Stock indexes have just wrapped up their fourth winning month. It’s the best February since 2015 for the S&P 500 and Nasdaq, which both closed at new record highs yesterday as well.

The biggest and most obvious threat to the current rally is Federal Reserve policy expectations, which have already been pulled back significantly this year, though stock markets have hardly registered the shift. This is a key reason why many Wall Street insiders are nervous about upcoming February data and the possibility that it underpins January data showing that the US economy is heating up again.

On the positive front, the PCE Prices Index released yesterday came in as expected, with “core” January inflation - which strips out food and energy and is a preferred Fed inflation gauge - slowing to +2.8% year-over-year from +2.9% previously and versus the Fed’s target rate of +2.0%.

Bulls point out that Fed Chief Jerome Powell and other officials have stated that while they want to see more evidence that inflation is on a sustainable path toward that goal before cutting rates, those cuts will ideally begin before the +2% target is reached.

Bottom line, bulls believe data is still supportive of at minimum three-25 basis point Fed rate cuts starting as early as June. The ISM Manufacturing Index today will provide the first look at highly anticipated February data. Investors will be paying particularly close attention to the “prices paid” component, which surged nearly +8% in January, the first time raw materials prices have risen since April 2023.

Wholesale prices can be a leading indicator of consumer goods inflation, which has come down considerably and even shown signs of “deflation” in certain pockets. The persistent, or “sticky,” inflation problem has been on the services side of the economy and driven primarily by housing prices that continue creeping higher. Meaning if goods prices start to increase, it would at best work to keep inflation stuck at current levels, and at worst quickly start to erase progress made so far in the inflation battle.

A slew of data next week will help to further shape investor sentiment regarding Fed policy, including the ISM Non-Manufacturing Index on Tuesday, which will provide an update on February services inflation.

The top data highlight next week is the February Employment Report on Friday.

Remember, the January report showed over +350,000 jobs added and a surge in average hourly wages, which was considered too “hot” to be compatible with near-term Fed rate cuts and basically killed most hopes that rate cuts might begin in March.

Other key jobs data next week includes the Job Openings and Labor Turnover Report (JOLTS) and ADP’s Employment Change on Wednesday, and Productivity and Costs on Thursday.

Next week also brings Fed Chair Powells semi-annual testimony before Congress. He’ll appear before the House Financial Services Committee on Wednesday, March 6, and to the Senate Banking Committee on Thursday, March 7.

Investors will no doubt be tuning in for clues regarding the Fed’s current thinking.

On the earnings front, Q4 2023 results are mostly wrapped up with companies in the S&P 500 reporting average growth of +4.0% and 73% of companies topping analyst estimates, according to FactSet.

There are still some important results left to come, though, including several key retailers. CrowdStrike, Ross Stores, and Target report on Tuesday; Abercrombie & Fitch, Campbell Soup, Foot Locker, and Thor Industries on Wednesday; American Eagle Outfitters, Broadcom, Costco, The Gap, Kroger, Marvell Technology, and Toro on Thursday; and The Buckle on Friday.

Klarna Claims AI is Doing Work of 700 Employees: Swedish Fintech company Klarna has said its artificial intelligence (AI) assistant is doing the work of 700 full-time agents and that its chatbot has had two-thirds of Klarna’s customer service chats in a month. The buy now, pay later firm announced its AI assistant powered by US giant OpenAI, which has been live globally for a month, has handled 2.3 million customer service chats in 35 languages during that time. Available on the Klarna app, the chatbot aims to save consumers time in managing refunds and returns. Klarna said the chatbot is more accurate in errand resolution and saw a -25% drop in repeat inquiries. Klarna outsources its customer services operations but has around 3,000 employees working in the department in-house. A spokesperson said this would be reduced to around 2,300 workers due to the success of the AI-powered bot. Klarna CEO Sebastian Siemiatkowski said that they “decided to share these statistics to raise the awareness and encourage a proactive approach to the topic of AI,” and “For decision-makers worldwide to recognize this is not just ‘in the future’, this is happening right now”. Source EuroNews

