe the Fed will be cutting rates later this year despite several Federal Reserve officials saying they are sticking to their "hawkish" guns. At a speaking event yesterday, Chair Jerome Powell again acknowledged that disinflation has begun but warned that getting it down to the central bank's preferred level of +2% "will be a process that takes a significant period of time." To underscore how stubborn inflation has clung on this year, Powell pointed to the surprising strength of the US job market that added over half-a-million jobs in January as well as a strong rebound - and still-climbing costs - across the services sector.

Remember, arguably the largest cost item for the service sector is labor, and it's the service sector that makes up the majority of our economy. Powell also made the comment that the ongoing US labor shortage “feels structural” in nature. Workers across the board seem to still be demanding more flexibility and more money, and until that changes the labor market is going to remain hot and completely taming inflation will be a long fought battle.

Let's not forget we also have the possibility of an escalating war in Ukraine and the Chinese economy coming back online at a time when commodity inventories, logistics and politics might be a bit strained.

Powell didn't really provide any new information as far as the central bank's future moves, saying only that more rate hikes will be needed and reiterating that the central bank will continue to let data guide its decisions.

The Fed's next meeting is still over a month away on March 21-22. Many Wall Street insiders are noting that investors may be growing less concerned about Fed rate hikes pushing the economy into recession considering that economic data has failed to signal any major downturn. That's in spite of the fact that the Fed has lifted rates by 4.5 percentage points since it began its tightening campaign last year.

Fed officials have insisted over that time that the US economy, particularly the labor market, is still strong enough to withstand tighter financial conditions and the data so far indicates that to be true. The question many bears are raising, however, is how well will companies adjust longer-term to a higher interest rate environment that could remain in place well into next year, or beyond?

Additionally, how are profit margins going to hold up in the face of higher operating costs that also looks likely to stick around?

Bears also point out that "disinflation" currently hitting consumer goods of all stripes could be equally damaging to many companies.

There is really not any key economic data due today but at least five Fed officials are scheduled to speak so investors will obviously be listening closely for any new insights.

On the earnings front, results are due from Avalon Bay, CME Group, CVS, Disney, Dominion Energy, Emerson Electric, MGM Resorts, O'Reilly Automotive, Penske Automotive, Robinhood, Uber, and Yum Brands.

Visa CFO Says U.S. Consumer Remains Very Stable: Visa CFO Vasant Prabhu shared with Yahoo Finance Live that the best way to describe the consumer is very stable. He adds that consumer spending has been very steady for the entire year of 2022, steady almost day by day, week by week, month by month. It's about 46% higher than pre-pandemic levels in 2019, but it's shifting Prabhu said. Over the year, it's moved more towards services, away from goods as more people are doing things, rather than buying things. Restaurants, travel, and entertainment are all booming. All in all, consumers have adjusted to inflation. If you look at spending, it looks like the consumer is still confident and pretty much has stayed confident all the way through 2022 and into January with no real change in trend. Source: YahooFinance.

Valentine’s Day Spending Is Expected To Be One Of The Highest On Record: While consumers feel the continued squeeze of inflationary pricing, the outlook for Valentine’s Day spending seems optimistic. Consumers are expected to spend $25.9 billion on Valentine’s Day in 2023, up 8% over last year. The National Retail Federation and Prosper Insights & Analytics revealed that spending this year will be one of the highest numbers on record for the February holiday. The NRF survey of 7,616 U.S. adult consumers also showed that even among those who don’t plan to celebrate Valentine’s Day, 28% will still mark the occasion somehow. They may treat themselves to something special, plan a get-together or evening out with single friends and family members. Source Forbes

Super-Sized Bets for Football’s Big Game: With 99 million viewers in 2022, more Americans tune in to the Super Bowl than any other television broadcast. Its large viewership, combined with expanding legislation, has led to ballooning wagers. In the graphic below sponsored by Roundhill Investments, you'll see how these bets have grown over the last 10 years. From 2013 through 2018, sports betting was only legal in Nevada and year-over-year growth was low. However, when the federal sports betting ban was lifted in May 2018, more states started allowing bets. By 2022, 33 states plus Washington, DC were legally able to bet on the game. Wagers climbed quickly as a result. Source:VisualCapitalist.

