Investors have a busy week ahead that includes updates on key inflation data, the "unofficial" start of Q4 2023 earnings season, and the highly anticipated Consumer Electronics Show.

Investors today are also still digesting the implications of the stronger-than-expected December Employment report released this past Friday. The report showed the US added about +52,000 more jobs than Wall Street economists expected, keeping the unemployment rate steady at 3.7%. The really unpleasant surprise was an uptick in wages to +4.1% year-over-year from +4.0% in November and expectations for a decline to +3.9%.

While one month of stronger-trending data is not likely enough to raise alarms at the Federal Reserve about a resurgence in wage inflation, it also doesn't support the notion of near-term interest rate cuts. Fed Chair Jerome Powell said just last month that wage gains running around +4% was "still a bit above" the level consistent with the central bank's 2% inflation target.

The bigger influence on market sentiment in regard to Fed policy will be the December Consumer Price Index (CPI) due out on Thursday. Wall Street is paying particularly close attention to the so-called "core" inflation rate, the Fed's preferred gauge that strips out food and energy. Core CPI has remained stubbornly above +4%, or more than double the Fed's target, even as the headline rate has slowed to just above +3%. This is largely due to the ongoing increase in "shelter" costs, which were up +0.4% for the month and +6.5% year-over-year in November. That increase in shelter costs also accounted for nearly +70% of the increase in core CPI.

As we've seen in the housing market, higher interest rates have slowed the increase in home prices but not stopped it as demand still far outstrips supply. And every time mortgage rates pull back a bit, mortgage applications jump and home buying activity picks up.

Bears believe this dynamic is another key reason Fed officials may be slower to cut rates in 2024 than many on Wall Street currently expect. The Producer Price Index (PPI) on Friday will provide further inflation insights.

Friday also marks the "unofficial" start of Q4 2024 earnings season, which kicks off with results from big Wall Street banks, including Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo.

Overall, Q4 earnings for S&P 500 companies are expected to grow +2.4%, compared to growth of nearly +5% in Q3, per FactSet. As usual, companies' outlooks for the quarters ahead will have a big impact on investor sentiment. Currently, analysts are forecasting full-year 2024 earnings growth of +11.7%, according to FactSet, which includes growth of +6.6% in Q1, +10.7% in Q2, +9.0% in Q3, and +18.4% in Q4.

Obviously, bulls are hoping for strong earnings outlooks that will boost those expectations even further. Bears, however, believe analysts may be overly optimistic considering the anticipated slowdown in consumer spending and more pronounced "disinflation" in some sectors in 2024.

Investors this week will also be following news out of the 2024 Consumer Electronics Show (CES 2024), which opens Tuesday in Las Vegas. Tech bulls are hoping new artificial intelligence-related headlines from the show will help stoke more excitement about the technology and drive more money to the tech sector.

Don't forget Q4 earnings season kicks off at the end of this week and most on Wall Street have been aggressively lowering their expectations. Meaning, many companies will have a very low bar to clear.

Also, remember, the stock market didn't rally into yearend thinking things were getting a lot better for US businesses. It rallied into yearend thinking things were getting worse so the Fed would need to end rate hikes and actually begin to cut, to what extent is still being heavily debated.

In other words, it still feels to me like nearby "bad news" is being digested as "good news" to the longer-term bull.

Historical Data Favors Positive Stock Market Returns in 20204:  The stock market enters the new year with the wind of a stellar 2023 at its back. The year ended with the Nasdaq composite making its fifth-best annual performance. The rebound was especially welcome after the index plunged -33.1% in 2022. Taking into account 2020's +43.6% explosion, the Nasdaq is now on pace to have two of its best six best years in history in the current decade. For 2023, the Nasdaq composite climbed +43.4% and the Dow +13.7%. The S&P 500 climbed +24.2% in 2023. That's more than double its historical average annual return. It also rebounded nicely from a -19.4% loss in 2022. Since the introduction of the S&P in 1957, the index has averaged a +9% average return in the year following a +20%-plus annual gain, according to Dow Jones Market Data. The best following year was in 1997, when the S&P soared +31%. The worst year was 2022, with a -19.4% decline. Source Investors Business Daily

US Dollar On Track for Best Start to a Year in Nearly a Decade:  The US dollar had been under pressure in late-2023, tumbling as the Federal Reserve penciled in three interest-rate cuts next year, with investors pricing in even more. Lower interest rates make currencies less attractive to international investors in the global currency market. Some credited investors rethinking Fed interest rate-cut expectations that far outpace what the central bank itself is signaling, saying that the big trades from the fourth quarter of 2023 — long stocks, long bonds and short the greenback — had become overextended. “The market came into 2024 short the U.S. dollar and fixed income. Now we’re unwinding some of these positions as questions emerge on how fast the Fed is likely to move,” said Steve Englander, head of North America macro strategy at Standard Chartered.  Source MarketWatch

Saudis Cut Crude Oil Prices Amid Market Weakness: Saudi Aramco on Sunday said it would cut crude prices to all regions, including its largest market in Asia — a move that comes amid weaker global oil prices and increased production by producers outside the Organization of the Petroleum Exporting Countries. In a notice, state producer Aramco said February prices for various grades of Saudi crude, including its flagship Arab light, in Asia would fall $2 a barrel versus the Oman/Dubai regional benchmark from their January levels. The premium for Saudi crude versus the ASCI index, a benchmark for Gulf Coast sour crudes, will also fall $2 a barrel from January, Aramco said. Prices in northwest Europe and the Mediterranean will be down $1.50 to $2 a barrel versus the ICE Brent crude benchmark versus January prices. Oil bounced last week, finding some support as attacks on shipping in the Red Sea by Iran-backed Houthi rebels operating out of Yemen forced a rerouting of crude and stoked fears of a broader conflict that could further threaten Middle Eastern petroleum flows. The shifts were seen stoking demand for U.S. crude, helping to narrow WTI’s discount to Brent and potentially putting U.S. exports on track to break records, analysts said. Meanwhile, U.S. oil production has topped 13 million barrels a day, running at or near record levels, helping to ease earlier worries of tight supplies. Source MarketWatch

