Is This Good News or a Ruined Shower Curtain?
“It’s not as bad as it could’ve been…”
No one wants to hear that on Valentine’s Day.
The only thing I could imagine worse is, “We had to throw away the shower curtain! The shower curtain!!!”
And that was an unfortunate text I received this morning by a friend whose household is grappling with a horrific stomach virus.
But the market is wrestling with its own mess at the moment.
And that has to do with Consumer Price Index (CPI) data arriving on the scene more dud than stud.
Yesterday, I wrote all the Valentine’s Day action would really unfold by the time most of us had eaten breakfast.
And Cupid’s diaper, it’s been a bumpy ride.
Take a gander at this one-minute chart for the Invesco QQQ Trust (Nasdaq: QQQ) …
Right at 8:30 AM ET (the heart marks the spot), the QQQ starts bucking, and we get some long bars.
That’s the real-time reaction to CPI.
In January, inflation rose 0.5% month-over-month. This was the largest increase since October. Headline CPI grew 6.4% year-over-year with Core CPI (minus food and energy) increasing 5.6%.
Both were above what we were looking for.
Now, there are plenty of talking heads rushing to smear lipstick on this pig. They’re saying, “Oh, it’s not as bad as it could’ve been.”
And truth be told, inflation is cooling.
But this is kind of like Red Hots (the spicy sausages, not the cinnamon candies this time) on your peppermint mocha.
We’re in this delicate moment for the markets.
The Federal Reserve is no longer raising rates at the frenetic pace it was in 2022. We’ve moved into this gentler, kinder phase where the size of the hikes are smaller and there’s actually an end in sight to the increases.
I believe we have one last 25 basis point hike left and then the US central bank stops.
Now, the market doesn’t believe the Fed will raise rates above 5%.
Unfortunately, the norovirus to our shower curtain is this morning’s CPI print (hotter than we wanted) combined with that blockbuster January jobs report that showed companies added 517,000 employees (nearly 3X what was expected).
These reads breed uncertainty. And uncertainty triggers volatility.
I outlined yesterday that the SPDR S&P 500 Trust (NYSE: SPY) and the QQQ have ended the last six CPI data release days higher. This morning, equities have run from negative to positive and back again.
But like the stomach flu, this too will pass. And there will be greener bars ahead.
Enjoy your Valentine’s Day!
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.
Tuesday Earnings After the Closing Bell:
Airbnb (ABNB) – expected move on earnings +/-7.6%. Analysts looking for $1.86 billion in revenue with earnings of $0.25 per share. Shares have risen on the last two fourth quarter earnings reports an average of 8.495%.
Akamai Technologies (AKAM) – expected move on earnings +/-5.8%. Wall Street wants to see $904.75 million in revenue with earnings of $1.27 per share. Shares have fallen an average of 8.25% on the last two fourth quarter earnings reports.
Wednesday Earnings Before the Opening Bell:
Kraft Heinz Company (KHC) – expected move on earnings +/-3.6%. Analysts are looking for $7.26 billion in revenue with earnings of $0.78 per share. Shares have risen an average of 5.23% on the last two fourth quarter earnings.
The Trade Desk (TTD) – expected move on earnings +/-10.9%. Wall Street wants to see revenue grow 24% to $490.49 million with earnings of $0.36 per share. Shares have fallen on the last three earnings releases but have gained an average of 3.6% on the last two fourth quarter earnings reports.
Key Economic Releases for February 15:
8:30 AM ET – Retail sales (est. 1.7%)
9:15 AM ET – Capacity utilization rate (est. 79%; key for US crude oil prices)
© 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.