Stock investors are treading cautiously at the start of what could be a pivotal week for markets.

The main focus in the days ahead will be a slew of key data that could determine whether expectations for Federal Reserve rate cut expectations get walked back further.

Investors today will be scrutinizing the ISM Non-Manufacturing Index for February.

Remember, the services sector is where consumers spend most of their money and many of the items in the category are considered essentials, such as housing, healthcare, insurance, and transportation. That makes pulling inflation out of the sector a lot tougher than consumer goods.

Inflation across most consumer goods has continued to slow while costs for services started creeping higher again in mid-2023. Then in January, prices witnessed a more than +7% surge, pushing services inflation back to the highest levels since February 2023.

ISM Non-Manufacturing can be a volatile index so one month of outsized gains didn’t ignite a major panic. However, if we add a second month of faster-than-expected price acceleration, it’s suddenly looking a lot more like a trend and could start raising alarms. Remember, Wall Street is currently operating under the assumption that the Federal Reserve will cut rates by 75 basis points (three 25-basis point cuts) in 2024. Meaning stocks are not priced for the Fed’s benchmark rate to remain flat or possibly move higher this year, so a major readjustment to rate cut expectations could be a painful one for bulls.

On the other hand, if data this week delivers the softer reads that bulls anticipate - i.e., inflation and the labor market all trending weaker - it could clear the way for stocks to rally higher. Investors will also be looking for reassurances that inflation is still on track to meet the central bank’s goals from Fed Chief Jerome Powell, who begins two days of testimony before Congress tomorrow (Wednesday). Fed Vice Chair for Supervision Michael Barr is delivering a speech today.

Turning to earnings, results from retailers Nordstrom, Ross Stores, and Target will be of interest, along with reports from tech companies Box and Crowdstrike.

Trump to Appear on Primary Ballots as U.S. Supreme Court Reverses Colorado Decision:  The Supreme Court yesterday restored Donald Trump to 2024 presidential primary ballots, rejecting state attempts to hold the former Republican president accountable for the Capitol riot. The justices ruled a day before the Super Tuesday primaries that states cannot invoke a post–Civil War constitutional provision to keep presidential candidates from appearing on ballots. That power resides with Congress, the court wrote in an unsigned opinion. The outcome ends efforts in Colorado, Illinois, Maine and elsewhere to kick Trump, the front-runner for his party’s nomination, off the ballot because of his attempts to undo his loss in the 2020 election to Democrat Joe Biden, culminating in the Jan. 6, 2021, attack on the Capitol.   Source Market Watch

Driverless Taxi's Now Being Allowed on California Freeways: Waymo is now allowed to operate its self-driving robotaxis on highways in parts of Los Angeles and in the Bay Area following a California regulator’s approval of its expansion (PDF) plans on Friday. This means the company’s cars will now be allowed to drive at up to 65mph on local roads and highways in approved areas Source The Verge

Is College Still Worth It?  The wage gap between recent college and high school grads has been widening for decades, and grew even more last year, per new Federal Reserve data. Even so, Americans are falling out of love with the idea of a four-year degree as confidence in the value of a college education, a cornerstone of the American dream is falling, per polling from Gallup and the Wall Street Journal. Economic data show clearly that a college degree gives individuals a lifetime earnings edge and other benefits. Despite what you've heard about AI stealing our jobs, the U.S. economy needs educated workers to grow and flourish, how else would that AI get developed? In 2023, recent college grads age 22-27 working full-time earned $24,000 more per year than 22-27 year olds with only a high school degree. Back in 1990 the gap was $15,000, according to the numbers tracked by the NYFed. That gap is just the beginning. The wage premium goes on to double over a worker's lifetime, according to research economist David Deming published last year. He was able to follow a group of college-educated workers through their working lives. At age 25 these folks had a 27% premium over high school only graduates. By age 55, that premium was 60%. Source Axios

