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Is Bad News finally Bad News?
Soft landing? That’s the market consensus. I am not buying it. For example, retail data for December was horrible – it’s third straight month of declines. Are US consumers tapped out? Their savings rates are now at all time lows? Keep your eye on credit quality – how is that looking?
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)
It’s Earnings Season – Will They Meet Expectations?
Earnings seasons starts this week (Friday) with the banks. Across all sectors – analysts expect earnings to expand by 4% in 2023 – or around $230 per share for the S&P 500. If we don’t experience a recession – this feels probable. However, that’s the question – are we likely to experience a contraction? If so, it’s most unlikely we will see expansion – which implies the S&P 500 feels expensive around 4100.