CPI Preview: Good, Bad, and Ugly

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CPI Preview: Good, Bad, and Ugly: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • CPI Preview: Good, Bad, & Ugly
  • Chart: S&P 500 in Typical Holding Pattern – Two Levels to Watch
  • NFIB Small Business Optimism Index – Inflation Concerns and Declining Earnings

There is a cautious bid in equity futures today as the 10-Yr yield hovers just under 4%. This is following an importantly steady inflation print in Europe and dovish leaning ECB chatter.

Economically, Norwegian CPI rose 4.8% in December, unchanged from November. Which is just below estimates of 4.9% which is a favorable development following last week’s concerning uptick in German CPI.

ECB Vice President Luis de Guindos was mildly dovish in a speech overnight, citing the possibility that the economy fell into a technical recession in late 2023 which could support the case for a more accommodating policy stance and that is helping keep yields in check this morning.

Looking into today’s session, there are no notable economic reports but one Fed speaker on the schedule who could move markets: Williams (3:15 p.m. ET).

In the early afternoon, three is a 10-Yr Treasury Note auction (1:00 p.m. ET) and investors will want to see more evidence of strong demand as was seen in yesterday’s 3-Yr auction as weak demand could send the benchmark yield up through 4% creating a renewed headwind for equity markets.

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Market Multiple Table: January Update

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Market Multiple Table: January Update: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Market Multiple Table – January Update
  • Manheim Used Vehicle Index Drops 7% in December – Chart

U.S. futures are tracking European shares lower this morning as yesterday’s squeezy, tech-led rally is digested amid a rebound in global bond yields with the 10-Yr above 4%.

Economic data was mixed overnight as German Industrial Production fell -0.7% vs. (E) 0.0% while Eurozone Unemployment fell to 6.4% vs. (E) 6.6%. Domestically, the NFIB Small Business Optimism Index rose to 91.9 vs. (E) 90.6.

Looking into today’s session, there is one more economic report on the calendar: International Trade in Goods (E: -$64.8B) but the release typically does not materially move markets and that is unlikely to change today.

There is one Fed speaker: Barr (12:00 p.m. ET) but the most notable potential catalyst for the session is a 3-Yr Treasury Note auction at 1:00 p.m. ET. If demand metrics are strong, and yields pullback, expect stocks to attempt to hold Monday’s big gains. However, a move further to the upside in yields will further pressure stocks.

 

Sevens Report Quarterly Letter

Our Q4 ’23 Quarterly Letter was delivered to subscribers last Tuesday, complete with compliance backup and citations.

We’re already receiving feedback about how it is saving advisors time and helping them communicate with their clients in this volatile environment!

You can view our Q3 ’23 Quarterly Letter here. To learn more about the product (including price) please click this link.

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Why Did Stocks and Bonds Drop to Start 2024?

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Why Did Stocks and Bonds Drop to Start 2024? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Did Stocks and Bonds Drop to Start 2024?
  • Weekly Market Preview:  Can Data Meet Market Expectations For Growth and Rate Cuts?
  • Weekly Economic Cheat Sheet:  Inflation In Focus (CPI on Thursday)

Futures are slightly lower following some disappointing EU economic data and on hawkish Fed commentary.

Economically, German Manufacturers’ Orders and Euro Zone retail sales both missed estimates, reminding investors of recession risks in Europe.

This weekend, Dallas Fed President Logan warned that financial conditions have eased materially recently and that may prevent the Fed from cutting rates anytime soon.

Today there are two notable market events including the NY Fed Inflation Expectations (E: 3.4%) and comments by Atlanta Fed President Bostic (12:00 p.m. ET).  If either event pushes back on the idea of imminent rate cuts (via inflation expectations being higher than estimates or Bostic sounding hawkish) expect more modest pressure on stocks and bonds.

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2024 Technical Outlook: Key Levels to Watch in Q1

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2024 Technical Outlook: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • 2024 Technical Outlook:  Key Levels to Watch in 2024
  • Jobs Day

Futures are modestly lower following more evidence of a bounce back in inflation in the EU and ahead of today’s jobs report.

The EU December HICP (their CPI) rose less than expected (2.9% vs. 3.0% y/y) but still increased from the 2.4% Nov. reading and that’s further reducing ECB rate cut expectations and weighing on global markets.

Today focus will be on economic data and there are two potentially market moving reports:  The jobs report and the ISM Services PMI.

Regarding the jobs report, expectations are as follows:  Job Adds: 158K, UE Rate: 3.8%,  Avg Hourly Earnings: 0.3% m/m, 3.9% y/y.  The key here is moderation in the data and a job adds number above 200k or Avg. Hourly Earnings much above 4.0% will further push back on rate cut expectations and likely weigh on stocks.

