The Fed's two-day policy meeting begins today and Wall Street widely expects officials will decide to increase interest rates by 25-basis points, versus 50-basis points in December.
This is largely due to continued signs of declining prices across multiple sectors as well as indications that consumer spending and the overall economy are slowing down. It's a delicate balance for the Fed though, as tightening too much risks tilting the economy into recession, while ending rate hikes too soon risks inflation being reignited and the whole tightening process needing to be repeated.
The Fed's overall demeanor and Chair Powell’s commentary after the meeting will set the tone for the stock market for the next several weeks, as there is not another FOMC meeting until late-March.
Those in the "dove" camp believe the Fed's tightening actions have a long lag and that the central bank needs to let the data catch up to its previous moves.
The inflation "hawks" however, point to areas of stubborn price pressures such as food, shelter, and wages that they believe will take longer to cool. An important test comes today with the Q4 Employment Cost Index which has showed wage gains above +1% for five consecutive quarters now.
Economists expect another big gain in Q4 although it is seen slowing to +1.1% from +1.2% previously. A cool down in the labor market would be equally important for longer-term earnings outlooks as payroll is the biggest expense for most companies.
Other data today includes the S&P Case-Shiller Home Price Index and Consumer Confidence.
On the earnings front, Advanced Micro Devices, Amgen, Canadian Pacific, Caterpillar, Chubb, Corning, Edwards Lifesciences, Electronic Arts, Exxon, General Motors, Marathon Petroleum, McDonald's, Moody's, Pfizer, Phillips 66, Snap, Spotify, StrykerUPS, and UBS all report today.
The list obviously covers a wide cross section of sectors that are going to help inform expectations for the many results still to come.
Tech investors will be closely scrutinizing both Advanced Micro Devices and Snap in particular as they look for insights into what big tech companies might deliver in the days ahead.
Facebook-parent company Meta reports tomorrow, followed by Google-parent Alphabet, Amazon, and Apple on Thursday. According to FactSet, S&P 500 companies are on track to report a -5.0% earnings decline for Q4 2022, which would mark the first year-over-year decrease in earnings since Q3 2020. For Q1 2023 and Q2 2023, analysts are projecting earnings declines of -3.0% and -2.4%, respectively.
However, full year earnings are still expected to be positive with growth of +3.4%.
It's all about the Fed and big tech earnings these next few days.
Natural Gas Prices Hammered: US natural gas prices fell -5% to less than $2.70 Monday morning—pushing losses more than -72% below an August high of roughly $9.70 and at one point hitting what would be the lowest closing price. "The next U.S. gas bearish cycle is here," Goldman Sachs analysts led by Samantha Dart wrote in a weekend note to clients, noting an “exceptionally warm” January—with average temperatures at the highest level in 15 years—has helped dissipate winter-related risks to supply and push prices down by more than 50% over the past month alone. Though the analysts acknowledge the selloff appears “overdone”, particularly with higher gas demand expected over the coming weeks, they still believe warmer weather forecasts or disappointing demand could push gas prices further down. In fact, Goldman recently projected prices could fall below $2 and remain in a bear market through at least next summer, keeping prices below $3.85 and likely not going back above $4 until 2025. Source: Goldman; Forbes
Super Bowl Odds, Chiefs are the Underdogs: Kansas City Chiefs started the year in Vegas as the favorite to win the Super Bowl. This was their fourth straight season opening as the Super Bowl favorites. Interestingly, the Chiefs have again delivered and made their way to the big dance, but are now a 1.5 to 2-point underdog to the Philadelphia Eagles. The over/under for the game is currently at 50 points. Many argue that the early money is clearly pouring in on the Eagles as line continues to move in that direction. Keep in mind, the Eagles have dominated in the playoffs thus far, so this makes sense. They beat the New York Giants and San Francisco 49ers by a combined score of 69-14 behind offensive and defensive lines that manhandled the competition. The Chiefs, meanwhile, have eked out two wins in the playoffs and quarterback Patrick Mahomes is dealing with a sprained ankle. The Eagles are going to start the Super Bowl with the same 22 players on the field they began the season with, while the Chiefs are a much more banged-up and injured team.