AI Spend Boosts Tech Companies Capex Above Oil Industry: The race for new and upgraded data centers to handle the artificial-intelligence boom has the world's top technology titans far outpacing major oil companies in capital expenditures, according to the Wells Fargo Investment Institute. Google-parent Alphabet, Amazon, Facebook-parent Meta Platforms, and Microsoft - the four largest cloud infrastructure companies by market capitalization - have begun shelling out significantly more on capital expenditures than their counterparts in the oil industry since the pandemic erupted in 2020. The biggest "hyperscale" cloud companies reported about $140 billion in combined capital expenditures in 2023, while the four biggest global integrated oil companies by market capital - BP, Chevron, Exxon Mobil, and Shell - were closer to a combined $80 billion. Analysts at Wells Fargo Investment Institute expect spending by the top four hyperscale tech companies to reach almost $200 billion annually by 2025, a boom that will have "ripple effects."  Source Market Watch

Once a Hot Stock-Market Trend Has a Name, Its Best Days Are Likely Past: Once a stock-market trend has been identified and named—think FAANG or the Magnificent Seven—the headiest gains are typically past. But riding a trend after it has been named can deliver market-beating returns for another year or so before the trade loses momentum and gives back some of the gains. The new research comes from a deep-dive on eight named trends over the past 10 years that were popularized by the mainstream media and covered by more than three such organizations. The first interesting find: when looking at the average of the 8 trends studied, there is a considerable price run-up before the trade being named. For the 24 months before the zero-date, the average named trend delivered +36% in excess returns. This means that if you magically knew about a new named trend before it happened, you could earn 36 percentage points above the S&P 500 for the two years before it was named. But even if you don’t have this magical foresight, it still doesn’t hurt to ride a trend once it has been coined. On average, once the trend has been named and looking ahead 12 months, an investor can still earn about 13 percentage points in excess returns. From the 12-month mark to the 24-month mark after a trend has been named, the average named trend lags behind the S&P 500 by about 2 percentage points.  Source WSJ


Four Fiber Optic Cables Damaged In Red Sea: At least four undersea fiber optic cables, which carry approximately 97% of all Internet traffic, were damaged last week in the Red Sea, telecommunications providers are reporting, and instability in Yemen threatens to prevent operators from fixing them immediately. HGC Communications, a telecom operator in Hong Kong, reported the four cables that were “cut” in the Red Sea: SEACOM, TGN, Africa Asia Europe-One and the Europe India Gateway. A study published by the Department of Homeland Security in 2017 estimated that 97% of all intercontinental electronic communications took place using undersea fiber optic cables, which are routed beneath the world’s oceans. Reports on the possible damage to cables in the Red Sea began circulating last week. Observers have noted that the cables could have been damaged by the recent sinking of the British cargo ship Rubymar, which was targeted by Houthi forces on February 18 and abandoned by its crew. The ship was left drifting in the Red Sea for days, dragging its anchor on the seafloor, where it could have potentially cut one or multiple cables  Source Forbes

Can the Government Ban Ransomware Payments? As cybercriminals continue to reap the financial rewards of their attacks, talk of a federal ban on ransom payments is getting louder. U.S. officials have long urged against paying ransom demands. But while several U.S. states — including North Carolina and Florida — have made it illegal for local government entities to pay ransom demands, the Biden administration as recently as last fall decided against an outright national ban on ransom payments. Although challenges persist, it appears the U.S. government’s mindset might be starting to shift. In October 2023, a U.S.-led alliance of more than 40 countries vowed as governments not to pay ransoms to cybercriminals in a bid to starve the hackers from their source of income. Since then, just as talk of a potential ransom payment ban has gotten louder, so has the ransomware activity.  Source Techcrunch

Humanoid Robots at Amazon Provide Glimpse of an Automated Workplace: Employees at an Amazon warehouse near Seattle recently got a glimpse of the future of work: a 5-foot-9-inch robot that resembles a human, walks like a bird and has glowing white eyes. Called Digit, the machine is configured for one basic task: plucking empty yellow bins off a shelf and ferrying them several feet to a conveyor. Then doing it again. The robot, in the testing phase, probably won’t transform the logistics industry anytime soon. But it’s a major technological leap forward, and positions its maker, Agility Robotics, at the vanguard of an effort to build machines that can toil alongside humans. Agility stands apart from its peers in one crucial respect: Its humanoid robots are already out in the wild doing stuff—if only in a testing capacity. Amazon is enough of a believer to have taken a stake in the startup in 2022—part of the $180 million Agility has raised to date. The e-commerce giant could potentially buy Agility one day, as it did Kiva Systems Inc., the pioneering builder of squat, wheeled robots that revolutionized the logistics industry a decade ago. Source Bloomberg

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