Thursday January 11 @ 9:00am

CPI prints hot, market pulls back from pre-market highs

Author

Matthew
January 11, 2024

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The Markets Overnight

🌏 Asia: Up
🌍 Europe: Down slightly
🌎 US Index Futures: Down a bit
🛢 Crude Oil: Up strongly
💵 Dollar: Up
🧐 Yields: Up
🔮 Crypto: Up strongly

🌏 Major Global Catalysts

  • The Japanese stock market was very strong again yesterday with a lower Yen propelling the benchmark Nikkei 225 index above the 35,000 level for the first time in more than 30 years as traders expect strong growth after years of disinflation. (link)

  • The SEC approves 11 Bitcoin ETFs (link)

💵 Economic Reports and Events Today

Consensus forecasts shown

  • 8:30am Core CPI Consumer Price Index m/m 0.3% expected, 0.3% reported. Change in the price of goods and services purchased by consumers, excluding food and energy. (link)

  • 8:30am Core CPI y/y 3.8% expected, 3.9% reported. Change in the price of goods and services purchased by consumers, excluding food and energy. (link)

  • 8:30am CPI m/m 0.2% expected, 0.3% reported. Change in the price of goods and services purchased by consumers. (link)

  • 8:30am CPI y/y 3.2% expected, 3.4% reported. Change in the price of goods and services purchased by consumers. (link)

  • 8:30am Unemployment Claims 209K expected, 202K reported. The number of individuals who filed for unemployment insurance for the first time during the past week. (link)

  • 1:01pm 30-y Bond Auction Highest yield on a 30-year bond the government sold at auction, and the bid-to-cover ratio of the auction. (link)

  • 2:00pm Federal Budget Balance -66.2B Difference in value between the federal government's income and spending during the previous month. (link)

📰 Selected Earnings Releases

Consensus Estimates shown
After Hours Today:

  • None

Pre-Market Tomorrow:

  • C Citigroup EPS 0.88 Rev 18.80B (link)

  • BK Bank of New York Mellon EPS 1.13 Rev 4.30B (link)

  • DAL Delta Air Lines EPS 1.16 Rev 13.52B (link)

  • WFC Wells Fargo EPS 1.20 Rev 20.32B (link)

  • JPM JPMorgan Chase EPS 3.40 Rev 39.77B (link)

  • BLK BlackRock EPS 8.79 Rev 4.62 (link)

  • BAC Bank of America EPS 0.64 Rev 23.82B (link)

  • UNH UnitedHealth Group EPS 5.98 Rev 92.14B (link)

🔮 Selected Analyst Ratings Changes

  • MA Mastercard Oppenheimer Upgrades to Outperform Targets 510.00

  • AAL American Airlines Group Jefferies Upgrades to Buy Targets 18.00

  • CHWY Chewy Barclays Upgrades to Overweight Raises to 30.00

  • LAAC Lithium Americas Deutsche Bank Downgrades to Hold Lowers to 6.50

  • LYFT Lyft Goldman Sachs Downgrades to Neutral Raises to 15.00

  • SPWR SunPower Susquehanna Downgrades to Neutral Targets 4.00

  • WB Weibo B of A Securities Downgrades to Underperform Targets 10.00

📉 Stocks In Play

  • CRM Salesforce Up 1.5% as subsidiary Slack implements hiring freeze. (link)

  • BTM Bitcoin Depot Up 12% after adding sales rep but is also benefiting from the BTC rally along with other crypto related stocks CLSK, COIN, RIOT, MARA, etc. (link)

  • KBH KB Home Down 2.5% after reporting lower revenue and earnings. (link)

  • C Citigroup Down 1% after warning of one-time charges and expenses last quarter related to its exposures to Argentina’s debt market, Russia’s political instability and Citigroup's own restructuring plan. Citi will report earnings in tomorrow's pre-market. (link)

  • HTZ Hertz Global Holdings Down 4% on reports the company will sell 20,000 EVs due to low demand and higher expenses. (link)

  • SDHC Smith Douglas Homes Corp. A home builder IPO will start trading today. The company has a market cap of $1B with $770 in revenue last year. The IPO priced 7.7M shares at $21. (link)

  • The SEC approved 11 Bitcoin ETFs late yesterday, and some of them could start trading as early as today. The ARK 21Shares Bitcoin ETF, ticker ARKB, and the Fidelity Wise Origin Bitcoin Trust FBTC seem well-positioned to get the jump on their competitors. (link)
    The remaining approved ETF are:
    Blackrock's iShares Bitcoin Trust (IBIT)

    WisdomTree Bitcoin Fund (BTCW)

    Invesco Galaxy Bitcoin ETF (BTCO)

    Bitwise Bitcoin ETF (BITB)

    VanEck Bitcoin Trust (HODL)

    Franklin Bitcoin ETF (EZBC)

    Valkyrie Bitcoin Fund (BRRR)

    Grayscale Bitcoin Trust (GBTC)

    Hashdex Bitcoin ETF (DEFI)

💬 Commentary

The market trended higher most of the day yesterday, although not surprisingly, there was a late-day pullback as the close approached, and traders took profits ahead of this morning's CPI release. Large caps continued to outperform small caps, with QQQ up 0.68%, SPY up 0.57%, and IWM diverging somewhat from its peers, only managing to gain 0.06% in fairly choppy trading. Communications, technology, and consumer discretionary outperformed all other sectors, each up at least 0.8%, while energy and consumer staples closed lower, the former down very nearly 1%. The market has rallied itself into an excellent position to attack the all time highs and just needs a favorable CPI print to get there.

Stocks are higher, yields are lower, bonds are up, and even precious metals are higher in the pre-market ahead of the CPI report. Clearly, this is a market anticipating a soft inflation number and consequently a 71% probability of a Fed rate cut in March, but is it setting itself up for disappointment?

Both CPI and Unemployment Claims printed slightly hotter than expected, and the market is, of course, disappointed and pulling back from the pre-market highs. But the reaction is not quite as bad as one might expect, perhaps because the year-on-year core CPI number, which the Fed watches closely, is lower than last month and below 4 for the first time in quite a while. The indices are currently battling to hold the line near unchanged, but we should expect to see this volatility continue until well after the open. We're in a "buy the dip" type of market this week, so that sentiment may continue. We'll be watching very closely for downside capitulation as our signal to enter on the long side, or we may need to wait until tomorrow's PPI and a slew of bank earnings for more confirmation.

- KevinD

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Disclaimer: Everything expressed in this newsletter is a personal opinion provided for educational value only. This is not financial advice. These are not instructions, suggestions, or directions as to how to handle your money. Please, always do your own due diligence.