Fed Pivot Bet Continues

Fed Pivot Bet Continues

The bulls tacked on more gains Tuesday as the Fed pivot bet continued to inspire the fear of missing out as the DIA and QQQ inked the 9th straight day of gains. Bond yields continued to decline while oil, one of the main contributors to the decline in inflation continued to rally as the Middle Eastern war spilled out into the Red Sea threatening the supply chain. Today traders have a handful of notable earnings along with Consumer Confidence, Existing Home Sales, and Petroleum figures to digest. Remember volumes could soon begin to decline as holiday vacations begin and keep in mind we could see a hurry-up wait choppy afternoon with the GDP report Thursday morning.

While we slept Asian market mostly gained in reaction to the dovish decision from the BOJ, though Shanghai declined after a hold of benchmark lending rates. Across the pond, European markets trade mixed but mostly higher with modest gains and losses a day after the FTSE inked a three-month high.  However, U.S. futures suggest a modestly bearish open to being Wednesday ahead of earnings and economic reports.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday BB, GIS, TTC, MLKN, & WGO.

News & Technicals’

FedEx, the global delivery giant, saw its shares drop 9% after it reported disappointing results for its fiscal second quarter. The company missed analysts’ expectations for both revenue and earnings, as it faced lower demand for its Express service, which accounts for more than half of its sales. The company also cut its guidance for the full year, citing challenges from the pandemic, labor shortages, and supply chain disruptions.

A study by Lending Tree revealed that Tesla drivers had the highest accident rate in the U.S. in the past year, with 24 accidents per 1,000 drivers from mid-November 2022 to mid-November 2023. Tesla drivers were followed by Ram and Subaru drivers, who also had high accident rates. The study also found that BMW drivers were the worst offenders when it came to driving under the influence, with 3 DUIs per 1,000 drivers in a year, which was double the rate of Ram drivers, who ranked second in this category. The study warned that accidents, DUIs, speeding, and other violations could result in higher insurance premiums for drivers.

U.S. Bank, one of the largest banks in the country, faced a hefty penalty of almost $36 million from federal authorities for breaking consumer protection laws. The bank blocked access to prepaid debit cards for hundreds of thousands of people who relied on them to receive unemployment benefits during the Covid-19 crisis. The bank also received a separate fine of $15 million from the Office of the Comptroller of the Currency, which oversees national banks.

The former CEO of Stimwave Technologies, Laura Tyler Perryman, is facing charges from the SEC for allegedly scamming investors out of $41 million. According to the SEC, Perryman lied about one of Stimwave’s products, claiming that it had FDA approval when it did not. The SEC’s lawsuit comes after Perryman was criminally indicted by the U.S. Attorney’s Office in New York in March for the same scheme.

The equity markets extended the positive streak from the previous weeks as the Fed pivot bet continues to inspire the bulls to play chase. The main economic data that investors watched were U.S. housing starts and Canadian CPI inflation. U.S. housing starts beat expectations by increasing more than 14% from the previous month, while Canadian CPI inflation was slightly higher than anticipated. The market was led by a mix of sectors, with both growth sectors like communication services and cyclical sectors like energy and materials doing well. IWM continued to play catch up, surging 2% on Tuesday and has now risen about 20% since October 31. Oil prices continued to climb, reaching over $74 per barrel as the Red Sea tensions added risk to the supply chain. Today bulls and bears will look for inspiration in Mortgage Apps, Current Accounts, Consumer Confidence, Existing Home Sales, Petroleum Status, and a 20-year bond auction.  We also have a handful of notable earnings to keep traders guessing.  Keep in mind that volume could begin to drop quickly after the morning reaction to data as traders begin holiday vacation plans and wait for the Thursday GDP report.  Plan carefully.

Trade Wisely,

Doug

Consolidating Session

Monday began with enthusiasm gapping higher but then quickly faded into a low-volume consolidating session ending in mixed results.  The Mag7 stocks garnered the majority of yesterday’s energy pushing the QQQ toward an all-time high breakout as the SPY squeaked out a small win adding to its seven-week run.  Today traders will have a few notable earings as well as a Housing Starts and Permits report to find inspiration. The attacks in the Red Sea risk affecting the global supply chain so keep an eye on oil as it seems particularly sensitive to the situation.

