Some of the shine of the relentless bullish rally quickly faded yesterday as the inflation report surprised to the upside dashing hopes of rate cuts early this year.  Treasury yields surged higher with 10-year coming near this year’s high spiking the VIX sharply as investors grappled with high stock valuations in light of the new data.  Plan for price volatility to be high as we deal with a significant number of earnings reports, Mortgage Apps, Petroleum Status, and Fed Speakers.  With a very busy economic calendar on Thursday and the uncertainty of the pending PPI Report on Friday be prepared for challenging price action as we head for a 3-day weekend.

Overnight Asian markets that were not closed for the Lunar Holiday closed lower in reaction to the U.S. inflation data. However, European markets trade modestly higher this morning after the U.K. reported their inflation of 4% even with their last reading.  The U.S. futures also look higher this morning trying to relive some of the painful decline of yesterday ahead of earnings and economic data.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include CSCO, ALB, ATUS, AWK, AM, AR, APP, ACGL, AVNT, CNQ, CVE, CEVA, CF, CRL, CHEF, CC, CME, CNHI, CDNT, ET, EQIX, FSLY, AG, FCPT, FNV, GNRC, GPN, HL, HLF, HUBS, INFA, IQV, FROG, KGC, KRNT, LAD, LPX, MGY, MTW. MFC, MLM, NROS, NUS, OXY, OC, PGRE, PSN, PTEN, QS, RGLD, R, SAGE, SU, SUN, TMHC, TSEM, TRIP, TWLO, UPWK, VECO, WCN, WMB, & WH.

News & Technicals’

Lyft, a ride-hailing company, saw its stock price surge by 16% in premarket trading on Wednesday after it reported better-than-expected results for the fourth quarter of 2023. However, the company also admitted that it made a serious mistake in its press release, which overstated its earnings outlook for 2024. The company initially said that it expected its adjusted earnings margin to grow by 5% in 2024, but later corrected it to 0.5%. The company apologized for the error and said it was due to a typo.

Airbnb, the online platform for renting and booking accommodation, delivered a strong performance in the fourth quarter of 2023, surpassing analysts’ expectations. The company reported $2.22 billion in revenue, up 22% year-over-year, and said that its guest demand was robust despite the pandemic. Airbnb also expressed confidence in its outlook for the first quarter of 2024, projecting a revenue growth of 25% to 30%. The company attributed its success to its resilience, innovation, and diversification of its offerings.

The U.K. inflation rate remained unchanged at 4% in January, as the cost of furniture and household goods, food, and non-alcoholic drinks eased. However, the core CPI measure, which strips out the volatile components of food, energy, alcohol, and tobacco, was still high at 5.1%, slightly below the expected 5.2%. According to Marion Amiot, a senior European economist at S&P Global Ratings, this reflects the tightness of the labor market, which is driving up wages and inflation, especially in the service sector.

The stock market plunged on Tuesday, but recovered some losses by the end of the day, as the January U.S. CPI inflation report surprised to the upside. Annual inflation was 3.1%, higher than the expected 2.9%, and disappointing the market, crushing rate cut anticipations. Treasury bond yields were up sharply, with the 10-year Treasury yield rising by 0.13% to around 4.31%, close to its yearly peak. This also weighed on stock indexes, which fell by more than 1% each. The Nasdaq, which has more technology stocks, trailed the wider S&P 500, dropping by about 1.8%. The VIX volatility index, which measures Wall Street’s “fear level,” jumped by about 18% to around 16.5. Today traders and investors will have a slew of earnings to navigate along with Mortgage Apps, Fed Speakers, Petroleum Status, and a short-term Bill Auction.  However, traders should keep in mind we have a very busy economic calendar on Thursday as well as the uncertainty of the pending PPI report on Friday.  Plan for volatility to be high and expect big whipsaws as the market tries to come to grips with the economic reality of the longer-than-hoped-for inflation fight.

Trade Wisely,

Doug