Investors are braced for a busy week of Q4 earnings as well as critical inflation updates that could influence the Fed's future moves.

The S&P 500 is currently trading at or around the same level it was trading at back in mid-May of last year. Technically, however, the bears are quick to point out that we are still in the cycle of posting lower-highs and lower-lows.

This time around most in the trade seem to be less focused on the Fed and now more focused on much of an impact higher rates and high inflation is going to have on US corporate earnings. On the earnings front, several big names are on the calendar this week but there will be added focus on big tech names in particular as layoffs in the sector continue to dominate headlines.

Amazon, Google, and Microsoft added to the industry's latest round of job reductions last week.

Keep in mind, while tech companies make up about 20% of the S&P 500 and account for around 10% of US GDP, they only provide a small fraction of US jobs. In total, the tech sector accounts for roughly 9 million jobs, versus the 159.24 million people employed in the US as of December 2022.

The total number of jobs cut by the sector since January of 2022 is about 190,000. Google executives last week explained that the company had hired for a different economic reality, similar to reasons given by other tech companies that went on hiring sprees to keep up with surging demand during the pandemic.

Most tech firms have far more employees than they did at the beginning of 2020. In many cases, companies are reducing staff by downsizing or eliminating unprofitable businesses, which is overall viewed as a good thing by Wall Street.

Key tech results this week include Microsoft on Tuesday, IBM and Tesla on Wednesday, and Intel on Thursday.

Today's top US results come from Baker Hughes, Crane, Logitech, and Synchrony Financial.

Turning to economic data, investors are anxious to see both Flash PMIs on Tuesday and the Producer Price Index (PPI) on Friday.

The PMI data will be for January so is a more up-to-date read than PPI, which is through December. The PPI report holds more sway over the Fed, though, with so-called "core" PPI (strips out food and energy) being one of the Fed's favorite gauges. On a year-over-year basis, the PCE Price Index for November was up +5.5%, versus +6.1% in October, and the core-PCE Price Index was up +4.7%, versus +5.0% in October.Multiple Fed officials last week expressed support for slowing the pace of interest rate hikes at the January 31-February 1, pointing to the recent decline in inflation.

That would mean a 25-basis point hike as opposed to 50-basis points previously. However, most officials also still support the Fed pushing rates slightly above 5%. The Fed funds rate currently stands at 4.25-4.50%. That means perhaps 3 to 4 more hikes of 25-basis points each.

The real question is how long the Fed will need to hold rates at those levels in order to bring inflation back down to the Fed's target level of 2%... Then how long can companies that are short on cash continue to hold their breath underwater and how will overall profit margins be impacted?

Home-Loan Banks Lent Billion to Crypto Banks: Two of the biggest banks to cryptocurrency companies are rushing to stem a flood of customer withdrawals by borrowing billions of dollars from Federal Home Loan Banks, the system originally designed to support mortgage lending in the 1930s. Signature Bank tapped its local home-loan bank for nearly $10 billion in the fourth quarter, among the largest such borrowings by any bank since early 2020, according to securities filings. Silvergate Capital Corp a competing lender that shifted its business toward crypto a decade ago, borrowed at least $3.6 billion. Source WSJ

Google Announces Sizable Companywide Layoffs: On Friday, Alphabet-owned Google announced it was cutting 12,000 employees, roughly 6% of the full-time workforce. While employees had been bracing for a potential layoff, they are questioning leadership about the criteria for layoffs which surprised some employees, who woke up to find their access to company properties cut off. Some of the laid-off employees had been long-tenured or recently promoted, raising questions about the criteria used to decide whose jobs were cut. So far in the U.S., employees have been laid off across business units including Chrome, Cloud, and its experimental Area 120 unit. Some employees working on the company’s artificial intelligence programs were also laid off, according to Bloomberg. Source: CNBC

Global Property Market Faces $175 Billion Debt Spiral: The slump in the world's biggest asset class has spread from the housing market to commercial real estate, threatening to unleash waves of credit turmoil across the economy. Almost $175 billion of real estate credit is already distressed, according to data compiled by Bloomberg — about four times more than the next biggest industry. As the toll from higher interest rates and the end of easy money mounts, many real estate markets are almost frozen with some lenders telling borrowers to sell assets or risk foreclosure amid demands for additional capital from landlords. Distress levels in European real estate are at the highest in a decade, in part because of a decline in liquidity, according to a study by law firm Weil, Gotshal & Manges. UK commercial property values fell more than- 20% in the second half of 2022. In the US, the drop was about -9%. The fall in transactions and development in commercial and residential real estate will inevitably impact spending in the real economy. In turn, that could pose a risk to jobs and growth. The signs of a downturn are mounting in the US. But despite a dip, commercial property values “are still moderately overpriced,” said Michael Knott, head of US REIT Research at Green Street, who expects another 5% to 10% decline this year. “Appraisers are behind the curve, transaction activity has slowed down considerably.” Source: Bloomberg.