During the night Asian markets closed mostly higher with only the HSI moving lower after Japan kept its rate policy unchanged creating a steep decline in the yen. European markets trade mixed but mostly lower this morning as they monitor the G7 meeting of finance with central bank officials.  However, U.S. futures continue to pump the premarket higher working to achieve the headlines of the Nasdaq and SP-500 all-time highs.  

Economic Calendar

Earnings Calendar

Notable reports for Wednesday ACN, FDS, FCEL FDX, SCS. WOR.

News & Technicals’

The Red Sea, a vital waterway for global trade, is under threat from Iran-backed Houthi militants who have launched a series of attacks on ships in the area. The attacks have coincided with the ongoing war between Israel and Hamas, raising fears of a wider regional conflict. As a result, several major shipping lines, including BP and Maersk, have halted their services through the Red Sea, disrupting the supply chain of goods and commodities. To counter the Houthi threat, the U.S. and its allies have initiated Operation Prosperity Guardian, a maritime security operation that aims to protect the ships and deter further attacks. The operation is an extension of the U.S. naval force in the Red Sea, which has been facing increasing challenges from the Houthi rebels.

Tesla, the electric car maker, is reportedly raising the hourly wages of some of its employees at its Nevada battery plant by 10% or more, according to CNBC. The company, which has faced labor disputes and unionization efforts in the past, may be trying to appease its workers and prevent them from seeking a collective bargaining agreement in the U.S. The wage hike, which was revealed in internal documents obtained by CNBC, could affect thousands of workers at the Gigafactory, where Tesla produces batteries and powertrains for its vehicles.

Enphase Energy, a solar company that produces microinverters, announced that it will cut 10% of its staff as part of a restructuring plan. The company has been struggling with low demand for its products, as high-interest rates have made solar installations less attractive. Enphase’s stock price has plummeted 53% this year, reflecting its poor performance. The company expects to incur $16 million to $18 million in costs related to the layoffs and the impairment of some of its assets.

The stock market indexes ended Monday with mixed results in a calm low-volume consolidating session. That said the S&P 500  and the Nasdaq added small gains to its seven-week winning streak thanks mostly to the push in the Mag7 stocks. Interest rates rose a bit, but the 10-year Treasury yield stayed below 4% and close to its July low. Today traders will look for inspiration in the Housing Starts and Permits report coming in before the bell and some Fed speeches in the afternoon.  We also have a few notable earnings reports that could add a bit of price volatility.  In this parabolic condition plan carefully as a pullback could begin at any time so try to avoid the fear of missing out chaising already extended names.

Trade Wisely,

Doug

Seven Straight Weeks

Friday’s market was light and choppy as investors seemed to rest after seven straight weeks of buying pushing equity charts into parabolic patterns. That said, there is still nothing in the price action that would suggest the bears are waking up but we should not be surprised if profit-taking begins at any time. With light earnings an economic calendar and the gap up open suggested in the futures market watch for the possibility of a pop-and-drop as Asian and European markets pull back slightly.

Overnight Asian markets mostly declined with only South Korea squeaking out a positive close on defense sector gains.  European markets trade mostly in the red this morning with only the FTSE higher after five straight weeks of gains.  U.S. Futures, however, wants to keep the buying party going into the new week but after seven consecutive weeks of gains and a holiday just around the corner profit-taking could begin at any time.

Economic Calendar

Earnings Calendar

The only notable report for Monday is HEI.

News & Technicals’

Nippon Steel, the largest steelmaker in Japan, is eyeing to acquire United States Steel, the second-largest steel producer in the U.S., in a deal that could be worth more than 1 trillion yen ($7.01 billion), according to the Nikkei newspaper. The report, which was published on Monday, did not receive any confirmation from Nippon Steel, as its spokesperson refused to comment on the matter. The report said that Nippon Steel views the U.S. as a promising market that can compensate for the shrinking demand in Japan, where the population and the economy are aging. The report also said that Nippon Steel intends to make U.S. Steel a fully owned subsidiary, as part of its global expansion strategy.

Southwest Airlines, the largest domestic carrier in the U.S., agreed to pay a $35 million fine and a $140 million settlement to end a federal probe into its massive flight disruptions in December 2022. The airline had canceled thousands of flights and left more than 2 million travelers stranded over the holidays, due to a combination of bad weather, staffing shortages, and operational issues. The settlement will mostly be used to reimburse future passengers, as the U.S. Department of Transportation wants to encourage Southwest to prevent such chaos from happening again. The government said that this was the biggest penalty it has ever levied on an airline for breaking consumer protection laws.

