Stock traders seem to be reassessing the landscape that some want to believe has shifted amid signs of declining inflation.


Federal Reserve officials are acknowledging last week’s lower-than-expected Consumer Price Index, calling the October read “encouraging.” Fed Vice Chair Lael Brainard went so far as to say it would “soon” be appropriate for the Fed to “move to a slower pace of rate increases,” which allow what the Fed has done already to work its way through the system. However, Brainard and other officials also continue to stress that the Fed has additional work to do and warn that rates will likely move higher and stay there longer than currently projected.

Many stock bears are pointing out that no matter what the Fed does, corporate earnings in the quarters ahead are likely going to suffer as borrowing costs remain at elevated levels, high inflation continues to erode margins, and the ongoing pullback in consumer spending dents sales growth.

2023 forecasts 

Bears further note that consumer confidence is growing more fragile with the housing market in decline and inflation stubbornly holding on. Couple that with more interest rate hikes to come and the squeeze on spending power from high energy prices expected this winter, bears believe that the prospects for consumer spending over the holidays and the first part of 2023 are deteriorating fast.


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Many Wall Street insiders are also a bit nervous about weaker forecasts for 2023 that will continue rolling out in the days and weeks ahead.

Morgan Stanley yesterday issued a warning that earnings expectations remain too high and forecast the S&P 500 will be down near 3,000-3,300 by the end of Q1 2023 amid a much deeper “earnings recession.” Analysts at Goldman Sachs said in a recent research note that they lowered their 2023 earnings growth forecast for S&P 500 companies to 0%, from a previously expected increase of +3%, noting that “weak” third-quarter margins presage “a headwind” next year.

Nearby, investors are highly anxious to see Q3 results from Advanced Auto Parts, Home Depot, Lowe’s, Walmart, Target, Macy’s, Kohl’s, Foot Locker, and Ross Stores this week which brings in a wave of retailer earnings. Remember, Target and Walmart are considered “bellwethers” for the retail sector as well as the wider economy so investors will be paying very close attention to their details. 

I suspect Home Deport and Lowe’s will also be highly scrutinized. There’s also some important tech earnings out later this week that will include Cisco, Nvidia, Palo Alto Networks, etc.

Data to watch 

In economic data, Empire State Manufacturing and the Producer Price Index are both out today. As for the war in Ukraine, President Volodymyr Zelenskyy triumphantly walked the streets of the newly liberated city of Kherson last night, hailing Russia’s withdrawal as the “beginning of the end of the war,” but also acknowledging the heavy price Ukrainian troops are paying in their grinding effort to battle back. 

As for China, we continue to see data that confirms more of an economic slowdown. Three indicators on China’s economy in October missed expectations and marked a slowdown from September, according to data released overnight by China’s National Bureau of Statistics.

At the same time, there’s talk that Covid is really spiking in Beijing and the southern city of Guangzhou. There’s talk that virus testing requirements to enter some public venues in the capital city have again tightened in the last few days.

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