Stock bulls are hoping to extend the positive start to 2023 after all three indexes climbed more than +1% in the first week of the new year. Bulls were happy to see an optimistic US labor report last Friday, along with weakening inflationary data, and a reopening of the Chinese economy.
The monthly US jobs report appeared to move all in the right direction, with more jobs being created than expected, a lower unemployment rate, a better labor participation rate, and a slowdown in wage growth.
Bulls are also pointing to accumulating signs of “disinflation” data that they believe will lead to less aggressive Federal Reserve policy in 2023. Net-net, the market is now thinking the Fed will hike rates by just 25 basis points in both its February and March meetings. If this is how it plays out, the early 20-23 rate hikes will take the Fed Funds to 4.75-to- 5.00%.
Also, keep in mind, the market is still thinking the Fed might have to “pivot” and cut rates by late 2023. Outside the US, bulls are looking at the Chinese reopening and the fact tens of thousands of travelers have started flying in and out of the mainland.
This weekend as Beijing removed almost all of its border restrictions, bringing an end to pandemic measures that effectively sealed off the world’s most populous nation from the rest of the world for three years.
China is also said to be relaxing borrowing caps and other restrictions for property developers which some bears worry could spark a spike in commodity prices. Other strategists disagree, noting that while activity will probably increase across all sectors, it will likely be gradual and remain subdued because China is not handing out stimulus money.
Some also expect China’s full reopening will help ease many of the remaining supply chain snags and serve as a further global disinflationary force. Lots to debate surrounding the Chinese economy and reopening.
Data to watch
This week the traders will be focused on today’s New York Fed comments and projections regarding inflation. Fed Chair Powell is expected to speak at a Riksbank event in Stockholm on Tuesday. The trade isn’t expecting Powell to say much about US policy, especially ahead of the highly anticipated CPI inflationary data scheduled for release Thursday morning.
Then on Friday, Q4 earnings season kicks-off with results due out from Bank of America, BlackRock, Citigroup, Delta Airlines, JPMorgan Chase, United Health Group, and Wells Fargo. It’s worth noting that analysts have sharply cut Q4 earnings expectations with consensus now anticipating earnings for S&P 500 companies will fall -2.2%.
As in the past few reporting seasons, investors will be paying very close attention to the impact of higher costs on corporate margins and looking to reward the companies that have taken steps to successfully protect profits.
Investors are also keeping an eye on Brazil where civil unrest has been brewing over the country’s recent presidential election that saw Luiz Inacio Lula da Silva defeat Jair Bolsonaro. Protestors stormed Brazil’s Congress and presidential offices on Sunday to protest what they falsely claim was a stolen election. The buildings have since been secured but there is obviously a risk that the unrest could escalate, potentially disrupting Brazil exports. Buckle-Up, early-2023 looks like it is going to be a wild ride…
Bulls Are Hoping to Extend the Positive Start
Wishing you a great week!
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