S&P 500 and Dow indexes are again coming off new record closing highs as optimism remains high for upcoming Q4 2023 earnings results.
The big highlight today is Netflix, which reports after markets close and marks what most view as the kick off of big tech results. As usual, tech company results will likely play a major role in where stocks go from here considering the industry is expected to contribute to the bulk of Q4 earnings growth.
The Communication Services sector, which includes Netflix as well as Google-parent Alphabet and Facebook-parent Meta, is expected to report the largest earnings growth rate of all eleven sectors at +41.0%, according to FactSet.
The Consumer Discretionary, of which Amazon makes up 20%, is expected to post earnings growth of +23%. According to FactSet, if Amazon were excluded from the calculation, the consumer discretionary sector would expect a slight year-over-year decline in earnings for the quarter.
Most of the big tech stocks are part of the so-called "Magnificent Seven" (Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia) which make up nearly 30% of the S&P 500's market cap.
These seven stocks combined are expected to post earnings growth of just over +38%. Tesla tomorrow (Wednesday) will be the first of the exclusive group to report Q4 results.
As for the overall economy, the biggest debate on Wall Street remains the timing of Federal Reserve rate cuts and there are some worries upcoming data may come in hotter-than-expected and erode optimism even further.
The most important data to watch in the weeks ahead will be the December PCE Prices Index this Friday, the January Employment Report next Friday (Feb. 2), and the January CPI on February 13.
As for corporate earnings, besides Netflix, who reports earnings today, we are scheduled to hear from 3M, Baker Hughes, Canadian National Railway, D.R. Horton, General Electric, Johnson & Johnson, Lockheed Martin, PACCAR, Texas Instruments, and Verizon. Johnson & Johnson in particular will be closely watched for insights into how US consumers are fairing.
The US is already trying to help with the war in Ukraine, now dealing with increased terrorist activity in the Middle East, and having to keep one eye on China and its relations with Taiwan. I could go on and on but you clearly get the picture. The US might arguably be stretched a bit thin around the globe and perhaps looking at a leadership change right here at home during the middle of it all.
Ocean Freight Rates Soaring: The average global shipping price for a 40-foot container jumped by over +20% last week, and now stands at over +$3,750 per container or about double the shipping cost from just one month ago. Keep in mind, that the Houthi attacks in the Red Sea aren't just impacting shipping rates from Europe to Asia, we also have seen a +35% jump from China to Los Angeles. Moral of the story, soaring shipping costs and a jump in oil prices might start stoking worries about a revival of inflation. Below are some interesting graphics that better help explain the story.
U.S. and U.K. Launch Major Strike on Houthi Sites in Yemen: The U.S. and U.K. launched strikes against eight Houthi targets Monday, the two countries said, in a continuing bid to stop the Yemeni rebel group’s attacks on ships transiting the Red Sea. The strikes marked the second major assault by a joint force of the two countries and the eighth time overall that the U.S. has targeted the group, which is armed, funded and supported by Iran. The Houthis were characteristically defiant after the strike and vowed to retaliate. In the hours leading up to the coalition strikes, British security consulting firm Ambrey said a U.S.-flagged and -owned heavy load carrier was allegedly targeted with a Houthi missile while sailing eastbound in the Gulf of Aden. Last week, vessel traffic through the Suez Canal was down -34% compared with the end of November, according to data by Lloyd’s List Intelligence. The Pentagon has declined to provide any detailed assessment of the effectiveness of its campaign, and Houthi attacks haven’t subsided. The Houthis have intelligence about coming strikes from Iran, an Iranian official said, and were moving missile launchers around. Source WSJ
America is Turning Into a Nation of Homebodies: While many things are getting back to normal, the pandemic profoundly changed American life — sometimes just by speeding up prevailing trends. The technology already existed to allow many Americans to work from home, for example, but the pandemic normalized it. Americans also shop online far more than they did before Covid. One other way the pandemic altered America: It has created what might be called the Introvert Economy. Put simply, Americans are going out less. And odds are it will stick: It is the youngest adults who are going out less, and when they do go out, it is earlier. Technology has also speeded changes in social habits. More choices of at-home-entertainment may decrease the desire to go out or stay out, for instance. There was a bit of a bump in socializing in 2022, but the long-term trend is clear: more time watching TV or playing video games Source Bloomberg
What Commodities Markets Can Read Into China’s Growth Data: If last week’s official data are to be believed, China comfortably met its 2023 growth target. For all its property woes and consumer angst, the world’s second-largest economy expanded by a solid 5.2%. But exactly how cheering should that be for commodities traders wondering what 2024 has in store for the biggest consumer of raw materials? Data for last year show fixed-asset investment in Chinese manufacturing grew 9% year-on-year, of which spending on food production, chemical manufacturing and base metal smelting were all up by more than 10%. Pork output rose to its highest level in nine years. Copper hit a fresh peak, while steel production defied a real estate crisis. In commodities markets, at least one consequence of expansion is visible — a supply glut depressing prices from industrial metals to petrochemicals. There is reason to spend, of course. China has been upgrading its economy to become greener and more efficient. The spending is also about local authorities and producers — both state-owned and private — having little alternative but to hold off mounting debt and unemployment. Source Bloomberg
Cargo Theft Spiked Over +57% in 2023: Cargo theft incidents were up more than 57% in 2023 compared with the year prior, according to CargoNet, a Verisk company. “I think we’re at an all-time high. I haven’t seen cargo theft at this level,” Scott Cornell, the national practice transportation lead at Travelers, told CNBC. Cargo theft refers to goods being stolen at any point in the transportation journey. Nearly $130 million worth of goods was stolen in 2023, but since reporting cargo theft is not mandatory, the amount is likely higher than this, according to CargoNet. CargoNet’s analysis of fourth-quarter 2023 data showed a +68% year-over-year increase compared with 2022. CargoNet ranks California, Texas and Florida as the top three hot spots in 2023, but the risk isn’t limited to the coasts. More incidents are being reported at inland logistics hubs, including Louisville, Kentucky. Source CNBC
Independents Continue to Gain as Largest Voting Bloc in US: Political independents continue to constitute the largest political bloc in the U.S., with an average of 43% of U.S. adults identifying this way in 2023, tying the record high from 2014. Independent identification has been 40% or higher each year since 2011, except for the 2016 (39%) and 2020 (39%) presidential election years. Equal 27% shares of U.S. adults identify as Republicans and Democrats, with the Democratic figure marking a new low for that party in Gallup’s trend. Independents first outnumbered supporters of both major political parties in 1991 and have continued to do so since then, except in several years between 2004 and 2008. Over time, the increase in the percentage of independents has come more at the expense of Democrats than Republicans, which might be expected since Democrats were previously the largest political group. Independent identification was up two percentage points in 2023 compared with 2022, while there was a one-point decline in both Democratic and Republican identification. Democratic identification has now declined by one point in each of the past three years. The record low for Republican identification was 25% in 2013. Source Gallup
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