Five Measurable Similarities to 2006/2007

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What’s in Today’s Report:

  • Five Measurable Similarities to 2006/2007: A Market Cycle Update

Futures are little changed ahead of the holiday weekend as poor Nike (NKE) earnings weigh on sentiment.

Earnings this week haven’t been great and that continued overnight as Nike (NKE) missed on revenues and cut revenue guidance. The stock is down –12% pre-market.

Economically, UK data was mixed as quarterly GDP declined (-0.1% vs. (E) 0.0%) while retail sales were strong.

Otherwise, the focus will remain on economic data and the key report today is the November Core PCE Price Index (E: 0.2% m/m, 3.4% y/y), which is the Fed’s preferred inflation metric.  It is expected to show declines in the pace of headline and core inflation from October and if that happens, it should support stocks and bonds and reinforce rate cut expectations.

Other notable data today includes Durable Goods (E: 2.4%), New Home Sales (E: 690K) and Consumer Sentiment (E: 69.4, 1-Yr inflation: 3.1%). But barring a major surprise from them, they shouldn’t move markets.

Meanwhile the bond market closes at 2:00 p.m. today with the looming holiday weekend. So, we expect activity to quiet considerably in the markets as the trading day goes on.

Finally, from all of us at Sevens Report Research, please have a happy and safe holiday weekend.

Five Measurable Similarities

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Why Is the Fed Thinking About Cutting Rates?

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What’s in Today’s Report:

  • Why Is the Fed Thinking About Cutting Rates?

Futures are bouncing modestly following Wednesday afternoon’s drop thanks to solid earnings and merger news.

Micron (MU) posted strong earnings and guidance (stock up 5% pre-market). That’s helping to counter the negative earnings news from Wednesday.

Merger activity is also helping stocks bounce as Paramount (PARA) is said to be in talks to buy Warner (WBD). That news is also helping sentiment this morning.

Today focus will be on economic data and the two most important reports are Jobless Claims (E: 210K) and the Philadelphia Fed Manufacturing Survey (E: -3.0).  With the Fed having dovishly pivoted, data needs to be in-line with expectations. Otherwise, growth worries will rise and pressure stocks.  We also get the final Q3 GDP (E: 5.2%) but that’s very old data at this point and shouldn’t move markets.

Jobs Report Preview

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S&P 500 Market Multiple Levels Chart

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What’s in Today’s Report:

  • S&P 500 Market Multiple Targets – December Update (Shareable PDF Available)
  • Housing Market Update: Where Are the Declines?
  • Housing Starts Come in “Hot” – Chart

Stock futures are modestly lower and bond yields are continuing to fall. As cooler-than-expected European inflation data o/n has investors weighing simmering recession fears.

Economically, U.K. CPI fell from 4.6% to 3.9% vs. (E) 4.3% in November while German PPI was down -7.9% vs. (E) -7.5%. The data is being digested by some as “too cold”. This is causing renewed recession worries which is weighing on risk assets this morning.

Today, we will get two economic reports in the morning: Consumer Confidence (E: 103.4) and Existing Home Sales (E: 3.775 million). The market will want to see more signs of a resilient consumer to reaffirm soft landing hopes and keep recession fears contained.

Finally, in the afternoon there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET which could shed light on how sustainable the bond market rally is. There is a risk that a weak auction outcome could pour some cold water on bonds and lead to some profit taking in equities ahead of more critical economic data due in the back half of the week.

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Market Multiple Table: December Update

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What’s in Today’s Report:

  • Market Multiple Table – December Update (Unbranded Copy Available)
  • Chart – 10-Yr Yield Violates Long-Term Uptrend, 2023 Lows in Focus

Stock futures are slightly higher and bond yields are falling modestly this morning. This is as traders digest a dovish BOJ decision and largely in-line Eurozone inflation report.

The Bank of Japan left their benchmark policy rate unchanged at -0.10%. With no hint of a January rate hike sending the yen down >1% and the Nikkei up nearly 1.5% overnight.

Economically, the Eurozone HICP Narrow-Core inflation rate favorably fell from 4.2% to 3.6% last month, meeting estimates.

Looking at today’s potential market catalysts, there is one economic report to watch: Housing Starts (E: 1.360 million), and two Fed officials are to speak: Bostic (12:30 p.m. ET) and Goolsbee (6:00 p.m. ET).

Lastly, as long as the housing market data is not a big shock, the release shouldn’t move markets this morning while Bostic’s comments will be closely watched to see if he joins Daly and others from the Fed in acknowledging concerns about the labor market (which would add a dovish tailwind).

multiple

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Explaining This Market Surge to Clients

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What’s in Today’s Report:

  • Explaining This Market Surge To Clients
  • Weekly Economic Cheat Sheet:  Why Bad Data is Now Bad for Stocks
  • Weekly Market Preview:  Does the Santa Rally Continue into Year-End?

Futures are modestly higher following a generally quiet weekend of news. The markets continue to digest the Fed’s dovish pivot and continued stock and bond rally.

