Stock bulls are trying to maintain control with all three major indexes off to good start to the new year. Investors are highly anxious to see earnings results today from big Wall Street banks and a few other big names as we kick off Q4 earnings season. Bank of America, BlackRock, Citigroup, JPMorgan Chase, and Wells Fargo all report before stock markets open this morning. Investors are particularly interested in big bank insights into the health of the US consumer and overall economy.

Investors may also be extra sensitive to any increases that banks make to their loan-loss provisions, which some may view as a warning sign of looming defaults.

Bulls were bolstered yesterday by a decline in the December Consumer Price Index, which fell to 6.5% from 7.1% in November.

Importantly, the month-over-month change in headline CPI was negative (-0.1%), the first monthly decline since May 2020 when consumer demand collapsed at the beginning of the Covid-19 pandemic. Bears, however, are pointing to several areas of concern that they say indicates a long battle with inflation still lies ahead. Of note, the monthly "core" rate, which excludes food and energy, rose +0.3% in December, faster than the +0.2% rate in November.

Shelter was the “dominant” factor in that increase and bears warn it will take several more months for slowly falling rent and home prices to filter through to inflation data. In fact, shelter prices are expected to continue climbing in the first half of the year.

It's also worth noting that the annualized food-price inflation rate was +10.4% in December. While this was a move down from November's +12%, there are worries that food prices will remain stubbornly high in 2023, possibly even rising. That's largely because of several ongoing issues that have long-term impacts on global food supplies, including the war in Ukraine, avian influenza, and weather extremes.

Keep in mind that global grain and oilseed stockpiles are expected to remain tight, which means any production shocks could potentially send food prices skyrocketing even higher.

Economic data today includes Consumer Sentiment and Import/Export Prices.

Turning to next week, stock, bond, and commodity markets are closed on Monday for the Martin Luther King Jr. holiday.

The shortened week has a ton of critical data and earnings crammed into it though, so things could get volatile. Key data to watch next week includes Empire State Manufacturing on Tuesday; the Producer Price Index, Retail Sales, Industrial Production, Business, the NAHB Housing Market Index, and the Fed's Beige Book on Wednesday; Housing Starts and the Philadelphia Fed Index on Thursday; and Existing Home Sales on Friday.

Earnings are equally busy with results from Goldman Sachs, Interactive Brokers, Morgan Stanley, and United Airlines on Tuesday; Alcoa, Charles Schwab, Discover, JB Hunt, Kinder Morgan, and Prologis on Wednesday; American Airlines, Concentrix, Fastenal, Neflix, and Procter & Gamble on Thursday; and Ally Financial, Ericsson, Schlumberger, and State Street on Friday.

Additionally, investors next week will be monitoring the headlines out of the World Economic Forum's Annual Meeting in Davos, Switzerland, which runs January 16-20 with the theme “Cooperation in a Fragmented World.”

Top Office Owners Don’t Want to Own Just Office Buildings Anymore: Many of the most prominent office developers in the U.S. are shifting gears, looking to buy or build real estate that isn’t office space. Boston Properties Inc. is planning to develop 2,000 residential units up and down the East Coast. The firm, which owns more U.S. office space than any other publicly traded company, also is developing millions of square feet of lab and life-science space. Additionally, New York office owner SL Green Realty Corp is teaming up with Caesars Entertainment Inc. in a bid to convert a Times Square office tower into a casino. Keep in mind, shares of publicly traded office owners have broadly declined as investors and analysts worry that the companies’ growth prospects have been hurt by the likelihood of a long-term decline in office. Right now, the economics of the residential business are currently more compelling, said Tony Malkin, chief executive of Empire State Realty Trust. He would still buy office buildings at the right price, but apartment-building acquisitions produce an immediate return and require minimal capital expenditure. Source WSJ

Subway" Could Sell for $10 Billion... Not Bad for a Sandwich Shop! Subway is exploring a potential sale that could value the sandwich chain at more than $10 billion, according to a person familiar with the matter. The company, based in Milford, Connecticut, is one of the world’s largest quick-service restaurant chains, with about 37,000 locations in more than 100 countries. Its rapid growth since opening its first shop in 1965 has tapered off in recent years amid intense competition. Last October, Subway said it had experienced positive growth over the previous 18 months as the chain revamped its image with the “Eat Fresh” campaign that included new bread recipes, aimed at improving consumers’ perception of the chain and its ingredients. The company said that digital sales, which include orders made online and via mobile apps, have bolstered results.

1 13 2023
Taiwan Semiconductor Bracing for Downturn Despite Record Profit: Taiwan Semiconductor Manufacturing reported a record net profit and beat analysts’ expectations for its fourth quarter but warned of waning demand in 2023. Taiwan Semiconductor, the world’s largest contract chip maker and a main rival to Intel and Samsung, said net profit for the quarter was 295.90 billion Taiwanese dollars ($9.72 billion), up +78% from the prior year. Revenue in U.S. dollars was $19.93 billion, up +27% from the prior year. TSMC said it expects first-quarter revenue in 2023 to drop to between $16.7 billion and $17.5 billion, before a second-half recovery, paving the way for revenue growth for the whole year. Source Barrons

Apple's Tim Cook Takes Pay Cut After Making Nearly $100 Million in 2022: Apple Inc. Chief Executive Tim Cook is taking a substantial pay cut in 2023 — by about half, to $49 million — following investor criticism and a request by Cook himself. Most of that pay will be in the form of stock grants, and his $3 million annual salary will remain the same. Last year, Cook’s total compensation was $99.4 million, including a $3 million salary, about $83 million in stock awards, and $13.4 million in other awards. This prompted howls of protest from groups such as advisory firm Institutional Shareholder Services. The median compensation for Apple employees was $84,493 in 2022, according to Thursday’s filing Source MarketWatch

December 2022 Inflation Breakdown: Inflation closed out 2022 with a 6.5% annual reading, as measured by the Consumer Price Index. Items among those with the most price growth to end 2022 included food at elementary and secondary schools (prices jumped +305%), eggs (+59.9%), margarine (+43.8%), fuel oil (+41.5%), and airfares (+28.5%). Those with the largest annual price declines included consumer electronics such as smartphones and TVs, for which prices fell by -22.2% and -14.4%, respectively. Car and truck rental prices fell by -4.9%, while beef and veal prices fell by -3.1%, women’s dresses by -2.3%, and admission to sporting events by -1.5%. A monthly -9.4% decrease in gasoline prices was “by far the largest contributor” to overall deflation in December, according to the CPI report. Source CNBC

Bain Capital Buys Stake in Biofuel Firm: Bain Capital Private Equity said on Thursday it has completed a deal to acquire a stake in renewable fuel producer EcoCeres Inc, as the Boston-based investor strives to ramp up its sustainable investment. Bain said in response to a Reuters query that the firm invested $400 million of growth capital for a significant stake in the company, marking one of the its largest transactions in Asia related to environmental, social and governance (ESG) issues. EcoCeres' products include a type of biodiesel made from waste greases such as palm oil mill wastewater and used cooking oil, according to its website. EcoCeres' main businesses include a biofuel plant in the eastern Chinese province of Jiangsu, and two projects of agricultural waste utilization in Hebei province in the northern part of China, its website said. Source Reuters

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