The week ahead 03/06/2023
Happy Monday, everyone.
Here’s your friendly reminder that the benchmark U.S. yield curve has become even more inverted — to the most extreme extent dating back to 1981.
However, it’s important to note that yield curve inversion does not necessarily mean that there will be a deeper recession.
Interesting food for thought from former Bridgewater exec Bob Elliott:
“It is true that yield-curve inversion typically leads recessions, as the chart shows. And recession leads to good bond returns. But yield-curve inversion doesn’t consistently lead to good bond returns.
Just look at the periods above where there is inversion and the bond return that comes after…
When you hear folks make the statement that yield-curves have a long, good track record of predicting recessions, its important to think about how everyone kinda knows that already.
That’s not insightful market commentary, its a statement of known consensus…
To make money in markets you have to have a *non-consensus* view of how things will play out.
Just take it as a given we all know that the yield-curve leads recessions, then do you think it will be faster, slower, deeper, shallower, etc, etc. That’s the way you will generate alpha.”
Key Earnings Announcements:
Asana, CrowdStrike, Dick’s Sporting Goods, Sea Limited, and Ulta Beauty..
Monday (3/6): Ciena, Guidewire Software, Lordstown Motors, Trip.com
Tuesday (3/7): Casey’s, CrowdStrike, Dick’s Sporting Goods, Sea Limited, Squarespace
Wednesday (3/8): Asana, Campbell Soup, MongoDB, United Natural Foods, Vermillion Energy
Thursday (3/9): BJ’s Wholesale, Build-A-Bear Workshop, DocuSign, Gap, JD.com, Oracle, Paysafe, Toro, Ulta Beauty, Vail Resorts
Friday (3/10): Buckle, Embraer, Genius Sports
Bear Market Rally Returns?
Michael Wilson of Morgan Stanley (MS) — known for being one of the Street’s more bearish strategists — said that he is expecting yet another bear market rally.
However, he doesn’t expect things to last long…
“We believe it does not refute the very poor risk reward currently offered by many stocks given valuations and earnings forecasts that remain way too high, in our view,” Wilson said, expecting margins to disappoint the current consensus “by a large amount.”
Investor Events / Global Affairs:
Banks are feeling the heat and Tesla cut prices again..
Banks Want Your Money… Big Time.
For the first time in ~15 years — banks are fighting for your deposits.
“The shift has been so pronounced that commercial bank deposits fell last year for the first time since 1948 as net withdrawals hit $278 billion, according to Federal Deposit Insurance Corporation data.”
How are big commercial banks addressing the massive outflows? Certificates of Deposit (CDs).
“More than a dozen US lenders, including Capital One Financial Inc., are now offering an annual percentage yield of 5% on CDs maturing in around a year — a rate that would have been unspeakably high two years ago.
Even the big banks are feeling the heat. At Wells Fargo & Co., 11-month CDs now pay 4%.”
As you’ve heard us say time-and-time again — free money is always welcomed! However, make sure you are making the right decisions for your situation. You don’t want to lock up your money in a year-long CD with a bank if you will need that liquidity (or plan to invest it).
“Banks are competing for the capital, money, now. We’ve never had rates go up this fast.” — Jamie Dimon, CEO of JPMorgan Chase
We’re be sharing a post very soon that walks you through exactly how to generate 5% and higher APY with your idle savings. Stay tuned!
Tesla (TSLA) Cuts Prices Once Again
Our question about Tesla one week ago:
The company shook up the EV pricing landscape when it dramatically dropped prices at the beginning of 2023. Will Tesla production projections and demand encourage Musk to continue dropping them further?
The answer we received this morning:
“Tesla Inc. lowered the prices of two of its most expensive models in the U.S., the Model S and Model X, in its latest round of price cuts as the company tries to boost demand in a competitive market.
Tesla dropped the base price of its Model S luxury sedan from $94,990 to $89,990, which is about a 5% cut, according to the company’s website. Tesla lowered the base price of its Model X sport-utility vehicle from $109,990 to $99,990, which is roughly a 9% decrease.” — WSJ
The pricing dynamic currently going on with Elon Musk is quite an interesting one. On one end, Wall Street believes that Musk is trying to squeeze competitors at their elevated price points.
Others believe that Tesla demand is actually much lower than meets the eye, and increasing that demand is of the utmost importance.
There’s also that attractive $7,500 federal tax credit for buying an EV — for which Tesla’s slashed prices will help purchasers qualify.
Demand exceed expectations during Q4, and I would imagine this price cut is a response to rising interest rates alongside heightened competition.
Major Economic Events:
Jobs Report, Unemployment, and J-Powell is heading back to Congress.
Monday (3/6): Factory Orders
Tuesday (3/7): Consumer Credit, Fed Chair Powell Testifies to Senate, Wholesale Inventories
Wednesday (3/8): ADP Employment, Beige Book, Fed Chair Powell Testifies to House, Job Openings (JOLTS), US Trade Balance
Thursday (3/9): Speech by Fed Gov Waller
Friday (3/10): Employment Report, Federal Budget, Unemployment Rate
Powell and Jobs Updates:
This week, we find out fresh info on the state of the U.S. labor market — a key dynamic for Fed leadership as they consider how high rates truly should go.
Wage growth will be a key focus of the jobs report, with average hourly earnings expected to rise +0.3% MoM and +4.7% YoY — with the annual figure being an acceleration from the +4.4% gain seen last month.
Fortune’s outlook for Jerome Powell’s Congress appearance:
“Ever-higher interest rates could spark outspoken opposition from some Democrats who argue that the current persistent inflation is mostly a result of global factors, like continued supply shortages and Russia’s war against Ukraine, that the Fed can do little about and of price-gouging by corporate giants as reflected in bloated profit margins.
For their part, congressional Republicans will likely highlight concerns that the Fed must do even more to cool inflation.
Jason Furman, a former top economist for President Barack Obama, expressed such concerns in the Wall Street Journal last week.
Furman wrote that the Fed should raise its key rate by a substantial half-point when it meets this month and signal that its benchmark rate will likely reach 6% this year.
Many economists say they think inflation will keep falling to roughly 3.5% or 4% but could plateau at that level.
Getting it down to the Fed’s 2% target level could require more pain in the form of widespread job losses.
Some congressional Democrats may urge the Fed to raise its inflation target to 3% and argue that it isn’t worth risking a deep recession just to lower inflation by 1 more percentage point.
Yet so far, Powell has made clear that he opposes any such change out of concern it would undermine the Fed’s inflation-fighting credibility.”
Which stocks moved the most last week.
Our friends at LevelFields scrub through thousands of data points each week to determine how events impact stock prices.
Check out their incredible platform to approach the market with AI-driven event tracking & forecasting tools.
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Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.