Stock indexes are now in positive territory for 2024 with the S&P 500 and Dow also at new record highs. While Friday's close marked the second time the Dow has set a new record in 2024, it's the first time in just over two years that the S&P 500 has managed the feat. For what it's worth, the Nasdaq Composite (closed Friday at almost 15,311) still has a bit to go before topping its record 16,057.44 set back in November 2021.
Stock bulls are hopeful that Q4 earnings in the weeks ahead can draw more money back to the the market. Interestingly, the earnings season has gotten off to a weak start with S&P 500 companies currently on track for an earnings decline of -1.7%, according to FactSet, yet the stock market is posting new all-time highs.
At the same time, bulls on Wall Street have walked back their forecast for Fed rate cuts in 2024 from seven to five (quarter-point cuts). The stock market had been talking about a quarter-point cut at every Fed FOMC meeting in 2024 except for the upcoming January meeting.
Wall Street has now adjusted its expectations down to five rate cuts, which I still think is overly optimistic.
Keep in mind, Fed officials this week enter the "blackout" period ahead of the upcoming January 30-31 policy meeting. Traders are currently placing just over 46% odds on a 25 basis point interest rate cut in March, per the CME Fed Watch Tool.
Just a week ago, traders were giving nearly 80% odds of a cut in March.
In economic data, two reports this week could impact investor sentiment regarding Federal Reserve rate cuts. The first is Q4 GDP (gross domestic product) on Thursday which is expected to show the US economy grew at an annualized pace of +1.7% versus +4.9% in Q3. A day later, the PCE Prices Index on Friday is expected to show a decline in the so-called "core" rate, one of the Fed's preferred inflation gauges, to +3% year-over-year versus +3.2% previously.
If both reports indicate the expected slowdowns, bulls believe optimism surrounding Fed rate cuts this year will follow and help give stocks a further boost.
As for corporate earnings this week, big names like Netflix will report on Tuesday, followed by Tesla on Wednesday. The bulk of big tech companies, however, will be reporting next week, with Microsoft on January 30, and Apple, Amazon, Alphabet, and Meta on February 1. The final big tech behemoth to report will be Nvidia on February 21.
I'm keeping a close eye on the fireworks in the Middle East as Iran seems more eager to be involved in a war with the US. Recent intelligence gathered by the U.S. and other Western countries indicates Iran-backed Houthi rebels are seeking more weapons from Tehran, raising concerns that the militant group is determined to continue attacks on shipping in the Red Sea and threatening a wider conflict in the Middle East. We also have Iran-backed militias firing dozens of rockets at American bases in Iraq and Syria. In response, the U.S. carried out a strike that killed a top Iraqi militia commander. Additional attacks by either Iran or the Houthis threaten to draw the US even deeper into the widening Middle East conflict. Paying close attention! You can read more about Middle East tensions
Desantis Exits Presidential Race: Florida Governor Ron DeSantis ended his Presidential campaign Sunday. DeSantis’ run came to a halt following a dispiriting second-place finish in Iowa, a state where he and allies poured millions into an aggressive get-out-the-vote effort that featured the governor visiting all 99 counties. He spent week after week in the state instead of establishing a presence in other early-voting states like New Hampshire and South Carolina. DeSantis had initially been considered a formidable challenger to former President Donald Trump. But DeSantis was unable to gain traction in the primary, with Trump instead steadily consolidating support and rising in the polls before a dominant win in Iowa. On Sunday, DeSantis also endorsed the former president for president. Source Political
Consumers Feeling Good About the US Economy: Americans are feeling increasingly better about the state of the US economy. The latest University of Michigan consumer sentiment survey released Friday revealed a +13% jump in overall sentiment during the month of January. The index reading for the month came in at 78.8, its highest mark in over +30 months. The cumulative +29% climb in the sentiment index over the past two months is the largest two-month increase since the US economy recovered from recession in 1991. The move higher in sentiment comes as the Nasdaq 100 reached a new all-time high on Thursday and all three of the major stock averages sit near record levels. The equity rally has been driven by a shift from investors fearing further interest rate hikes to debating when the Federal Reserve's first interest cut will come. The shift in sentiment also signals a reversal in a pandemic-era trend many dubbed the "vibe-cession," in which Americans' feelings on the economy didn't match the strong data seen throughout most of 2023. Source Yahoo Finance
Sports Illustrated On-The-Ropes After Nearly 70 Years: Sports Illustrated, once thought to be the standard of sports journalism through its writing and photography, is laying off most of its staff and "possibly all," the magazine's owner said on Friday. We were notified by Authentic Brands Group (ABG) that the license under which Sports Illustrated operates has been officially revoked. In 2019, Meredith sold Sports Illustrated for $110 million to Authentic Brands Group, in turn agreeing to publish SI in print and digital. That deal was terminated after a nearly $4 million payment was missed less than a month ago, in effect breaking the licensing deal. when I was a kid, I always loved Sports Illustrated. In fact, I came up with the "From the Field" section of my daily report based on the "Faces in the Crowd" section of Sports Illustrated. Which was a single page in each issue that typically featured three or four amateur athletes and their recent accomplishments. In other words, just regular folks doing extraordinary things. I've always envisioned our "From the Field" section of my report being the same, i.e. just regular folks doing extraordinary things on their farms. Read more bout Sports Illustrated and their problems ahead at. Source USA