2023 Was Another Above-Average Year for US Jobs: The December payroll was strong on the surface, with 216,000 jobs created last month and the unemployment rate staying at 3.7%. That’s the 23rd straight month in which the unemployment rate has remained below 4%, the longest stretch since the late 1960s – which should tell you that the economy is in a healthy place. All in all, 2023 was another banner year for job creation, with 2.7 million jobs created. That’s obviously lower than the 4.8 million in 2022, but keep in mind that average annual job creation per year since 1940 is just 1.5 million, but 2.6 million if you exclude years with negative job growth (which occurs amidst recessions). In fact, the average from 2010-2019 was 2.2 million. One of the better leading indicators for employment, and the economy really, are claims for unemployment benefits. The top panel of the chart below shows initial claims for unemployment benefits across the entire year (2023 in dark blue), compared to claims in 2022 (gray) and the average across 2018-2019 (yellow). It tells us that layoffs remain really low, which is why initial claims for unemployment benefits matches the low levels we saw in 2022 and even 2018-2019. The bottom panel shows the “insured unemployment rate” – which is the number of unemployed workers continuing to receive benefits as a percent of the labor force. The latest data for 2023 is running around 1.3%, which is historically low and matches what we saw in 2018-2019. Source Carson Group

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PepsiCo Products Pulled by Some European Grocery Stores Over Price Hikes: Global supermarket chain Carrefour will stop selling PepsiCo products in it stores in France, Belgium, Spain and Italy over price increases for popular items like Lay’s potato chips, Quaker Oats, Lipton tea and its namesake soda. The French grocery chain said it pulled PepsiCo products from shelves in France on Thursday and added small signs in stores that say, “We no longer sell this brand due to unacceptable price increases.” The ban also will extend to Belgium, Spain and Italy, but Carrefour, which has 12,225 stores in more than 30 countries, didn’t say when it would take effect in those three countries. The company behind Cheetos, Mountain Dew and Rice-A-Roni has raised prices by double-digit percentages for seven straight quarters, most recently hiking by +11% in the July-to-September period. Source CNBC

U-Haul Migration Trends Show Texas, Florida Top Growth States Again in 2023: Texas netted the largest number of movers in one-way U-Haul equipment in 2023, marking the third consecutive year it has finished atop the U-Haul Growth Index. Florida ranks right behind Texas among growth states for the third year in a row, followed by North Carolina, South Carolina, and Tennessee. Idaho, Washington, Arizona, Colorado, and Virginia round out the top 10 states for growth. For the fourth year in a row, California reflected the largest net loss of one-way movers. Other bottom-five states for growth are Michigan, New Jersey, Illinois and Massachusetts. New York ranks 43rd. U-Haul calculates growth states by each state's net gain (or loss) of one-way equipment from customer transactions in a calendar year. The biggest climbers year-over-year in the U-Haul growth rankings are Arkansas (+26 spots), Wyoming (+19), Vermont (+18), Washington (+16), Delaware (+12) and South Dakota (+12). The biggest fallers YOY are Oregon (-15 spots), Connecticut (-14), Pennsylvania (-14), Ohio (-14), Missouri (-13) and Indiana (-13). Source PRNewswire   CLICK HERE FOR ENTIRE LIST

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Year-End Online Shopping Surge Sets $222 Billion Record: Software giant Adobe managed to put a precise dollar figure on the surge in year-end consumer spending, thanks to some particularly heavy data-sifting research. Adobe reports that consumers spent $222.2 billion on online purchases between November 1 and December 31. That spending represented a 4.9 percent year-on-year increase. It was fueled by  seasonal gift buying, spurred partly by steep discounts from web vendors, and set a record for the two-month period. Sales on mobile devices made up 51.1% of all purchases, the first time those devices topped people buying things through their desktop computers. Similarly, buy-now-pay-later (BNPL) transactions reached an all-time high, increasing by +14% in year-on-year terms to $16.6 billion. Source INC

How "Derisking" China-Reliant Supply Chains Is Creating New Risks: “Derisking” the West’s ties with China—shorthand for measures like tariffs to build up supply chains in friendly nations—has a nice ring to it. Now, new research is shedding light on how “derisking” is actually playing out and the preliminary conclusions are concerning: Much of the resiliency that supply-chain measures are designed to create may be illusory. Moreover, more-complicated global supply chains are creating new risks, which policymakers might not fully appreciate. Rising tensions with the West, in concert with other factors, have begun to seriously reorder China’s trade relations. China sent just 45% of its exports to the US and major developed democracies like the European Union in November, figures from data provider CEIC show. That was the lowest in over a decade and down from about 54% as recently as early 2022. Meanwhile U.S. imports from Vietnam, Mexico, and other third countries have shot up. To be sure, building factories in Southeast Asia, India or Mexico has advantages and could, eventually, create and maintain real resiliency. But for now, Asian supply chains often appear to simply be lengthening: assembling Chinese parts in Vietnam or Thailand, for example, rather than in China itself. An October paper from researchers at the Bank for International Settlements found that cross-border supplier networks—especially those involving China and the U.S.—have lengthened since 2021 but the average number of suppliers per customer hasn’t increased. More circuitous supply chains with the same number of suppliers smacks of increased complexity and reduced transparency—but not necessarily more resilience. Source WSJ

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