The AM Call: Raging Bull

• Last week the stock market rally continued with new highs for major indexes. The S&P 500 closed above 5,000 for the first time, while Dow also makes new highs, and the Nasdaq is almost back to its all-time high reached in November 2021.  The equity rally was driven by continued positive earnings results from AI-related and semiconductor sectors and benign inflation revisions fueled additional investor optimism of a strong economic expansion to persist.
• Palantir (PLTR), Arm Holdings (ARM), Eli Lilly (LLY), Disney (DIS), Spotify (SPOT) and Ford (F) were the among the strongest earnings surprises, while Snap (SNAP), PayPal (PYPL), Pinterest (PINS) and AliBaba (BABA) disappointed the most. Uber (UBER), Fortinet (FTNT), Gilead (GILD) and Amgen (AMGN) posted in-line results. Arm Holding was the biggest beat with 8% revenue and 30% EPS guidance along with the CEO’s comments that its results were propelled the expansion into AI and that the AI boom was still “just beginning.” Palantir’s similar comments during its earnings call helped propel not only AI-related stocks, but also the tech sector as a whole. Tech leads all sectors for the year-to-date once again.    
• Disney had a busy week, with a strong 20% earnings beat led by cost cuts and lower than expected streaming division losses, along with guidance that it expects the streaming division to reach operational break-even by year-end while raising dividends, announcing buybacks, and revealing a new equally owned ESPN JV with Fox and Warner Bros for a sports streaming platform that will hold approximately 54% of all U.S. sports broadcasting rights. In other corporate news, General Motors (GM) revealed plans to spend $19 bn over the next decade to acquire EV Battery components from China in order to source enough material for an estimated 5 million EV units, while Docusign (DOCU) shares slumped after reports that interest from private equity acquiring the company had dissipated.
• It was a very light week for macroeconomic data. ISM data came in stronger than expected across the board. The overall index was 53.4, which represents acceleration from December’s 50.5. Prices paid, employment, and new orders were also higher than estimated. 

• We also had large government auctions of the 10Y and 30Y bonds. Both auctions were reasonably well received given the large size, with the 10Y yield now around 4.15% and the 30Y at 4.36%.

The Week Ahead

• For the week ahead, we have January data start to roll in. The biggest number of the week will be January CPI. On a core basis, CPI is expected to be up 3.7% YoY and 0.3% MoM.

• Other data this week includes PPI, which is a leading indicator for CPI, as well as January retail sales. Consumer confidence and inflation expectations, plus weekly jobless claims round out the week.

• In earnings this week, we have Coca-Cola (KO), Cisco (CSCO), Kraft Heinz (KHC), Applied Materials (AMAT), Global Payments (GPN), Lyft (LYFT), Coinbase (COIN), TradeDesk (TTD), Instacart (CART), AirBnB (ABNB), Global Foundries (GFS), DataDog (DDOG), ZoomInfo (ZI), Roku (ROKU), TripAdvisor (TRIP), Zillow (ZG), Twilio (TWLO), Toast (TOST), DraftKings (DKNG), Upstart (UPST) all set to report.

Market Summary – Returns and Yields

• Equities reached new highs, while bonds were mixed.

• Equity market leadership for the year-to-date is Communications and Tech.

Definitions, sources, and disclaimers

Definitions:

• Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).
• GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
• The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
• Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
• The Consumer Price Index (CPI): Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
• The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
• The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.Source: Bureau of Labor Statistics (BLS).
• Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
• Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
• The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
• The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

Financial Markets – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.  

Important Disclosures:

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Amerant Investments, Inc. or any of its affiliates to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

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