Oil Traders Brace for More Red Sea Chaos: The oil market is bracing for a weeks-long disruption to shipping in the southern Red Sea, where Houthi militants have for months been attacking merchant vessels in response to Israel’s war in Gaza. Charters of tankers to haul crude and fuels — which for some vessels are arranged up to a month in advance — reveal growing numbers of the vessels are being hired for routes that will avoid the danger zone, according to shipowners, brokers and traders. With the Houthis pledging to strike back against the US and UK for airstrikes in Yemen, numerous owners elected to stay away from a route that normally handles about 12% of global seaborne trade. Container shipping, where many Houthi attacks had initially been concentrated, had already largely diverted before the US and UK airstrikes. Increasing numbers of tankers and bulk commodity carriers followed suit. Source Bloomberg
The $8.8 Trillion Cash Pile That Has Stock-Market Bulls Salivating: Rising interest rates drew trillions of dollars into money-market funds and other cash-like investments in the past two years, with more than $8.8 trillion parked in money funds and CDs as of the third quarter of 2023. Investors are optimistic that with rates poised to fall, people will redirect that money and fuel markets’ next leg higher. Rates above 5% were flashy after years of safe investments offering little interest. Their fall could drive investors to U.S. stocks, which have historically provided the highest returns in the long run. Expectations for cash to pour into the market once rates fall may prove overly optimistic, however. Money-market funds raked in cash during previous Fed-tightening cycles but didn’t hemorrhage it when the central bank began to ease. Assets retreated from their peaks, but still plateaued at much higher levels. Investors also tend to tap money markets during periods of market stress, not necessarily when yields are higher. Assets in money funds peaked at nearly half of the overall money supply in 2008. There was a similar spike in 2001, the aftermath of the dot-com bubble. WSJ
Hedge Funds are Making a Killing Betting on Disaster: For hedge funds, the science of catastrophes helped generate the best returns of any alternative investment strategy last year. The best hedge fund strategy of 2023 was a bet on insurance-linked securities (of which catastrophe bonds are the dominant sub-category), which generated over 14%, according to Preqin, a consultancy that provides data on the alternative asset management industry. Preqin’s benchmark return for the industry — across strategies — was 8%. That compares with a 19.7% gain in the Swiss Re Global Cat Bond Performance Index Total Return. Behind those record returns were bold bets on catastrophe bonds and other insurance-linked securities. So-called cat bonds are used by the insurance industry to shield itself from losses too big to cover. That risk is instead transferred to investors willing to accept the chance that they may lose a part of — or all — their capital if disaster hits. In exchange, they get rewarded with outsize profits if a contractually pre-defined catastrophe doesn’t occur. The securities were generally a dud bet as recently as 2017, when several large hurricanes slammed into the US and investors were called on to cough up the cash needed to cover property losses. Source Fortune
Sam Altman Is Reportedly Raising Billions For Chip Manufacturing Factories: OpenAI CEO Sam Altman is in the process of setting up fundraising for a network of semiconductor manufacturing factories, according to a new report, amid a multi-billion dollar production race for the chips—technology critical for the production of consumer goods and AI products. Altman has had conversations with several large potential investors in the hopes of raising the vast sums needed for chip fabrication plants, or fabs, as they’re known colloquially, said the people, who requested anonymity because the conversations are private. The project would involve working with top chip manufacturers, and the network of fabs would be global in scope, some of the people said. Altman’s fundraising push reflects his concern that as AI becomes more pervasive, there won’t be enough chips for widespread deployment, some of the people said. Some current forecasts for production of AI-related chips fall short of projected demand. Source Bloomberg
A Startup Is Letting Shareholders Sell Their Proxies: A new marketplace is letting investors sell their votes. Not everyone is happy about it. Shareholder Vote Exchange is a small California-based startup that runs auctions for the rights to vote in shareholder meetings. Backers say it can help ordinary investors get cash for voting rights they are unlikely to use. Critics worry that buying and selling shareholder votes is rife with the potential for abuse. Effectively, selling votes is a way for investors to earn additional yield from an asset that often goes untapped, said Andrew Shapiro, a board adviser to Shareholder Vote Exchange. Only about 30% of shares held by individual investors are used to vote, according to financial-technology firm Broadridge Financial Solutions. Preston Yadegar, who is 25 years old, started Shareholder Vote Exchange in 2021, the year after he graduated from Boston University. One potential growth area for Shareholder Vote Exchange, Yadegar said, is helping companies achieve the quorum needed to approve deals or measures such as stock splits. Source WSJ
USPS Rate Increases Now in Effect: Postage stamp prices increased by another 2 cents as of Sunday. The U.S. Postal Service's third rate hike in 12 months will push the price of a first-class stamp up to 68 cents. This is the 18th stamp rate change since 2000 and comes as Americans continue to reduce what they send via snail mail. Rates last went up in July 2023. Before that, they rose in January 2023 and July 2022. Between the 1970s and 2000, rates increased three to four times a decade, USPS data shows. The number of pieces of mail handled by the post office has been on the decline in recent years as more people pay bills online and fewer send physical thank you cards. In 2022, USPS handled 127.3 billion pieces of mail compared to the high of 213.1 billion in 2006, data shows. More stamp price increases are expected as part of Postmaster General Louis DeJoy's 10-year Delivering for America plan "to achieve financial sustainability." Source Axios
US 2023 Home Sales Sank to Slowest Pace in 30 Years: Home sales fell in December to the lowest level in decades as demand continued to exceed the supply of listings for sale, pushing prices up to close out the year. Sales activity on a monthly basis was at the lowest level since August 2010. Looking at 2023 overall, sales dropped by nearly -19% from the previous year, falling to the lowest level since 1995, the NAR said, and the median home price reached a record high. The median price for an existing home in December rose by +4.4% to $382,600. In 1995, the last time sales were as low, the median home price was $114,600. Source Yahoofinance
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