The US primaries are upon us, with Republicans in Iowa deciding who their candidate will be in the upcoming presidential election.
Or perhaps more accurately: Choosing who will come in second to Donald Trump, and at what terrifying, as-yet-unknowable personal cost.
And I guess by how much will be interesting to find out too.
Nikki Haley or Ron DeSantis? The answer is still relevant as it also yields one of these characters a seat at a unique table – where they’ll be the final remaining human alternative to another Trump date with the incumbent tearaway Joe Biden in New Hampshire.
The Week on Wall St
In New York on Friday, Wall Street stocks ended like Coke Zero at a bad party.
Mixed with something volatile, but flat. And badly in need of a sugar hit.
Of the three major averages, the S&P 500 claimed best on field with a thrilling 0.08% gain.
The Dow Jones lost 0.31% and the tech heavy Nasdaq Composite stuck its head above the producer price (PPI) parapets by 0.02%.
Those glamour numbers followed Wall Street’s first batch of big bank Q4 corporate earnings reports and the aforementioned PPI data which dropped with a surprise to the softer side.
Bank of America (-1%), Wells Fargo (-3.3%) and JPMorgan (-0.7%) declined after reporting quarterly results, while Citigroup gained 1% after announcing plans to cut its workforce by 10%.
One day, when I am a big blue chip company facing an unwelcome earnings season, I’m going to fire every last one of you.
UnitedHealth also fell 3.5% even after its results came above estimates, while Delta Airlines sank 9% as the airline slashed its 2024 earnings forecast. Elsewhere, House of Elon #1 (Tesla) lost 3.6% due to supply chain disruptions in the Red Sea and the associated shifts in transport routes.
Still, the major averages finished the week with wins, led by the tech heavy, heavyweights – the The Magnificent Seven.
An Even More Magnificent 7
Apple, Microsoft, Amazon, Alphabet, Nvidia, Meta and Tesla
They keep rising.
Take a knee for second and consider, the seven companies alone delivered without apparent connivance circa 60% of last year’s circa 25% total return for the S&P 500.
Tesla doubled in value, gaining 105%, while Meta enjoyed a remarkable return of 193%.
Then there’s last year’s AI darlings Microsoft and Nvidia.
In 2023 Nvidia produced a a breathtaking return of 243%. Investors will want to know if both Nvidia and Microsoft can continue driving the AI-related resurgence the market has enjoyed over the past year.
Microsoft by the way, just eclipsed Apple again as the world’s biggest company.
Microsoft (US$2,887bn) became the world’s largest by market capitalisation, with Apple at just US$2,875bn way, way behind at the end of Friday’s session.
This is the first time that the creator of Windows has planted one right on the nose of the iPhone maker since 2021.
Microsoft lifted 62% last year. Apple could only find, a humiliating 38%.
All this mono-trajectory stuff is (momentarily at least) promoting the question: Where can they possibly go next?
In a suddenly disinflationary environment, more US investors like Crescat Capital say they’re leaning toward the more obscure small cap and growth-oriented, as-yet-unprofitable tech firms, which are currently looking more attractive than last year’s bloated go-to trades.
“We would much rather own growing businesses at low single-digit P/E multiples than hyped-up US mega-cap technology stocks, such as the Magnificent 7, which at the mean are trading at an exuberant 48 times annual trailing profits with questionable potential to sustain their past growth rates.”
What was big in ’23 is big in ’24
On the broader US economy it’s a week -more likely a year – of the same, just more.
Inflation vs Growth
The US (and Mates) vs Everyone (sans Mates)
China vs Itself
US inflation accelerated a little faster than expected in December, which reduced the likelihood of a first rate cut from the US Fed for March. But easing US producer prices for the same period in some small way canceled out the first stat, so make of that what I can’t.
The street has therefore put a lid on hysteria and returned quietly to where it was when we knew much less: an 80% probability of a rate cut in March.
Worth noting that by mid-last-week, that read was knocking on the door of 50%, a level which would have jeopardised the sweet euphoria in which investors are getting used to bathing in.
In China, the People’s central bank held to its key rate, despite the market expected a cut. The PBOC also increased its liquidity injections… but not enough to cause either outright jubilation, nor scenes of spontaneous immolation.
Certainly not enough to shake up cellar-dwelling mainland stock markets.
On the political front, there may be ripples from the parliamentary and presidential elections in Taiwan on Saturday, in which the ruling, pro-independence Democratic Progressive Party won a third term.
The presidential election in Taiwan offered a third consecutive mandate to the pro-independence Democratic Progressive Party (DPP), an outcome which was not very favourable to Beijing, which will be cranky and cantankerous over it for a while.
Of course, the Communist Party of China had already promised to “smash” any independence plots, calling the election a “choice between war and peace” before getting up early to damn any foreign governments loopy enough to congratulate Taiwan’s president-elect Lai Ching-te on his victory.
But he backed down in parliament which was good thinking and gave the more China-friendly Kuomintang (KMT) party a stronger position.
Two words we’ve seen a lot of on Monday – compromise and caution.
Speaking of which, this is another reason investors will continue to be distinctly cautious on China where a property sector crisis and an economic recovery in stasis is being compounded by the apparent emergence of deflation.
Which brings us to Wednesday’s Q4 gross domestic product (GDP) drop in Beijing.
The Doves with skin in the game at Goldman Sachs are banking on growth at 5.6%.
The Hawks like Barclays Bank reckon circa 4.5% is a likelier figure.
The US Economic Calendar
Monday January 15 – Friday January 19
MONDAY
United States Market Holiday
Eurozone Balance of Trade (Nov)
Eurozone Industrial Production (Nov)
Brazil Business Confidence (Jan)
Canada Manufacturing Sales (Nov)
TUESDAY
Japan PPI (Dec)
Germany Inflation (Dec, final)
United Kingdom Labour Market Report (Dec)
Germany ZEW Economic Sentiment Index (Jan)
Canada Inflation (Dec)
WEDNESDAY
Singapore Non-oil Domestic Exports (Dec)
China GDP (Q4)
China Industrial Production (Dec)
China Retail Sales (Dec)
China Fixed Asset Investment (Dec)
China Unemployment Rate (Dec)
United Kingdom Inflation (Dec)
United States Retail Sales (Dec)
United States Industrial Production (Dec)
United States Business Inventories (Nov)
THURSDAY
Eurozone Current Account (Nov)
United States Building Permits (Dec)
United States Housing Starts (Dec)
FRIDAY
Japan Inflation (Dec)
United Kingdom Retail Sales (Dec)
Canada Retail Sales (Nov)
United States UoM Sentiment (Jan, prelim)
United States Existing Home Sales (Dec)
US Q4 Earnings
Tuesday
Morgan Stanley (MS), Goldman Sachs (GS), PNC Financial (PNC), and Interactive Brokers (IBKR).
Wednesday
Prologis (PLD), Charles Schwab (SCHW), U.S. Bancorp (USB), Kinder Morgan (KMI), and Alcoa (NYSE:AA).
Thursday
Truist Financial (TFC), KeyCorp (KEY), Fastenal Company (FAST), and Birkenstock (NYSE:BIRK).
Friday
Ally Financial (ALLY), Comerica (NYSE:CMA), Fifth Third (FITB), and Travelers (TRV).