Stock indexes are on track to close out a winning week, with the S&P 500 and Dow both in new record territory.

Investors get an update on December inflation today with the PCE Prices Index expected to show a slight increase in headline inflation to +2.7% from +2.6% in November, while bulls are hoping to see the "core rate" pull back to +3.0% from +3.2% previously.

Stock bulls yesterday were cheering Q4 GDP (gross domestic product) results that were about as "Goldilocks" as you can get. The report showed the economy grew at an annualized rate of +3.3%, higher than the +2% forecast by many economists, while "core" inflation (which strips out food and energy) held steady at +2% during the quarter.

For bulls, this indicates that US growth can continue at a healthy pace without fanning inflation. That's a critical reassurance as a major concern on Wall Street has been that "disinflation" would come at the expense of economic growth, and in turn corporate earnings. It's also viewed as good news for Federal Reserve policy as economists and central bank officials alike have worried that strong economic data in Q4 would translate to a return of inflation.

The Federal Reserve holds its first policy meeting of 2024 on Tuesday-Wednesday (January 30-31) next week. The updated policy decision on Wednesday is expected to leave the Fed's benchmark interest rate unchanged at 5.25% - 5.50%. My guess is we ultimately see the Fed pull the benchmark rate back into the 3.0% to 3.5% range. The big question on Wall Street is when?

Traders and Investors are anxious for the Fed to start giving more clues as to when they might begin cutting rates, but most Wall Street insiders doubt there will be any firm timeline laid out next week. Many bulls are still targeting the March meeting for the start of rate cuts.

The key reports include the SA&P Case-Shiller Home Price Index, Consumer Confidence, and the Job Openings and Labor Turnover Survey on Tuesday; the ADP Employment Change on Wednesday; ISM Manufacturing on Thursday; and the critical January Employment Situation on Friday.

Turning to earnings, today brings results from American Express, ColgatePalmolive, and Norfolk Southern. It's worth noting that Intel after the market close yesterday beat analyst expectations for Q4 2023 but issued extremely disappointing forward guidance for Q1 2024.

That could make investors a little jumpy about the tech sector with the bulk of big tech earnings coming up next week. Microsoft, Google-parent Alphabet, and Advanced Micro Devices report on Tuesday, followed by Apple, Amazon, and Facebook-Parent Meta on Thursday. Semiconductor giant Nvidia doesn't report until February 21.

I should mention that even though Intel is a major chip maker, it is playing catch-up on the AI front and therefore does not have the same lofty expectations that Nvidia and Advanced Micro Devices faces. And because of that, most tech bulls also don't believe Intel's results offer much insight into what the tech giants might report next week.

There are also a slew of earnings beyond big tech on the calendar next week, including Nucor and Ryanair on Monday; Canadian Pacific Kansas City, Chubb, Danaher, Electronic Arts, General Motors, Johnson controls, Marathon Petroleum, Pfizer, Starbucks, Stryker, and UPS on Tuesday; ADP, Aflac, Boeing, Boston Scientific, Corteva, Mastercard, MetLife, Nasdaq, Novartis, Novo Nordisk, Old Dominion, Phillips 66, Qualcomm, and Roper on Wednesday; Altria, Clorox, Deckers Outdoor, Hartford Financial, Honeywell, Merck, Royal Caribbean, Sanofi, Shell, SnapOn, and Tractor Supply on Thursday; and AbbVie, Bristol Myers Squibb, Cigna, Chevron, Exxon, Regeneron Pharmaceuticals, and Southern Copper on Friday.  

GM, Honda Begin US Hydrogen Fuel Cell Production in Step Toward Replacing Diesel:  Many in the automotive industry view hydrogen fuel cells as the next step toward replacement for diesel fuel in things such as generators, heavy-duty trucks, semitrucks, and construction equipment, among others. Hydrogen fuel cell electric vehicles and equipment operate much like battery-electric ones but are powered by electricity generated from hydrogen and oxygen instead of pure batteries, with water vapor as the only byproduct. They’re filled up with a nozzle almost as quickly as traditional gas and diesel vehicles. Fuel cell vehicles face the same challenges as battery-electric models, including consumer acceptance, fueling infrastructure and cost. Those hurdles are why many expect fuel cells to first enter commercial applications such as trucking with its set routes and destinations. Executives for both automakers and the Fuel Cell System Manufacturing LLC joint venture, as it’s called, said the start of commercial production marked a historical moment for the technology, which has been under development for decades. Source CNBC

Walmart Paying Store Managers More Money: Walmart said the average store manager’s salary will rise to $128,000. In addition to the +9% raise, the company said it’s “redesigning” its bonus program for managers. Store profits will play a bigger role in calculating annual bonuses, Walmart said on its website. Bonuses could now be up to 200% of managers’ base pay if all targets are met, according to the post by Cedric Clark, Walmart’s executive vice president for US store operations. Keep in mind, that about 75% of store managers started at Walmart as hourly employees, according to the company. Source CBS

