You've waited this long. If you thought this Thursday's coming earnings reports to be released by the likes of Alphabet (GOOGL) , Amazon (AMZN) and Apple (AAPL) were crucial, you'd be right. If you thought this Friday's coming survey results from the Bureau of Labor Statistics -- that we now know to be wildly inaccurate -- monthly labor market report were important, you'd be right. However, neither of those is this week's "Main Event"... OPEC, take a number, you'll have to get in line.
Everyone just drop right stinking now and give me at least 50. If you must do this in sets, so be it. I don't see any other way to go about this. Still reading? When I say "Move", I don't want to see anything except you people pushing. I'll wait here. Now, "Move" !!!
Ahhh...
I don't know about you, but I feel better. Rock and Roll. For today, is Fed day. Nothing in the world is like "Fed" day. Except maybe Fed Day with the also always wildly inaccurate FOMC quarterly economic projections. We won't have those to study/mock today, so we're just going to have to grab this market by the throat and find a way to beat a daily living out of it. Yet Again.
So, rock on, my band of loyal warriors. Rock on and rejoice. For today you may win and you may lose, but you will be granted opportunity. One more chance (thank you, dear Lord) at excellence. One more chance to be great. One more or one last chance to reach our individual and collective potential. Who amongst us could possibly ask for more than that? Onward. Upward.
Holy Tuesday, Batman !!
Wow. I did not see that one coming. Don't get me wrong. I'm grateful. Grateful as heck. (For those following on Twitter, I did get flat McDonald's (MCD) by day's end. That was a good one.) What a day. I mean, we all knew that it was the final day of the month. It had been a good month. Talk about a mark-up. Gee whiz.
I was thinking we might see some profit taking ahead of the Fed on thinning volume. Wrong !! Instead there was one of the most enormous, or maybe multiple, buy programs that I have seen, unleashed across our beloved marketplace into and on the close and in response to those published imbalances. The marketplace ran wild.
The S&P 500 ran 1.46% on Tuesday to finish January up 6.16%, as the Nasdaq Composite popped for 1.67% on Tuesday to close out the month up 10.66%. It gets even better, The Dow Transports screamed up a monstrous 3.47% on Tuesday, and now stands up 9.36% "year to date". Even better than that. and even after a basket of mixed results (Three cheers for Advanced Micro Devices (AMD) ), the Philadelphia Semiconductor Index scored a one day gain of 1.93% yesterday to close out January up a scorching 15.39%, easily taking its place as the hottest index in the land. Second place went to the KBW Bank Index, which is up 11.97% in 2023.
Can it last? Probably not, but in all fairness, I have been repeating this mantra for a couple of weeks now. All 11 S&P sector SPDR ETFs scored victories on Tuesday, led north by Discretionaries (XLY) and Materials (XLB) as those two funds were up 2.29% and 2.2%, respectively. The Utilities (XLU) may have finished in last place on the daily performance tables but still managed to tack on an impressive 0.74%.
Now for the fun part. Breadth. Winners beat losers by a rough 11 to 2 at the NYSE and by more than 3 to 1 at the Nasdaq. Advancing volume took an 89.4% share of composite NYSE-listed trade and a 77.4% share of that metric for Nasdaq-listings. The best part was the trading volume. Aggregate trading activity increased 23.1% day over day for names domiciled at the NYSE and by 11.2% day over day for those stocks that call the Nasdaq home.
In addition, trading volume across the S&P 500 landed well above its 50 day trading volume moving average, and appeared to confirm the reversal day of January 20th. However, while Nasdaq Composite based trading volume also exceeded its 50 day trading volume SMA (simple moving average). Tuesday was only the sixth busiest day across that index in the past eight business days, making it much less impressive.
I would say that we are now in a healthy bull market if I were only to look at S&P 500 volume trends. However, despite the outperformance of Nasdaq Composite over the S&P 500 year to date, volume trends there do not confirm what we are now going through a "true" bull market, but merely a shorter-term uptrend.
In reality, what happens next is up to how the FOMC messages its intent this afternoon.
The Conundrum
The FOMC, we are sure, can see that the Cleveland Fed is showing a likelihood of increased month over month consumer level inflation both at the headline and at the core for January. We are sure that the FOMC understands that the reopening of the Chinese economy threatens to reignite global commodity inflation.
Yet, we also know that the FOMC has placed a priority upon slowing down labor market demand and as a subcomponent of or expression of that demand, slowing wage growth. Though it never developed, there was a real fear earlier in 2022 that at that time rising inflation would be reinforced by a rising wage hike spiral.
Labor market demand has come off the boil rather quickly in recent months even if there has not been much evidence seen in the unemployment and underemployment rates. Year over year wage growth has either come lower or stayed flat from the month prior (according to the Bureau of Labor Statistics) for nine consecutive months, printing at 4.6% in December, down from 5.6% at its apex in March 2022. At the same time, average weekly hours, which is a far more important metric for measuring labor market demand than it gets credit for, printed at 34.3 hours in December, down from its apex of 34.7 hours back in February 2022.
