War-torn but optimistic

Stocks rallied yesterday over optimism that inflation may be on its way out the door, albeit really, really slowly. The optimism was boosted by a regional Fed report that showed consumers are “expecting” lower inflation in 2023.

What can be worse? Yesterday’s rally in stocks was an interesting one. There was no real data to prompt the magnitude of the move. But really, the market does not always need a statistical catalyst to spur a move. There are emotions involved, and that is where things get a bit tricky. The market gets in… well, moods, not unlike your teen child, or grandchildren. Markets sometimes display frustration and other times displeasure. They can also enjoy times of elation and exuberance. All of these without a single economic number release or obscure Federal Reserve Banker interview. Yesterday’s move was likely driven by some interesting form of optimism. One of those “it can only get better from here” sort of moves. Think about what our portfolios have suffered through recently. Never mind the wacky ‘pandemic’ years, let’s just think about the past year.

The markets have suffered through a bout with intense 1980s-style inflation. You know it’s bad when we are excited to see inflation ease to +7.3%. That’s because it was actually worse just a few months ago. How about those rates? The so-called Fed Put which dominated the bull markets in the post-Great Recession through Pandemic period not only went away, but it was quite literally blown up by the once-friendly Fed as it raised interest rates from 0% to 4% in a matter of months, also 1980s-style. The result was a bear market which left stocks in a place which many have not experienced in their lifetimes. Not just a loss for the year, but a double digit one. Remember SPACs? Probably not, until I mentioned it, that is because that once favored topic of the day completely imploded on itself. We suffered through that too. Finally, we managed to trudge our way through a crypto bubble pop. That is not to say that there is no value or potential in crypto, but the market did get a bit frothy for a minute when obscure tokenized pet canines were all the rage. Those created overnight billionaires, some of which have become overnight felons (just check the news this morning). Lately, the markets have had to contend with the potential for a recession. Of course, that specter almost always hangs over the markets in one way or another, but this time that potential seems a bit more unnerving. Why? Because it feels as if we are knowingly entering into it as the Fed appears to be almost engineering it. It is like watching a movie about the Titanic… we know how it ends and it is not good. Did I paint an ugly enough picture yet?

So here we are, having lived through all of that. Bubble after bubble. The bursts feel like they are behind us, so we may as well climb out of the bomb shelter and right a fallen café chair amidst the rubble and sip a glass of something bubbly and survey the devastation. We made it, didn’t we? Well, almost. We still must endure this morning’s Consumer Price Index / CPI release, which is expected to show a slight moderation in headline inflation. We also need to get confirmation from the Fed which commences its 2-day FOMC meeting. It is expected to raise interest rates by only +50 basis points tomorrow. Misses on either of those could send us back to the bomb shelters, and quickly. Assuming we get through them unscathed, we may indeed enjoy some well-deserved, highly-longed-for time in the sun. But don’t be fooled, earnings season begins exactly 1 month from today and if the trend continues from the one that just ended… well, we have survived all those other bubble bursts, we will have to find a way to survive that one as well.

WHAT’S SHAKIN’

The Boeing Co (BA) shares are higher by +2.95% after United Airlines (UAL) announced that it agreed to purchase 100 Boeing Deamliners, WHILE YOU SLEPT. Boeing will announce earnings in late January. Potential average analyst target upside: +5.0%.

Oracle Corp (ORCL) shares are higher by +3.10% in the premarket after the company announced that it beat EPS and Revenue estimates by +2.51% and +2.14% respectively. The company’s forward P/E of 4.5x is quite low compared to the 8.13x median of its peers. Not unlike its peers, the company faces strong headwinds as IT spending is curtailed. Dividend yield: 1.57%. Potential average analyst target upside: +7.6%.

Eli Lilly & Co (LLY) shares are lower by -4.19% in the premarket after the company released 2023 forward guidance that was below analysts’ expectations. The company reaffirmed its 2022 guidance and will release earnings in the beginning of February. Dividend yield: 1.23%. Potential average analyst target upside: +4.6%.

YESTERDAY’S MARKETS

Stocks rallied yesterday after a Fed report showed that consumers are expecting inflation to ease. The S&P500 gained +1.43%, the Dow Jones Industrial Average climbed by +1.58%, the Nasdaq Composite Index traded higher by +1.26%, and the Russell 2000 Index drove higher by +1.22%. Bonds broke even and 10-year Treasury Note yields added +3 basis points to 3.61%. Cryptos slipped by -0.82% and Bitcoin advanced by +0.36.

NEXT UP

• NFIB Small Business Sentiment (Nov) came in at 91.9 higher than expected and greater than last month’s 91.3 reading, this morning WHILE YOU SLEPT.
• Consumer Price Index / CPI (Nov) may have eased to +7.3% from +7.7% while the core figure is expected to be +6.1% down from +6.3%.
• The FOMC begins its 2-day meeting today. Results will be announced tomorrow at 2:00 PM Wall Street Time.