Investors have a busy week ahead that includes the US Federal Reserve policy meeting, an OPEC meeting, a highly anticipated US jobs report, and Q4 earnings from many of the biggest companies in the world.
The Fed's policy meeting on Tuesday-Wednesday is expected to be a more low-key event than usual as virtually no one expects a policy change. The central bank has maintained its benchmark interest rate at a range of 5.25% to 5.50% since July, 2023, while allowing up to $95 billion in assets to roll off its balance sheet every month.
Investors will be combing the central bank's policy statement due to be issued at the meeting's conclusion on Wednesday for hints that rate cut discussions are underway.
Likewise, Wall Street will be dissecting Federal Reserve Chair Jerome Powell's post-meeting press conference for indications of when rate cuts might start. Most on Wall Street agree that the next move will be a rate cut but the timing and degree of cuts is still hotly debated.
Most traders are now betting on the April 30-May 1 meeting to bring the first 25 basis point cut but bulls believe the March 19-20 meeting could also be in play.
Bottom line, most on Wall Street are thinking we will see at least two Fed rates cuts during the first half of 2024. Bulls argue that inflation is slowing and likely to slow further in January and February, in turn bringing "core" rates (the Fed's preferred inflation gauge) that much closer to the Fed's +2% target.
Bulls also remind the trade that Fed Chair Powell said last month that “you want to be reducing restriction on the economy well before 2%,” and that waiting to cut rates until inflation reaches 2% would “be too late.”
Jobs data this week will likely add to the Fed debate. Many bears argue that central bank officials will be leery of cutting rates if they believe the US job market is still at risk of overheating again.
The key reports include the Job Openings and Labor Turnover Survey on Tuesday, ADP's Employment Change on Wednesday, and the January Employment Report on Friday. There is not much on the economic data calendar today.
On the earnings front, big tech results take center stage this week, starting with Google-parent Alphabet, Advanced Micro Devices, and Microsoft reporting on Tuesday, followed by Apple, Amazon, and Facebook-Parent Meta on Thursday. Bulls are betting on big tech results to boost Q4 results which have so far not impressed.
With about 25% of S&P 500 companies having reported, earnings are on track to decline -1.4% for the quarter versus analyst estimates for earnings growth of around +1.5%.
The bulk of earnings growth (53.7%) is forecast to come from just six stocks - Alphabet, Amazon, Apple, Meta, Microsoft, and Nvidia. How goes these six stocks, more than likely goes the market during the next week or so.
Bottom line, the bulls remain solidly in control of the stock market as disinflation continues, corporate earnings aren't all that bad, and global banks around the world are pivoting to less restrictive policy.
Yes, there are some worrisome geopolitical headlines circulating, but when aren't there. Until something "unexpected" jumps up to bite the bulls.
Stock Market, As Goes January... If the past is any guide, the S&P 500 index could continue to power higher in 2024 after posting strong returns in January, according to an analysis from Bespoke Investment Group. A team of stock-market analysts at Bespoke found that when the S&P 500 index finishes January in the green, the chances of it continuing to advance for the rest of the year improve dramatically. Since 1953, the year that the current five-day trading week first arrived in the U.S. stock market, when the S&P 500 was up +2% or more in January, its median performance for the rest of the year was a gain of +13.5%. Furthermore, the S&P 500 recorded positive returns for the balance of the year 84% of the time. All told the index has finished January up +2% or more 31 times between 1953 and 2023. Source MarketWatch
Weight Loss Drugs Sexier than Electric Vehicles: Weight-loss drug innovators have unseated electric-car makers as some of 2024’s must-own stocks. Tesla's recent setback spurred by investor anxiety about slowing growth, led to Eli Lilly & Co. overtaking the carmaker in market value. Lilly is among the latest companies to surpass Tesla and signals a shift in investor appetite. No longer are EV makers and suppliers bought on the promise of mass uptake. Instead, all things weight loss have come into favor. Lilly’s stock price soared on hope for its drugs, Mounjaro and Zepbound, making it the world’s largest health-care company. Similar hopes for medicines from Novo Nordisk A/S have catapulted the Danish firm to the top in Europe where it is the most valuable listed company. Markets tend to favor big broad trends and certainly one of those trends at one point was electric vehicles and all things Tesla, said Steve Sosnick, chief strategist at Interactive Brokers. Right now, the trends that are really gripping investors are artificial intelligence and GLP1 weight loss drugs. Lilly’s climb was primarily fueled by its pipeline of a new class of drugs dubbed GLP1s, to treat obesity and diabetes, along with an experimental treatment for Alzheimer’s disease. After last year’s +59% rally, shares of the pharmaceutical company have advanced another +7% so far in 2024 and sales of Mounjaro and Zepbound are expected to propel the stock even higher Source Yahoofinance