EIA Slashes 2023 Natural Gas Price Forecast: The US Energy Information Administration (EIA) expects a warmer than normal start to the year will translate into a 47% drop in the average US natural gas price this year. In its February Short-Term Energy Outlook (STEO), the EIA is forecasting a 2023 Henry Hub average price of $3.40/mn Btu, down from the 2022 average of $6.42/mn Btu. The price will rebound somewhat in 2024, to a projected average of $4.40/mn Btu. “US natural gas inventories fell by less than our expectations in January because of the warmer-than-average weather,” EIA administrator Joe DeCarolis said. However, he warned that “a lot of uncertainty” remains, including the potential later this winter of extreme weather that could push demand higher or temporarily slow production, “but those possibilities decrease as we approach spring.” Warmer than expected temperatures, the continued loss of demand from the Freeport LNG facility, idle since a June 2022 fire, and higher production pushed January natural gas storage volumes above the five-year average, the EIA said. U.S. petroleum and other liquid fuels consumption will stay flat at 20.3 million bpd this year, the EIA said, while forecasting U.S. economy would contract slightly in the first six months. Globally, demand in China would increase by 700,000 bpd this year and by 400,000 bpd in 2024, as the country pivots away from a zero-COVID strategy. The agency also forecast Russian production of petroleum and other liquids would decline by about 1 million to 9.9 million bpd in 2023. However, that number was 400,000 bpd higher than January's forecast. Source EIA.GOV

CEOs Afraid of Recession but Nearly 70% Plan to Hire More People Anyway: With central banks worldwide raising interest rates to fight high inflation, CEOs are worried about the economy. But oddly enough, they’re still hiring. Some 68% of chief executives plan to increase their company’s headcount this year, according to a new Greenhouse survey. At the same time, some 98% of chief executives said they are “bracing for an economic downturn” in a January EY survey—with 55% admitting they’re preparing for something “worse than the global financial crisis.” But despite the recession fears and tech industry woes, layoffs still aren’t in the cards for most companies. In the Greenhouse survey, just 11% of CEOs said they expect to reduce their firm’s headcount this year. And roughly a third of chief execs plan to increase their headcount by +10% or more, while 19% plan a +30%-plus increase. A January PwC survey of 4,410 CEOs from around the world found a similar phenomenon in hiring plans. CEOs are cautious about the economy, and 52% said they plan to cut costs this year. But at the same time, retaining talent remains a top priority. Source Fortune

China-Made Cars Are Quietly Taking Over the World: China is poised to become the world’s No. 2 exporter of passenger vehicles, a milestone that could reshape the global auto industry and spark new tensions with trading partners and rivals. Overseas shipments of cars made in China have tripled since 2020 to reach more than 2.5 million last year, according to data from the China Passenger Car Association. That’s only a whisker (about 60,000 units) behind Germany, whose exports have fallen in recent years. China’s numbers, behind Japan but ahead of the US and South Korea, herald the emergence of a formidable rival to the established auto giants. Chinese brands are now market leaders in the Middle East and Latin America. In Europe, the China-made vehicles sold are mostly electric models from Tesla Inc. and Chinese-owned former European brands such as Volvo and MG, and European brands like Dacia Spring or the BMW iX3, which is produced exclusively in China. A raft of homegrown marques like BYD Co. and Nio Inc. are ascending as well. The surge in car exports has largely gone unnoticed in the US, partly because it happened during the coronavirus pandemic and partly because Chinese carmakers are mostly focused on Europe, Asia, and Latin America. Source Bloomberg

