Don't dine too long at Goldilocks' table
DJI up slightly; S&P 500, Nasdaq both down slightly
Healthcare is weakest S&P 500 sector; industrials lead gainers
Dollar edges down; gold, bitcoin rise slightly; crude off >1.5%
U.S. 10-Year Treasury yield falls to ~3.46%
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DON'T DINE TOO LONG AT GOLDILOCKS' TABLE (1330 EST/1830 GMT)
Markets have served up quite a risk-on porridge early in the new year, in anticipation of an eventual end to the Fed's rate-hiking cycle, and the potential for the economy to see a soft landing.
With this, the consensus appears to be shifting from expecting a U.S. recession toward a more constructive outlook for the global economy.
However, in his latest "Deliberations," Bob Doll, chief investment officer at Crossmark Global Investments, says that "few hold our inflation view, which is that it will prove sticky and hold well above central bank targets."
Thus, Doll believes that the "Goldilocks" outcome that is required for risk-on conditions to continue is unlikely to last for more than the next few months.
Doll says that expectations for improvement in both the European and Chinese economies are increasingly being seen as sufficient to counter sluggish conditions in the United States. However, Doll believes it will dash hopes for a reversal in this rate-hiking cycle.
According to Doll, the key to sustaining the risk-asset rally is a goldilocks scenario coupled with continued calm in bond markets, along with improving global economic activity.
Doll's bottom line is that "such an outcome will not persist indefinitely, and we expect the consensus low-inflation and soft-landing view to prove misplaced. The rotation in performance in favor of non-U.S. equities and currencies is expected to prove durable."
(Terence Gabriel)
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ADJUSTING TO THE UNCERTAINTY (1217 EST/1717 GMT)
While investors have a lot to be wary of in 2023, AllSpring Global Investments senior investment strategist Brian Jacobsen takes a look at how the market, the economy and the Federal Reserve might act in the year ahead.
First off, his analysis suggests that inflation should end the year below 3%, but that the Fed might be open minded about whether it hikes rates again after the quarter of a percentage point increase he expects in February.
"If they hike too much, they need to cut sooner and that would be bad for their credibility. Moving slower should allow them to hold rates at cruising altitude for longer," writes Jacobsen.
Sure, the strategist is projecting a recession in April/May but expects a "fairly mild" one that only lasts until October.
Jacobsen notes that while things are bad economically on a global basis they are "somewhat better than we feared."
On the plus side, he points to China's re-opening, a milder winter than expected, so far, and a "stubbornly strong consumer."
So how does one plan for what the strategist describes as a "messy macroeconomic mosaic."
While the traditional 60/40 portfolio split did horribly in 2022, it could make a comeback this year, according to Jacobsen. He likes cyclical areas such as small cap and mid cap value stocks combined with large cap growth and prefers emerging markets to developed markets.
He is eyeing two potential opportunities. In the last 10 years, he cites currency as the explanation for half of emerging market underperformance relative to U.S. equities as the dollar strengthened. But he thinks this may change with currency "becoming neutral-to-additive to emerging market performance."
Also in 2023, he sees potential opportunity in adding duration, as in longer-term bonds, back to portfolios as Fed rate hikes will likely end as inflation likely falls and growth is "highly uncertain."
But Jacobsen was quick to point out that "tactical ideas can change quickly."
Still he says, while the 2023 macroeconomic picture might not improve that much "at least markets have had an opportunity to adjust to the uncertainty of a rather somber growth and inflation outlook."
(Sinéad Carew)
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FLASH PMI: COULD BE WORSE (1055 EST/1555 GMT)
U.S. business activity is celebrating the new year by contracting.
S&P Global's January "flash" purchasing managers' indexes (PMI) for the manufacturing USMPMP=ECI and services USMPSP=ECI sectors both landed south of the magic level of 50, the PMI dividing line between expansion and contraction.
Glass-half-full types will be quick to point out that neither reading was as weak as analysts expected, with manufacturing coming in 0.8 points above consensus at 46.8, and services delivering reading of 46.6 significantly less dire than the economist forecast of 45.
Even so, it's hard to put a positive spin on economic contraction.
"The US economy has started 2023 on a disappointingly soft note, with business activity contracting sharply again in January," writes Chris Williamson, chief business economist at S&P Global. "Although moderating compared to December, the rate of decline is among the steepest seen since the global financial crisis."
"Companies cite concerns over the ongoing impact of high prices and rising interest rates, as well as lingering worries over supply and labor shortages," Williamson adds.
Another worrisome aspect of the report is input costs, snapping a seven-month downtrend, ticked higher - not a welcome development just days before Powell & Co convene to determine the effect of its restrictive interest rate policy on decades-high inflation.
High prices, tightness in the labor market, and softening demand are common themes in fourth-quarter reporting season thus far.
Analysts now expect aggregate S&P 500 earnings coming in 2.9% below the year-ago quarter, worse than the 1.6% year-over-year decline seen on Jan. 1, per Refinitiv.
Economic data this week is back-end loaded, with GDP, PCE and durable goods waiting in the wings, all of which are likely to provide the FOMC plenty of conversation fodder next week before announcing a widely expected 25 basis point interest rate hike.
Wall Street stumbled through the starting gate in the red, dragged lower by downbeat earnings and complicated by a series of NYSE-listed trade halts at the opening bell in an apparent glitch.
Homebuilders .SPCOMHOME, airlines .SPCOMAIR and banks .SPXBK are among groups providing glimpses of green.
(Stephen Culp)
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U.S. STOCKS DIP IN EARLY TRADE(1022 EST/1522 GMT)
U.S. stock indexes are dipping early Tuesday as corporate reports from bellwethers including 3M MMM.N, Johnson & Johnson JNJ.N and GE GE.N pushed earnings season into high gear, while chip companies retreated after bouncing in the previous session.
