In A Holding Pattern Ahead of the December CPI Report
January 10, 2024
Monday’s relief for US equities was short-lived as equities traded off yesterday with Technology (0.16%) and Consumer Staples (0.26%) posting the only sector gains. Aside from Energy dropping 1.60%, Utilities (-0.82%) and Materials (1.15%) led markets lower. Technology’s gains were enough to push the Nasdaq Composite into positive territory gaining 0.09% but the S&P 500 fell 0.15%, the Dow dropped 0.42% and the Russell 2000 closed 1.05% lower.
In A Holding Pattern Ahead of the December CPI Report
We have another potential calm before the storm day in the stock market as investors and market pundits wait for tomorrow’s December Consumer Price Index (CPI) report. What that report reveals about inflation could foster the market re-thinking the pace of expected Fed rate cuts for this year. Despite several Fed officials calling for not only far fewer rate hikes in 2024 and a far later start for those cuts, the market so far continues to call for six rate cuts this year, with the first one slated for March.
Perhaps the market will heed potentially sobering comments from New York Fed president John Williams this afternoon, but the market is likely to put more weight behind post-CPI report comments from Richmond Fed President Tom Barkin (Thursday) and Minneapolis Fed president Neel Kashkari (Friday). Barring a December core CPI print that surprises significantly to the downside compared to the market expectation for +3.8% YoY (+0.3% MoM), at a minimum those Fed officials could cite continued wage pressure and the sharp rise in shipping rates as reasons for taking a more measured approach to rate cuts.
In other news:
Shipping rates continue to rise steeply, while vessels face weekslong delays on account of diversions from the Red Sea around the Horn of Africa to avoid attacks by Iran-backed Houthi rebels. According to Drewry's World Container Index which tracks freight rates on eight trade routes, the average shipping costs for 40-foot containers have nearly doubled since the attacks began.
The World Economic Forum’s “Global Risks Report 2024” ranked AI-derived misinformation and disinformation ahead of climate change, war, and economic weakness.
The Securities and Exchange Commission experienced a “cybersecurity incident” yesterday when its X account was compromised and a fake post claiming that the agency green-lit plans for a spot-Bitcoin ETF, which fueled a brief surge in the price of Bitcoin. The commission soon followed up with a subsequent post walking back the claim providing BTC holders with some unusual intraday volatility. BTC ended the day down 2.03%.
For more, be sure to read our Daily Markets column published each day by Nasdaq.
The strategies behind our Thematic Models:
Aging of the Population - Capturing the demographic wave of the aging population and the changing demands it brings with it.
Artificial Intelligence – Software, chips, and related companies that facilitate the collection and analysis of large data sets and autonomous generation of solutions given non-machine language prompts.
CHIPs Act – Capturing the reshoring of the US semiconductor industry and the $52.7 billion poised to be spent on semiconductor manufacturing.
Cloud Computing – Companies that provide hardware and services that enhance the cloud computing experience for users, such as co-location, security, and edge computing.
Consumer Inflation Fighters - Companies poised to benefit as consumers stretch the disposable spending dollars they do have.
Core Holdings – Companies that reflect economic activity and are large enough to not get pushed around by day-to-day market trends. Low-beta, large-cap names able to better withstand economic turmoil.
Digital Infrastructure & Connectivity -The buildout and upgrading of our Networks, Data Storage Facilities, and Equipment.
Data Privacy & Digital Identity - Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
EV Transition - Capturing the transition to EVs and related infrastructure from combustion engine vehicles.
Guilty Pleasure – Companies that produce/provide food and drink products that consumers tend to enjoy regardless of the economic environment and potential long-term health hazards associated with excessive consumption.
Homebuilding & Materials – Ranging from homebuilders to key building product companies that serve the housing market, this model looks to capture the rising demand for housing, one that should benefit as the Fed returns monetary policy to more normalized levels.
Luxury Buying Boom - Tapping into aspirational buying and affluent buyers amid rising global wealth.Market Hedge Model – This basket of daily reset swap-based broad market inverse ETFs protects in the face of market pullbacks, overbought market technicals, and other drivers of market volatility.
Nuclear Energy & Uranium – Companies that either build and maintain nuclear power plants or are involved in the production of uranium.
Precision Ag & Agri Science – Companies that look to address shrinking arable land by helping maximize crop yields utilizing technology, science, or both.
Rebuilding America - Turning the focused spending on rebuilding US infrastructure into revenue and profits.
Safety & Security – Targeted exposure to companies that provide goods and services primarily to the Defense and security sectors of the economy.
Space Economy – Companies that focus on the launch and operation of satellite networks.
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Monthly Dividend Model – Pretty much what the name says – this model invests in companies that pay monthly dividends to shareholders.
ETF Dividend Model – High-yielding ETFs that provide a range of exposures from domestic equities, international equities, emerging market equities, MLPS, and REITs.
ETF Enhanced Dividend Model – A group of high-yielding ETFs that utilize options to enhance yield through collecting option income.