The former head of the Federal Deposit Insurance Corporation (FDIC), Sheila Bair, has warned that the Fed is fueling a false sense of optimism in the markets by signaling possible rate cuts in 2024. Bair, who oversaw the FDIC during the worst financial crisis since the Great Depression, criticized Fed Chair Jerome Powell for being too soft on inflation and fostering a climate of “irrational exuberance” among investors. She argued that the Fed should focus more on keeping inflation under control, rather than stimulating the economy with lower interest rates.

The equity markets mostly chopped on Friday perhaps needing a rest as after seven straight weeks of rally producing parabolic patterns but no sign of the bears or profit-takers stepping up just yet. Small-cap stocks outperformed the rest, surging over 5% this week and about 11% in December, as investors became more hopeful about the economic recovery, and a Fed rate pivot next year. Interest rates held steady Friday, as bond yields held near July lows. Today we have a very light day of data with only one notable earnings report coming after the bell and the Housing Market Index report on the economic calendar.  Traders should bear in mind with Christmas next Monday volume could begin to quickly decline by mid-week as folks extend holiday vacations. 

Trade Wisely,

Doug

Bulls Celebrated

Jerome Powell gave a nod to the market and bulls celebrated as they held rates steady but suggested three cuts in 2024.  Bond yields plunged as did the dollar on the FOMC decision spiking commodity prices, real estate, and utilities. As parabolic as the indexes appear the celebration could continue today with an ECB rate decision pending. We will also look for bullish or bearish inspiration in the Jobless Claims, Retail Sales, and a handful of notable earnings including the very parabolic Costco at record highs.  Plan carefully with indexes so extended in the short term a profit-taking wave could begin at any time.

Asian markets traded mostly higher with only the Shanghai and Nikkei exchanges seeing modest declines. European market trade is decidedly bullish across the board this morning as they wait on ECV and Bank of England rate decisions.  U.S. Futures want to keep the party going this morning pointing to another gap up open ahead of earnings and economic reports.

Economic Calendar

Earnings Calendar

Notable reports for Thursday COST, JBL, & LEN.

News & Technicals’

The Federal Reserve (Fed) decided to keep its key interest rate unchanged on Wednesday, for the third time in a row and signaled that it will lower its rate in 2024 and beyond. The Fed said that the inflation rate has moderated and the economy has remained stable, and therefore it was appropriate to maintain the benchmark overnight borrowing rate in a range of 5.25%-5.5%. The Fed also projected that it will cut its rate at least three times in 2024, by 0.25% each time. This is less than what the market expects, which is four rate cuts, but more than what the Fed had previously suggested. The Fed’s outlook reflects its balance between supporting the economic recovery and controlling the inflationary pressures.

Treasury yields dropped to their lowest levels in months on Thursday, as investors reacted to the Federal Reserve’s guidance on the future of interest rates. The Fed said on Wednesday that it will keep its interest rate unchanged for now, but signaled that it will start cutting its rate in 2024 and beyond. The Fed’s outlook reflected its balance between supporting the economic recovery and controlling the inflationary pressures. The market responded by lowering the yields on the 10-year and the 2-year Treasury bonds, which are influenced by the Fed’s policy. The 10-year yield fell below 4% for the first time since August, while the 2-year yield declined by more than 14 basis points. The yields had already fallen sharply on Wednesday, after the Fed’s announcement. The lower yields indicate that investors are expecting lower interest rates and slower economic growth in the future.

Adobe’s quarterly earnings for the fourth fiscal quarter beat the market’s forecasts, but its outlook for fiscal 2024 fell short of the projections. The software company said that it is waiting for a verdict from the U.S. Department of Justice on its proposed purchase of Figma, a design platform.

Jerome Powell spoke and the bulls celebrated moving stocks sharply higher into parabolic new record highs. The Fed decided to keep policy rates unchanged while lowering its forecasts for inflation and policy rates in 2024. Bond yields moved sharply lower as did the dollar which spiked precious metals and other commodities. The Russell 2000 Index outshined on the day, gaining over 3%, however, continues to lag way behind the other indexes despite the nearly 14% increase in a month. The sectors that performed well were the utilities and real estate sectors, which are sensitive to interest rates, both increasing by over 3%.  Today the ECB will make its rate decision along with Jobless Claims, Retail Sales, Import/Export Prices, Business Inventories, and Natural Gas reports supplying bullish or bearish inspiration. There is also a handful of notable earnings to keep traders guessing. Although the celebration is likely to continue in the short term keep in mind a substantial market pullback should be expected in the near future so plan carefully.

