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The Fed’s Decision May Create Relief Rally or Correction

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In his Daily Market Notes report to investors, Louis Navellier wrote:

In Better Shape

Stocks are higher as earnings season continues, and economic numbers are higher than forecast.

The 4Q’22 GDP came in +2.9%, above the 2.6% forecast. Core Durable Goods Orders for December were up 5.6%, well above the 2.5% forecast. Initial jobless claims of 186K was the lowest in years. The economy appears to be in much better shape than feared.

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Q4 2022 hedge fund letters, conferences and more

 

Relief Rally or Correction?

This is very encouraging, so why aren't we "melting up" in a giant relief rally? Because the immediate consideration is what will the Fed think about this strength. Talk has started that the Fed may feel compelled to bump next week's increase from 25bps to 50bps.

The bond market still isn't buying that the Fed will get tougher and stay tougher for long; the 2-year yield is up less than 3bps on the day, and still down 34bps from the January 4th high. It's likely that if next week the Fed comes in with 25bps a relief rally will ensue, and if it's 50bps there will be a meaningful correction.

Today, we're seeing gold modestly lower, and crude oil back above $81/bbl, but natural gas is 5% lower to $2.76/mcf. The US dollar index is modestly higher but still below 102.

Q4 Earnings

On the earnings front, Tesla (NASDAQ:TSLA) reported last night with a miss on the top and beat on the bottom with a bullish outlook and is up over 9% and is up 46% YTD (though still down 49% LTM). IBM (NYSE:IBM) had beats top and bottom but a soft outlook and is down 4.5%, down 5.2% YTD.

Lam Research (NASDAQ:LRCX) had beats top and bottom with a cautious outlook and is down 1% today but up over 16% YTD. Service Now (NYSE:NOW) gave enterprise software a boost with beats tops and bottom and is up 1% and 17% YTD.

Today, American Airlines reported beats top and bottom and though down 1.3% today it's up over 25% YTD, Mastercard (NYSE:MA) met the top and beat the bottom and is down 1.4% but up 8.6% YTD.

Sherwin Willian (NYSE:SHW) had a minor beat on the top and a minor miss on the bottom but gave cautious guidance and is down 8.3% today and down 5% YTD.

 

Expensive Sidelines

We still have plenty of big names to go before earnings season winds up, but the Fed move next week is the major milestone ahead. Overall we're still looking at the S&P up 5% for the month and the NASDAQ up 9% for January and history says that January is very telling for full-year performance.

It may turn out to be a selling opportunity for high-value names if the slowdown comes that the bears insist is still on the way, but for now, the economy seems stronger than feared as do earnings, and staying on the sidelines is getting expensive.

Coffee Beans

Pet fish have spent money and revealed their owner's credit card details to thousands of people during a live stream. The unlikely incident happened during an unusual experiment by a Japanese YouTuber, who wanted to see if his fish could complete the latest Pokemon title on Nintendo Switch by themselves.

The fish had managed to complete a previous game in the series which took north of 3,000 hours. Source: Sky News. See the full story here.