Transcript

Shiny And New. · ANGLES.

0:01
SPEAKER_00: Shiny And New, my weekly market review, January 28th, 2024.
0:08
SPEAKER_00: A steady stream of earnings reports last week, along with continued positive economic and inflation data, set up the stock market for another shift higher.
0:17
SPEAKER_00: But it all felt a bit forced, with small incremental gains rather than solid leaps forward.
0:24
SPEAKER_00: There's a sense that markets may have hit an air pocket in their upward glide path as we wait to see if rising large cap stocks can pull the rest of the market up with them.
0:35
SPEAKER_00: Even in the face of further hostilities in the Middle East and a resulting firmness in the oil price, Monday saw the S&P 500 add to its all-time highs set the previous Friday.
0:47
SPEAKER_00: on optimism surrounding upcoming tech earnings later in the week and momentum from the previous Friday's big gains.
0:56
SPEAKER_00: The session was also notable for an impressive turnaround in recently beaten down small cap stocks, which quite handily outperformed their large cap cousins on the day.
1:06
SPEAKER_00: On Tuesday, stocks remained stuck in a narrow range as Wall Street tried to drink from a firehose of very mixed earnings reports from many of the big dogs.
1:17
SPEAKER_00: While also keeping an eye, okay maybe just half an eye, on the New Hampshire Republican primary that day.
1:25
SPEAKER_00: The indexes still managed to creep a little higher, thereby setting yet another all-time record closing high in the S&P 500.
1:31
SPEAKER_00: It was a similar story on Wednesday.
1:35
SPEAKER_00: After a bubbly start, stock prices retreated and spent most of the day hugging the unchanged line.
1:41
SPEAKER_00: Again, some decent earnings provided some support, but the feeling is developing that it's going to take something shiny and new to trigger the next meaningful leg higher.
1:52
SPEAKER_00: With GDP and PCE inflation coming out before the end of the week, there was a chance that we might just get that, but no one seemed particularly willing to bet big time on it.
2:03
SPEAKER_00: Nevertheless, a teeny gain on Wednesday for the S&P 500, helped partly by the European Central Bank holding interest rates steady over there, saw yet another new all-time record-closing high for that index.
2:18
SPEAKER_00: The Nasdaq 100 also climbed for the fifth successive day, reflecting renewed optimism in the tech space.
2:27
SPEAKER_00: By the time the market opened on Thursday, we had learned that Tesla suffered dismal revenues and profits in Q4 2023 relative to expectations, along with a gloomy projection of notably slower growth in 2024.
2:42
SPEAKER_00: Wall Street was distinctly unimpressed and trashed the stock by 12% in the matter of hours.
2:50
SPEAKER_00: However, on a more general note, we also saw the first of three estimates for Q4 2023 Gross Domestic Product, GDP, come in way higher than expected at a 3.3% growth rate versus the expectation of 2% and a rest of 2023 total growth rate of 2.5%.
3:09
SPEAKER_00: This sparked something of a rally in stock prices with an increase in optimism about earnings in a much more buoyant than expected economy.
3:19
SPEAKER_00: Markets still seem convinced that interest rate cuts are coming sometime this year, regardless of economic data.
3:26
SPEAKER_00: On Friday, the pre-market release of the Fed's preferred method of measuring inflation, the Core Personal Consumption Expenditures Price Index for December, showed an increase of 0.2% on the month and fell to 2.9% on a yearly basis.
3:43
SPEAKER_00: That's a three-year low and less than 1% above the Fed's target rate.
3:48
SPEAKER_00: keeping the debate alive about whether officials will soon cut interest rates.
3:54
SPEAKER_00: The S&P 500 seemed to not really know how to react and just waffled around most of the day.
3:59
SPEAKER_00: By the close, it had slipped less than 0.1% on the day, finally ending its streak of consecutive record high closes.
4:09
SPEAKER_00: Focus continued to be on big company earnings reports.
4:12
SPEAKER_00: Disappointment from Intel got severely punished, but on the other hand, American Express's stock price soared to a new all-time high after strong 2024 guidance and a dividend increase.
4:24
SPEAKER_00: Despite Friday's less decisive performances, all the major indexes posted weekly advances.
4:32
SPEAKER_00: So what is currently keeping Wall Street traders up at night?
4:37
SPEAKER_00: I know I keep saying it, but this market is very vulnerable to a substantial decline should economic data start to point towards any kind of a hard landing, which to be clear, it is not doing right now.
4:50
SPEAKER_00: That statement is especially true given 1. the nearly universal expectation that there will not be a hard landing
4:59
SPEAKER_00: 2.
4:59
SPEAKER_00: The stock market, especially in large caps, is very stretched on a valuation basis at these current prices.
5:08
SPEAKER_00: It's still too early to draw any conclusions about growth from this earnings season.
5:13
SPEAKER_00: Mega cap tech earnings will still dominate the narrative.
5:17
SPEAKER_00: So far though, non-tech earnings and guidance are echoing what we're seeing in the broader data, that economic growth is definitely moderating.
5:28
SPEAKER_00: We're starting to witness cracks and some significant divergences within the group of so-called Magnificent Seven stocks that have driven the rally over most of the last year.
5:38
SPEAKER_00: For example, NVIDIA is up over 20% so far in 2024, but with last week's terrible performance, Tesla is now down 26% over the same period.
5:51
SPEAKER_00: That's more than $200 billion of the company's value wiped out in four weeks.
5:57
SPEAKER_00: Also of some concern is the fact that the probability that interest rates will be lower than now after the May Fed meeting slipped below 100% certainty for the first time.
6:09
SPEAKER_00: Futures market probability also now favours an end-of-year Fed funds interest rate of 3.875%, which is 1.5% lower than where we are now, but a quarter of a percent higher than where the expectation was just the previous week.
6:26
SPEAKER_00: I've now started tracking this important market assumption each week in my newsletter.
6:32
SPEAKER_00: The stock market was described by one analyst last week as being like a runaway train.
6:37
SPEAKER_00: He added, a runaway train usually does go off the rails in the end, but it can travel a long way before that happens.