CPI and Q4 Earnings In Focus For Stocks This Week

We get fresh data on CPI this week as well as Big Banks starting off the Q4 earnings season

Author

Mark Roussin
January 09, 2023

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Market Talk ⏪

A crucial week for stocks as we get some fresh CPI data and we begin to hear from businesses regarding the Q4 earnings season. With that, I full expect volatility to creep back into the markets, as the VIX has been quiet of late hovering in the low $20s.

Inflation numbers come on Thursday and it is expected to be the driving force behind any moves in the market. Option traders should tread lightly when trading prior to this data reading.

In the most prior week, we got some data regarding the labor market which showed unemployment numbers remain very low, which continues to be a very strong labor market. However, investors cheered the slowdown that was seen in the wage gains during the month of December. Analysts were expecting 5% wage growth, but the data showed 4.6%.

The wage growth slowdown is what investors were cheering on Friday when we saw the Dow Jones Industrial surge 700 points to close out the week.

So what now?

All the attention reverts back to CPI and the impact the rate hikes are having on inflation. We just went through a year in which the Federal Reserve hiked rates faster than we have ever seen before. We saw over 400 points of rate hikes in 2022 and that will continue in the first half of 2023.

The labor force has been one of the last straws that Fed Chair Jerome Powell is trying to crack, as he and his colleagues believe that an uptick in unemployment is what will really have the biggest impact on bringing inflation back down to the Fed’s internal goal of 2%.

This will be a very interesting earnings season, as the slowdown in earnings will begin to be reflected and analysts will begin pulling their 2023 estimates down. This is a time when volatility can creep back up. Again, this is just week 1 of the Q4 earnings season, so we still have a few days, but as we begin to get more and more Q4 releases, that is when investors need to buckle up.

There are plenty of deals to be had out in the market, but you really need to ask yourself how patient are you willing to be. What is your time horizon? If you are an investor with a less than 5yr horizon, you may want to be much more patient, but if you are an investor with say a 10+ year investing horizon, taking small nibbles at some of these high-quality names is exactly what I am doing. Maintaining a nice chunk of dry powder for when we get that capitulation moment.

Again, I prefer time IN the market rather than trying to time the market.

Given the rise in rates, we have also started seeing some nice high-yield savings account offerings as well. These are great alternatives for the low savings account rates we are accustomed to. If you money is sitting in your savings account, why not have it accruing some high interest. I recently opened up a Marcus by Goldman high-yield savings account that has me earning over 4% interest to get started. If you are interested, here is the link to the account I am using.

A trend that I believe will pickup steam here in January is the increase in layoffs. We have seen some announcements in recent months, but now that the holidays are behind us and a new year has begun, companies will be dead set on cutting costs with the expected slowdown in the economy here. Last week, Salesforce announced a 10% cut in their workforce, with Amazon increasing its layoff total to 18K.

In international news, China is dealing with surging COVID cases once again as it begins to re-open its economy, which has had a positive impact on stocks with China exposure.

Inflation is not just an issues in the US, it is a global problem. Last week, Europe announced December inflation of 9.2%, which was below expectations of 9.7%, and down from a reading of 10.1% in November.

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US Markets 🇺🇸

Here is a performance summary for US Equities:

Here is a look at US Treasuries:

The Fear & Greed Index measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.

When it comes to the Fear and Greed Index, we have seen the S&P 500 find some support over the past few weeks, which has brought this index back to neutral, up from fear levels seen in recent weeks. Currently, the index has a reading of 46, which is an increase from the prior week reading of 37.

Earnings on Deck 💰

Big banks kickoff the VERY important Q4 earnings season on Friday.

We will be working on some write-ups after they drop the numbers.

Notable Analyst Updates 📝

  • Wells Fargo downgrades Cigna to hold and lowers PT to $355.

  • Barclays increases PT of Exxon Mobile to $129.

  • UBS with a big downgrade of Microsoft from Buy to Hold and lowering the PT to $250 from $300.

  • Wolfe Research with a double-downgrade of Morgan Stanley from Buy to Sell.

  • UBS double-downgrades Honeywell to Sell from Buy lowering PT to $193

  • Bank of America increases PT for shares of Merck to $130 and upgrades the stock to a Buy.

  • Wells Fargo downgrades Target shares to hold and cuts the PT to $142.

  • Barclays increases PT of Starbucks to $121. Guggenheim increases PT to $103 but rates the shares a Hold.

  • Deutsche Bank cuts PT of Wells Fargo to $50.

This Week 📆

Monday

  • New York Fed Survey of Consumer Expectations

  • Atlanta Fed President Raphael Bostic

  • Consumer credit

Tuesday

  • NFIB survey

  • Fed Chairman Jerome Powell in Stockholm on central bank independence

  • Wholesale trade

Wednesday

Thursday

  • Philadelphia Fed President Patrick Harker

  • Weekly jobless claims

  • CPI

  • St. Louis Fed President James Bullard

  • Richmond Fed President Tom Barkin

  • Federal budget

Friday

  • Import prices

  • Consumer sentiment

  • Minneapolis Fed President Neel Kashkari

  • Philadelphia Fed’s Harker

  • Boston Fed President Susan Collins

Other Resources 📺

If you have not done so yet, definitely check out my growing YouTube community where I publish weekly videos on Dividend Stocks I am looking at.

Here is a look at my latest video in which I some BIG Dividends you could receive from these 3 High-Yield Dividend stocks:

I also recently published a video covering 5 of my favorite ETFs for 2023:

Here are a few others of my latest videos:

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Have questions? You can email me directly at [email protected].

Happy Investing!

Mark

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