Stock investors remain cautious as Q4 2023 earnings season ramps up. Banks are still in the spotlight to start the week with Morgan Stanley and Goldman Sachs wrapping up earnings for the big Wall Street banks yesterday.

Similar to JPMorgan, Bank of America, and Citigroup results released on Friday, Morgan Stanley missed earnings expectations with results hit by one-time regulatory charges. Goldman, by contrast, is the standout among the biggest US banks, topping expectations for both earnings and revenue.

Yesterday also brought results from PNC Financial, the first of the major regional banks to report Q4 results, which included a -43% drop in profits that widely missed analyst expectations. It's worth noting that PNC's results were also dragged down by one-time regulatory charges, a theme that's likely to be repeated as midsize and regional bank earnings continue to roll out this week. Those include Charles Schwab, Citizens Financial, and US Bancorp today.

Beyond banks, Alcoa, Kinder Morgan, and Prologis also report today. Only a small fraction of S&P 500 companies have reported so far but according to FactSet, the index is now expected to report year-over-year growth of just over +4%.

Many bulls think Q4 earnings have a better chance of surprising to the upside due to a combination of very low expectations and a belief that corporate margins have held up better than Wall Street economists anticipated.

Bears believe investors will be more influenced by forward guidance for 2024 and suspect that companies may be extremely cautious considering the high degree of uncertainty surrounding the US and global economies, as well as Fed policy. That in turn could leave many bulls disappointed considering some of the lofty expectations already being built up for this year.

Wall Street insiders expect S&P 500 earnings to rise by almost +12% in 2024.

On the economic data front today, investors are eager to see Retail Sales results for December.

Economists expect a headline gain of +0.4%, and +0.2% minus vehicles. A sharp upswing in Retail Sales could fuel concerns about demand-driven inflation and give Wall Street reason to rethink rate cut expectations.

The Fed's Beige Book, Industrial Production, and Business Inventories are also due out today.

Turning to Washington, severe winter weather is holding up progress on a deal to avert a partial government shutdown later this week. The Senate began the process of advancing a temporary funding bill yesterday but the House scrapped its session due to the weather. The bill has slim support in the House, however, where a small number of Republicans remain opposed due to spending limits.

Congress has until midnight on Friday to extend government funding and the closer we get to that date without a solution, the more volatile stock markets are likely to become. A couple of other things I am keeping an eye on include the New York Fed’s recent business conditions index which posted its steepest decline in years, falling to the lowest level since the Spring of 2020.

The report also showed prices paid for materials increased to a three-month high. Meaning that manufacturing activity might be taking a sizable step backward.

We also have the continued escalated geopolitical risk in the Red Sea associated with further terrorists attacks from the Houthi group.

Interesting... Why Elon Musk Seeks Greater Control Over Tesla: Elon Musk said he feels uncomfortable making Tesla a leader in artificial intelligence and robotics without having about 25% voting control of the electric car maker. Musk said late Monday in a post on X that he wants enough control at Tesla TSLA to be influential, but not so much that he couldn’t be overruled. Unless that is the case, I would prefer to build products outside of Tesla, Musk wrote on the social media platform. The billionaire currently controls about 13% of Tesla, according to FactSet. Keep in mind, Musk sold $40 billion of Tesla stock to buy Twitter.  Some investors have long been excited about Tesla’s work and plans for deploying AI with driverless cars and humanoid robots. Such initiatives have helped underpin Tesla’s lofty market valuation and are a part of the company’s longer-term growth strategy. Musk, in the posting, noted that Tesla isn’t only one startup but a dozen. Simply look at the delta between what Tesla does and GM, he wrote.   Source WSJ

Corporate Debt Defaults Soared +80% in 2023 and Could Be High Again This Year: The number of companies that failed to make required payments on their debt totaled 153 for 2023, up from 85 the year before, an increase of 80%, according to S&P Global Ratings. Much of the total came from low-rated companies that had negative cash flows, high debt burdens and weak liquidity, S&P said. From a sector standpoint, consumer-facing companies — media and entertainment in particular — led the defaults. S&P said there could be hard times ahead for corporate America, which, according to the Federal Reserve, is carrying a $13.7 trillion debt load. Company debt has jumped 18.3% since 2020 as companies took advantage of the Fed slashing interest rates in the early days of the Covid-19 pandemic. The burden, both in the U.S. and globally, could be exacerbated by “slower economic growth and higher financing costs” that could contribute to defaults, S&P said. Along with media and entertainment, the firm sees potential trouble spots in consumer products and retail because of a weaker economy “and the already elevated number of weakest links in those sectors.” Source CNBC

