What a Bummer… Things are Going Great
We’re in a nightmare scenario for investors...
The good news keeps rolling in.
It just won’t stop!
It’s one gusher after another of positive economic data. And, for Peter Parker’s sake, that’s just not what we need right now.
First, less people lost their jobs than were supposed to!
Initial jobless claims were 194,000. That’s shy of the 200,000 expected.
Even worse? There were fewer first time jobless claims than last week.
Despite the tens of thousands of layoffs in recent months, most employers are holding on tightly to their talent.
Then to make matters worse, that silly “transitory” inflation won’t go away.
The Producer Price Index (PPI) rebounded 0.7% in January after falling 0.2% in December. PPI is now up 6% year-over-year, higher than the 5.4% economists had expected.
This is a worst-case scenario: the labor market is strong and inflation is persistent.
Combine that with strong retail sales numbers from yesterday… it’s a horror show.
Remember, we’re in a “good news is bad news” environment.
A couple weeks ago I began pointing out investors were ignoring the Wall Street maxim, “Don’t fight the Fed.”
Investors decided, “Wisdom and adages are for suckers! We’re straight up fighting the Fed!”
The thesis being the economy is slowing, inflation is cooling, corporations are “right-sizing” their workforces and Americans are pulling back on their spending.
The Federal Reserve has already slowed rate hikes from 0.75% to 0.50% to 0.25%.
And next logical step in this progression is the long-awaited pause. So, investors have been pushing the market higher, trying to front-run this inevitable pause.
The Fed keeps insisting, “higher rates for longer.”
But the market believes this is a bluff. Tough speak from a bunch of nerds.
Well, there’s a tantrum being thrown this morning by investors as it’s dawning on them that… gasp!... the Federal Reserve may be right.
The U.S. economy is still too strong… The labor market is humming along… And there’s a lot more work on interest rates to be done.
And now we all feel really dumb.
But here’s the deal… this embarrassment is fleeting. So, use that to your advantage.
Yes, the market has dipped heavy – initially – each day on every nightmarish piece of good news. But then it finds its footing and races higher to end the session. These horrific positive economic data prints are creating perfect “buy the dip” opportunities.
So, when the next piece of good news rolls in, and investors throw up their arms and scream, “No! No! Not again!” Buy that dip and cash out with a nice gain in time for a cocktail at 4 o’clock.
It’s a bummer things are going so great. But we don’t have to let it ruin our 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.
Morning Movers
Cisco Systems (CSCO) – Shares are up 4.5% on a revenue but and a strong outlook. I outlined yesterday the expected move on earnings was +/-4.5% but that shares have risen an average of 2.3% on its last two fiscal year second quarter earnings releases. So, this move to the upside was dead in line with the trend and expectations.
Shopify (SHOP) – Shares are down more than 14.5% on a weak outlook. I outlined yesterday that the expected move on earnings was +/-8.2% but that shares have fallen an average of 9.68% on the last two fourth quarter reports. So, this move lower was in line with the trend though larger than expected.
Datadog (DDOG) – Shares are down 3.5%. I outlined yesterday that the expected move on earnings was +/-8.7% but that shares have risen an average of 4.125% on its last two fourth quarter earnings releases, though they’ve been a split – one up, one down. So, the move this morning is less than expected.
Crocs (CROX) – Shares are up 8.9%. I outlined yesterday that the expected move on earnings was +/-9.1%. But that shares have fallen on this report every year since 2017. So, this move is in line with the +/-9.1% expected, but the fact it was to the upside goes against the long-term trend on fourth quarter earnings.
Thursday Earnings After the Closing Bell:
HubSpot (HUBS) – expected move on earnings +/-7.5%. Analysts are looking for $445.58 million in revenue with earnings of $0.82 per share. Shares have risen an average of 9.16% on its last two fiscal year second quarter earnings releases.
DraftKings (DKNG) – expected move on earnings +/-9.3%. Wall Street wants to see revenue grow 69% to $800.23 million with a loss of $0.59 per share. Shares have fallen an average of 7.6% on the last two fourth quarter reports.
Friday Earnings Before the Opening Bell
Deere & Company (DE) – expected move on earnings +/-3.6%. Analysts are looking for $11.28 billion in revenue with earnings of $5.56 per share. Shares have risen an average of 3.46% on its last two fourth quarter earnings releases. But they’ve been a split – one up, one down.
AutoNation (AN) – expected move on earnings +/-5.1%. Analysts are looking for revenue to decline 1% to $6.52 billion with earnings of $5.83 per share. Shares have fallen an average of 2.44% on the last two fourth quarter earnings releases.
Key Economic Releases for February 17:
8:30 AM ET – Import price index (est. -0.1%)
© 2023 Matthew Carr
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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.