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Investors have a full plate of earnings to digest today, including results from American Airlines, The Blackstone Group, Capital One Financial, Comcast, Dow, Intel, KLA, McCormick, Mobileye, NextEra Energy, Nokia, Northrop Grumman, Robert Half, SherwinWilliams, Southwest Airlines, Union Pacific, Valero Energy, and Visa.
There are some concerns that disappointing results from Tesla after the close yesterday could dampen the mood surrounding other market leaders in the "Magnificent Seven" group, which also includes Apple, Google-parent Alphabet, Microsoft, Amazon, Facebook-parent Meta, and Nvidia. Tesla's revenue and profit growth both missed Wall Street estimates while the company also warned to expect slower production growth in 2024.
Most bulls believe that Tesla's problems are unique to its electric vehicle business so don't expect the others in the group to be experiencing the same headwinds. With the exception of Amazon in the consumer discretionary sector, the other stocks are all big tech behemoths. Results by other tech companies so far have only boosted optimism for the sector and investors are particularly excited to see outlooks for 2024 now that AI is finally starting to show up in some results.
During its earnings call yesterday, IBM said its book of business for WatsonX and other generative AI offerings doubled in the fourth quarter from the third quarter. The company's top line forward guidance for 2024 revenue was also double what Wall Street was projecting.
Investors today are also anxious to see the first estimate for Q4 2023 GDP (gross domestic product), which economist expect to show growth of +2% versus +4.9% the previous quarter. While that would mark a pretty dramatic slowdown - more than double - that's still a healthy rate. More importantly, a growth rate of around +2% will not likely raise alarms at the Federal Reserve about a too-hot-economy that could reignite inflation.
Other data today includes New Home Sales, Durable Goods Orders, and the Kansas City Fed Manufacturing Index. Advance reads on Retail Inventories, Wholesale Inventories, and International Trade in Goods are also out today.
There is also some interest in the European Central Bank's policy decision due out today with a lot of debate surrounding when the ECB might pivot to rate cuts, similar to here in the US. Also similar to the US, traders expect the ECB to issue its first rate cut this spring, despite central bank officials warning that such expectations may be premature.
NEW Super Cycle Says Top Goldman Analyst: According to Peter Oppenheimer, head of macro research in Europe at Goldman Sachs, artificial intelligence and decarbonization are the newest driving factors as the global economy clearly moves into a different super cycle. Super cycles are commonly defined as lengthy periods of economic expansion, often accompanied by growing GDP, strong demand for goods leading to higher prices, and high levels of employment. The most recent significant super cycle that the world economy experienced began in the early 1980s, and was characterized by interest rates and inflation peaking, before a decades-long period of falling capital costs, inflation, and rates, as well as economic policies such as deregulation and privatization. Meanwhile, geopolitical risks eased and globalization grew stronger. But not all of these factors are now set to continue as they were, he added, as we’re not likely to see interest rates trending down as aggressively over the next decade or so, we’re seeing some pushback to globalization and, of course, we’re seeing increased geopolitical tensions as well. While current economic developments should theoretically lead to the pace of financial returns slowing, there are also forces that could have a positive impact, namely artificial intelligence and decarbonization, Oppenheimer said. AI is still in its early stages, however as it is used increasingly as the basis for new products and services, it could lead to a positive effect for stocks, he said. Source CNBC
Commercial Real Estate Transactions Collapsed in 2023 but Good Luck Finding Bargains: Property investors sat on the sidelines last year waiting for enticing opportunities. But the 2009-style discounts they were hoping for haven’t materialized—at least not for the kinds of buildings they want to own. Just $374 billion of real estate sold in the U.S. last year, according to MSCI data released Wednesday, a -51% fall compared with 2022. The deal tally was also -14% lower than in 2020, when prospective buyers couldn’t view buildings for most of the year because of Covid-19 lockdowns. According to the RCA CPPI National All-Property Index, which tracks the value of property deals that closed, U.S. commercial real estate prices are down 11% from peaks seen around the time the Federal Reserve began raising interest rates in early 2022. Some real estate has certainly become a lot cheaper, but only the riskiest type. High interest rates haven’t triggered the distressed sales many expected either. Landlords are more stretched, with rental income equivalent to about 1.6 times mortgage costs at the end of October, compared with a long-term average of 2.1. But the ratio is still above the minimum that lenders require to underwrite a loan. Source WSJ
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Tyson Drops CVS for Upstart Pharmacy Benefit Manager: Tyson Foods has switched from CVS’ Caremark as its pharmacy benefit manager, in an effort to lower the amount it spends on providing drug benefits to its 140,000 employees.The food giant chose Rightway, a PBM startup which works on a fee basis and guarantees employers it can save them 15% on pharmacy benefit costs. Tyson’s decision adds to an upheaval in the industry, as startups promising lower costs and transparency challenge the largest benefit managers, and pushed them to change their own business models. Tyson made the decision as it saw pharmacy costs soar. Most large employers work with the three biggest PBM players: CVS’ Caremark, Cigna’s Evernorth, and UnitedHealth Group’s OptumRx. By the end of 2022, those big three PBMs controlled nearly 80% of the pharmacy benefits market in the U.S., according to a Health Industries Research Center report. Source CNBC |
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After $70 Billion Hit, Insurers Wake Up to New Risk Pattern: The insurance industry is grappling with a new kind of weather risk that’s increasingly driving its biggest loss category. While no single weather event caused more than $10 billion in losses for insurers last year, there were 37 thunderstorms that each cost at least $1 billion, according to a report by Aon Plc. That’s more than ever before and way above the average of 14 such storms in a single year, the insurance broker said. Severe so-called convective storms, which are characterized by heavy rain and intense winds, accounted for about $70 billion of insured losses globally last year, Aon estimates. That’s equivalent to 59% of losses from all natural disasters, according to its report. Others in the industry have made similar observations. The level of unprotected risk also is considerable. Insurance covered only 31%, or $118 billion of the estimated $380 billion of total losses for the year, according to Aon’s figures Source Bloomberg
How Long Does It Really Take to Form a Habit? One popular idea suggests that it takes 21 days to solidify a habit. A three-week time frame might sound easily reachable to someone making a resolution on New Year’s Day, when people tend to feel extra motivated to start a new habit or kick an old one, says Colin Camerer, a behavioral economist at the California Institute of Technology who has conducted research on habit formation. Yet every January 21 very few people can boast that they have kept their resolutions. One survey showed that only 9 percent of people actually stuck to their goals in 2023. The origin of the “three-week theory” has nothing to do with habits, per se. It apparently originated from the 1960 self-help book Psycho-Cybernetics, in which plastic surgeon Maxwell Maltz observed that it took his patients about 21 days to get used to their new appearance after surgery. Almost a half century later, researchers finally gathered strong evidence that countered this idea. A hallmark 2009 study on habit creation found that habits developed in a range of 18 to 254 days; participants reported taking an average of about 66 days to reliably incorporate one of three new daily activities. The type of activity is also a factor. Source Scientific American
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