A majority of S&P 500 .SPX sectors ere red with energy .SPNY taking the biggest hit. Real estate .SPLRCR and financials .SPSY are slightly green.
Chips .SOX are pulling back, off less than 1%. Banks .SPXBK are slightly positive.
Meanwhile, the SPX, now around 4,000, is attempting to use the broken resistance line from its early-January 2022 record high as support. That line now comes in around 3,992. The 200-day moving average (DMA) comes in around 3,963, while the 233-DMA is around 4,025.
Here is a snapshot of where markets stood around 45 minutes into the trading day:
(Terence Gabriel)
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AEROSPACE AND DEFENCE IN EUROPE AT 3-YEAR PEAK, NOW WHAT?(0933 EST/1433 GMT)
Aerospace and defence is the only industry in Europe that still hasn't recovered entirely from the COVID-19 stock market damage, but its dramatic outperformance since the invasion of Ukraine by Russia has helped speed things up.
The sector's index .SXPARO has risen 19% in the past year helped by expectations of fatter defence budgets and is now hovering at its highest level in almost 3 years, just a couple of percentage points away from pre-pandemic levels.
With the milestone within reach, analysts are wondering whether there is still any upside left given the sharp move. In the same period the pan-European STOXX 600 .STOXX equity benchmark has lost around 4%.
Exane is constructive but believes things may get trickier.
"Investing in A&D in 2023 is a more complex proposition," it said, although it still sees strong value across the sector, singling out France's Thales TCFP.PA and Safran SAF.PA along with Germany's Rheinmetall RHMG.DE as top picks.
The French bank said the momentum still favoured aftermarket names with Safran "at the top". "We see the plans for c.20% aftermarket growth in the sector as conservative given the pricing tailwind and catch-up in airline's spending."
Bernstein too remains positive on both commercial aerospace and defense, although it cautioned earlier this month that any repeat of the strong stock trends seen last year will depend on the upside potential in 2024 budgets.
(Danilo Masoni)
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NOT YET THE TIME TO FRET ABOUT DEBT CEILING, BUT RISKS LOOM (0920 EST/1420 GMT)
The United States hit its debt ceiling last week, forcing the Treasury to launch extraordinary cash management measures that can likely prevent a debt default until early June.
Most estimates put the deadline to raise the debt ceiling into the summer before the government is unable to make payments on Social Security, Medicare, military salaries and interest or principal on debt.
The extraordinary measures and the April tax receipts should allow the Treasury to finance operations until the summer, said analysts at Societe Generale in a note, adding that weak tax revenues, however, could pull the "X-date" forward to June.
The debt ceiling debate, nevertheless, has begun to heat up, as a divided Congress and growing risks of political brinkmanship bring the issue into spotlight.
"We do not see major economic risks, but a technical default and the approach of the X-date could be disruptive for the markets," added the Societe Generale analysts in a note.
Investors are demanding higher yields on some Treasury bills, as signs of worry start to show in financial markets.
"If investor confidence becomes sufficiently shaken, reduced demand could lead to higher borrowing costs not just for the government, but for corporations and individuals too, since Treasury yields often act as the basis from which many other bonds price," according to strategists at Glenmede.
In 2011, political gridlock in Washington over the debt ceiling sparked a stock sell-off and took the U.S. to the brink of default.
Congress becoming mired in an argument on whether or not to raise the country's debt ceiling would hurt the U.S. economy, said Jonathan Lavine, co-managing partner at private equity firm Bain Capital.
(Bansari Mayur Kamdar)
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CHIP INDEX FLASHES BULLISH LOOK (0900 EST/1400 GMT)
Chip stocks are off to a strong start to the year. The Philadelphia SE Semiconductor index .SOX is up 16% so far in January. On Monday, it ended at a five month high.
With this, the index appears to have a constructive chart pattern in the works:
After losing nearly half its value from its early 2022 record intraday high into its October intraday low, an inverse head & shoulders pattern, also called a head & shoulders bottom, appears to be completing, suggesting the downtrend is reversing.
The index, which ended Monday at about 2,935, is breaking above the pattern's neckline at around 2,930, on a weekly basis.
It now remains to be seen if bulls can clearly take control of the trend, leading to a strong upward thrust. The pattern projection can suggest an advance to around 3,870, which could see the index near its 4,068 record high.
A lack of upside momentum as the neckline is taken out, ultimately leading to a break of the right shoulder's December low, at 2,445, can suggest the pattern has failed.
Meanwhile, of note, since around the time the SOX hit its October lows, equipment makers have sharply outperformed chip makers:
This turn came just several months after President Biden signed the Chips Act, which seeks to bolster the U.S. semiconductor supply chain and promote research and development.
More recently, over the past several weeks, chipmakers are trying to re-assert themselves. Nvidia NVDA.O and Synaptics SYNA.O are the top performing SOX stocks so far this year. However, it remains to be seen if the ratio can reclaim its descending 50-day moving average.
Separately, chip stocks rose on Monday after Barclays provided upbeat commentary on the sector after what it says was the worst correction since the tech bubble of the late 1990s.
Last week, Bernstein stated confidence in chipmakers which have significantly reduced their earnings forecasts.
(Terence Gabriel)
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FOR TUESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE
SOX01242023https://tmsnrt.rs/3j4hvC0
SOXCVE01242023https://tmsnrt.rs/3Ra8Hab
Aerodefencehttps://tmsnrt.rs/401z1ao
earlytrade01242023https://tmsnrt.rs/3RieWsN
Flash PMIhttps://tmsnrt.rs/3H1U8kh
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