Biden Freezes Licenses to Export Gas, Imperiling Projects: The Biden administration on Friday halted the approval of new licenses to export US liquefied natural gas while it scrutinizes how the shipments affect climate change, the economy and national security — a moratorium likely to disrupt plans for billions of dollars in projects. The Energy Department study will build on an existing analysis that underpins the agency’s review of proposals to send more natural gas to European, Asian and other countries that are not US free-trade partners. The pause could have implications for more than a dozen proposals now awaiting review at the Energy Department, including ventures planned in Louisiana by Commonwealth LNG and Energy Transfer LP. LNG advocates excoriated the administration’s decision, saying it would chill development and undercuts US promises to help Europe wean off Russian gas. US flows of LNG to Europe already surpassed the 50 billion cubic meters of gas annually the bloc sought after Russia’s invasion of Ukraine. Source Bloomberg
First US Troops Killed in Mideast Since Start of Gaza War: Three U.S. service members were killed and 25 more injured in an Iran-backed militia’s drone strike on a base in northeast Jordan, U.S. officials said, marking the first American troops killed since the start of the Hamas-Israeli conflict in Gaza. A U.S. official said that the attack took place overnight at Tower 22, a small outpost near the Syria border. The drone struck living quarters for the troops, contributing to the high casualties, a U.S. official said. The president and secretary of defense said the U.S. would retaliate. The White House has sought to avoid widening the conflict in the Middle East while trying to deter Iranian-backed militias by gradually escalating its military ripostes against the groups. Now, Washington faces the decision of how to take stronger military and potentially economic action without sparking a major conflict with Tehran. In trying to avoid a regional conflict, the White House has yet to take action directly against Iran through military action or stepping up the enforcement of economic sanctions. Iran-backed militias have carried out more than 150 attacks against U.S. troops in Iraq and Syria since Oct. 17 using mortars and launching drones, rockets, and ballistic missiles. Source WSJ
More Ships Diverting From Red Sea: Freight going through the Suez Canal has dropped by -45% in the two months since attacks by Yemen's Houthis led shipping groups to divert freight, disrupting already strained maritime trading routes, according to UN agency UNCTAD. UNCTAD, the United Nations Conference on Trade and Development, which supports developing countries in global trade, warned of risks of higher inflation, uncertainty of food security and increased greenhouse gas emissions. Shipping companies have diverted ships from the Red Sea since the Iran-alighned Houthi movementm began attacking vessels in what it says is support of Palestinians in Gaza. The agency said -39% fewer ships than at the start of December transited the canal, leading to a 4-5% decline in freight tonnage. Jan Hoffmann, UNCTAD's head of trade logistics, said there were now three key global trade routes disrupted, also including flows of grain and oils since Russia's invasion of Ukraine, and the Panama Canal, where low water levels from drought meant shipping last month was down -36% year-on-year and -62% from two years ago. Source Reuters
How a Lucky Break Fueled Eli Lilly’s $600 Billion Weight-Loss Empire: In a way, Eli Lilly fell backward into the obesity-drug business. Soon after Chief Executive Officer David Ricks took the top job in 2017, he sent one of his top scientists, Daniel Skovronsky, on a mission to find Lilly’s most promising diabetes research. Skovronsky found a small study looking into the safety of a compound called tirzepatide, a combination of GLP-1 with another hormone. While sifting through the report, he noticed something strange. Some participants had lost so much weight while taking the drug that they dropped out of the trial. Source Bloomberg
Ethics Ratings of Nearly All Professions Down in U.S.: Americans’ ratings of nearly all 23 professions measured in Gallup’s 2023 Honesty and Ethics poll are lower than they have been in recent years. Only one profession -- labor union leaders -- has not declined since 2019, yet a relatively low 25% rate their honesty and ethics as “very high” or “high.” Nurses remain the most trusted profession, with 78% of U.S. adults currently believing nurses have high honesty and ethical standards. However, that is down seven percentage points from 2019 and 11 points from its peak in 2020. At the other end of the spectrum, members of Congress, senators, car salespeople and advertising practitioners are viewed as the least ethical, with ratings in the single digits that have worsened or remained flat. Ethics ratings for five professions hit new lows this year, including members of Congress (6%), senators (8%), journalists (19%), clergy (32%) and pharmacists (55%). Source Gallup
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