Sam’s Club Plans to Open About 30 New Stores Over Next Five Years: Making their most aggressive expansion in years, Walmart-owned Sam's Club said it would open more than 30 new stores in the U.S., beginning with Florida in 2024. CEO Kath McLay said the retailer wants to reach more customers, after sharp gains in sales and an all-time high in membership at its current clubs. On top of that, Sam’s Club also plans to open five fulfillment and distribution centers this year, with the first of those opening in Georgia. The expansion marks a return to store footprint growth. Currently, the club chain has about 600 stores in the U.S., including Puerto Rico. Yet it hasn’t opened a new club in years, after shuttering 63 clubs around the country in 2018, converting a small number of those clubs into e-commerce fulfillment centers. The plans are to open the new stores in high-growth suburban areas where Sam’s Club has few stores or no stores, but declined to specify the locations, citing competitive reasons. Source CNBC.
Ford Cuts Prices on Electric Mustang Mach-E, Following Tesla’s Lead: Ford Motor is increasing production and cutting prices of its electric Mustang Mach-E crossover, weeks after industry leader Tesla announced similar plans for its EVs. The Detroit automaker said Monday it will lower the pricing of the Mach-E, which is comparable to Tesla’s Model Y, by an average of about $4,500, depending on the model. The reductions range from $600 to $5,900, compared with Tesla’s price cuts of up to $13,000 on its Model Y earlier in January. Wall Street analysts and investors largely applauded Tesla’s price reductions as a way to drum up demand and increase sales, despite concerns the move would erode some profits. Analysts expected Tesla’s cuts to put pressure on other automakers to cut their own prices. Source CNBC
Memory-Chip Makers Face a Prolonged Price Slump: Memory-chip prices, which dropped steeply over the past year, are expected to keep falling in the first half of 2023, putting more pressure on an industry that has already cut investments and jobs. Average prices for the two main types of memory chips used in everyday electronics—from smartphones to personal computers and TV sets—are projected to experience double-digit percentage declines this quarter, industry analysts say. That comes after prices dropped by more than -20% in the last three months of 2022 from the previous quarter, according to analyst data. Memory-chip makers, many saddled with large inventories, have also issued grim outlooks as the slump in demand for gadgets persists after a pandemic boom. Memory chips are considered a bellwether for the semiconductor industry because they are largely commoditized and sensitive to shifts in supply and demand. Samsung Electronics, the world’s largest producer of memory chips, reports earnings today (Tuesday) after saying earlier this month that its operating profit for the October-to-December quarter was expected to drop by -69% from a year earlier. Source WSJ
Unemployment Rate Varies Widely Across State Job Markets: The labor market broadly improved across the U.S. last year, with every state adding jobs in 2022, but the pace of gains varied widely. The national unemployment rate fell to a seasonally adjusted 3.5% in December, matching the lowest reading in a half century. Some states had significantly lower rates. Utah had the nation’s lowest rate at 2.2% last month, according to the Labor Department. Other states’ rates were much higher. Over a dozen states had an unemployment rate below 3% at the end of 2022, but none as low as Utah. Texas and Florida, meanwhile, saw the largest employment increases. Payrolls rose 5% in Texas in December from a year earlier and 4.8% in Florida. Nationwide employment rose +3%. Mississippi had the smallest job growth in 2022—adding about 500 jobs to its workforce of less than 1.2 million. Montana and North Dakota saw the next lowest employment gains, as a percentage, in December from the same month a year earlier. Meanwhile, labor-market momentum has slowed noticeably in western states, such as California, Oregon and Washington, according to Adam Kamins, director of regional economics at Moody’s Analytics. Source WSJ
