Every week, I delve into the latest developments in the world of economics and finance and provide insightful analysis and forecast scenarios to keep you informed and ahead of the curve. From the S&P 500 and PPI to earnings reports and judicial reforms, I present clear, concise, and engaging information that will captivate your attention. Whether you’re a seasoned investor or simply looking to stay informed, this weekly segment is a must-read for anyone interested in the finance and economics world. So, buckle up and get ready for a dive into the latest market trends and forecasts.
- Forecasting the Consumer Price Index (CPI) in January
- Analyzing the S&P 500 and Key Supports
- Previewing the Upcoming Earnings Reports for the S&P 500
The Hot Zones this Week
Each week there are zones where trading can get wild. I call these the hot zones.
CPI
I believe that next week’s January CPI report will show an acceleration in headline inflation, largely driven by a rebound in energy prices. We forecast headline inflation to increase by 0.4% m/m, with the y/y rate falling from 6.5% to 6.1%.
As for core CPI, we forecast a 0.3% m/m increase, with the y/y rate falling from 5.7% to 5.4%. However, core goods are likely to see a decline of 0.2% m/m, driven by a decrease in used car prices. On the other hand, we expect core services to rise by 0.5% m/m, driven by a 0.7% increase in shelter prices.
It’s important to note that the report will also incorporate new weights, which could add or subtract a few basis points from our headline and core forecasts. However, we do not expect the new weights to change the outcome materially.
The January CPI report is expected to show a rebound in energy prices and a slowdown in the decline of used car prices. This suggests that the relief from goods deflation may be coming to an end and that shelter inflation remains a key wildcard in the market. As always, it will be important to monitor the report and its impact on the economy and the market.
PPI
I am closely monitoring the Producer Price Index (PPI) report for January. We forecast that the headline PPI will increase by 0.2% m/m, reversing some of the prior month’s 0.5% m/m decline. This expected rebound is likely driven by stronger energy prices after two consecutive monthly declines.
We expect PPI to rise by 0.1% m/m for a second consecutive month. This suggests that core inflationary pressures remain contained, despite the recent rise in energy prices. This is an important trend to monitor, as it can provide insight into the broader health of the economy.
We look for PPI ex food, energy, and trade services to rise by a trend-like 0.2% m/m. This suggests that the underlying inflationary pressures in the economy are moderate and in line with historical trends.
It’s important to note that the PPI report is an early indicator of inflationary pressures in the economy and can provide valuable insight into future Consumer Price Index (CPI) reports. As such, it’s essential for market participants and policymakers to closely monitor the January PPI report and its impact on the economy and the market.
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Week’s Numbers
Review Last week’s numbers here.
The forward 4-quarter (FFQE) earnings estimate for the S&P 500 saw a sharp decline this past week, falling from $225.02 to $223.28, a sequential decline of -0.77%. This is the sharpest sequential drop since the last time major tech companies reported earnings in late October and early November of 2022.
The PE ratio as of Friday, February 3rd’s close was 18.5x, compared to last week’s 18x. This suggests that the market is becoming more expensive, and could impact the market going forward. Additionally, the S&P 500 earnings yield fell to 5.40%, down from last week’s 5.53% and September 30, 2022’s 6.53%.
The bottom-up S&P 500 estimate for Q4 ’22 rose last week to $53.44 from the prior week’s $53.26, which is a positive development. Although forward estimates continue to be under pressure, this suggests that the market is showing some resilience.
In conclusion, the recent earnings reports for the S&P 500 have shown a sharp decline in the forward 4-quarter earnings estimate, as well as a rising PE ratio and falling earnings yield. However, the bottom-up S&P 500 estimate for Q4 ’22 has shown some positive growth, and we will be closely monitoring the impact of these reports on the market going forward.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 22Q4 Y/Y earnings are expected to be -2.8%. Excluding the energy sector, the Y/Y earnings estimate is -7.1%.
- Of the 344 companies in the S&P 500 that have reported earnings to date for 22Q4, 69.2% have reported earnings above analyst estimates. This compares to a long-term average of 66.3% and prior four quarter average of 75.5%.
- During the week of Feb. 13, 61 S&P 500 companies are expected to report quarterly earnings.
The overall earnings for the 22Q4 period are expected to be -2.8% on a year-over-year basis. Excluding the energy sector, the Y/Y earnings estimate is -7.1%.
Of the 344 companies in the S&P 500 that have reported earnings to date for 22Q4, 69.2% have reported earnings above analyst estimates. This compares favorably to the long-term average of 66.3% and the prior four-quarter average of 75.5%. This suggests that many companies are outperforming expectations and are on a strong financial footing.
During the week of February 13th, 61 S&P 500 companies are expected to report their quarterly earnings. These earnings reports will provide valuable insight into the financial performance of these companies and could impact the market.
The 22Q4 earnings reports have been largely positive, with many companies outperforming analyst expectations. The upcoming earnings reports for the week of February 13th will provide additional insight into the financial performance of the S&P 500 companies, and we will be closely monitoring their impact on the market.
Global Spotlight
On February 13th, Israel will begin voting on proposed judicial reforms that would change the appointment process for the Supreme Court and reduce its power of judicial review over the country’s Basic Laws. These reforms aim to weaken the Supreme Court, which has long served as a check on the Knesset, and would allow narrow governing coalitions to drastically change the country’s laws without hindrance. The proposed reforms have sparked opposition from Israelis in the center and left, who are preparing for long-term protests against the reforms. There are also warnings that these reforms could lead to investment, capital, and worker flight from the country and harm its economic competitiveness.
On February 15th, Nigeria’s Supreme Court will hear a case against the Central Bank of Nigeria’s currency swap initiative to replace 2.7 trillion naira (approximately $5.86 billion) of high-denomination bills with redesigned notes. This initiative has caused chaos in local economies across the country. The governors of Kaduna, Kogi, and Zamfara states have appealed to the Supreme Court to rule on the legality of the plan, the reasonableness of the six-week timeline, and if the central government is exceeding its powers. The Supreme Court has suspended the February 10th deadline for the currency swap. The trial and eventual ruling could cause unrest leading up to the February 25th presidential election, with violence at ATMs and banks expected to persist due to a widespread currency shortage. If the ruling is against the central bank’s policy, it could lead to even greater disruptions, as the switch from old to new notes is already underway.
Vice Chairman Andrew Hsia of Taiwan’s opposition party, Kuomintang, is visiting China from February 13th to February 17th. During his visit, he will meet with top Chinese officials and discuss ways to improve cross-strait economic and diplomatic ties. If Hsia can secure China’s commitment to improving these ties without making concessions on Taiwan’s sovereignty, this could be beneficial for Taiwan’s economy and for public support for the KMT. However, China is likely to insist on its own narrative of Chinese sovereignty over Taiwan as the foundation of improving ties, and Taipei has warned Hsia not to make agreements on behalf of the government. If Hsia fails to balance these conflicting demands, he could end up increasing support for Taiwan’s ruling party, the Democratic Progressive Party, ahead of the 2024 presidential election.
Stratfor.com
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