In a nice reversal from last week’s worst market showing since mid-December, the major indices started the new week yesterday on a hesitant note, but then took off to the upside and never looked back. As a result, they closed near their best levels of the session.
The Dow ended with a closing gain of 376 up to 34,245 led by advances in CRM, HD and MSFT as it rebounded from a late in the week slump. The S&P jumped by 46 up to 4138 as it got some help from some of the larger technology stocks that bounced back as well, such as META while TSLA had the nerve to end lower for the second day in a row.
The Nasdaq did the best as it usually does on higher days with a 173 point advance up to 11,891 as it got help from some of the above-mentioned names plus NFLX and NVDA as well. The Russell 2000 Index ended up by 22 to 1941 while the VIX edged lower as it should on a higher day to finish at 20.34.
Today is the big day ahead of the January C.P.I. report which is supposed to show further cooling of the inflation numbers and the expectation is for a 6.2% advance while the core rate excluding food and energy is projected to gain by 5.4% and any deviation either way could result in what everyone thinks is going to take place, so we will see how this goes. The headline number would be down from 6.5% a month before and from a peak of more than 9% last summer. Perhaps more important than the overall number is what the data show specifically about prices for services outside of housing, such as haircuts or airfares. Inflation has remained stubbornly high there, while it has started to come down in other areas.
Everyone agrees that inflation is heading in the right direction. The question is how quickly and steadily it will come down to the Fed’s target of 2%, and what that means for when the Fed will pause its hikes to rates and eventually begin cutting them.
Treasury yields jumped last week after investors pulled their forecasts for rates closer to the Fed’s. The central bank has been consistently saying it plans to keep rates higher for longer to ensure the job is done on inflation.
Yields were mixed Monday ahead of the report as the 10-year Note dipped to 3.70% from 3.75% late Friday. The two-year yield remained at 4.54% and close to its highest level since November.
All the worries about inflation and rates are happening against the backdrop of a decidedly lackluster earnings reporting season. Companies in the S&P are on track to report a nearly 5% drop in earnings for the final three months of 2022 compared with a year earlier.
Pessimism is also building about earnings for the first three months of 2023, with forecasts coming down even as the S&P is ahead by 7.8% so far this year.
FIS tumbled despite reporting slightly stronger profit and revenue for its latest quarter than expected as it gave a forecast for 2023 results that fell short of expectations, and it said it will spin off its Worldpay merchant business after acquiring it in a deal less than four years ago.
Earnings reports this week include: yesterday – CAR higher and FIS lower; today – PLTR, MAR higher while Dow component KO is lower; tonight – ABNB, DVN; Wednesday – Dow component CSCO plus ANAL, ET, KFT, SHOP; Thursday – AMAT, HAS; Friday – DE.
Economic reports will be the main focus this week with: today – the big one with January C.P.I., estimated to be up by 6.2% while the core rate is supposed to be at 5.4% and the numbers came in slightly higher than expectations at 0.5% for the month and 6.4% yearly while the core rate was 0.4% monthly and 5.6% year over year, January small business index optimism; Wednesday – January retail sales, January industrial production and capacity utilization; Thursday – January P.P.I., January housing starts, weekly jobless claims; Friday – January L.E.I.
Donald M. Selkin
Chief Market Strategist
Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.