The U.S. stock market suffered a setback on Friday as inflation numbers spiked higher than expected, causing concern among investors. The Federal Reserve’s preferred measure of inflation, core PCE, surged 0.6% month-over-month and 4.7% year-over-year, both of which exceeded the forecasts of analysts.

These figures underscored the Fed’s need to continue its ongoing battle against rising consumer prices, a task that has been anything but easy.

In other words, the Fed will likely remain hawkish for the near future.

As we near the end of earnings season, it seems that the majority of companies have weathered the macroeconomic storm better than anticipated.

Despite the first signs of a recession that is currently rather mild, more than 90% of companies have already released their annual figures for 2022, and the vast majority seem to be handling the challenges well.

It’s a relief to see that the market is proving to be more resilient than expected in the face of such adversity!

That being said, I do believe there is a GREATER chance of another market drop than a sudden bull run if the Fed doesn’t suddenly change its mind.

GDP Down On Consumber Spending

Hold onto your hats, folks, because we’ve got some news from the Bureau of Economic Analysis that might just make your head spin! According to the BEA’s second estimate, the economy grew at a seasonally adjusted annual rate of 2.7% in Q4 of 2022.

While that might sound good at first glance, it’s actually a deceleration from the 3.2% pace set in the third quarter, and a slight drop from the first estimate of 2.9%. What’s more, the GDP grew by 2.1% for the entirety of 2022, which is a significant drop from the 5.9% growth seen in 2021.

The downward revision was primarily due to a revision in consumer spending, which dropped from a 2.1% rate to 1.4%. Given that household spending accounts for around 70% of U.S. economic activity, that’s a pretty significant hit.

However, business investment partially offset the decline, growing at a 3.7% pace compared to a previously reported 1.4%. Inflation also rose at an annual 3.7% pace in the fourth quarter, which is down slightly from the 4.3% seen in Q3.

Existing Home Sales Drop

If that wasn’t enough to make your head spin, we’ve also got news from the National Association of Realtors that existing home sales fell by 0.7% in January to a seasonally-adjusted annual rate of 4.0M. That’s a staggering 36.9% decrease compared to January 2022, and marks the twelfth consecutive month of declining sales.

Single-family home sales fell to a 3.59M annual rate, down 36.1% year-over-year, while existing condo sales dropped to a 401K annual rate, down 43.1% year-over-year.

New Home Sales Collapse

But wait, there’s more! The U.S. Census Bureau has reported that sales of newly built homes increased by 7.2% in January from an upwardly revised December rate of 625,000. While that might sound like good news, prices actually fell, with the January seasonally adjusted annual rate of 670,000 down 19.4% from a year earlier.

It’s a lot of information to take in, but it’s clear that the housing market is facing some challenges at the moment. Will things turn around soon, or will the downward trend continue? Only time will tell!

Budget Battle: Get Ready For Volatility, But Unlikely Long-Term Issues

The mere thought of a government shutdown or default is enough to send shivers down the spines of investors, but fear not! History has shown us that the short-term impact of these events is usually limited. Sure, previous instances of government shutdowns and debt ceiling debates have led to some short-term market volatility, but the overall impact on the economy has been minimal.

While it’s true that investors should expect some short-term volatility in the event of a government shutdown or default, it’s essential to remember that the long-term economic fundamentals are unlikely to be affected. Don’t let short-term market gyrations lead you astray, my friends!

Hitting the debt ceiling may seem like a dire situation, but fear not, for the U.S. government has a few tricks up its sleeve. Policymakers have a variety of tools at their disposal to prevent a default, such as moving money from one account to another or prioritizing certain payments over others.

As history has shown us, the U.S. government has always managed to avoid defaulting on its debt, and there’s no reason to believe that this time will be any different. So, rest assured, my friends, the government is unlikely to default on its debt, even in the face of a debt ceiling crisis.

CALENDAR & EVENTS

• Monday, February 27: Durable Goods Orders (MoM) (January)
• Wednesday, March 1: ISM Manufacturing PMI (February)
• Earnings
• Debt Ceiling Fight
• US-China Trade War

There are a handful of key events to keep your eyes on, so buckle up and get ready for some serious action.