Trade Wisely,

Doug

Melted Higher

After an ever so slightly higher CPI reading the indexes melted higher on lower-than-average volume in a relentless pursuit of record highs.  Interesting oil prices continued to fall on demand worries from a weakening consumer yet that has not translated into any other market sector.  Things that make you say Hmmm?  Today will be focused on the interpretation of Jerome Powell’s comments as Dovish or Hawkish with PPI, Petroleum Status, and a handful of earnings tossed in to add price volatility.  With the market convinced the Fed will soon pivot big moves are possible if that sentiment is confirmed or denied so plan your risk carefully.

During the night Asian markets traded mixed but mostly lower as they monitor the FOMC decision.  However, European markets trade cautiously bullish across the board ahead of the pending data.  U.S. futures at the time of this report point to a higher open convinced the Fed will soon pivot from its inflation-fighting stance.  We will find out at 2:30 PM Eastern as Jerome Powell takes the microphone.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday ABM, ADBE, CGNT, NDSN, PLAB, & REVG.

News & Technicals’

The European Central Bank (ECB) is planning to reduce its balance sheet, which has grown significantly due to its bond-buying program to support the economy during the pandemic. The ECB’s balance sheet is currently over 8 trillion euros or about 75% of the eurozone’s GDP. The ECB wants to shrink its balance sheet gradually and carefully, to avoid disrupting the financial markets and the economic recovery. However, the markets are expecting the ECB to cut its interest rates next year, as inflation has fallen below the ECB’s target of 2%. Inflation dropped to 2.4% in November, and core inflation, which excludes volatile items such as food and energy, also declined. Money markets are betting on almost 150 basis points of rate cuts in 2022, which would lower the ECB’s key deposit rate from its record high of 4%. The ECB has raised its deposit rate 10 times since July 2022, when it became positive for the first time since 2011. The ECB faces a delicate balance between shrinking its balance sheet and easing its monetary policy, as it tries to achieve its inflation goal and support the eurozone’s growth.

The Bank of England (BoE) is likely to keep its interest rates unchanged on Thursday, as economists disagree on whether the BoE will need to cut rates in 2024. The market is almost certain that the BoE will not change its policy stance this week, based on the LSEG data, as the economic indicators since the BoE’s last meeting have been mixed. The real GDP growth was zero in the third quarter, which matched the BoE’s forecast, but the inflation and wage growth were lower than expected, and the domestic demand was weak. Barclays predicts that the BoE’s Monetary Policy Committee (MPC) will have a divided vote in favor of a hold, but will maintain a hawkish tone as it challenges the market’s expectation of “premature” rate cuts. The BoE faces a difficult balance between supporting the economic recovery and controlling the inflationary pressures.

The Federal Reserve (Fed) is expected to announce a policy shift on Wednesday, as it wraps up its last meeting of the year. The Fed is likely to signal that it will stop raising its interest rate, which it has done four times this year, and start preparing for the next phase of its monetary policy. The Fed will also release its updated forecasts on economic growth, inflation, and unemployment, which will reflect the impact of the pandemic, the fiscal stimulus, and the supply chain issues. The Fed Chair Jerome Powell will also hold his regular press conference, where he will explain the Fed’s decision and outlook. The market is anticipating that the Fed will start cutting its rate in May 2024, and continue to do so throughout the year, as the economy slows down and inflation eases. However, the Wall Street analysts and economists expect the Fed to be more careful and gradual in its rate cuts, as it balances the risks and uncertainties in the economy.

Stocks melted higher on lower-than-average volume after the November CPI inflation report, which came in just slightly higher than the market’s expectations. The rally was broad-based, with growth sectors, such as information technology, doing well along with cyclical sectors, such as materials and financials. The energy sector was a clear laggard, as the market worried about consumer demand which interestingly has not translated into any other consumer area.  Today we have a handful of notable earnings but the market focus will be on the PPI, figures, Petroleum Status, and the FOMC decision and future projections. No one is expecting a rate increase but the market will likely react to how the Dovish or Hawkish Jerome Powell comments are interpreted during the 2:30 PM Eastern press conference. Anything is possible so plan your risk accordingly. 

