US investors have what looks to be busy week ahead that includes Federal Reserve Chair Jerome Powell’s semi-annual testimony before Congress, as well as several key economic reports.

All three major indexes remain at or near record territory, though Wall Street is deeply divided as to whether things are pushing into “bubble” territory.

Leading those concerns is what some see as a narrowly led rally driven primarily by AI-related tech stocks. Bears continue pointing to what they consider “extreme” concentration at the top with the 10 biggest companies in the S&P 500 - all but 1 are tech stocks - now accounting for more than +30% of the total index.

Tech bulls continue to argue that these companies and their technology touch every part of the US economy, so it makes sense that they dominate the market. What’s more, bulls point to growth that they believe justifies the hype with the seven largest stocks in the index posting almost a +60% gain in Q4 profits.

They further argue that artificial intelligence has the potential to expand far beyond the tech sector as more industries adopt the technology, which will in turn not only boost revenues for companies creating AI technologies, but the companies integrating it into their operations.

While most tech companies’ Q4 2023 earnings results and outlooks met or topped expectations, those results are now in the rearview and Wall Street is already turning its focus back toward its other chief concern - Federal Reserve policy.

Bulls are cautiously optimistic that key February data this week will show the trends of disinflation and a cooling US labor market remain intact. Notably, ISM Manufacturing, released on Friday, showed a pullback in the “Prices Paid” component after an unexpected jump the previous month.

The ISM Non-Manufacturing Index is due out tomorrow and expected to show another gain in service sector prices. While shelter price growth remains a key driver of inflation in the sector, costs for services across the board continue to push higher, including everything from healthcare to auto insurance and brokerage fees.

Services inflation was running at an annual rate of almost +4% in January, according to the most recent PCE Prices Index. The Federal Reserve, as well as other economists, believe services inflation is closely tied to the US labor market and wage growth.

Fed officials have noted that wage growth should be in the 3.5% range to be consistent with its +2% inflation target but it’s been running at more than twice that pace.

Average hourly earnings climbed at an annual rate of +4.5% in January, versus +4.3% for the 12 months ending in December.

January payroll data overall showed a much stronger-than-expected labor market, though many bulls believe the numbers were skewed by seasonal factors. That means there is a lot riding on February jobs data due out this week, the main highlight being the February Employment Report on Friday.

Other key jobs data to watch this week includes the Jobs Openings and Labor Turnover Survey (JOLTS) and ADP’s Employment Change on Wednesday. Investors this week are also anxious to hear from Fed Chair Jerome Powell when he testifies before Congress. His semiannual report will be delivered before the House Financial Services committee on Wednesday and the Senate Banking committee on Thursday.

OPEC Members Extend Oil Production Cuts: Opec+ members led by Saudi Arabia and Russia have extended voluntary cuts to oil production for another three months, as they attempt to boost prices that have remained subdued in spite of geopolitical tensions. The curbs were due to expire at the end of March but will continue until the end of June, according to Saudi Arabia’s state news agency. The measures add to a series of output cuts by Opec+ members since 2022 designed to support prices amid rising US production and tepid global demand. Since the latest voluntary cuts came into effect in January they have lowered the combined production targets of members by about 2.2 million barrels a day. Source Financial Times

Bitcoin is Halving Again in April, Here’s Why It’s Different This Time:  Bitcoin "halvings" have historically been viewed as a bullish event for the cryptocurrency, and the upcoming one, expected in April, could benefit from an even more ideal setup than in previous cycles, according to crypto-market observers. Halving is a mechanism written into the Bitcoin blockchain’s algorithm to control the coin’s supply, which has a cap of 21 million coins. At halvings, the reward for bitcoin mining is cut-in-half, meaning miners will receive 50% fewer bitcoins for every verifying transaction. Halvings are scheduled to happen after every 210,000 blocks that are mined or about every four years until the maximum supply of bitcoin is all released. Bitcoin tends to see price appreciation in the months after halvings, according to historical data. The next halving is expected to happen on April 19, according to a projection by a bitcoin investment platform. But this particular halving comes at the first time in bitcoin’s history where the cryptocurrency faces a confluence of factors impacting both its supply and demand side, according to Cosmo Jiang, portfolio manager at crypto asset manager Pantera Capital. As halvings control bitcoin supply, bitcoin exchange-traded funds are bringing in “steady daily inflows” into the crypto from the demand side, Jiang said in a call. Source Market Watch

