Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Friday, Jan. 26, 2024. The Bottom Line segment of today’s podcast starts at (3:35) for listeners who want to skip ahead.
State of Play
Stocks closed higher again yesterday, with the S&P 500 setting yet another all-time high — the sixth straight trading day that this has transpired. This despite the drag from Tesla (TSLA 0.00%↑) that dropped after earnings. After the close, earnings from Intel (INTC 0.00%↑) disappointed investors. As we look at our board of indicators at 0635, that is weighing on sentiment:
Stock index futures are mixed. Tech is dropping with the Nasdaq down 0.5% but small caps are up, with the Russell 2000 adding 0.5%;
Commodities aren’t doing much. WTI crude oil is down 0.8% to trade around $76.50/barrel. Copper is unchanged;
Bonds are flat. The 10-year yields 4.12%.
Today’s Known Events
We get a fresh reading of Personal Consumption Expenditures, the Fed’s preferred inflation gauge at 0830. Economists who were surveyed expect an increase of 0.2% month-over-month for headline PCE, after it declined by 0.1% last month. That would leave annualized headline PCE unchanged at 2.6%.
Core PCE, which excludes food and energy, is also expected to print at 0.2% MoM after rising 0.1% last month. That would drop annualized Core PCE to 3.0% from 3.2%.
There are some earnings today as well, which will likely be overshadowed by the PCE print. But some pretty big companies report before the open, including American Express (AXP 0.00%↑), Colgate-Palmolive (CL 0.00%↑), and Norfolk Southern (NSC 0.00%↑).
The Bottom Line©️
Yesterday’s GDP report showed the economy expanding at a healthy pace — healthier than economists had anticipated. It would stand to reason, then, that inflation would increase apace, and indeed economists are expecting a small rise in monthly PCE figures. Might their estimates too low? We’ll soon find out.
As always, you’re going to want to watch the bond market and Fed fund futures. The latter is still pricing in a 48% chance of a rate cut at the March 20 FOMC meeting. Hopelessly optimistic? Maybe because the economic data we’ve gotten this month does not indicate much in the way of a growth slowdown.
Stock market highs are nice but these have not yet translated to the broader market. It’s really just the work of six stocks. Call them the Magnificent 7 ex-Tesla: Amazon (AMZN 0.00%↑), Apple (AAPL 0.00%↑), Google (GOOG 0.00%↑), Microsoft (MSFT 0.00%↑) Nvidia (NVDA 0.00%↑), and Meta (META 0.00%↑). And now after Intel earnings these suddenly aren’t looking so great. AMD (AMD 0.00%↑) is down 2.5% in the pre-market and even mighty NVDA is down over 1%.
A buying opportunity for tech? Not for The Contrarian, who has been unable to time his investments in the sector at all going back a full quarter century. He’ll stick to value names, thank you very much.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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PCE Deflator, Tesla Meltdown, Intel Earnings Weigh on Tech