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Stock indexes continue to trade right around the all-time record high. The next couple of weeks should determine if the market breaks out to new high ground or suffers a nearby setback.
Bulls are hoping today's Consumer Price Index will add support to the idea that Federal Reserve interest rate cuts are on the horizon.
Most bulls are still penciling March for the first cut, though an increasing number of Wall Street insiders have begun to push their bets a little further out to May or June (I'm in the May-June camp at the earliest).
Economists expect the headline December CPI accelerated from +3.1% to +3.2%. However, the Fed's preferred "core" rate, which strips out food and energy, is forecast to pull back from +4.0% down to 3.8%.
Keep in mind, core inflation has been slower to come down than headline rates thanks largely to the unrelenting climb in US shelter prices but it's also been boosted by "sticky" services inflation.
While price gains are still occurring in both sectors, the good news is they have slowed down. In turn, economists expect to finally start seeing more significant downward moves in the core rate. If the numbers come in as expected or better, bulls hope to revive the stock market rally that has struggled to gain any convincing momentum since the start of the new year.
On the other hand, if CPI today and the Producer Price Index (PPI) tomorrow indicate that inflation is trying to make a comeback, stock market volatility could return as bulls retreat to the sidelines to rethink their next series of moves.
Bears continue to warn that even if data shows inflation continuing to trend lower, stocks prices reflect a wildly more dovish Fed than what the central bank itself expects. As in bulls expect nearly twice as many rate cuts than what the Fed most recently projected, which bears believe could be setting indexes up for a hard fall later this year.
Bears also warn that investors are overlooking ongoing political risks, particularly ships being attacked in the Red Sea that are disrupting supply chains and could send inflation skyrocketing again. Additionally, bears question whether companies will deliver the rosy outlooks for 2024 that many are anticipating during the Q4 earnings season that kicks off Friday thanks to ongoing revenue headwinds and the global economic slowdown that is only expected to deepen. Infosys is the main earnings highlight today.
Rich Americans Now Own a Record Share of Stocks: The wealthiest 10% of U.S. households now own nearly 93% of the stock market. This stat, first spotted in the Financial Times is a crucial bit of context to keep in mind amid the heavily hyped surge of smaller retail investors who flocked to the stock market during and after the COVID crisis. While it's true that a record high 58% of American households do own stocks via mutual funds or as individual shares, in the aggregate the amount of stock most of these folks own is tiny. In the last 10 years, the S&P 500 gained 155%, and the tech-heavy Nasdaq rose a whopping 250%. While bullish surges like those are welcome to pretty much all investors, the fact is that the majority of the gains go to the richest stockholders. Stock market booms primarily boost the wealth of households at the top of the wealth distribution, as their portfolios are dominated by listed and unlisted business equity. Interestingly, the U.S. market is simultaneously at its most unequal point on record and the most democratized. Source Axios
Investor Lays Out Case for Dow 100,000 Within a Decade: We may have found the most bullish investor on Wall Street. As sentiment turns increasingly bearish in early 2024, one chief investment officer of a firm with $2 billion in assets believes that the bull run in U.S. stocks is only just getting started. As a boom powered by the spread of artificial-intelligence technology heats up, major U.S. equity indexes could see their value double or triple over the coming decade. James Demmert, chief investment officer at Main Street Research, said he believes the S&P 500 could trade at 15,000 or higher within seven to 10 years, while the Dow could rise to 100,000, and the tech-heavy Nasdaq Composite could reach 50,000. Achieving these targets would necessitate an advance of about 215% for the S&P 500, 170% for the Dow and 235% for the Nasdaq, all without dividends reinvested. If Demmert is proven correct, this would mark the best decade of performance for U.S. stocks since the 1990s, when the dot-com boom provoked a Wall Street trading and investing frenzy. Unlike during the dot-com boom, where the bubblelike trading activity was most intense in the “dot-com” stocks, Demmert expects the artificial-intelligence boom will have a different kind of impact. Instead of only conferring gains on major AI winners like Nvidia Corp., Demmert expects stocks across all 11 S&P 500 sectors will eventually find ways to boost productivity and profits using AI. Demmert pointed to Adobe Inc. as an example of how AI could hugely benefit companies’ productivity. Executives at the software company have said they expect AI will help the firm meaningfully increase its revenues without needing to do much hiring. Looking to the more immediate future, Demmert believes the rest of the market will stage a catch-up rally in 2024 so long as corporate earnings hold. But rather than having topped out, Demmert sees plenty of room for AI darlings like Nvidia to keep on rising should they continue to grow their earnings. Source MarketWatch