Bitcoin ETFs Shake Up Crypto Market After Storming Wall Street: New US spot Bitcoin exchange-traded funds are shaking up the market for the original cryptocurrency after widening demand for the token and attracting more than +$7 billion of net inflows in less than two months. The most visible change is a surge of over 45% in the price of the largest digital asset this year to about $63,000, bringing the pandemic-era record high of almost $69,000 into view. A looming reduction in Bitcoin’s supply growth, called the halving, has also stoked the rally. The ETFs are shifting the center of gravity for Bitcoin trading toward the US, and encouraging leveraged bets that lifted the cost of bullish wagers via perpetual futures to levels last seen in 2021. “The supply-demand imbalance here is really profound,” CoinShares adviser Meltem Demirors said. Bitcoin’s rally since the turn of the year has topped stocks, extending a pattern seen in 2023. The momentum is attracting traders hunting for volatility. Overall trading volume in the spot Bitcoin ETFs — including products from titans BlackRock Inc. and Fidelity Investments — increased sharply to almost $8 billion on Wednesday as the token made a run toward a record. The funding rate for Bitcoin perpetual futures — which are popular with crypto speculators as they have no set expiry — is the highest since 2021.  Source Bloomberg


White House Warns Against Chinese Cars on US Roads: The Biden Administration announced Thursday that Chinese cars – which currently are very rarely seen on American roads due to high tariffs – could eventually pose a significant risk to the nation by potentially collecting sensitive data about Americans and sending it back to Beijing. “I am announcing unprecedented actions to ensure that cars on U.S. roads from countries of concern like China do not undermine our national security,” President Joe Biden said in a statement. “I have directed my Secretary of Commerce to conduct an investigation into connected vehicles with technology from countries of concern and to take action to respond to the risks.” Lael Brainard, the director of the National Economic Council, told Forbes that there is only a “short window” to implement new rules. “China has built enormous over capacity in this industry,” she said. The Biden Administration will now begin the formal process of seeking public comment as to how to best regulate these vehicles. These rules could also potentially apply to autos from countries like Cuba, Iran, North Korea, Russia, and Venezuela. However, none of these countries currently manufacture cars anywhere on the scale of China. Source Forbes

NFL’s Best Team Has Its Worst Owner: One would think that after all the achievements Kansas City Chiefs players have notched the past half decade, leading to numerous playoff home games in addition to very well-attended regular season home games, they would report each day to a workplace with respectable accommodations. But in spite of all the money they’ve made for owner Clark Hunt, he has refused to significantly invest in the team’s facilities. Chiefs players and others throughout the league have noticed — and they’re pissed. In the just-released second-annual NFL Players Association Team Report Cards, which polled 1,706 players on the quality of team facilities and the care organizations provide them, Clark Hunt received a grade of F-, the lowest ownership grade for any of the league’s 32 franchises. The NFLPA said in an accompanying statement that the mark indicates Hunt is “the least willing to invest in team facilities among all NFL owners/ownership group in the opinions of the respondents.” If there’s one thing players do respect about the Chiefs organization, it’s head coach Andy Reid, who earned the highest score of any such leader in the NFL with an A+. Source Inside Hoook

Dalio Saying Top Seven Stocks a Bit Frothy: Billionaire Ray Dalio, founder of hedge fund Bridgewater Associates, said the Magnificent Seven stocks are a "bit frothy but not in a full-on bubble," with Alphabet and Meta still "somewhat cheap" and Tesla "somewhat expensive." Dalio made the comments in an analysis of the U.S. stock market he posted on LinkedIn (HERE) aimed to determine if there is a price bubble amid a persistent stocks rally. Source: Reuters

Okay a nice weekend read by Jim Rohn see below:

We all experienced the blowing winds of change. Yet some of us still manage to reach our intended destinations. What guides us to different shores is determined by the way we have chosen to set our sails. The way that each of us thinks makes the major difference in where each of us arrives.

Unforeseen circumstances happen to us all. We have disappointments and challenges. We all have reversals and those moments when, in spite of our best plans and efforts, things just seem to fall apart. Challenging circumstances are not events reserved for the poor, the uneducated or the destitute. The rich and the poor have marital problems. ... In the final analysis, it is not what happens that determines the quality of our lives, it is what we choose to do when we discover that the wind has changed directions.

When things change, we must change. We must struggle to our feet again and reset the sail to steer us toward the destination of our own deliberate choosing. The set of the sail—how we think and how we respond—has a far greater capacity to alter our lives than any challenges we face. How quickly and responsibly we react to adversity is far more important than the adversity itself. Once we discipline ourselves to understand this, we will finally and willingly conclude that the great challenge of life is to control the process of our thinking." 


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