New Federal Tax Brackets for 2023 Reflect Surge in Inflation: The income thresholds for the seven federal tax brackets increased by a bigger-than-normal amount for the 2023 tax year to reflect runaway inflation seen last year. “They are just the usual changes due to inflation," Jon Whiten, from the Institute on Taxation and Economic Policy told Yahoo Finance. "More dramatic this year since inflation was also dramatic.” The inflation-adjusted amounts jumped by more than 7% from 2022, according to the Tax Policy Center, compared with last year's 3% uptick. The changes themselves are not a new development — the Internal Revenue Service adjusts its tax brackets annually for inflation. One positive outcome: Taxpayers whose income didn’t rise on par with inflation last year will likely avoid tax bracket creep in 2023 and ultimately pay lower taxes. According to the latest Bureau of Labor Statistics data, wages only increased 4.4% for the 12-month run ending September 2022, up just 2.4% from a year earlier. Though some folks saw a jump in their salaries last year, most of those gains still fell behind rising inflation levels. Source Finance Yahoo

Unemployment Lasting Longer as Jobs Get Tougher to Find: Unemployed Americans across the U.S. are spending more time out of work as employers slow down hiring from a red-hot pace earlier in the pandemic. In December, 826,000 unemployed workers had been out of a job for about 3½ to 6 months, up from 526,000 in April 2022, according to the Labor Department. Earlier this month, the number of people seeking ongoing unemployment benefits, known as continuing claims, was 26% above half-century lows reached last spring. When employers turn cautious about the economic outlook, they are more likely to first pull back on hiring than they are to resort to layoffs because it is less costly to resume hiring. Postings on job-search site in software development were down -38.5% on Jan. 6 from a year earlier, while they were -30.8% lower in media and -25.6% lower in banking and finance. Overall postings were down -9.9%. Ads on for human-resources jobs have dropped sharply over the past year as well. “That suggests that overall hiring will be pulling back as well,” said Nick Bunker, economist at Indeed. “You only stop hiring the people who help you hire when you have no plans to further expand.” Source WSJ

Abbott Under Federal Investigation Over Baby Formula: The Department of Justice opened a criminal investigation on Friday into an Abbott Laboratories plant in Michigan over unsanitary workplace conditions in its production of baby formula—the latest investigation into one of the country’s biggest baby formula makers after the closure of the plant last year fueled a nationwide shortage. An Abbott Laboratories spokesperson told Forbes on Saturday the company is “cooperating fully” with the Justice Department’s investigation, but would not provide further details on the matter. The company had previously denied any relationship between its products and the reported deaths from baby formula. Source Forbes

Unions Press White House Not to Change EV Tax Credit Rules: Major unions and public interest and environmental groups are urging President Joe Biden to reject efforts by the European Union and other foreign governments to revise U.S. electric vehicle tax incentives. The $430 billion U.S. Inflation Reduction Act (IRA) passed in August restricts $7,500 consumer tax credits to North American-made EVs, but the U.S Treasury in December said consumers leasing vehicles assembled outside North America could benefit from the $7,500 commercial green vehicle tax credit. Foreign governments have been pressing the Biden administration to do more to expand credit eligibility. "The IRA has the potential to be a gamechanger for the industrial towns hit hardest by decades of offshoring," said a statement from the United Auto Workers, International Association of Machinists and Aerospace Workers, United Steelworkers, the Sierra Club and Public Citizen. Source Reuters

Is Retirement Bad For Your Brain? When we retire from our jobs we may be giving up more than staff meetings, desk lunches and a paycheck. The social interaction and mental challenges found through work can be good for our mental health. Working longer, making decisions and being surrounded by different people is good for your brain health, according to new research. In the first year of retirement, there’s a 30% reduction in short-term memory, said Mitch Anthony, author of “The New Retirementality” and retirement coach. "Boredom is a real thing. The human species needs something productive to do. Otherwise, life feels aimless,” said Anthony. “A lot of retirees say they’re busy. Busy? Doing what? Doing something 18 levels below your pay grade is not good for you.” Diverse people and ideas in the workforce also jump-start diverse thinking. When older adults retire, their circle of influence gets smaller and their thinking narrows, said Robert Laura, founder of the Retirement Coaches Association and the Retirement Intelligence Assessment. “It’s truly the idea of if you don’t use it, you lose it,” Laura said. “Without work and the social interactions that come from it, people are watching TV 40 hours a week.” Source Market Watch

How Home Prices are Expected to Shift: On one hand, the ongoing home price correction—which saw U.S. home prices fall 2.4% between June and October—has been mild. On the other hand, economists and analysts remain sharply divided on whether this is simply a minor setback for home price growth or the early innings of a sharper correction. The relatively bullish crowd includes Zillow. The latest housing forecast produced by Zillow economists has U.S. home values falling just -1.1% between November 2022 and November 2023. Zillow economists note that "substantial declines in mortgage rates [down to 6.15% as of Thursday]…and promising data showing a decline in inflation, all give grounds for cautious optimism that the worst is behind us when it comes to borrowing costs, and some of the deterred homebuying demand from this fall may return in the new year." Meanwhile, the relatively bearish camp includes firms like Moody’s Analytics. Its forecast has national home prices falling -5.1% between the fourth quarter of 2022 and the fourth quarter of 2023. Peak to trough, Moody’s expects U.S. home prices to fall -10%. Moody's expects sharper corrections in markets like Boise and Phoenix, which analysts say got too far detached from underlying fundamentals during the Pandemic Housing Boom. Source Fortune

We have alternatives that are low in correlation to traditional stock & bond portfolios. They are liquid and transparent. Minimums and fee structures vary and some are performance based only. Returns we can share are NET of Fees.

If you want to learn more, just let me know what works to learn more about your needs.

Schedule A Call Now

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.