Hot Hot Hot!!!
“Dancing, screaming, itching, squealing, fevered
Feeling hot, hot, hot
Hot, hot, hot
Hot, hot, hot”
- The Cure, “Hot Hot Hot!!!”
The world has been carpet bombed by disasters for three years.
Massive wildfires. Hurricanes. Earthquakes. Economic collapses. A global pandemic. War in Europe. Central banks around the world raising interest rates at the fastest pace in decades.
It’s been a non-stop parade of confidence-shaking events.
Even the Doomsday Clock has been moved forward to 90 seconds until midnight.
Yet, through all of this and more, the American consumer and the U.S. economy have remained resilient. Of course, as consumer spending touches 70% of U.S. gross domestic product (GDP), where American shoppers go so does the domestic economy.
The problem is: the U.S. consumer refuses to throw up its hands and surrender!
And that’s starting to baffle, as well as frustrate, all those models that forecast a recession in 2023… the most anticipated recession in history!
This morning, we received our third hotter-than-expected economic report in the past two weeks.
Now, just to bring everyone up to speed on our Hot Hot Hot!!! recap…
Hot #1 – The January jobs report on February 3 that showed employers added a bewildering 517,000 jobs… nearly three-times what was expected. The U.S. unemployment rate fell to a 54-year low.
Hot #2 – On February 14, January Consumer Price Index (CPI) data showed inflation increased 0.5% month-over-month, the largest monthly increase since October. Both Core and Headline CPI were hotter than expected.
Hot #3 – This morning, data showed U.S. retail sales in January rose 3%, way more than the 1.7% expected. And it was the largest increase in retail sales since March 2021.
That’s hot, hot, hot! (And you’re welcome to sing that to the tune The Cure or Buster Poindexter… dealer’s choice.)
In a normal world, most of this data would be considered good news. We’d be high fiving each other over how well things are going. And stocks would be zooming higher.
Unfortunately, this isn’t “normal world” times.
We’re in a Federal Reserve rate hike cycle. That’s a Bizarro World era.
During this period, up is down. Good news is bad news. And vice versa.
The U.S. central bank is raising rates to cool down the economy, to increase unemployment so that inflation can get back down to 2%.
Keep in mind, Core CPI (minus food and energy) is at 5.6%. Unemployment is at the lowest level since Neil Armstrong planted his boot on the Moon’s face.
So, there’s still some damage yet to be done.
The market thought we were close to the end of this rate hike cycle. But these Hot Hot Hot!!! economic reads create a smokey haze of uncertainty.
We need bad news. Not good news.
We now know the recession we’ve been patiently waiting for won’t be here in the first quarter of this year. Will it arrive in the second quarter or the third? Or heaven forbid, what if it doesn’t show up at all? The answer isn’t clear.
The most dangerous divergence right now is between where the market and the Fed see the terminal rate. The market refuses to believe the U.S. central bank will raise rates above 5%. The Fed keeps saying, “Oh yes, we are!”
Well, the current effective rate is 4.58%. And every hotter-than-expected economic print pushes the narrative that the Fed might be right… which would be a Bizarro World in itself.
Let’s hope the economic data we have coming up dumps cold water on this Hot Hot Hot!!! streak.
Here’s to high returns,
Matt
What to Watch:
More than 1,000 companies report earnings this week. We can’t cover them all. But here are some key ones I think are worth keeping an eye on.
Morning Movers:
Airbnb (ABNB) – Shares are up 12% on strong earnings. I outlined yesterday the expected move was +/-7.6% with an average move of 8.495% on the last two fourth quarter earnings reports. So, slightly better than anticipated.
Akamai Technologies (AKAM) – Shares are down more than 9% on earnings and a downgrade. I outlined yesterday the expected move was +/-5.8% but that shares have fallen an average of 8.25% on the last two fourth quarter earnings reports. So, the move lower is slightly more than anticipated.
Kraft Heinz Company (KHC) – Shares are up nearly 1% on an earnings beat but disappointing outlook. I outlined yesterday the expected move was +/-3.6% and that shares have risen an average of 5.23% on the last two fourth quarter earnings. So, the move is less than anticipated.
The Trade Desk (TTD) – Shares are up more than 25% on an earnings beat and share buyback. I outlined yesterday the expected move on earnings +/-10.9% and that shares have gained an average of 3.6% on the last two fourth quarter earnings reports. So, the move here was considerably better than anticipated.
Wednesday Earnings After the Closing Bell:
Cisco Systems (CSCO) – expected move on earnings +/-4.5%. Analysts are looking for $13.43 billion in revenue with earnings of $0.85 per share. Shares have risen an average of 2.3% on its last two fiscal year second quarter earnings releases.
Shopify (SHOP) – expected move on earnings +/-8.2%. Wall Street wants to see revenue grow 19.6% to $1.65 billion with a loss of $0.01 per share. Shares have fallen an average of 9.68% on the last two fourth quarter reports.
Thursday Earnings Before the Opening Bell
Datadog (DDOG) – expected move on earnings +/-8.7%. Analysts are looking for $449.31 million in revenue with earnings of $0.19 per share. Shares have risen an average of 4.125% on its last two fourth quarter earnings releases. But they’ve been a split – one up, one down.
Crocs (CROX) – expected move on earnings +/-9.1%. Analysts are looking for revenue growth of 60% to $939.26 million with earnings of $2.26 per share. Shares have fallen on this report every year since 2017. And have averaged a loss of 5.45% on this report since going public.
Key Economic Releases for February 16:
8:30 AM ET – Initial jobless claims (est. 200,000)
8:30 AM ET – Producer Price Index (PPI) final demand (est. 0.4%)
© 2023 Matthew Carr
All rights reserved.
This market commentary is opinion and for entertainment purposes only. The views and insights shared by the author are based on his many years of experience covering the markets. But nothing in this email should be considered personalized investment advice. Investments should be made after consulting your financial advisor and after reviewing the financial statements of the company or companies in question.