Nike… naughty

Stocks gained yesterday as bulls picked up “bargains” in the wake of Wednesday's derivative-inspired market hiccup. The economy is slowing down, but not enough to set off the alarms.

‘Tis the last trading session… Not of the year, of course, but before the Christmas break. Santa has been making his way down from the North Pole without delay. I have confirmed this, not on some 1950s-style radar scope at NORAD, but on the many radar-like screens connected to my Bloomberg terminal. ‘Twas, indeed, the makings of a Santa Claus rally. “Now, DASHER! now DANCER!” Thankfully, it hasn't been an indiscriminate rally. Good stocks were behaving… well, good again. Patience is beginning to pay off.

Inflation has been receding leaving Fed policymakers with very little to lay into in their speeches. Sure, they are maintaining their menacing composures, but only for good measure. You see, they cannot argue with the numbers. “Now PRANCER! Now VIXEN!” The economy is indeed slowing down a bit. Yesterday, we received estimate number 3 of last quarter’s annualized GDP growth, and it was lowered to +4.9% from the last estimate of +5.2%. That is good news times 2, as we would all like growth, but not too much growth. For the record, +4.9% is really quite good from a historical perspective. The last read of the Unemployment Rate was 3.7%, down slightly from the prior month’s 3.9%. That is low by historical standards, and while the Fed expects that to tick up to 4.1% by the end of next year, we are still in the neighborhood. “On, COMET!”

Bands of economists have been hammering away in their workshops attempting to determine if the US will enter a recession within the next year. Bloomberg reaches out to these economists once a month and tallies up their projections. You can see the distribution of projections below. The median is around 50% and the mean is at a slightly lower 48.8% chance for a recession. It is interestingly, rather normally distributed, with a slight left-hand bias. That is a good thing, in this case. The big news here is that at the start of 2023, that projection was at 65%. So, while 50% is still in coin-toss territory, the trend is going in the right direction. Let’s take that as a positive for now. “On CUPID!”

Treasury bond yields have come down in these past several weeks. Yields on 2-Year Notes have fallen from recent highs of 5.2% to 4.3%, and 10-year Notes from almost 5% to 3.86%. Those declines cleared a path for this recent uptick in growth stocks. Finally, today, we will get a look at the Fed’s favorite inflation gauge, the Personal Consumption Expenditures Deflator (PCE) which is expected to come in at +2.8%. Now that is not quite at the +2.0% target, but it is encouraging to see a 2 handle on the number. Remember, it was over +7% in the summer of 2022. If the numbers come in around those levels, there is much to make merry about. “On, DONNER and BLITZEN!”

Year-end is rapidly approaching and one can, indeed, feel the return of positivity in the markets. Now that doesn’t mean that the market will only always go up, and there are certainly no guarantees that its ascent will continue. However, if you paid close attention to the market action on Wednesday and yesterday, you might have noticed the return of an old friend, the “dip buyer.” If we can manage to pull this heavy sleigh over the finish line, just a week away, 2023 will turn out to be anything but a lump of coal. The real challenge will come after the New Year when everything starts anew, and Santa has to begin that long, lonely journey back to the North Pole. That is never without its challenges – earnings season, which starts on January 12^th will have to be aligned with the market’s newfound courage. “Now dash away! dash away! dash away all!”

WHAT’S NAUGHTY OR NICE THIS MORNING

Analog Devices Inc (ADI) shares are higher by +1.18% in the premarket after being upgraded to BUY from HOLD at Edward Jones. The company’s forward EV/EBITDA multiple of 20.35x is higher than its peer group median of 11.58x. Dividend yield: 1.75%. Potential average analyst target upside: +5.0%.

Nike Inc (NKE) shares are lower by -12.19% in the premarket after the company announced that it beat EPS estimates last quarter. The company relayed that it is attempting to find up to $2 billion in savings to strengthen margins in the coming 6 months, during which time it is expecting softer sales… not something shareholders like to hear. Dividend yield: 1.20%. Potential average analyst target upside: +0.04%.

YESTERDAY’S MARKETS

NEXT UP

• Personal Income (Nov) is expected to have gained by +0.4% after increasing by +0.2% in the prior month.
• Personal Spending (Nov) may have grown by +0.3% after climbing by +0.2% in October.
• PCE Deflator (Nov) is expected to come in at +2.8% after printing a +3.0 in the prior period.
• Durable Goods Orders (Nov) probably grew by +2.3% after declining by -5.4% in the month earlier.
• New Home Sales (Nov) is expected to have increased by +1.6% after slipping by -5.6% in October.
• Next week a few more housing numbers, weekly employment figures, and MNI Chicago PMI. Check back in on Tuesday for calendars and details.