Flash forward to Tuesday, January 31st, 2023. The Bureau of Labor Statistics went to the tape, this time with its Employment Cost Index for Q4 2022. The numbers were softer than projected, which added some muscle to the end of month rally across financial markets. The index hit the tape at growth of 1.0% q/q versus expectations of 1.1%. This was the third consecutive quarter of decelerating growth for employment costs here in the US, down from a peak of 1.4% for Q1 2022. Even better, not for workers, but for markets, when broken down, wages grew 1% for the fourth quarter, down from growth of 1.3% for Q3, while benefits grew 0.8% for the period, down from 1% for the quarter prior.
It would appear that the economy has regained its hold over payroll and payroll-related costs as it edges either into or very close to recession. Now, it's up to the Fed. I am on the record as having stated (over and over) that the Fed needs/needed to pause -- probably back in November -- in order to avoid what now seems likely. Does what is probably a more dovish voting composition of the FOMC see the oncoming headlights in the tunnel?
Or do they still fear the same inflation that was more a result of a pandemic, a war in Europe and excruciatingly sloppy fiscal discipline in Congress than anything they were capable of doing or preventing at the time. Oh, the Fed was the great enabler, so they are not guilt-free, and they were slow to recognize that inflation would be more than transitory. (In all honesty, as an economist, I was nearly as slow as they were to see this in real-time. Obviously, that last Covid fiscal package was pure foolishness.)
All that said, the question is this: Does the Fed feel compelled to overreact to the current economic landscape, and thus compound past mistakes made? The answer to that question might just be the answer to everything.
Welcome Back
Readers may have noticed that for the week ending January 25th, according to Kastle Systems, a security firm that tracks office occupancy levels through an index of 10 major US cities, folks are back to on-site work. The index shows that occupancy across those 10 cities hit 50.4% for that week. This was the first week that more than half of US workers went to work instead of working off-site since the start of the pandemic. All 10 cities saw at least 40% of workers "show up" which was also a post-pandemic first.
New York City, for those interested because of its importance to the financial services industry, clocked in at 47.5%, which was below average. Of the 10 cities, Austin, Texas led the nation in showing up for work at 68%, while the San Jose, California area, including Silicon Valley, finished last at 41%.
Where Is Ford Motor?
As readers are well aware, it has been some time since we got behind, or invested in Ford Motor (F) . We have always thought of CEO Jim Farley as one of the most enthusiastic business leaders in the country. It is quite obvious that Farley loves cars. He loves manufacturing vehicles. He loves selling vehicles. He is, at least to this author, one of a handful of CEOs that I find it easy to root for.
What now?
What now is that Ford has followed Tesla (TSLA) in cutting prices on electric vehicles? What now, as Ford reports on Thursday afternoon, likely to be lost in the mega-cap shuffle that Thursday promises to be? What now, as Ford reports in the wake of what was perceived as positive guidance for adjusted profitability and positive cash flows at key rival General Motors (GM) earlier this week?
Expectations for Ford for the quarter are for GAAP EPS of $0.63 on revenue of $40.75B. That number would be good for year over year growth of 7%. That, however, will not be enough. Farley is going to be the star of the Ford show on Thursday afternoon. He is going to have to demonstrate that Ford can reduce costs not only for its continued move into focusing on electric vehicles, but across the entire business. This is going to include payroll expenses, which will be difficult.
Readers will see that resistance at a 38.2% retracement of the stock's January 2022 through July 2022 selloff was close to precise.
Since that rejection, the stock has put in a double bottom reversal with a $14.50 pivot. That would be positive and probably place the target price for the letter F up around $17.50.
But, what if this is a triple bottom? The lows of July, October and December are all in-line with each other. Some folks think that if a door is knocked on often enough, it will open. That would be negative. That said, the majority of triple bottoms resolve in a bullish manner. In fact, this may be (perhaps) more bullish than our standard double bottom reversal, but only if trading volume ebbs throughout the pattern. This, it has.
The pivot would be resistance. That could still be $14.50, but it also could be $16, which is where the stock stalled in August. That would put a suggested target price for Ford Motor at a rough $20.
Now, looking over at TipRanks over the past three months, new target prices for Ford Motor have averaged $15.80. Much less aggressive. Regardless of how this name is sliced, it appears at least to me to set up for a moderate move higher in price. Given that the stock ran 4.8% on Thursday, I think I will wait until we hear from Jerome before going out on kind of a limb. Food for investment (not trading) thought.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.2%.
07:00 - MBA Mortgage Applications (Weekly): Last +7.0% y/y.
08:15 - ADP Employment Report (Dec): Expecting 165K, Last 235K.
09:45 - S&P Global Manufacturing PMI (Jan-F): Flashed 46.8.
10:00 - ISM Manufacturing Index (Jan): Expecting 48.0, Last 48.4.
10:00 - JOLTs Job Openings (Dec): Last 10.458M.
10:00 - JOLTs Job Quits (Dec): Last 4.173M.
10:00 - Construction Spending (Dec): Expecting -0.1% m/m, Last 0.2% m/m.
10:30 - Oil Inventories (Weekly): Last +533K.
10:30 - Gasoline Stocks (Weekly): Last +1.763M.
The Fed (All Times Eastern)
14:00 - FOMC Policy Decision.
14:30 - FOMC Press Conference.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (MO) (1.16), (HUM) (1.47), (PTON) (-.64), (TMUS) (1.06), (TMO) (5.22)
After the Close: (LSTR) (2.60), (MCK) (6.36), (META) (2.22), (QRVO) (.63)
(GOOGL, AMZN, AAPL, and F are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.)