Looking at the ISM Services PMI (E: 52.7), the key here is that the number stays solidly above 50 (which it should).  A drop below 50 will increase slowdown worries (and weigh on stocks).  Finally, there is one Fed speaker today, Barkin at 1:30 p.m. ET, but he shouldn’t move markets.

Sevens Report Quarterly Letter 

Our Q4 ’23 Quarterly Letter was delivered to subscribers on Tuesday, complete with compliance backup and citations. We’re already receiving feedback about how it is saving advisors time and helping them communicate with their clients in this volatile environment!

You can view our Q3 ‘23 Quarterly Letter here.

To learn more about the product (including price) please click this link.

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Sevens Report Analysts Quoted in Investing.com

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Very Lofty Valuations: Sevens Report Analysts Quoted in Investing.com

These five market assumptions are ‘aggressively optimistic’ – Sevens Report

Sevens Research said the S&P 500 is starting 2024 trading at “a very lofty” 19.5X valuation. While they don’t believe the valuation is unjustified, they do believe it makes several key, positive assumptions about critical market influences in the coming year.

Sevens argues that while the market assumptions “aren’t necessarily wrong,” the “assumptions are aggressively optimistic, and it is how events unfold versus these expectations and not on an absolute scale that will determine how stocks and bonds trade to start the year.”

Also, click here to view the full Investing.com article published on January 2nd, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Lastly, If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

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The S&P 500 Is Starting 2024 Trading At A Very Lofty 19.5x Valuation

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The S&P 500’s Lofty Valuation: Tom Essaye Quoted in Blockworks

Bitcoin is trading on ETF news, but analysts caution on macro headwinds

“The S&P 500 is starting 2024 trading at a very lofty 19.5x valuation and while I’m not going to say that valuation is unjustified, I will say that valuation makes several key, positive assumptions about critical market influences in the coming year,” said Tom Essaye, founder of Sevens Report Research.

“And how reality matches up with those assumptions will determine whether stocks extend the rally (and the S&P 500 hits new highs and makes a run at 5,000) or gives back much of the Q4 Santa Claus rally.”

Also, click here to view the full Blockworks article published on January 2nd, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Tom Essaye Interviewed on BNN Bloomberg

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Investors Hope For Rate Cuts: Tom Essaye Interviewed on BNN Bloomberg

S&P 500 rally flashes signs of fatigue near record

Tom Essaye, president of Sevens Report Research, joins BNN Bloomberg to discuss the markets as investors hope for rate cuts from the Fed as early as march.

Also, click here to view the full BNN Bloomberg interview published on December 26th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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The Fed Pivot Has Already Occurred

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The Fed Pivot Has Already Occurred: Tom Essaye Quoted in MarketWatch

Here’s when falling bond yields might become a problem for stock-market bulls in 2024

Heading into 2024, the path of least resistance for Treasurys is for higher prices and lower yields (prices and yields move opposite each other), “although the decline in yields won’t be the boost for stocks in 2024 as it was in 2023, because if it keeps going and we see the 10-year yield break through support at 3.75% and keep dropping towards 3.00%, investors will interpret that as an economic warning sign now that the Fed pivot has already occurred,” said Tom Essaye, founder of Sevens Report Research, in a Friday note.

Also, click here to view the full MarketWatch article published on December 29th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Important (and still undecided) Questions About Economic Growth

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Markets Have Priced In The Dovish Pivot: Tom Essaye Quoted in Blockworks

Bitcoin inches higher after outperforming stocks this year

“Looking forward, we can expect markets to get back to ‘normal’ next week as we start a new year and answer some pretty important (and still undecided) questions about economic growth, actual vs. expected Fed policy, and earnings,” Tom Essaye, founder of Sevens Report Research, said. 

Also, click here to view the full Blockworks article published on December 29th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

The Timing Of Rate Cuts Is A Big One

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Markets Have Priced In The Dovish Pivot: Tom Essaye Quoted in Yahoo Finance

3 important things pros say you should watch out for in the stock market for 2024

Tom Essaye, founder of Sevens Report Research: “I agree the timing of rate cuts is a big one that people are focused on, but there are two others I think are equally as important.

First is earnings. Reports recently haven’t been good, and if disinflation turns into a headwind for corporate profits, that could be a surprise in early 2024 because markets have priced in solid earnings growth in 2024.

Second, what if the slowdown is worse than feared? For anyone who has been through previous Fed rate cut cycles, they usually don’t end well for stocks. Yes, it’s possible that this time is different and I agree there are unique circumstances coming from the pandemic, but the complacency towards a gradual slowdown is something that we need to watch early in the New Year.”

Also, click here to view the full Yahoo Finance article published on December 29th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.