Bulls remain focused on companies' forward guidance which overall are painting a picture of smoother sailing ahead as far as supply chain disruptions, raw materials costs, and even the labor front for many. Bears however are quick to point out that management commentary has also been loaded with warnings about a possible US recession and anxieties surrounding "disinflation" that could hurt companies' pricing power.
Investors will gain further insights as earnings season starts to really heat up next week.
Top highlights include Baker Hughes on Monday; 3M, Capital One, Danaher, D.R. Horton, General Electric, Halliburton, Johnson & Johnson, Lockheed Martin, Microsoft, Raytheon, Texas Instruments, and Union Pacific on Tuesday; Abbott Labs, AT&T, Boeing, CSX, IBM, NextEra Energy, The Progressive, Tesla, and US Bancorp on Wednesday; Blackstone Group, Comcast, Dow, Intel, Mastercard, Northrop Grumman, Nucor, Sherwin Williams, Valero Energy, and Visa on Thursday; and American Express, Chevron, ColgatePalmolive, and Roper Technologies on Friday. Ally Financial, Ericsson, Schlumberger, and State Street report today.
On the Fed front, Fed Vice Chair Lael Brainard said yesterday that inflation is still too high but did add that the recent decline raises questions about how far the Fed might need to go. Brainard noted that many of the factors contributing to high prices are poised to fade, which could in turn make it possible to get inflation back to the Fed's target rate without causing significant job losses. Notably, Brainard pushed back on the idea that rising worker wages during the pandemic are driving inflation, a view held by many of her colleagues, including Fed Chair Jerome Powell.
According to Brainard, the wage gains among lower-wage workers were more than offset by real wage declines among middle- and higher-wage workers. She did not comment on questions about the size of future rate hikes, however. If you recall, the central bank did pull back its interest rate hikes in December from 75-basis points to 50-basis points. At least two Fed officials have recently expressed support for slowing the pace further to 25-basis points at the upcoming January 31-February 1 meeting.
Still, other officials this week have said the Fed's rapid rate increases should continue and feel the best course of action is to "err on the tighter side" in order to ensure inflation is truly in retreat.
Most Fed officials do seem to be in agreement over the 5% area being a likely end point to the tightening campaign, then holding there for "some time." For what it's worth, no Fed officials are talking about lowering rates.
The next big test for the Fed's inflation battle comes next Friday with the PCE Prices Index, which is one of the central bank's preferred gauges.
Other key data next week includes the S&P Case-Shiller Home Price Index on Monday; New Home Sales, Durable Goods Orders, and the final estimate of Q3 GDP on Wednesday; and Consumer Sentiment on Friday.
Today brings December Existing Home Sales. It's worth noting that data yesterday showed December Home Starts were -1.4% lower for the month and -22% lower versus December 2021 levels. The number of permits issued fell -1.6% for the month, and -30% from a year earlier.
Mortgage Rates Retreat for Third Straight Week: Mortgage rates fell for the third consecutive week, helping to revive some buyer interest. The rate on the average 30-year fixed mortgage declined to 6.15% from 6.33% a week prior, according to Freddie Mac. Rates have fallen more than three-quarters of a point since mid-November, as signs that inflation is finally cooling strengthen the chances that the Federal Reserve will slow down its aggressive rate hikes this year. The dip in rates is a boon to homebuyers, especially first-timers, who are finally seeing market conditions tip in their favor as home prices soften and seller concessions increase. For a handful of homeowners, the drop also offered a sliver of opportunity to refinance. The volume of mortgage applications for home purchases jumped 25% on a seasonally adjusted basis for the week ending Jan. 13 from the previous week, according to the Mortgage Bankers Association, but activity remains off by 35% from a year ago. Source Yahoo Finance
Americans Are Spending More Than They Make as High Prices Pinch: Overall consumer spending fell -4.3% in December from the previous month, according to a Morning Consult survey released Wednesday morning, with an increasing share of Americans spending more money than they're earning. Inflation may be easing, but high prices are still a big problem for individuals, particularly after a year of spending down savings, meaning it's not a great sign for economic growth. Shoppers are now increasingly making tradeoffs, so for example, in order to afford rising food prices at home, up 12%, per the latest CPI, households cut back on restaurant spending by -8%, Morning Consult found. Rising prices, particularly for food and shelter, are hitting the lowest-income earners the hardest, but more affluent Americans are feeling the pinch, too. Currently, 28% of those earning less than $50,000 said expenses outweighed their income in December, a big jump from 21% last year, and 9% of those earning more than $100,000 a year said the same, up from 7% last December. Source Axios