Trade Wisely,

Doug

Bulls Remain in Control

The bulls remain in control after shaking off the deflationary China worries pushing higher in a below-average volume day. Some uncertainty or hesitation is normal as we wait on the market-moving data coming over the next couple of days.  Today the bulls or bears will look for inspiration in CPI data and traders should plan for some morning price volatility that could include some big point moves.  After that, markets may go back into a wait-and-see mode with PPI, FOMC, and the Powell press conference. Will he be dovish or hawkish?  Stay tuned and we will soon find out.

While we slept Asian markets closed in the green across the board with moderate gains with Shanghai recovering the key psychological level of 3000 by three points. European markets trade mixed in a cautious morning session waiting on the U.S inflation data.  However, U.S. futures point to a bullish opening in anticipation of the CPI numbers. Plan carefully as we will soon be thinking about the Wednesday data.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include JCI.

News & Technicals’

Oracle, the software giant, reported disappointing revenue results for its latest quarter. The company missed analysts’ expectations in three of its operating segments: cloud services and license support, cloud license and on-premise license, and hardware. The company blamed the revenue shortfall on currency headwinds, delayed deals, and competitive pressures. The stock fell sharply in after-hours trading, as investors questioned the company’s growth prospects and strategy. Oracle faces increasing competition from rivals such as Microsoft, Amazon, and Salesforce in the cloud computing market.

Ford Motor, the carmaker, announced that it will slash its production target of its all-electric F-150 Lightning pickup by about 50% next year. This is a big change from its previous plan to boost its plant capacity for the EV in 2023. The company said that the reason for the cutback was the lower-than-expected demand for EVs, as they remain expensive and interest rates are high. However, the company also said that the sales of the F-150 Lightning have been growing steadily this year and that it is confident in the long-term potential of the EV market.

Hasbro, the toy maker, announced that it will lay off 1,100 workers as it faces a decline in toy sales, according to a company memo. The company, which is known for its Transformers and My Little Pony brands, said that the job cuts are part of its restructuring plan to reduce costs and improve efficiency. The company had already eliminated about 800 jobs earlier this year, as it was hit by the pandemic, the supply chain disruptions, and the loss of a major customer, Toys R Us. Hasbro said that it will try to minimize the impact of the layoffs on its employees and customers and that it will focus on its digital and e-commerce strategies to boost its growth.

The bulls remain in control as stocks ended slightly higher on Monday on lower-than-average volume, after shaking off the deflationary data out of China. Markets were mostly in a holding pattern, waiting for the big data points of CPI, PPI, and of course the Fed’s rate decision and press conference. The sectors that performed well were consumer staples, industrials, health care, and financial services, a combination of defensive and cyclical sectors that matched the calm session in the major indexes. Today anything is possible as traders react to the CPI figures, so plan for some volatility in the morning session, and don’t be surprised if choppiness ensues in the afternoon as we wait on the PPI and the FOMC.

Trade Wisely,

Doug

Higher for Longer

The indexes pushed higher shaking off the stronger-than-anticipated jobs data Friday with the hope it will help us dodge a possible 2024 recession and a hawkish Fed continuing its higher-for-longer stance. Although today we have light earnings and economic calendars the CPI, PPI, and Fed’s rate decision on Tuesday and Wednesday add a level of uncertainty for the Monday session.  Plan your risk carefully and expect some choppy market conditions as we wait. 

Overnight Asian markets shook off deflationary Chinese data to finish the day mixed but mostly higher.  European markets are chopping around the flat line mixed but mostly higher at the time of this report.  U.S. markets point to a flat to slightly bearish open working to recover from overnight lows and facing a big week of market-moving economic data.  Plan for substantial price volatility as the data rolls out.

Economic Calendar

Earnings Calendar

Notable reports for Monday include CASY, FECL, and ORCL.

News & Technicals’

Macy’s Inc., the iconic department store chain, has received a takeover offer from two hedge funds, Arkhouse Management and Brigade Capital Management. The offer, which was reported by sources close to the deal, values Macy’s at $5.8 billion, or $21 per share. This is a premium of about 23% over the company’s latest closing price of just over $17 per share. Macy’s has been facing a decline in sales over the past year, as the pandemic and the rise of online shopping have hurt its business. The company has been trying to adapt to the changing retail landscape by closing stores, cutting costs, and investing in e-commerce. However, it is unclear whether the offer from Arkhouse and Brigade will be accepted by Macy’s board and shareholders, or whether it will face any regulatory hurdles.