Affordability and Baby Boomers Blamed for EV Slowdown: A new Bank of America Institute report didn’t just lower projections for electric vehicle sales through 2030, it used internal auto-loan originations data to tell us why. Writing that EVs represent one area of the auto market that “still appears relatively soft,” BofA found three main reasons why shoppers are shying away from the next generation of driving: “a lack of affordability, limited choice, and ‘range anxiety,’” or the worry that people will be stranded. But it also identified a generational shift in consumption—and baby boomers and “traditionalists” are leading the exodus away from EVs. The data plainly shows that older Americans led the EV flight: demand from Americans born before 1965, which was already lower than for younger consumers, began to decrease last fall—and the trend doesn’t show signs of reversing anytime soon. The report also pointed to that affordability problem as a key obstacle for would-be American buyers: Only 20 EV models sold in the U.S. start at less than $45,000, and domestic automakers have missed out on sales by focusing on producing high-end cars at the expense of more accessible mass-market EVs. Source Fortune

US Extends Lead Over China As World’s Biggest Economy: The US has pulled further ahead of China in the race for world’s biggest economy, thanks in part to a vibrant American consumer. US gross domestic product rose +6.3% in nominal terms — that is, unadjusted for inflation — last year, outpacing China’s +4.6% gain. While some of the outperformance reflected America’s elevated price increases, the 2023 outturn underscores a broader point: The US economy is emerging from the pandemic period in a better place than China’s. The economic outperformance is reflected in the respective countries’ stock markets. US shares have hit all-time highs this week, while Chinese equities are mired in a $6 trillion-plus bear-market rout. China is struggling under the weight of a years-long real estate bust and its worst streak of deflation in some 25 years. Exports — once a critical pillar of growth — declined in 2023, joblessness among young people has soared and local governments are saddled with too much debt.Peterson Institute for International Economics President Adam Posen argues that Chinese President Xi Jinping has greatly compounded the country’s underlying economic weaknesses by his arbitrary and authoritarian exercise of power throughout the economy and society, particularly during the pandemic. The US, meanwhile, has surprised economists with the resiliency of its economy coming out the pandemic. Some like Posen even suspect the country may be on the cusp of a pickup in productivity growth that will allow the economy to grow faster without generating inflation. Source Bloomberg

McCormick Warns of Sales Decline as Consumers Choose Cheaper: US sauces and spices heavyweight McCormick & Co. has issued a “cautious” outlook for its new financial year as cash-strapped consumers seek lower-cost alternatives. The trend impacted its volumes in Q4 but sales revenue was aided by pricing. The company expects 2024 sales to range between -2% to 0%, compared to 2023. Q4 sales benefited from a 5% increase from pricing actions but that was partially offset by a 3% volume decline. McCormick posted sales of $1.75bn in Q4, a+ 3% increase year-on-year, while annual sales were up +5% at $6.66bn. Source Just Food

FTC Launches Probe of Big Tech AI Deals: The Federal Trade Commission voted unanimously Thursday to open an investigation into the deals forged by tech giants and swiftly growing generative AI companies, including Microsoft, OpenAI, Amazon, Alphabet and Anthropic PBC. The regulatory agency announced that it had sent compulsory orders to the five companies, seeking more information about the $10 billion deal between Microsoft and OpenAI and the investments from Amazon and Alphabet into Anthropic, worth $4 billion and $2 billion respectively. The investigation will look into whether the tech giants are “distorting innovation and undermining fair competition” in the generative AI market, FTC Chair Lina Khan said in a statement. Thursday’s announcement comes after a year of massive investments into AI companies by big tech firms. Microsoft announced their partnership and $10 billion investment in OpenAI one year ago. Anthropic, an AI startup founded by former OpenAI employees in 2021, also announced massive partnerships with two of the largest tech firms in the country: Amazon and Alphabet, the owner of Google  Source Forbes

Insurance Customer Pain is Investor Gain: The pain for home- and auto-insurance customers is quickly becoming investors’ gain. Insurance giants’ shares and profits are hitting records, thanks in part to steep rate hikes. , a bellwether for the property and casualty sector, closed at an all-time high earlier this week, up 35% from their lows last fall. The jump came after the company reported a record profit for its fourth quarter, boosted by double-digit rate increases in its business and personal insurance units. Progressive said Wednesday that its quarterly profit more than doubled from a year earlier. Its stock rose, pushing the company’s market capitalization past $100 billion for the first time. After suffering some of the worst years in their history, insurers say they now see a path to profitability for home and auto policies. Big rate increases are driving up revenue, while the inflationary pressures that pushed up repair and replacement costs appear to be easing. Losses from extreme weather tied to climate change remain a wild card, but the short-term outlook for insurers appears more favorable  Source WSJ

US Housing Prices Moving Higher: According to Redfin, the median U.S. home-sale price rose +5.1% during the four weeks ending January 21, the biggest increase since October 2022. Asking prices rose +6.5%, also the biggest increase in more than a year. Prices are rising for a few reasons. One, inventory is still quite low. The total number of homes for sale is down -4% year over year. And while new listings are up +2%, that’s the smallest annual increase in about three months. Additionally, sellers can command higher prices because buyers have more purchasing power; mortgage rates are holding steady in the mid-to-high 6% range, down from 8% in October. This week’s sales data shows sluggish activity as severe winter weather kept buyers and sellers on the sidelines in much of the country: Pending home sales are down 8% year over year, the biggest decline in four months. The big annual drop in pending sales can also be explained in part by the fact that they were improving at this time last year as mortgage rates fell. While Redfin agents in places that are facing harsh weather report that would-be buyers are staying home (for now), mortgage-purchase applications are rising, and agents in warmer places say demand is picking up.  Source Redfin


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