First up, we’ve got the US durable goods orders hitting the scene on Monday. Then on Tuesday, the Conference Board’s US consumer confidence index is set to take center stage.

But wait, there’s more! Wednesday will bring the final ISM manufacturing indexes for February, followed by the first estimate of Eurozone inflation in February on Thursday. And just when you thought it was over, Friday will end the week with the final February PMI indexes and the American counterpart, the ISM services index.

Earnings

On Monday, February 27, we’ll be focusing our attention on Li Auto (LI) and Occidental Petroleum (OXY). But that’s just the tip of the iceberg, folks!

Tuesday, February 28, is going to be an absolute whirlwind of excitement, featuring a whole host of titans like Target (TGT), Bank of Montreal (BMO), AutoZone (AZO), J.M. Smucker (SJM), HP (HP), Coupang (CPNG), Ross Stores (ROST), Rivian Automotive (RIVN), and AMC Entertainment (AMC).

Wednesday, March 1, is going to be an absolute doozy, featuring Lowe’s (LOW), NIO (NIO), Dollar Tree (DLTR), Kohl’s (KSS), Royal Bank of Canada (RY), Salesforce (CRM), Splunk (SPLK), and Snowflake (SNOW). And let’s not forget to keep an eye out for potential fireworks with Tupperware Brands (TUP).

Thursday, March 2, is sure to knock your socks off with Kroger (KR), Anheuser-Busch InBev (BUD), Best Buy (BBY), Macy’s (M), Six Flags Entertainment (SIX), Costco (COST), Broadcom (AVGO), Dell (DELL), and C3.ai (AI) all vying for our attention.

Last but not least, Friday, March 3, will feature the spotlight shining on Hibbett (HIBB).

Dividend Spotlight

First up, we’ve got Advance Auto Parts (AAP) making waves by raising their payout from $1.50 to a whopping $1.75! That’s right, you heard it here first – Advance Auto Parts is ready to make it rain for investors.

But that’s not all, because we’ve also got Travel + Leisure (TNL) getting in on the action with a bump up to $0.45 from $0.40. That’s a 12.5% increase, folks!

And let’s not forget about Best Buy (BBY), because they’re bringing the heat with an increase from $0.88 to $0.97. That’s a 10.2% increase, and it’s sure to have investors salivating at the prospect of big returns.

So buckle up, investors, because next week is going to be a wild ride full of thrills and chills as these companies make moves to boost their dividend payouts and bring home the bacon for their shareholders.

BONDS

Investors wasted no time pushing up government bond yields throughout the week. The PCE annual increase of 5.4% against 5.00% had a limited impact on long-term yields (10 years or more), but the US 2-year yield is approaching its March high of 4.80%. The 2/10 spread remains stubbornly inverted, signaling a potentially gloomy future, as the underperformance of the S&P 500 perfectly illustrates. Meanwhile, the German Bund yield remains mostly unchanged, hovering close to its resistance line since October, around 2.55%, with 3.01% in sight in case of an overflow.

COMMODITIES

OIL & ENERGY

U.S. oil inventories have increased for the ninth consecutive week, leading to falling prices at $82.50 and $76 per barrel for European Brent and U.S. WTI, respectively. Investors expect a more hawkish Fed, penalizing risk assets, including oil. In Europe, natural gas is stabilizing around EUR 52/MWh for the Dutch benchmark.

PRECIOUS METALS & GOLD

The price of copper on the London Metal Exchange has once again settled above USD 9,000. However, Canadian company First Quantum suspended operations at its Cobre Panama copper mine, one of the largest mines in Central America, due to a dispute with the Panamanian government. In precious metals, short-term gold is down another week at USD 1820 due to the surge in bond yields.

CRYPTOCURRENCY

Bitcoin is down 2% this week and is back below $24,000, with digital currencies stalling in a macroeconomic environment that still doesn’t fully support risky assets. The good news about cryptocurrency adoption is not enough to entice investors, so the monetary policy pivot of central bankers is eagerly anticipated to give crypto-assets a much-needed boost.