The U.S. economy is facing mixed signals about the possibility of a recession, according to a hedge fund manager. David Neuhauser, the CIO of Livermore Partners, said that “somebody has got it wrong” in interpreting the market indicators. He pointed out that the falling oil prices and rising gold prices suggest that investors are worried about a slowdown in economic growth and inflation. However, he also noted that the 10-year Treasury yields rose on Friday, which implies that investors are optimistic about a soft landing for the economy. He said, “Somebody has it wrong here, is what I’m trying to tell you … It’s hard to describe who has it [wrong] yet.” He added that he is cautious about the outlook for the U.S. economy, given the uncertainty and volatility in the markets.

The Philippines Maritime Task Force denounced the China Coast Guard for “severely damaging” one of its ships and ramming another in the South China Sea on Sunday. The Philippine ships were part of a convoy that was delivering supplies to Second Thomas Shoal, where Filipino troops were stationed on a stranded warship in the submerged reef. The reef is part of the Spratly Islands, which are claimed by both the Philippines and China, among others. The Philippines said that it has the right to access the shoal, based on the 2016 ruling by the Permanent Court of Arbitration that rejected China’s sweeping claims in the South China Sea. China, however, blamed the Philippines for “insisting on rushing into” the disputed waters and violating its sovereignty.

Stocks ended higher on Friday, as markets absorbed a jobs report that was stronger than anticipated a may keep rates higher for longer or hawkish Fed engaged for the time being.  Interest rates also ticked higher as a result, with the 10-year Treasury yield climbing back over 4.2% after dropping to 4.1% earlier this week. Despite this, traders choose to concentrate on the hope that strong job data will overcome the weakening consumer dodging recession worries for 2024.  Today we have a light day on the earnings and economic calendar as we wait for a CPI report on Tuesday a PPI report and a FOMC decision on Wednesday. That uncertainty could produce low-volume chop as we wait. With the rally now nearly two months straight up it may be wise to raise stops to protect positions should the pending data wate up the bears.

Trade Wisely,

Doug

Stocks Rested

Stocks rested though the bears briefly made an appearance after the China credit downgrade but we quickly shook off the mounting debits as traders bought the dip in the tech giant’s.  The labor market data in the JOLTS report pointed to a slowing economy but encouraged the bulls as bond yields fell that additional rate hikes are unlikely.  Today we have more labor data pending in the ADP along with Mortgage, Trade, Productivity, and Petroleum data along with a handful of notable reports to inspire traders.  Corporate buybacks will begin winding down as their blackout period begins next week so plan your risk accordingly. 

Overnight Asian markets shook off the China downgrade with the Nikkei leading the buying up 2.04% with only the Shanghai seeing modest selling.  European markets trade green across the board this morning with the DAX extending its record high. U.S. futures also point to a resurgence of buyers after a brief two-day rest ahead of earnings and economic data. 

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include AI, BF.B, CPB, CHPT, CHWY, DSGX, GME, GEF, OLLI, OXM, SMTC, SPWH, THO, UNFI, VEEV, VRNT.

News & Technicals’

The world is facing a major change in 2024, according to the Danish investment bank. The bank said that the past decade’s trends are coming to an end, and that the future will be shaped by some unexpected events that could have a huge impact on the financial markets. These events are unlikely but possible, and the bank warned that investors should be prepared for them. Some of the events that the bank predicted are: a global cyberattack, a new pandemic, a war between China and Taiwan, a collapse of the European Union, and a massive solar storm. These events could disrupt the global economy, politics, and society, and create new opportunities and challenges for the financial sector.

Generative artificial intelligence, which can create realistic texts, images, and sounds, is attracting a lot of attention and investment from Big Tech companies. However, these models also consume a lot of water, which raises environmental concerns. A study by Shaolei Ren, a researcher at the University of California, Riverside, revealed that ChatGPT, a popular chatbot developed by OpenAI, uses 500 milliliters of water for every 10 to 50 prompts, depending on the location and time of its deployment. The water is needed to cool down the servers that run the model, which requires a lot of computing power. The study suggests that generative AI models should be designed and deployed more efficiently, and that their water footprint should be taken into account when evaluating their social and economic impacts.

