Recession Fears Are Mounting, Buyers Beware

Banks got us started last week as another wave of companies are due to report this week

Author

Mark Roussin
January 16, 2023

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Market Talk ⏪

Last week the big banks officially launched us into the Q4 earnings season, which began the day with recession fears, but things turned around by the close of the day. Also last week investors got some positive CPI data that showed another dip in inflation, albeit slight (falling an ENTIRE 0.1%), but that was enough to move markets higher during the session. However, it is important to note that inflation is still up 6.5% year over year.

This week we get even more earnings reports from companies in various industries, which should give investors a little better idea of the coming/pending recession.

The stock market has gotten off to a solid start to the year, with the S&P 500 up over 4% already this year and the Nasdaq up nearly 6%. The Vix, which tracks near-term volatility is trading below 20, which if you are using the 2022 playbook still, this has been an ideal time to sell stocks. Looking at this chart over the past year, you see how any time the Vix has dropped below 20, stocks peaked and began to sell-off shortly after.

Will this trend continue in 2023? This will be known very soon.

In terms of bank earnings, we saw Bank of America and JPMorgan Chase both beat earnings, meanwhile the other big banks missed. However, the common theme amongst the banks was the continued money being set aside as part of credit loss reserves, indicating the institutions are becoming more and more concerned and prepared for a recession.

The story continues to be less about IF a recession is going to take place and more about WHEN a recession is going to take place. We continue to see more companies announce coming layoffs as well. There was a report last week stating that Goldman Sachs is expected to cut “thousands of jobs” which could equate to as much as 8% of their workforce. I have been mentioning this in recent editions, but I fully expect an uptick in unemployment by the end of January.

We have already seen a dip in the economy as a whole, but this quarter could be the confirmation that a recession is indeed starting to impact companies, which would lead into an “earnings recession.” The US has never had a recession without an earnings recession.

Earnings commentary from management will be key as will commentary around the strength of the consumer. Procter & Gamble reports this week and we should get some information out of them that could be useful.

In addition to some key earnings reports, we also have a lot of economic data coming across this week in addition to a number of Fed officials scheduled to speak, which is the final week as they enter a dark period leading up to the next Fed rate hike decision on Feb 1.

Given the start to the year, and considering the poor earnings that are expected in the near term, this rally feels unsustainable, making it feel more like a dead cat bounce. These types of unreasonable bounces often happen during bear markets, and I believe the markets will change course soon as volatility creeps higher.

My plan in the week ahead is to trim some of my winners and to sell some covered call positions within the S&P 500, meaning I am looking to gain from a falling market.

In international news, China continues to see HUGE increases in COVID cases just as they have been easing restrictions in the region. China reported (take it with a grain of salt) that over 60K people have died in hospitals since they have began easing restrictions last month. China and Japan both saw increases in inflation, as this problem has been a global issue.

Deep Dive 📰

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Last week I dropped my latest Deep Dive on Johnson & Johnson. Check it out here.

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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 get off to a great start to the year, which has reversed this index from Fear a few weeks back to Greed today. Currently, the index has a reading of 63, which is an increase from the prior week reading of 46.

Earnings on Deck 💰

Big banks got earnings started last week and the Q4 season continues this week with even more earnings coming across the tape.

We will be working on some write-ups after key companies report.

Notable Analyst Updates 📝

  • Piper Sandler cut PT on shares of Microsoft to $247.

  • Barclays cut PT on shares of Constellation Brands to $278.

  • Wells Fargo upgrades shares of AT&T to BUY and increases the PT ot $22.

  • Barclays cust PT on shares of Apple to $133.

  • UBS cuts PT on shares of General Electric to $87.

This Week 📆

Monday

  • MLK Day (Markets closed)

Tuesday

  • Empire state manufacturing

  • New York Fed President John Williams

Wednesday

  • Retail sales

  • PPI

  • Business leaders survey [January]

  • Atlanta Fed President Raphael Bostic

  • Industrial production [December]

  • St. Louis Fed President James Bullard

  • Business inventories [November]

  • NAHB survey [January]

  • Kansas City Fed President Esther George

  • Beige book

  • Philadelphia Fed President Patrick Harker

  • TIC data [November]

  • Dallas Fed President Lorie Logan

Thursday

  • Initial jobless claims

  • Housing starts [December]

  • Philadelphia Fed manufacturing [January]

  • Boston Fed President Susan Collins

  • Fed Vice Chair Lael Brainard

  • New York Fed’s Williams

Friday

  • Philadelphia Fed’s Harker

  • Existing home sales [December]

  • Fed Governor Christopher Waller at CFR

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 discuss 3 Cheap Dividend Stocks To Buy Now:

I also recently published a video covering Utilizing A Roth IRA | How To Setup A Roth IRA:

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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