World Trying to Quit Fossil Fuels Gets Flood of Natural Gas Instead: At a time when some see oil demand nearing its peak and coal is likely to face a slow but steady decline, the energy sector is betting hundreds of billions of dollars that the third leading fossil fuel — natural gas — has a place in the world’s energy mix through at least 2050. That lifespan hinges on one last torrent of investment into the massive terminals that liquefy and export super-chilled liquefied natural gas, or LNG, for countries not yet ready or able to make the transition to renewables. Five US sites teem with their own crews working to conjure titanic industrial structures from America’s Gulf Coast. Two of the US projects aim to come online as soon as this year, kickstarting what may be the world’s final wave of fossil-fuel megaprojects. Tallying just the ones that have broken ground, more than 200 million tons of new natural gas export capacity will start up in roughly the next five years, according to BloombergNEF. If additional early-stage projects still awaiting final investment decisions move forward, too, more than 300 million tons of new LNG capacity could come online by 2030, according to Baker Hughes Co. That’s a roughly 70% spike from today. Source Bloomberg
What to Know About Taiwan's Presidential Election: Taiwan will hold presidential elections this Saturday that could ratchet up tensions with China, whose leader Xi Jinping is determined to bring the island nation back under Chinese Communist Party rule. Saturday's vote is viewed as a referendum on what Taiwan's relationship with China should be. For over three decades, Taiwan has operated as a self-governing democracy and is recognized as a sovereign nation by over a dozen countries. However, China asserts the island as part of the People’s Republic of China, despite the fact the CCP has never governed Taiwan. Taiwan sits in the so-called "first island chain", which includes a list of US-friendly territories that are crucial to Washington's foreign policy in the region. China's increasingly aggressive behavior in the South China Sea has also made Taiwan more significant to US calculations. According to Financial Times, Taiwan’s presidential election pits Lai Ching-te, the ruling Democratic Progressive party candidate, against Hou Yu-ih, the candidate from the main opposition Kuomintang party, and Ko Wen-je from the Taiwan People’s party. China is incredibly wary of Lai, who is associated with the wing of the DPP that advocates formalizing Taiwan’s de facto independence. Source The Economist
Chinese officials and scholars have issued warnings—notably to counterparts in America, Taiwan’s superpower protector—that they have no trust in Mr Lai, whom they call a dangerous, lifelong campaigner for Taiwanese independence. According to Chinese warnings, there would be “no wait and see” period after a Lai victory. To deter a President-elect Lai from radical moves, the People’s Liberation Army can be expected to stage exercises that threaten Taiwan in new ways, it is said. These would aim to show resolve to the Chinese public and to teach the island’s voters that they have rejected the path of peace. New provocations could include unmanned Chinese aircraft flying over Taiwan, or China’s navy or coastguard finding a pretext to search island-bound ships. China sees Taiwan’s election as a test of American sincerity. President Joe Biden insists that he does not support Taiwanese independence, but muddles that message with unconditional pledges to defend the island, says Xiang Lanxin of the Shanghai University of Political Science and Law. For China, Taiwan’s election is “an opportunity for America to clarify what its position really is”, he suggests. Against that, several Chinese scholars suggest that their country has few incentives to stoke a big crisis over Taiwan before America’s presidential contest in November. Mr Xi needs to know whether he will face Mr Biden again or the transactional Donald Trump, who talks tough on China but has no great love for Taiwan.
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Following Confusing X/Twitter Hack, SEC Approves Bitcoin ETFs: US regulators for the first time approved exchange-traded funds that invest directly in Bitcoin, a move heralded as a landmark event for the roughly $1.7 trillion digital-asset sector that will broaden access to the largest cryptocurrency on Wall Street and beyond. The Securities and Exchange Commission, whose three-part mandate includes investor protection, authorized funds from industry heavyweights BlackRock, Invesco and Fidelity to smaller competitors including Valkyrie to begin trading Thursday. The approvals also mark a rare capitulation by the SEC following opposition that lasted for more than a decade, ever since Tyler and Cameron Winklevoss first proposed a Bitcoin ETF in 2013. Source Bloomberg
Zillow Predicts 2024's Hottest Real Estate Markets: Buffalo, Cincinnati, and Cleveland are expected to be among 2024's hottest housing markets, according to a new Zillow forecast. The South, Midwest and Great Lakes regions are expected to thrive compared to the rest of the U.S., because of their relative affordability. It's fresh evidence of America's new influence frontiers. Thanks to our wired world and COVID-era trends, the country's centers of power and jobs have spread out from the coastal bubbles. Columbus, Ohio; Indianapolis; Providence, Rhode Island; Atlanta; Charlotte, North Carolina; Orlando, Florida; and Tampa, Florida, also top this year's ranking of Zillow's hottest housing markets of 2024. Meanwhile, New Orleans, San Antonio, Denver, Houston and Minneapolis sit at the bottom. Home values — and in some cases homeownership rates — are expected to drop in not-hot markets. The South, Midwest and Great Lakes regions are expected to thrive compared to the rest of the U.S., because of their relative affordability. Source Axios
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