The U.S. consumer spending, which has been the main driver of the economic growth, is facing a challenge from the high interest rates on credit cards, according to some economists. Carl Weinberg, an economist at High Frequency Economics, told CNBC that consumer spending is being financed by credit cards, where interest is “over the top, out of control, off the hook right now”. He predicted that consumers will cut back on their spending in the new year, as their debt burdens increase. However, he did not expect this to push the U.S. economy into a recession. Monica Defend, the head of the Amundi Investment Institute, had a more pessimistic view. She said that she sees a coming pullback in consumer spending as sufficient to trigger a recession in the first half. She cited the weak consumer confidence, the rising inflation, and the uncertainty over the fiscal and monetary policies as the main factors behind her forecast.

Stocks rested a second day largely shaking of the credit downgrade of China as the tech giant’s found their footing as buyer bought the dip. The JOLTS report showed signs of slowing economy, weakening bond yields as odds of additional rate hikes shrink. However, some doubts emerged about whether markets are too optimistic about rate cuts with the higher for longer theme gaining some attention. Today traders will look for inspiration in a handful of notable earnings as well as Mortgage Apps, ADP, International Trade, Productivity and Petroleum data on the economic calendar.  Corporate buybacks continue but keep in mind their blackout period is quickly approaching so a last ditch effort may well surge the market higher the rest to of the week.

Trade Wisely,

Doug

Corporate Buybacks

The urgency of corporate buybacks as we near the beginning of the blackout period was not quite enough to recover the early selling with only the IWM managing to close the day in the green.  The rest of this week’s jobs data will be the center of attention as we head toward the market-moving Employment Situation report Friday morning.  Today we will begin with the JOLTS report and a handful of notable earnings to provide bullish or bearish inspiration. However, Moody’s credit downgrade highlighting the weakening economic conditions in China could start the day with some bearish activity so plan your risk carefully.

Overnight Asian markets have had a rough session selling off across the board after a credit downgrade adding the economic concerns in China.  However, European markets trade with modest gains and losses as Ericsson surges while Nokia plunges.  Ahead of earnings and economic reports U.S. Futures point to bearish open.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include AZO, AVAV, CRMT, ASAN, BOX, CNM, PLAY, FERG, GIII, MDB, PHR, S, SIG, SFIX, TOL, & YEXT.

News & Technicals’

Moody’s, a global credit rating agency, has lowered its outlook on China’s government credit ratings from stable to negative, citing concerns over the country’s fiscal, economic, and institutional strength. Moody’s said that China’s government may have to provide more support and bailouts for local governments and state-owned enterprises that are facing financial difficulties, which could weaken China’s fiscal position and increase its debt burden. Moody’s also said that China’s economic growth may slow down further due to structural challenges and external pressures and that China’s institutional capacity may not be able to cope with the rising complexity and risks of its economy. Moody’s maintained China’s long-term rating on its sovereign bonds at “A1”, which is the fifth-highest level in its scale, but warned that it could downgrade it in the future if China’s fiscal, economic, and institutional situation deteriorates.

Some experts believe that the Fed is lagging behind the market expectations and needs to cut interest rates sooner rather than later. Paul Gambles, managing partner at MBMG Group, said that the Fed is behind the curve and that traders are anticipating a 25-basis-point cut as early as March 2024. David Roche, a veteran investor and president of Independent Strategy, said that he is “almost certain that the Fed is done raising rates” and that inflation will not go back to 2% anymore. These views suggest that the Fed may have to adjust its policy stance and communication in response to the changing economic and financial conditions.

Banque Pictet, a major Swiss bank that provides private banking services, has admitted that it helped U.S. taxpayers and others evade taxes by hiding over $5.6 billion from the IRS. The bank has reached an agreement with the U.S. prosecutors to pay about $122.9 million in restitution and penalties and to cooperate with the ongoing investigation. In exchange, the Justice Department will defer the prosecution of the bank for three years and then drop a criminal charge of conspiracy to defraud the IRS, if the bank complies with the terms of the deal. The bank is one of the several Swiss banks that have been accused of facilitating tax evasion by U.S. clients, and the latest to settle with the U.S. authorities.

The S&P 500 ended its five-week winning streak on Monday, with most of the indexes closing lower despite the energy of the corporate buybacks. The best-performing sector was real estate, while sectors that rely on growth, such as information technology and communication services, lagged. Small-cap stocks gained nearly 1% today adding to their more than 3% increase last week. Today’s market movement may reflect some profit-taking in areas like large-cap technology that have driven the market higher in the recent rally. The bulls and bears will look for inspiration in several reports on the labor market, starting with the JOLTS report today. There will also be a dozen or so notable earnings reports that have the potential to inspire price action. The Moody’s credit downgrade of China could make the bears a bit more aggressive so it may be wise to take some profits or raise stoploss orders to protect your capital.