Fed pushback on the market’s rate cut expectations continued over the weekend as Cleveland Fed’s Mester said markets were “a little bit ahead” of themselves expecting cuts in early 2024.

Economically, the only notable number was German Ifo Business Expectations, which slightly missed estimates.

Today the only notable economic number is the Housing Market Index (E:36) and if there’s weakness in this price index it’ll reinforce that broad inflation is continuing to decline and that will be a general positive for stocks and bonds.  Outside of the data, look for Fed officials to continue to push back on market rate cut expectations.  But, other than causing some temporary volatility, that shouldn’t impact markets beyond the short term (and won’t derail this rally).

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Why This Isn’t A Risk-Less Market (Despite The Fed Being Dovish)

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What’s in Today’s Report:

  • Why This Isn’t A Risk-Less Market (Despite The Fed Being Dovish)
  • Understanding Why the Dollar Is Plunging

Futures are modestly higher following mixed global economic data and as investors continued to digest Wednesday’s dovish Fed decision.

Global data was mixed, but not bad, and as such isn’t increasing global slowdown fears.  In Europe, the EU flash composite PMI missed estimates (47.0 vs. (E) 48.0) while the UK reading beat (51.7 vs. (E )51.0).  In China,

Retail Sales and Industrial Production were better than feared.

Today focus will be on economic data as we get the first look at December activity and for the rally to continue, the data needs to be Goldilocks (so close to expectations).  The key reports today are, in order of importance:    Dec. Flash Manufacturing PMI (E: 49.2), Dec. Flash Service PMI (E: 50.6), Nov. Industrial Production (E: 0.3%), Dec. Empire Manufacturing Index (E: 3.7).

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Is the Dovish Fed Decision A Bullish Gamechanger?

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What’s in Today’s Report:

  • Is the Dovish Fed Decision A Bullish Gamechanger?
  • What Sectors and Assets Benefit Most from the Surprisingly Dovish Fed?

Futures are modestly higher on continued momentum from yesterday’s surprisingly dovish Fed decision.

Global investors aggressively embraced the idea of global rate cuts as the 10-year yield fell below 4% overnight.

On earnings, they’ve been soft this week and that continued with disappointing ADBE results (stock down 5% pre-market) although that’s not impacting the markets more broadly.

The busy week continues today with a BOE Rate Decision (E: No Change) and an ECB Rate Decision (E: No Change) and markets expect no rate cuts but dovish tones from both central banks.  If that’s the reality, it’ll just add more fuel to the dovish rally.

Economically, the key reports today are Jobless Claims (E: 223k) and Retail Sales (E: -0.1%).  The Fed’s dovish pivot will overshadow these reports unless they show a sudden deterioration (so spike in claims and drop in retail sales) and barring those results, they shouldn’t move markets.

Bullish

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Why the Bar for the Fed to Be Hawkish Is High

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What’s in Today’s Report:

  • Why the Bar for the Fed to Be Hawkish Is High
  • What the CPI Report Means for Markets

Futures are slightly higher despite soft economic data, as markets await the Fed decision later this afternoon.

Economically, data from the UK and the EU was bad and is slightly increasing growth concerns.   UK monthly GDP  and UK & EU Industrial Production all missed estimates.

Chinese growth concerns also rose as China declared industrial development as the #1 economic priority, potentially signaling less economic stimulus in 2024.

Today focus will be on the FOMC decision (2:00 p.m. ET, No change to rates expected) and the keys are the 2024 dot (does it show 50 bps of cuts?) and whether Powell slams the door on the idea of rate cuts (or leaves it slightly open).  In addition to the Fed, we also get another important inflation reading via PPI (E: 0.1% 1.0%). A further decline will be peripherally positive for markets.

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West Texas Intermediate Crude Tested Critical 2023 Support

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Oil Futures Finished Higher: Sevens Report Co-Editor, Tyler Richey, Quoted in MarketWatch

Oil futures end modestly higher after posting 7 consecutive weekly declines

Gains for the session came from a “combination of near-term oversold conditions in the futures market” after West Texas Intermediate crude tested critical 2023 support in the upper $60s last week, said Tyler Richey, co-editor at Sevens Report Research.

Oil futures finished higher on Monday after posting seven consecutive weekly declines.

Generally improving investor sentiment and risk-on money flows across other asset classes have also provided support to oil, he said. 

Also, click here to view the full MarketWatch article published on December 11th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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The Market Has So Aggressively Priced In A Dovish Fed

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The Market Has So Aggressively Priced In A Dovish Fed: Tom Essaye Quoted in MarketWatch on MSN

November jobs report likely to show a solid 190,000 increase, with unemployment staying at 3.9%

As a result, market participants will be much more sensitive to a hotter-than-expected number than to a softer-than-expected figure, said Tom Essaye, founder of Sevens Report Research, in a Thursday note.

That means the threshold for “too hot” figures — including payrolls, the unemployment rate and wages — that cause a pullback in both stocks and bonds is lower than it’s been all year because the market has so aggressively priced in a dovish Fed, he wrote.

“So, there’s less of a margin for error if the jobs report is stronger than expectations.”

Also, click here to view the full article published by MSN on December 8th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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