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Category: Market Outlook

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Market Outlook

February CPI: Slightly Higher Inflation, Markets Remain Unfazed

February CPI (Consumer Price Index)

No major surprises, slightly higher than expected, the markets have mostly shrugged it off, the futures are still 0.5 to 0.6% higher, and the 10 year is also holding steady at 4.10.

  • The Consumer Price Index advanced 0.4% in February, matching the 0.4% increase expected and slightly accelerating from the 0.3% rise in January (unrevised).
  • On a Y/Y basis, the measure rose 3.2%, more than the 3.1% pace expected and +3.1% in the prior month.
  • Excluding food and energy, core CPI increased 0.4% vs. +0.3% consensus and +0.4% prior. Y/Y, core inflation gained 3.8% vs. +3.7% expected and +3.9% prior.

A 2.3% increase in energy costs helped boost the headline inflation number. Food costs were flat on the month, while shelter rose another 0.4%.

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Market Outlook

February Jobs Report: Strong Gains Amid Mixed Signals

February Jobs Report

Net job gains 275K, higher than the 200K expected.

Hourly wage gains 0.1%, lower than 0.2% expected.

The two-month payroll revision, though, shows a 167,000 loss

The Unemployment rate rose to 3.9%

The 10-year treasury yield, which started at 4.09 is at 4.05

Yesterday, Powell indicated – Fed ‘not far’ from confidence to cut rates

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Market Outlook

February Jobs Report: Strong Gains Amidst Rising Unemployment and Wage Growth Slowdown

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I have been taking profits in good companies and selling some weak ones in the past two weeks to a month, and am repeating some of those trades as a reminder, 5% sales of Nvidia, 50% sales of Tesla, 100% Bumble, another 5% of SuperMicro in addition to the earlier sales.

I’ve barely deployed that cash because I haven’t found compelling bargains. I’ve done some dip buying in Novo and Dell, but I still have a long way to go before I complete them – waiting for more attractive prices.

There is fatigue, and exhaustion after the fantastic earnings season and giddy highs from the AI Fear of Missing Out, (FOMO) trades. Apple, Google, and Tesla, three bellwethers’ weaknesses are also weighing in the market. There is sector rotation out of tech, which is a good thing.

It’s time to be even more selective and patient.

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Market Outlook

S&P 500 Earnings Overview: Q4 2023 Insights and Valuation Metrics

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FactSet reported the following for S&P 500 earnings through 2/9.

This is a very helpful 10,000 feet view and provides good benchmarking and comparisons.

Earnings Scorecard: For Q4 2023 (with 67% of S&P 500 companies reporting actual results), 75% of S&P 500 companies have reported a positive EPS surprise, which is below the 5-year average of 77% but above the 10-year average of 74%

Earnings Growth: For Q4 2023, the blended (year-over-year) earnings growth rate for the S&P 500 is 2.9%. If 2.9% is the actual growth rate for the quarter, it will mark the second-straight quarter that the index has reported earnings growth.

65% of S&P 500 companies have reported a positive revenue surprise, which is below the 5-year average of 68% but above the 10-year average of 64%.

In aggregate, companies are reporting revenues that are 1.2% above the estimates, which is below the 5-year average of 2.0% and below the 10-year average of 1.3%.  

If 3.9% is the actual revenue growth rate for the quarter, it will mark the 13th consecutive quarter of revenue growth for the index.

It is interesting to note that analysts were projecting record-high EPS for the S&P 500 of $243.41 in CY 2024 and $275.34 in CY 2025 on February 8. 

On February 8, the forward 12-month P/E ratio for the S&P 500 was 20.3, which marked the seventh time in the past nine trading days in which the P/E ratio for the index was above 20.0. How does this 20.3 P/E ratio compare to historical averages? 

Here is the chart for the historical PE, we have been above the 10 year average of around 18 for a while, and are now above the 5-year average of 19 as well.

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Market Outlook

The Anomaly of Interest Rate Movements: Are Markets Disregarding the Fed?

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The anomaly of interest rate movements

  • Are markets not believing the Fed?
  • The 10 year treasury dropped from a high of 4.195 on 1/25 to 3.942 today, 01/31 – the day the Feds and Chair Powell was clearly signaling no chances of a rate cut at the March Fed meeting.
  • Intuitively the yields should have gone up – is there something else at play.
  • I believe Yellen’s dovish nod on 1/29 was the main catalyst for the drop in rates and clearly that seems to be overriding Chair Powell’s comments after the FOMC meeting.

Simply, if the government decides it needs to borrow more, it doesn’t get to borrow at cheap rates; the private sector will naturally charge more, which means interest rates go up. Now if Powell’s boss signals that borrowing will be a) less than anticipated this quarter b) borrowing intervals and amounts will be regularly spaced out, it’s a clear dovish signal that the government doesn’t want interest rates going up in an election year.

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Market Outlook

Fed Rate Cut Unlikely in March: Powell Stresses Patience Amid Inflation Concerns

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Fed rate cut not likely in March

Inflation has eased from its highs without a significant increase in unemployment— “that is very good news,” Federal Reserve Chair Jerome Powell said Wednesday after the central bank kept its policy rate unchanged for the fourth straight meeting. But he followed that up with inflation still remains above the Fed’s 2% goal. “We need more evidence to confirm what we think we’re seeing,” Powell said.