Wall Street Is Losing Out to Amateur Buyers in the Housing Slump: In Pheoenix, Arizona, first-time buyers and small investors have the upper hand on supposedly sophisticated players that badly misjudged the market. The pattern is unfolding across the Sun Belt but nowhere more than in the Phoenix area, where institutions represented a bigger share of home purchases last year than in any other major US market, according to real estate data firm SFR Analytics. These companies included a new breed of homebuyer that harnessed technology to crunch data. Opendoor and others said they could make transactions quickly and nearly pain-free. But even when it became clear to many local analysts that the market was stalling, the iBuyers and other institutions kept purchasing. In Phoenix, Opendoor lost money on 89% of the homes it sold in the fourth quarter, an average of -$58,000 apiece, before accounting for fees and expenses, according to Tom Ruff, an analyst with Arizona data firm Information Market. While Opendoor is nursing losses, local flippers sold homes for 20% above their purchase price. Source Bloomberg
AI Startup "Anthropic" Funding Deal Could Boost Valuation to $5 Billion: Anthropic, a San Francisco artificial intelligence start-up, is close to raising roughly $300 million in new funding, two people with knowledge of the situation said, in the latest sign of feverish excitement for a new class of A.I. start-ups. The deal could value Anthropic at roughly $5 billion, though the terms were still being worked out and the valuation could change, one of the people said. The start-up, which was founded in 2021, previously raised $704 million, valuing it at $4 billion, according to PitchBook, which tracks private investment data. Silicon Valley has been gripped by a frenzy over start-ups working on “generative” A.I., technologies that can generate text, images and other media in response to short prompts. Even as funding for other start-ups has dried up, investors have chased deals in A.I. companies, signaling that the otherwise gloomy market for tech investing has at least one bright spot. Other funding deals in the works include Character.AI, which lets people talk to chatbots that impersonate celebrities. Replika, another chatbot company, and You.com, which is rolling out similar technology into a new kind of search engine, said they, too, had received unsolicited interest from investors. Source NYT
Regulators Want to Shutter Political Betting Sight "PredictIt": PredictIt is a website where you can place bets and win money on political outcomes. The way it works: users buy “shares” of a market and can cash out anytime. Joe Biden, for example, is currently trading at 52-cents a share to be the 2024 Democratic nominee, and if that happens, people who bought a stake in him can sell each share for the full dollar. Generally, the United States outlaws betting on political outcomes, but there can be an exception for noncommercial purposes. Its founder, John Aristotle Phillips, created the site in 2014 as part of a collaboration with Victoria University of Wellington, in New Zealand, which had created a futures exchange tied to political events. The Commodity Futures Trading Commission, the federal agency that regulates markets, issued Victoria what’s known as a “no-action letter,” which said it could have the exchange as long as it was an “academic exercise” and that the university wouldn’t profit from it. But the agency now has signaled a change of heart. It said PredictIt could no longer offer new markets, and that all existing ones would have to close by February 15. “They grew to a point where they violated the terms of the letter,” Steve Adamske, a spokesman for the agency, told The Washington Post. Source Washington Post
Over Half of Americans Making $100,000+ are Living Paycheck to Paycheck: The number of Americans living paycheck to paycheck has almost reached the high levels seen during the onset of the COVID-19 pandemic, during the days of lockdowns, business closings, and mass panic. About 64.4%, or 166 million, of U.S. adults reported having no money left over at the end of the month in December 2022—just shy of the 65.7% who reported living paycheck to paycheck in March 2020, according to the latest edition of PYMNTS’ New Reality Check: The Paycheck-to-Paycheck Report. That’s also about 9.3 million more people who ended 2021 living paycheck to paycheck. But this time, high-income Americans are not immune: Approximately 8 million of those newly scraping-by Americans are from higher income brackets. About 50.8% of those earning over $100,000 reported living paycheck to paycheck in December, according to the PYMNTS’ research. The number of high-income Americans living paycheck to paycheck last December was up nine percentage points from the 42% who reported similar struggles in December 2021. In contrast, the share of middle- and lower-income Americans who reported living paycheck to paycheck remained relatively stable over the past year. 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.