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The Three Assumptions Supporting Stocks

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What’s in Today’s Report:

  • The Three Assumptions Supporting Stocks
  • Weekly Economic Cheat Sheet (All About Inflation and Growth This)
  • Weekly Market Preview:  Can Stocks Continue to Ignore Rising Bond Yields?

Futures are little changed following a mostly quiet weekend of news as markets look ahead to tomorrow’s CPI report.

The only notable economic report overnight was better than expected growth and inflation updates from the European Commission, who now sees EU growth rising 0.9% this year (up from 0.3%) and inflation at 5.6% (down from the previous 6.1%).  These revised estimates are helping to bolster the “No Landing” economic scenario.

Markets should mostly be in a holding pattern today as the CPI report looms tomorrow morning, but there are two notable events on the calendar to watch:  New York Fed Inflation Expectations (One Year: 5.0%, Five-Year: 2.4%) and one Fed speaker:  Bowman (8:00 a.m. ET).  If inflation expectations are higher than before or Bowman is hawkish, that could mildly pressure stocks.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are moderately lower following a disappointing night of tech earnings and more hot inflation data.

AAPL, AMZN, and GOOGL all reported earnings overnight and the results underwhelmed.  Each stock is down between 2% and 5% pre-market.

Economically, EU PPI rose 1.1% vs. (E) -0.7% and became the third inflation number this week to hint at a rebound.

Focus today will be on the Employment Situation Report and expectations are as follows: Job Adds 185K, UE Rate 3.6%, Wages 0.3% m/m, 4.5% y/y).  Financial media focus will be on the headline job adds number but thanks to Powell’s less hawkish speech it’ll take a big number (300k or more) to be “Too Hot.”  Instead, focus on wages as they are directly related to services inflation, which remains sticky.  If wages are strong, that’ll be a negative.  The other notable economic report today is the ISM Services Index (E: 49.6) and markets will want to see stability in the data (no not worse than expectations).

Was Powell’s Press Conference A Bullish Gamechanger?

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What’s in Today’s Report:

  • Why Did Stocks Rally During Powell’s Press Conference?
  • Was the FOMC Decision A Bullish Gamechanger (No, But It Was a Positive Event)
  • EIA Update and Oil Market Analysis

Futures are solidly higher on continued momentum from Wednesday’s “not hawkish” post-FOMC rally and following better-than-expected META earnings.

META surged 19% overnight as the company reported better-than-feared earnings driven by gains in artificial intelligence and aggressive cost-cutting.

Today will be a very busy day of micro and macro-economic events as we get major central bank decisions, more important economic data, and key earnings.

First, this morning there are two central bank decisions:  BOE Rate Decision (E: 50 bps hike) and ECB Rate Decision (E: 50 bps hit).  If either is overtly hawkish (maybe the ECB) it could send global yields higher and take back some of yesterday’s rally.

After those two central bank decisions, we get an update on the labor market via Jobless Claims (E: 193K),  inflation via Productivity & Costs (E: 2.4%, 1.5%), and economic growth via Factory Orders (E: 2.2%).  Especially in light of Powell’s not hawkish press conference, data that shows stability and declining price pressures will support stocks.

Finally, on earnings, today is likely the single most important day of the earnings season as we get results from three of the most widely held stocks in the market:  AAPL ($1.93), AMZN ($0.15), and GOOGL ($1.14).

CPI Preview

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What’s in Today’s Report:

  • CPI Preview: Focus on the Core Figure
  • Chart – Gold Moving Higher in Well Defined Uptrend

U.S. stock futures are tracking global shares higher in moderate risk-on trading this morning as investors look past Powell’s lack of commentary of monetary policy plans yesterday and await tomorrow’s all-important CPI data.

Economically, Retail Sales reports in both Australia and Italy handily beat expectations overnight, adding to optimism for a global economic soft landing.

There are no market-moving economic reports today and no Fed officials are scheduled to speak.

That leaves just one potential market catalyst today, a 10-Yr Treasury Note auction at 1:00 p.m. ET. And while it is possible a surprise outcome in the auction moves yields and causes some modest moves in equities in the afternoon, the session is likely to be mostly quiet as traders position into the CPI report.

Tom Essaye Quoted in MarketWatch on January 9th, 2023

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Traders made money ‘selling the rip’ in stocks last year. Why it might work again in 2023.