The M.B.A.s Who Can’t Find Jobs: Some 2023 M.B.A. graduates are struggling to find work as their job search collides with a slowdown in hiring for well-paid, white-collar positions. An M.B.A. can cost more than $200,000 at a top school but typically pays off as a launchpad for a new, more lucrative career. Many in the spring class of 2023 entered the job market just as three sectors that heavily recruit them—consulting, tech and finance—hit downturns and put the brakes on hiring. Even at some top business schools, the number of recently minted M.B.A.s without jobs has roughly doubled from a couple of years ago, when U.S. companies were rushing to hire as many workers as they could, according to data from the schools. At Harvard Business School, 20% of job-seeking 2023 M.B.A. graduates didn’t have one three months after graduation, up from 8% in 2021. At Stanford’s Graduate School of Business, 18% didn’t, compared with 9% in 2021. Campus officials say the number of graduates without jobs isn’t that much different from prepandemic years, when the job market also was relatively strong.  Source WSJ

Insurers Seek to Exclude US, UK Ships from Red Sea Coverage: Some ship insurers are starting to avoid covering US and UK merchant ships against war risks when they navigate the southern Red Sea, another sign of blowback since the two nations’ airstrikes on Yemen last week. Houthi militants have stepped up attacks on commercial ships in the past few days, making good on a threat to respond to airstrikes that the US and UK carried out on Friday. They’ve struck two commodity carriers with missiles since Monday, although both were able to continue their voyages. As a result, underwriters are seeking exclusions for vessels with links to the US, UK and Israel when issuing cover for trips through the area, according to Marcus Baker, global head of marine and cargo at Marsh. It essentially means they won’t provide insurance. The insurance exclusions run the risk of creating problems because of their breadth. While ownership is a relatively straightforward term, “interest” can be interpreted more widely, Baker said  Source Bloomberg

Hospitality Worker Wages Rising Faster Than High Earnings in Most States: Pay hikes over the past four years have lifted the wages of people who work in hospitality — the nation’s lowest-paid industry — nearly 30% on average, reversing much of the wage inequality that has been growing for decades in the United States. In 40 states, even those that haven’t raised their minimum wage beyond the $7.25 federal floor, the recent pay jumps outpaced those of earners in each state’s highest-paying industry, usually energy, technology or the federal government. The lowest-wage industry in every state is leisure and hospitality, a category that includes restaurants, bars and hotels. Those lowest-earning workers got bigger percentage raises than the highest earners, averaging a 29% boost between mid-2019 and mid-2023, a Stateline analysis of U.S. Bureau of Labor Statistics quarterly data shows. The 29% average raise for hospitality workers compares with an average increase of 20% for the highest-earning category in each state. Inflation was 19% in the period between the second quarters of 2019 and 2023. 

Capture 1-Jan-17-2024-11-55-43-0856-AM

Futures trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results. Futures trading is not suitable for all investors.

Nell Sloane, Capital Trading Group, LLLP is not affiliated with nor do they endorse, sponsor, or recommend any product or service advertised herein, unless otherwise specifically noted.

CTG Daily Commentary is published by Capital Trading Group, LLLP and Nell Sloane is the editor of this publication. The information contained herein was taken from financial information sources deemed to be reliable and accurate at the time it was published, but changes in the marketplace may cause this information to become out dated and obsolete.

It should be noted that Capital Trading Group, LLLP nor Nell Sloane has verified the completeness of the information contained herein. Statements of opinion and recommendations, will be introduced as such, and generally reflect the judgment and opinions of Nell Sloane, these opinions may change at any time without written notice, and Capital Trading Group, LLLP assumes no duty or responsibility to update you regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice.

Any references to products offered by Capital Trading Group, LLLP are not a solicitation for any investment. Readers are urged to contact your account representative for more information about the unique risks associated with futures trading and we encourage you to review all disclosures before making any decision to invest. This electronic newsletter does not constitute an offer of sales of any securities. Nell Sloane, Capital Trading Group, LLP and their officers, directors, and/or employees may or may not have investments in markets or programs mentioned herein.