In the U.S. the trading week is shortened by the Martin Luther King Jr. Day holiday on Monday; however, investors still have a number of key indicators to watch with the main focus on U.S. earnings and retail sales, as investors are looking for signs of growth and profitability in the face of rising costs and economic uncertainty.
The economic calendar also includes important data on producer price inflation (PPI), existing home sales, and initial jobless claims, Fed’s Beige Book, as well as regional reports on manufacturing output. These indicators will give investors a sense of how the broader economy is faring after last year’s aggressive interest rate hikes.
At present the swaps market is pricing in a 90% chance of a 25-basis-point hike at the next meeting, followed by another one in March, with rates reaching a peak at 4.9%, and then 60% odds that the Fed will deliver at least one cut before the end of 2023. However, we still think that a rate cut will not arrive before 2024.
Reporting season is upon us and investors will also be closely monitoring the earnings reports from S&P 500 companies. According to Refinitiv data, year-over-year earnings for these companies are expected to have dropped 2.2% for the quarter. This would be the first decline since the third quarter of 2020, when companies were still grappling with the impact of the coronavirus pandemic.
As we move forward in the earnings season, a plethora of financial services companies will continue to unveil their quarterly results. The recent releases from the big U.S. banks mark the conclusion of earnings announcements from the major players in the industry. As such, attention now shifts to regional banks and other financial services entities and the remaining companies listed on the S&P 500, as investors eagerly await their earnings reports to gain further insight into the state of the economy.
On Wednesday data showed that producer prices in the U.S. dropped 0.5% from a month earlier in December 2022, following a revised 0.2% gain in November and compared with market expectations of a 0.1% fall. It was the largest monthly decline since April 2020, adding to signs that inflationary pressures are cooling.
Retail sales were also released on Wednesday showing a decline of 1.1% month-over-month in December 2022, following an upwardly revised 1% drop in November and worse than forecasts of a 0.8% fall, which is a sign of a weaker-than-expected holiday shopping and a slowdown in consumer spending amid high inflation and interest rates.
S&P 500 Yearly Chart. Source: Tradingview
Stock market valuations appear excessive and market sentiment has become far too complacent again as evidenced by the strong rally from the beginning of the year. Technical indicators are close to overbought levels suggesting that the market is vulnerable to a pull back in the short-term.
The S&P 500 index, which fell more than 27% from peak to through last year, its biggest annual decline since 2008, is up almost 5.0% so far in 2023. We expect the market to be volatile throughout this year, with the stock rally driven by hopes that inflation may be on a sustained downward trend, bolstering expectations that the Federal Reserve would ease the pace of its interest rate hikes, approaching an inflection point. Overall, the current rally appears unsustainable for too long as the U.S. equity market is likely to enter a lower valuation regime.
The CBOE Volatility Index (VIX) has reached 18% last Friday suggesting that the market is extremely vulnerable to a correction in the short-term. The VIX is very close to key support levels from where many turning points in the market had occurred in the past.
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Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.
Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.
Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.
Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.
Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.
È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.
Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.