About 100 of the 500 S&P companies have reported Q4 2022 earnings. TL;DR is they are ‘average’ at best. Most have barely met already lowered expectations. What’s more, forward guidance is weak. However, the bulls are betting on inflation continuing to plunge forcing the Fed to cut rates later in the year. I’m not yet prepared to support that thesis… with services inflation still running at 5.2%. There are some signs things are improving.
Peeling the Inflation Onion
Fed President John Williams uses the analogy of an onion when describing inflation. For example, the outer most layer consists of commodities. The middle layers consists of goods. However, the inner most layer – its core – consists of services. And it’s services inflation which generates inflation inertia. And that’s the mechanic which the Fed are exclusively focused on…
December CPI – The Good and the Bad
There was a little of something for the bulls and the bears with December’s monthly inflation report. On the surface, inflation is coming down. However, if we look underneath the hood, most of that inflation is goods. Services inflation however remains doggedly high (i.e. wages). And whilst goods inflation could fall to “zero” – if services inflation remains twice the Fed’s 2.0% objective – they will continue to tighten (even if that means simply holding rates at a higher level)
Fed Gets Green Light… Market Thinks Otherwise
The market ripped higher on news of a softer-than-expected wage inflation report. But haven’t we seen this script before? Markets have a recent history of front-running the Fed… only to be bitterly disappointed. From my lens, nothing in this print changes the script for the Fed. And markets are not set up to hear that…
For a full list of posts from 2017…