Big Tech’s Boom Has Strategists Scrambling to Keep Up With Rally: The frenzy around AI stocks has blindsided Wall Street forecasters, spurring a race among strategists to keep up with a stock market rally that’s already blowing past their expectations when 2024 began. Five Wall Street firms have already lifted their forecasts for the S&P 500 Index, which is up a 7% to start the year after rising 24% in 2023. In the past week alone, Piper Sandler & Co., UBS Group AG and Barclays Plc boosted their targets. Two firms — Goldman Sachs Group and UBS — have done it twice since December. The reason for this rally is familiar to investors: Big Tech dominance. The twist is it’s now tied to artificial intelligence technology and its potential to transform the global economy. So far, their financial results are justifying the moves. Earnings per share for the Magnificent Seven companies rose a combined 59% in the fourth quarter from a year earlier, compared with expectations of 47%, data compiled by Bloomberg Intelligence show. Even some of the biggest skeptics are becoming believers. Piper Sandler’s Michael Kantrowitz, who last year had the most bearish US stock outlook on Wall Street, last week lifted his S&P 500 forecast to 5,250, surpassing calls from some ever-bullish peers. Source Bloomberg

Is the Global Economy Headed for Another China Shock: In the late 1990s and early 2000s, the U.S. and the global economy experienced a “China shock,” a boom in imports of cheap Chinese-made goods that helped keep inflation low but at the cost of local manufacturing jobs.  A sequel might be in the making as Beijing doubles down on exports to revive the country’s growth. Its factories are churning out more cars, machinery and consumer electronics than its domestic economy can absorb. Propped up by cheap, state-directed loans, Chinese companies are glutting foreign markets with products they can’t sell at home. Some economists see this China shock pushing inflation down even more than the first. China’s economy is now slowing, whereas, in the previous era, it was booming. As a result, the disinflationary effect of cheap Chinese-manufactured goods won’t be offset by Chinese demand for iron ore, coal and other commodities. China is also a much larger economy than it was, accounting for 31% of global manufacturing output in 2022, and 14% of all goods exports, according to World Bank data. Two decades earlier China’s share of manufacturing was less than 10% and of exports less than 5%. Another difference that stands out - In the early 2000s, overproduction mainly came from China, while factories elsewhere shut down. Now, the U.S. and other countries are investing heavily in and protecting their own industries as geopolitical tensions rise. The result could be a world swimming in manufactured goods, and short of the spending power to buy them—a classic recipe for falling prices. Source WSJ

NerdWallet Claims Bankruptcy Filing Was Fraudulent: NerdWallet Inc. said on Saturday that it did not file for bankruptcy, saying a fraudulent filing appeared on an electronic public access service for U.S. federal court documents. "NerdWallet did not file for bankruptcy. This is a fraudulent filing and we are actively investigating the situation," the company said in a statement. The unexpected revelation of a bankruptcy filing, attributed to an individual named Robert Johnson and listing an address in Buffalo, New York, sent ripples of concern throughout the financial community. As news of the filing circulated, questions arose regarding the veracity of the claims and the potential implications for NerdWallet. The company clarified that the document in question was fraudulent, emphasizing that it had not initiated nor contemplated such legal actions.  Source Reuters

What Happened to All the Accountants? Mistakes continued to pile up this earnings season in the wake of Lyft Inc.’s market-roiling typo: Planet Fitness Inc., Mister Car Wash Inc. and Rivian Automotive Inc. all had to correct their quarterly earnings statements. These types of errors shake investor confidence and in extreme cases can result in heavy fines from the US Securities and Exchange Commission. While it’s unclear what exactly led to the mistakes in each of these cases, one major risk factor has reached crisis levels: a shortage of certified public accountants. Seasoned practitioners are retiring while the profession isn’t drawing the next generation of workers entering the labor market. The lack of help means current accountants’ hours and workloads can be grueling, upping the odds of mistakes and burnout. Last year more than 720 companies, from Advance Auto Parts Inc. to online legal services provider Inc., cited insufficient staff in accounting and other departments as a reason for potential errors. That’s up 30% from 2019, according to an analysis by equity research firm Hudson Labs for Bloomberg News. Yet despite the plentiful job openings, students aren’t racing to major in accounting. For many, the typical entry-level job doesn’t pay enough to make the needed fifth year of college tuition worth it.  Source Bloomberg


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.