Delta Raises Employee Pay for Second Time in a Year: Delta Air Lines is raising employee pay 5%, the second time its lifted staff pay in less than a year as a sharp rebound in travel boosts the carrier’s profits and the U.S. labor market remains tight. Delta raised employee pay 4% in May, the first increases since before the pandemic. Delta said the new raises go into effect April 1 and apply to ground workers and flight attendants. The pay hikes do not apply to Delta’s pilots, who are voting on a new contract proposal that includes 34% raises over four years. If ratified, the pilots would get 18% raises on the date of signing. Delta posted a $1.32 billion profit last year, recovering from a record loss of more than $12 billion in 2020, during the depths of the pandemic. Atlanta-based Delta is also planning to pay its staff more than $550 million in shared profits later this month, Bastian said Tuesday. Source CNBC

Zoom Laying Off 15% of Workforce: Zoom on Tuesday announced plans to cut about 1,300 workers, or 15% of its workforce, according to a blog post shared to the company’s website. CEO Eric Yuan wrote in the blog post that as the world continues to adjust to life after the pandemic, the company needs to adapt to the “uncertainty of the global economy” as well as “its effect on our customers.” Zoom experienced a huge boom during the pandemic when people were forced to work from home and turned to video chat software to stay in touch with colleagues, friends and family. “We worked tirelessly and made Zoom better for our customers and users. But we also made mistakes,” Yuan said. “We didn’t take as much time as we should have to thoroughly analyze our teams or assess if we were growing sustainably, toward the highest priorities.” Source CNBC

AI Frenzy Continues with News from Microsoft, SoundHound: Microsoft held a press event on Tuesday where it announced new AI-powered updates to its Bing search engine and Edge browser. Bing, specifically, is getting a large update that allows you to chat with it to get more detailed answers to search queries. You can ask Bing to plan a trip, for example, and then ask it how much that trip will cost. A preview version of the new Bing also launched on Tuesday. OpenAI CEO Sam Altman took the stage momentarily during the event to confirm that Microsoft is using its GPT technology to power some of its new software, which seems similar to OpenAI’s ChatGPT AI. Also in AI news yesterday, SoundHound AI, a company that provides artificial intelligence-based voice interfaces for cars and other devices, said it plans to add voice-enabled access to generative AI applications such as ChatGPT. The news, disclosed Tuesday morning, is likely to add fuel to an already red-hot stock and sector, as investors continue to look for plays on the AI trend. SoundHound (ticker: SOUN) shares jumped +43% on Monday, and then added another 13% in after-hours trading. SoundHound went public via a SPAC merger in April 2022. Other AI-related stocks—including (BBAI) and AI (AI) have likewise had torrid runs in recent sessions. Source Barrons

Home-Buying Companies Stuck With Hundreds of Houses as Demand Slows: Ribbon Home Inc. had a fast-growing business during the housing boom. The New York City-based startup purchased homes with cash on behalf of buyers. Then it sold the homes to the buyers at the same price, plus a fee, once the buyers got a mortgage. This approach made their clients’ offers more appealing, since sellers often prefer all-cash transactions that can close quickly and are considered more reliable. Ribbon is one of a handful of young companies known as power buyers that created a niche business around helping home buyers gain an edge during the hypercompetitive housing boom. Now that the market has cooled, some of these companies are stuck with hundreds of homes they acquired on behalf of clients. The unanticipated glut of homes these firms are carrying is an example of how housing-oriented companies that thrived when mortgage rates were super low are struggling to survive in a higher rate environment. Online home-flipping companies also experienced turbulence as rates surged. Source WSJ

IRS Urges Millions of Taxpayers to Hold Off Filing Returns: The Internal Revenue Service told millions of taxpayers to hold off on filing their returns until it issues guidance on whether several state refund and rebate payments issued last year count as taxable income. California sent out more than 16 million special Middle Class Tax Refund payments, worth $9 billion, to help counter inflation and high gas prices last year. It is still unclear if those payments should be treated as taxable federal income, as taxpayers are starting to file their 2022 tax returns. The IRS said it will provide guidance this week on the tax status of California’s and other states’ payments. Meanwhile, it is advising those who received these payments to await further instructions. Despite the IRS statement, H&R Block Inc. and Intuit Inc.’s TurboTax, two of the biggest tax-preparation companies, have continued to file returns for clients. The firms are taking the position that the California payments aren’t taxable. Source WSJ

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