It will likely be appropriate to dial back the Fed’s policy rate at some point this year, he said.

Powell repeats that the Fed will move “carefully” in considering when to cut rates. He doesn’t think that the FOMC is likely to cut at the March meeting.

While he sees some risk that inflation reaccelerates, “the greater risk is that inflation will stabilize at a rate over 2%.”

He declined to say the economy has achieved a soft landing. “We’re not declaring victory at this point. We have a ways to go.”

“There was no proposal to cut rates,” Powell said. Some members did discuss their rate path. Also, he said there was a broad range of views.

“If we saw an unexpected weakening in the labor market, that would weigh on cutting sooner.”

Powell Gets Good News On Fed’s Favorite Pay Gauge

https://www.nextplatform.com/2024/01/31/how-the-antares-mi300-gpu-ramp-will-save-amds-datacenter-business/?mc_cid=71d0ed9333 HYPERLINK 

https://www.barrons.com/livecoverage/microsoft-alphabet-google-amd-earnings-stock-price-today/card/amd-raises-outlook-for-ai-chips-it-wasn-t-enough–8sSkmy5Es1hNrE2yooqL?mod=djem_b_barronstech013124

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Market Outlook

Great Expectations: Tech Giants’ Solid Earnings Can’t Satisfy High Hopes

Great Expectations. Hi everyone. Sometimes, stocks get ahead of themselves.

Late Tuesday, three of the biggest names in technology—Alphabet, Microsoft, and Advanced Micro Devices—reported December quarter results and offered the latest updates on their AI progress.

While the headline numbers were generally solid, they weren’t good enough to impress investors given the stocks’ big runs.

Microsoft had the best quarter of the bunch, reporting earnings per share of $2.93, well ahead of the analyst consensus of $2.76. Alphabet beat profit estimates, posting EPS of $1.64 versus the consensus of $1.59. AMD’s profit was in line with the estimates, but the company’s revenue outlook was disappointing.

All three stocks were down in mid-day trading Wednesday. Alphabet shares dropped 6%, AMD slipped 3%, and Microsoft was down 1.4%. The tech-heavy Nasdaq Composite was off 1.6%.

The main problem with the reports wasn’t the numbers but the expectations going in. Take AMD’s AI chip outlook. On last night’s conference call with investors, CEO Lisa Su said that AMD now expects revenue for its AI data center MI300 GPU products to surpass $3.5 billion in 2024—up from a $2 billion forecast just three months ago. While the guidance is up significantly, some Wall Street analysts had estimates of up to $8 billion.

Investors would be wise to largely overlook these day-to-day stock movements. The technology companies’ conviction over future AI demand is more important. And, given the latest commentary about capital expenditure budgets, the robust trend is intact.

Microsoft said its expects capex to “increase materially” in the current quarter, and it intends to invest aggressively in the coming quarters. Alphabet said its capex would be “notably larger” in 2024 versus the prior year. Both companies said infrastructure investments are being driven by trends in AI demand.

There’s other evidence the AI arms race is still on beyond the comments from Microsoft and Alphabet. On Monday, Super Micro—a leading independent manufacturer of high-end AI servers for data centers— easily beat expectations and raised its full-year revenue guidance by nearly 40%. Last week, Nvidia CEO Jensen Huang told reporters in Taiwan that demand for AI GPUs is still outstripping supply, while adding 2024 is going to be a “huge year.”

Finally, Meta CEO Mark Zuckerberg boasted on social media earlier this month that his company will have 350,000 Nvidia H100 GPUs—and almost 600,000 H100 equivalent GPUs based on total computing power—by the end of this year.

We’ll find out more when Meta, Amazon, and Apple report on Thursday, but all signs suggest that AI spending is still accelerating—no matter what stocks said on Wednesday.

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Market Outlook

December 2023 Payroll Report: Job Gains Exceed Expectations Amid Rising Wages

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Category – Market Outlook

Payroll Report for Dec 2023

Net job gains 216K, higher than the 175K expected.

Hourly wage gains 4.1%, higher than 3.9% expected.

The two-month payroll revision, though, shows a 71,000 reduction in gains.

The 10-year treasury is up 8 basis points to 4.07%, with hourly wage gain increase being the main culprit.

S&P Futures down 0.4%

Expectations of the Fed reducing rates at their March meeting are down to only 50% based on a good jobs report and the higher wage increase.

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Market Outlook

January Inflation Surprises: Rates Climb Above 3%

Inflation rose more than expected in January, still hanging over 3%

  • MoM January Consumer Price Index: +0.3% vs. +0.2% expected and +0.2% in December (revised from +0.3%).
  • YoY +3.1% Y/Y vs. +3.0% expected and +3.4% prior.
  • Core CPI, which excludes food and energy: 
  • MoM+0.4% vs. +0.3% expected and +0.3% prior.
  • YoY +3.9% Y/Y vs. +3.7% expected and +3.9% prior.

The biggest factors:

The shelter index increased 0.6% in Jan. after rising 0.4% in Dec.

Health insurance climbed 1.4% on the month, the most since September 2022. Vehicle insurance rose the same amount, and that’s on top of a long string of outsize gains. The year-on-year increase in car insurance continues to be the biggest since 1976.

Treasury yields soared across the curve. Both two-year and 10-year yields jumped about 15 bps.

The market sees no chance for a rate hike in March. The odds for an increase in May are about 1/3. A hike in June is fully priced in, though.