How you want to play investing from here could be determined this week, with the US set to see its latest CPI number for January. Global stock markets have lost ground since that great start to January and the reason is that the Fed’s Jerome Powell told us that more rate rises were ahead. However, he did give us hope that there might not be many more for the Yanks by saying that “disinflation has begun”, though he also added that it’s “the very early stages” of that disinflation process.
This chart shows how US inflation is falling but the official CPI reading is falling slower. You can put that down to statisticians having a lot more data in the basket of goods and services that they survey. Also, these statistics can have some problems that statisticians are often slow to change.
On top of that, US goods inflation is falling very quickly, but services inflation is more stubborn. That last jobs report for January, when 517,000 positions were created while economists expected 187,000, has kept many market players worrying that wages will stop inflation from falling fast enough for the Fed.
That said, the market isn’t completely convinced that the inflation story is worrying enough to really sell-off. So this week’s CPI reading before we trade on Wednesday will be huge for stock prices. Economists polled by Dow Jones forecast a 0.4% increase in headline CPI on a monthly basis and a 6.2% gain from the prior year. If the rise is less, then stocks will spike and vice versa. “Next week is really all about one thing, and that one thing is CPI,” said Scott Ladner, chief investment officer at Horizon Investments. And
Emmanuel Cau, an analyst at Barclays, agreed. “More than the central banks’ rhetoric, we think it is the inflation data that will dictate the direction of travel for markets from here,” he said in a note to clients Friday. (CNBC)
Putting the case for being cautious of over-investing now as a short-term player after Powell’s comments and that big jobs number, was Eric Sterner, chief investment officer at Apollon Wealth Management on CNBC.
“Investors are only hearing what you want to hear. People were just taking … that Powell said ‘disinflationary’ and running with it. We’re not listening to the whole context.”
But how has the market reacted? This chart of the US market shows that since February, the desire to sell is not strong because the Fed comments and economic readings have not been scary enough to see a big dumping of shares. Long-term investors are gambling any short-term sell-offs will be small and their entry prices for stocks will look good, come the time when the Fed’s battle with inflation is over and Powell does a George W. Bush and says “mission accomplished”.
S&P 500
Wall Street has only given up 2.1% since that great January gain of 8.8%, which ended on February 2, while our market added only 7.3%, we’ve only given up around 1% since that date. The point is clear that the argument for being pro-stocks right now remains well-believed by market participants. That’s why that CPI reading is so important this week.
This number will also be a test for those who think the ‘hunting season for bears’ has started and bulls are starting to think about a booming stampede. And some technical indicators suggest the size of the herd is growing!
“Despite what might seem a logical expectation of lower prices, the market action has been quite impressive to the upside,” Frank Gretz, technical analyst at Wellington Shields, said in a note to clients, which was reported on CNBC.
And the number that I liked, as a patient, long-term investor was the Gretz observation that the majority of NYSE stocks are trading above their 200-day moving average, and that new 12-month highs are lapping new 12-month new lows on both the NYSE and the Nasdaq.
“We just don’t see these numbers fitting in with the ongoing bear market thesis. Without meaning to be too convoluted semantically, a big new leg down here would almost seem a new bear market, rather than a continuation of the old one,” he wrote.
If that inflation number next week is seen as a good one for optimists, the market will continue to resist another dramatic sell-off and then the watch will move to March 10 and the next US jobs report, where the bulls will not want to see another 517,000 jobs created. It will have to be a much lower number.
Then, after that, we get the real ‘biggie’ for stock prices on March 22, when Jerome Powell will announce what will happen to interest rates at the completion of the two-day meeting of the Federal Open Market Committee. And his comments (every word) will be poured over and analysed by the press, market experts and big stock price influencers. Then it will be a battle of the bulls and the bears.
Last week, Adam Dawes of Shaw & Partners nominated Sandfire Resources as his stock for 2023, arguing despite its big rise, copper is the commodity for the short- and the long-term future in an age of electric vehicles (EVs), batteries and tech-related products that define our lives nowadays.
For the record, the analysts say there’s 7.2% downside, but four out of seven experts on FNArena like the company going forward, with Macquarie the most supportive with a near 12% upside call. If you believe that the global economy will grow/boom, say from late 2023 (when rate cuts are now being tipped) and 2024 brings stronger world economic growth, then copper is in play. You might have some time up your sleeve before you have to buy, but it does look like a good future play.
(Go to Switzer Daily tomorrow for Jun Bei Liu’s three tips for this year).
By the way, Wikipedia says: “While Bush never uttered the phrase “Mission Accomplished”; a banner stating “Mission Accomplished” was used as a backdrop to the speech, and he did state that the United States and its allies have prevailed, implying that the war was over and America had won, when in fact it had not.” That means I used “Mission Accomplished” for both dramatic and educational effect, which justifies my inaccuracy!
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