Trade Wisely,

Doug

Declining Market Breadth

Declining Market Breadth

After an energetic gap up to begin the Wednesday session, it faded away after more tough-talking Fed speak to end the mostly flat suffering from low-volume and declining market breadth. Today has the potential to a wild on with Jobless Claims, PCE figures, and a dozen or notable earnings events for investors to decipher.  With pre-market futures pumping hard this morning working to finish the month strong we can’t rule out the possibility of a big point whipsaw so be prepared.  If OPEC decides to cut production in today’s meeting it would be wise to keep an eye on the energy sector as well.

While we slept Asian markets closed the day green across the board despite another month of manufacturing declines in China.  European markets are also bullish this morning as they work to close November strong.  Overnight futures gained strength pointing to a gap up that may well pop the Dow to a new high for the year but be careful the data out this morning could provide considerable price volatility including big point whipsaws.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include ASO, AMBA, AMWD, BIG, CBRL, DELL, DOMO, FRO, KR, PD, RY, TITN, TD, UBS, ULTA, PATH, ZUMZ.

News & Technicals’

Sweden’s bid to join NATO has been delayed by the opposition of two member states, Hungary and Turkey. Sweden, along with Finland, applied to join the military alliance in May 2022, hoping to strengthen their security and cooperation with other European countries. Finland became a full member of NATO in April 2023, but Sweden’s accession has been stalled by the veto of Hungary and Turkey, who have expressed concerns over Sweden’s stance on human rights, migration, and regional conflicts. In July 2023, at a NATO summit, Turkish President Erdogan agreed to lift his veto and allow Sweden to join the alliance, after receiving assurances from Sweden’s Prime Minister Stefan Löfven on various issues. However, the Turkish Parliament still has to ratify the decision, and it is unclear when that will happen. Sweden’s NATO membership remains uncertain, as the country awaits the final approval from its last obstacle.

China’s factory activity contracted for the second consecutive month in November, as the country faced slowing demand and supply chain disruptions amid the COVID-19 pandemic. According to the official manufacturing Purchasing Managers’ Index (PMI), which measures the activity level of large and state-owned enterprises, China’s manufacturing sector shrank to 49.4 in November, down from 49.5 in October and below the median forecast of 49.7. A reading below 50 indicates contraction, while a reading above 50 indicates expansion. China’s non-manufacturing PMI, which covers the services and construction sectors, also weakened to 50.2 in November, from 50.6 in October. The data suggests that China’s economic recovery is losing momentum, as the country faces challenges from domestic outbreaks, power shortages, environmental regulations, and external pressures. China’s central bank has recently taken steps to ease monetary policy and support growth, such as cutting the reserve requirement ratio for banks and injecting liquidity into the financial system. However, analysts expect that China’s growth will remain subdued in the fourth quarter and the first half of 2024.

The Fed may face a difficult decision in 2024, as the market expects it to slash interest rates aggressively to support a weakening economy and a rising unemployment rate. According to Fed funds futures, which reflect the market’s expectations of future monetary policy, the Fed is expected to cut its benchmark rate by 1.25 percentage points in 2024, or five times by 0.25 percentage points each. However, some analysts doubt that the Fed will deliver such a dovish policy stance, as it may have to balance the risks of inflation, financial stability, and policy effectiveness. “The market keeps trying to front-run these rate cuts, only to be disappointed,” said Kathy Jones, chief fixed income strategist at Charles Schwab. The Fed has indicated that it will be data-dependent and flexible in its policy decisions, but it may face challenges in communicating and managing the market’s expectations.

The stock market ended the day mostly flat, whipsawing on low-volume and declining market breadth after attempting a break to a new annual high Dow. However, investors continued efforts to front-run lower interest rates but one might have to consider the hot 5.2 GDP provides the Fed all the coverage it needs to keep rates up. Today, we will look to Jobless Claims, PCE, PMI, Pending Home Sales, and several notable reports to find inspiration to keep the buying party going until the end of the month. It may be wise to keep an eye on the energy sector as well if Thursday’s OPEC+ meeting results in an overall production cut due to the weakening demand. With the big effort to gap the market higher this morning watch for clues of whipsaw from this very extended market condition.

Trade Wisely,

Doug