“A sustained break above the 200-day moving average would imply that investors are becoming fundamentally more optimistic about the market. That would require real progress toward the Fed actually stopping its rate-hike campaign. Or progress toward the economy actually achieving a soft landing. Or progress toward inflation falling somewhere that is reasonably more acceptable to the Fed,” said Tom Essaye, founder of the Sevens Report. Click here to read the full article.

Sevens Report Co-Editor Tyler Richey Quoted in S&P Global on December 7th, 2022

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Stock market’s ‘fear gauge’ plunges as investors shift hedging strategies

Still, the VIX has not behaved in its typical fashion for much of this year, said Tyler Richey, a co-editor at Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in The Washington Post on December 6th, 2022

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PepsiCo layoffs could indicate broader economic woes

The company, which has a market cap of $252.3 billion, is simply signaling the headwinds to come. This is really confirming so many other signs that we are headed toward a potentially pretty significant economic slowdown, said Tom Essaye, president of Sevens Report Research. Click here to read the full article.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels – S&P 500 Chart
  • VIX Breaks Longstanding Downtrend in Cautious Signal

Futures are modestly lower as persistent concerns about hawkish Fed policy and fading global growth overshadow positive Covid policy news out of China and encouraging EU economic data.

Economically, German Industrial Production was better than feared at -0.1% vs. (E) -0.6% while  Q3 Eurozone GDP topped estimates at 2.3% vs. (E) 2.1% Y/Y suggesting the EU economy may be stabilizing.

China’s NHC issued new guidelines on Covid restrictions overnight that eased certain testing and quarantine requirements and will hold a press conference tomorrow which points to the potential for more progress in moving away from Covid-Zero.

Looking into today session, there is one economic report before the bell: Productivity & Costs (E: 0.4%, 3.3%) and then Consumer Credit (E: 27.3B) will be released in the afternoon. The latter report is not one we typically follow closely but there has been increasing concern about the health of household balance sheets, so a sharp move higher in outstanding credit could raise concerns about defaults in the coming quarters.

Finally, there are no Fed speakers today but stocks have been taking queues from rate markets and the dollar so if either meaningfully move higher, that will add pressure to the broader equity market today.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are moderately higher on solid economic data and rising hope China could relax its “Zero COVID” policies.

The EU Composite PMI (47.3 vs. (E) 47.1) and UK Construction PMI (53.2 vs. (E) 50.5) both beat estimates, implying economic activity in Europe isn’t collapsing.

In China, an article in the South China Morning Post stated “big and substantive” changes looming for COVID policies.

Today focus will be on the Jobs Report and estimates are as follows:  Job Adds: 210K, UE Rate: 3.6%, Wages: 0.3% m/m, 4.7% y/y.  If markets can get an underwhelming number (say the low 100’s) that will be the first material sign the labor market is starting to deteriorate, and it could spark a rally in stocks as the Fed needs better balance in the labor market before they can “pivot.”

Away from the jobs report, we also have one Fed speaker, Collins at 10:00 a.m. ET but she shouldn’t move markets.

How Far Could This Relief Rally Run?

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What’s in Today’s Report:

  • Technical Support for a Near Term Bottom and How Far This Relief Rally Could Run
  • Chart: 10-Yr Note Futures Test Trend Resistance
  • Housing Market Update

Stock futures are trading lower this morning as soft tech earnings are overshadowing a continued bounce in bonds.

MSFT and GOOGL both fell roughly 6% overnight after delivering disappointing quarterly results yesterday afternoon which is dragging the broader tech sector lower in premarket trading.

Today, there are two economic reports to watch in the morning: International Trade in Goods (E: -$87.8B) and New Home Sales (E: 585K), while there is a 5-Yr Treasury Note auction in the early afternoon (1:00 p.m. ET).

Earnings will remain in focus today with BA (-$0.01), BMY ($1.83), HLT ($1.25), KHC ($0.55), and HOG ($1.45) reporting before the bell, and META ($1.88), F ($0.31), and CP ($0.77) releasing results after the close.

Bottom line, soft earnings out of mega-cap tech are weighing on the market this morning however stable bond markets are limiting losses. If we see Treasuries roll over today and yields begin to climb again, expect pressure on equities to pick up as both earnings expectations and multiple compression will weigh on stocks broadly.

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