NFL Playoff Tickets Set Divisional Round Record: The average price of a ticket to the San Francisco 49ers playoff game against the Dallas Cowboys this Sunday topped $1,400 on the secondary market, according to TicketIQ, making it the most expensive NFL Divisional Round game in more than 10 years, with the most expensive ticket going for $9,668. The Philadelphia Eagles’ upcoming game against the New York Giants takes the second spot at $1,106 on average for a ticket, or 142% more expensive than Philadelphia’s last Divisional Round home game in 2018. Interestingly, the prices to both games are well above the other two Divisional Round games set for this weekend, the cheapest ticket for the Buffalo Bills-Cincinnati Bengals game is $248, while the cheapest to see the Kansas City Chiefs-Jacksonville Jaguars game costs $203, according to TicketIQ. Source Forbes
Fewer Companies Are Paying Ransoms to Hackers: Fewer companies that are infected with ransomware are coughing up extortion payments demanded by hackers, according to new research from Chainalysis Inc. In findings published on Thursday, the blockchain forensics firm estimated that ransom payments — which are almost always paid in cryptocurrency — fell to $456.8 million in 2022 from $765.6 million in 2021, a -40% drop. “That doesn’t mean attacks are down, or at least not as much as the drastic dropoff in payments would suggest,” according to the report. “Instead, we believe that much of the decline is due to victim organizations increasingly refusing to pay ransomware attackers.” Chainalysis also said the actual totals could be much higher, as there are cryptocurrency addresses controlled by ransomware attackers that its researchers haven’t yet identified. One reason that ransom payments may be going down is because the US is cracking down on crypto companies that facilitate crimes, including laundering ransom payments. In addition, insurance companies are being much more strict about how and when their insurance payouts can be used — oftentimes eliminating the ability to use them to make ransomware payments altogether. Source Bloomberg
The Best and Worst Airlines of 2022: Delta ranked first among nine U.S. carriers in The Wall Street Journal’s 15th annual airline scorecard for the second consecutive year and fifth of the past six. Alaska Airlines, a unit of Alaska Air Group, was a repeat runner-up, followed by Southwest Airlines. (Yes, despite its year-end meltdown.) JetBlue Airways finished last for the second consecutive year, a notch below budget-minded Frontier Airlines and two spots behind merger partner Spirit Airlines. Flight cancellations were the big story for airline passengers in 2022. The number of cancellations by major U.S. carriers soared +69% in 2022, far outpacing the +13% increase in scheduled flights. The average cancellation rate of the major carriers was 2.6%, up from 1.8% in both 2021 and 2019. Allegiant Air, the carrier that shuttles vacationers from smaller cities to holiday spots like Las Vegas, Florida, and Arizona, canceled 4.3% of its flights, the most of any airline. Source WSJ
Top Disaster Counties in the US: Almost every county in the US – 98% – has been the site of at least one major federally declared disaster in the past 33 years. About half of all US counties have had at least 10 federally declared disasters. Of the top 12 counties with the most disaster declarations since 1990, 7 are in Kentucky, 4 are in Oklahoma, and 1 is in Louisiana. Lawrence County, Kentucky, and Caddo County, Oklahoma, are tied for the most major disaster declarations since 1990 with 30. Kentucky's Lawrence County is also tied with Knott County, Kentucky, and Okmulgee County, Oklahoma, for the most severe storm disaster declarations with 18. Oklahoma's Caddo County is close behind with 17. Lawrence and Caddo counties have also been battered by floods, ice storms and tornadoes in their run-up of disaster declarations. The 50 counties that escaped a single disaster declaration are primarily in the Intermountain West: Nevada (six counties); Utah (six counties); Idaho (five counties); Wyoming (five counties); and Colorado (one county). Michigan (26) and Wisconsin (one) were the two states east of the Rockies with counties that had no disasters. Source USA Today
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Bayer Sued for Barring Non-US Citizen from Roundup Settlement: A new U.S. lawsuit on Thursday accused Germany's Bayer AG of illegally excluding a Virginia farmworker from a settlement over claims its Roundup weedkiller causes cancer, because she is not a U.S. citizen. The complaint said Elvira Reyes-Hernandez, who used Roundup while working on tree farms before being diagnosed with non-Hodgkin's lymphoma in 2019, expected to share in a settlement with an average $120,000 payout to thousands of Roundup users. The lawsuit filed in federal court in Abingdon, Virginia seeks unspecified damages and a requirement that Bayer let non-U.S. citizens, who comprise more than 70% of agricultural crop farmworkers, participate in Roundup settlements. Public Citizen, an advocacy group representing Reyes-Hernandez, said it is not clear whether others like Reyes-Hernandez could band together to sue Bayer in a class action. Source Reuters
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