The VIX started out the week around 28 and ended the week around 22. There were some good earning announcements and some that were not so good. $FB was the biggest loser this week. With a more than expected active user report. $AMZN was a big winner this week with strong revenue and earnings and guidance looked good.
The SP 500 had a minor comeback closing up 1.5% this week. We started the week around 4430, raised up to 4590 at the close of Wednesday, a big gap open back to 4535, where we traded down to 4450 then reversed course to 4540, then in the last hour of trading traded down to close the week at 4500.
There seems to be a lot of talk about stagflation and the reasons we need to be scared. A question that needs to be answered is if the Economy is in stagflation. I argue that we are not. And we have a lot to do before we get there. Below I look at what Stagflation is and show that we are not even close to what the economy saw in the 1970’s.
Happy Monday. Good Luck out there this week.
Global Spotlight
Blinken to visit Australia for a meeting of the Quad. U.S. Secretary of State Antony Blinken will visit Australia from Feb. 9-12 for the foreign ministerial meeting of the Quadrilateral Security Dialogue, aka the Quad, with his counterparts from India, Japan and Australia.
Russia and Belarus begin joint military exercises. NATO expects 30,000 Russian troops to arrive in Belarus by the Feb. 10 start of the second phase of the “Allied Resolve” exercise, the most Russian troops present in the country since the Cold War era. The exercise, which runs until Feb. 20, is the ostensible reason for a large part of Russia’s military buildup near Ukraine, which the Ukrainian defense minister on Feb. 3 put at 115,000 troops.
The 35th Ordinary Session of the African Union Assembly. African heads of state will meet in the Ethiopian capital of Addis Ababa, where Senegalese President Mackey Sall will assume the presidency of the African Union.
Efforts to improve Iran-Emirati ties coming into doubt. The Iranian minister of industry on Feb. 6 is set to visit the United Arab Emirates, but even if he does, the prospect of improved relations between the countries is coming into serious question amid a sustained missile and drone campaign against the United Arab Emirates at the hands of Iranian allies, and possibly even Iranian proxies.
Costa Rica holds general elections. Costa Ricans will vote Feb. 6 for all 57 members of their country’s legislature and for a new president. As no presidential candidate enjoys a significant lead in the polls, the election will almost certainly lead to a runoff between the top-two polling candidates.
Stratfor.com
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Weeks Numbers
Review Last weeks numbers here.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 21Q4 Y/Y earnings are expected to be 27.2%. Excluding the energy sector, the Y/Y earnings estimate is 18.8%.
- Of the 278 companies in the S&P 500 that have reported earnings to date for 21Q4, 78.4% have reported earnings above analyst estimates. This compares to a long-term average of 65.9% and prior four quarter average of 83.9%.
- 21Q4 Y/Y revenue is expected to be 14.2%. Excluding the energy sector, the growth estimate is 10.0%.
- During the week of Feb. 7, 82 S&P 500 companies are expected to report quarterly earnings.
Macro Market
What is Stagflation?
Stagflation is an economic event in which the inflation rate is high, economic growth rate slows, and unemployment remains steadily high. Such an unfavorable combination is feared and can be a dilemma for governments since most actions designed to lower inflation may raise unemployment levels, and policies designed to decrease unemployment may worsen inflation.
Checklist for stagflation:
- Inflation – 7%
- Economic Growth – GDP 6.9%
- Unemployment – 4%
Using the guideline of stagflation in the 1970’s we are not even close to having stagflation.
Causes of Stagflation
There is no consensus among economists on the causes of stagflation. Each economics school offers its own view on its origins. However, two main theories may be derived: supply shock and poor economic policies.
The supply shock theory suggests that stagflation occurs when an economy faces a sudden increase or decrease in the supply of a commodity or service (supply shock), such as a rapid increase in the price of oil. In such a situation, prices surge, making production costlier and less profitable, thus slowing economic growth.
- The oil is still flowing
- We went negative oil prices to $90.00 a bl in less than 3 years, people are still driving.
Now if there is a Coffee Shock all bets are off.
A second theory states that stagflation can be a result of a poorly made economic policy. For example, the government can create a policy that harms industries while growing the money supply too quickly. The simultaneous occurrence of these policies can lead to slower economic growth and higher inflation.
The job of a central banker and policy makers is challenging, to say the least. Economic theory and practice have improved greatly, but challenges continuously arise. As the economy evolves, monetary policy, and how it is applied, must continue to adapt to keep the economy in balance.
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