Investors Wait For Data and Earnings (Wall Street Cheat Sheet)

The markets were up last week, but investors are being pulled by fear of a recession and fear of missing out (FOMO). Much of the near future stock market performance is directly related to whether the Fed will continue to raise (hawkish) or will they, pause or even drop rates (dovish).

I think the Federal Reserve rate decision is like turning an aircraft carrier; all turns require a vast amount of time, space, and planning. In addition, the Fed would over-correct for inflation rather than under-correct. 

In other words, the Fed fears rising inflation more than an economic downturn. 

We saw last week that many large corporations are already laying off. An Example is Google which let go of 12,000 workers (roughly 6%) without notice. A Google manager I know told me many workers had been there for ten-plus years, and this was more than just cutting bloat.

An economic recession is coming if not already here. How long or the extent still needs to be determined.

Some positives, such as the reopening of China and recent climbs in the stock market, could lessen the fall.

However, investors will likely see a drop in equities as earnings start. 

Real estate and REITs are likely to remain BEARISH for some time. Expect REITS to stop paying or collapse.

Gold and cash will likely outperform all assets for the next 1-2 years. Don’t be surprised to see 4% at your local bank or credit union. 

High-quality dividend stocks are also likely to outperform. The primary with many dividend stocks is that they are overpriced because they pay dividends. I recommend looking at the current rate, the growth rate of the dividend, and the company. A company I am watching is Verizon.

Did Saudi Arabia end the petrodollar? 

Saudi Arabia may have sounded the death knell for the petrodollar’s exclusivity as we previously knew it. This is just the first of several dominoes that must fall before the United States is financially exposed as the emperor without the clothes.

Before I go any further, I am NOT saying the US Dollar is going away tomorrow, but instead, there is a strong possibility of a decline in coming years.

According to the kingdom’s finance minister, Saudi Arabia is open to conversations about commerce in currencies other than the US dollar, Bloomberg reported on Tuesday, reiterating Mohammed Al-remarks. Jadaan’s

There are no concerns with debating how we settle our trade agreements, whether it be in the US dollar, the euro, or the Saudi riyal, Al-Jadaan said in a Davos interview with Bloomberg. We are not ignoring or excluding any conversation that could enhance global trade.

At Davos, the admission was made in full view of the globe on a public stage. It took little tea-leaf reading to determine what these comments meant. The kingdom would have made it clear that it was committed to supporting the US and the currency. Al-Jadaan chose to celebrate the nation’s ties with China, which had asked to settle oil transactions in yuan last year.

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“We enjoy a very strategic relationship with China, and we enjoy the same strategic connection with other countries, including the US, and we want to develop that with Europe and other countries who are ready and able to engage with us,” Al-Jadaan continued his interview with Bloomberg.

It is worth noting that China’s ongoing gold stockpiling and Treasury bond sales clearly indicate that the nation is getting ready for war or to threaten the US currency. China has recently purchased 100 tons of gold.

CEOs and economists prepare for a recession.

73% of the 4,410 company leaders polled by PricewaterhouseCoopers LLP in October and November of last year projected that global growth would slow down over the next 12 months.

Since the consulting company started conducting polls in 2011, the reading was the worst. … 

Two-thirds of chief economists polled by the Forum predicted a global recession in 2023 as companies cut expenses, and 18% said such a downturn was “very likely.” These two studies are only two of many recent ones that demonstrate how most business executives and economists anticipate a recession.

In addition, anticipating is mitigation, as Ken Fisher, founder and executive chairman of Fisher Investments, has noted. “Expectations of a slowdown are baked into predictions because people have seen it coming for a long time,” stated Bob Moritz, global chairman of PwC, according to this quote. Bosses are more concerned about the economy now than they were during the financial crisis of 2008, but they are more optimistic that their businesses will handle this slump.

The largest annual decline in US retail sales; declining inflation

According to the paper, the findings “place consumer spending and the entire economy on a lower growth path heading into 2023,” with the Fed’s rate increases allegedly sapping retail sales and industrial production, which fell -1.1% m/m and -0.7%, respectively.

However, indications looking backward only tell you what has already happened, not what customers or companies will do in the near future. Additionally, due to distortions brought on by the epidemic, some categories—most notably auto sales and production—have been a little off for a while.

Sales were down in December, probably partially due to lower product prices. Shopping for the holidays was also pushed ahead into October as shoppers took advantage of sales being given by merchants. December’s cold spell probably affected sales, particularly in pubs and restaurants. 

Lower gas prices also negatively impacted sales, which affected service station receipts. Additionally, spending is returning to services, and the last portion is generally undervalued. Manufacturing accounts for only approximately 11% of GDP, and less than half of all consumer expenditure comprises retail sales.

We don’t rule out the potential of a recession right now. Markets will immediately release Q4 GDP and December personal consumption expenditures, which will better indicate how the economy fared and anticipate three to thirty months.

CALENDAR & EVENTS

  • Thursday, January 26: GDP (QoQ) (Q4)
  • Friday, January 27: Pending Home Sales (MoM) (December)
  • Fed Talk
  • Debt Ceiling Fight

The Lunar New Year will have an impact on Asia this week. In mainland China, stock markets will be closed all week, while Hong Kong stock markets will only be open on Thursday and Friday. On Tuesday, the first Western PMI indicators for 2023 are anticipated. On Wednesday, the Ifo confidence index for January in Germany will be released.

The first estimate of Q4 2022 GDP and durable goods orders will be released on Thursday, followed by PCE inflation and the second reading of the University of Michigan confidence index on Friday.

BONDS

The bond markets continued to fall towards the end of a short week in the United States n the absence of important macroeconomic data.

The US 10-year yield challenged its December lows at 3.40/3.35% after struggling at 3.90% at the beginning of the month. Over the upcoming few weeks, the primary emphasis will be this support zone, which also correlates to the base of the ascending channel that has been in place since March 2022.

On the other hand, the yield on the German 10-year bond is back in contact with its 34-day moving average, a barrier at roughly 2.16%, and came very near to hitting 1.93%, at least temporarily.

COMMODITIES

OIL & ENERGY

The highlight of this week for the oil markets was the publication of the International Energy Agency’s (IEA) monthly report. The IEA thinks that since Beijing accounts for nearly half of the world’s demand, the relaxation of health restrictions in China should spur the global market. In 2023, the demand is anticipated to increase by 1.9 million barrels per day.

On this premise, the global oil demand will reach 101.7 Mbps in 2023, a level that has never been achieved. The Agency does, however, view China as a wild card because the speed at which its economy is restarting might dramatically skew these projections.

US WTI and northern European Brent crude oil prices increased slightly to $86.50 and $81 per barrel, respectively. The Rotterdam TTF for natural gas is still under pressure at about EUR 60/MWh despite the onset of winter on the Old Continent.

Precious Metal and Gold

The base metals sector is still upbeat, and China’s reform movement is fueling the surge in metal prices. The copper price has reached nearly $9,500 per metric ton and is currently trading above $9,000. Gold is set for another weekly rally in precious metals at $1930.

CRYPTOCURRENCY

Since January 1, Bitcoin has recovered more than 28%, making this year’s start the greatest since 2015. The digital currency stabilized this week after a tremendous burst the previous week. As of this writing, it is hovering around $21,000.

For its part, the market capitalization for all cryptocurrencies is gradually getting close to $1 trillion. However, despite the current recovery cheering up crypto investors, the industry is still far from recovering from the terrible 2022.

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