Jan CPI (Wed) likely "calibrates" inflation views back to "falling towards 2%" = positive equity catalyst. Despite chop, we are buying the dip. Array ( [cookie] => 762530-119e50-be96a4-2e8a0c-b1c4d6 [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 2 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 42072 [reason] => Usage under limits [method] => ) 1 and can accesss 1

So far in 2025, equity markets have proven to be resilient, affirming that “buy the dip” remains the regime. There have been many “tape bombs” so far in 2024 (DeepSeek R1 and tariff headlines) but the resulting selling has been shallow. To us, this indicates that investors have already substantially de-risked, best evidenced by the collapse of AAII “net bulls” during that mid-Dec to mid-Jan chop.

• We view Jan Core CPI release (Wed am) as an important “re-calibration” or course correction for inflation.
  – Street looking for +0.29% Core CPI MoM
  – Dec Core CPI MoM +0.23%
• In our view, a reading of +0.33% (high) or less is a positive. The reason is the YoY would still be 3.2% or so and this is a better reading than suggested by the U Mich survey showing consumers see +4.3% inflation. That was released last Friday and one of the reasons stocks weakened that Friday.
• The CPI and Fed Chair Powell testimony to Congress are the key events this week:
  – 2/10 Mon 11:00 AM ET: Jan NYFed 1yr Inf Exp    3.00% vs 3.10%e
  – 2/11 Tue 6:00 AM ET: Jan Small Business Optimism Survey    102.8 vs 104.7e
  – 2/11 Tue 10:00 AM ET: Powell Testifies to Senate Banking
  – 2/12 Wed 8:30 AM ET: Annual CPI Revision & Jan Core CPI MoM    0.29%e
  – 2/13 Wed 10:00 AM ET: Powell Testifies to House Financial Services
  – 2/13 Thu 8:30 AM ET: Annual PPI Revision & Jan Core PPI MoM    0.29%e
  – 2/14 Fri 8:30 AM ET: Jan Retail Sales    -0.2%e
• In general, we believe financial markets are overly concerned about the risk of a second wave of inflation. The Fed funds futures and even betting markets still see a substantial risk of a second wave of inflation. Polymarket.com shows 17% probability the Fed raises rates in 2025. The U Mich survey certainly fuels this speculation. And many cite anecdotes such as the price of eggs.
• The reason we are less concerned about inflation re-accelerating is that the 3 largest drivers of inflation since 2019 are:
  – shelter (46%)
  – auto insurance (4%)
  – used and new cars (7%)
  – 60% of overall CPI basket
• Ex-these 3 items, Core CPI grew at an annual rate of 1.9% since 2019. These 3 items accounted for basically all of the inflation in the past 5 years. And if these 3 items (60% of CPI) do not re-accelerate, then it is pretty hard to imagine a second wave of inflation.
  – in other words, to get a second wave, used cars and auto insurance and housing have to surge higher
• And this Jan CPI, if it is soft, is going to be a market’s reminder that this is the case — inflation we believe is more closely “fallling like a rock” than “gaining a second wind.”
• The earnings reports have also been positive for 4Q24 EPS season. This has been a bright spot for the past few years and continues to be. So for those cautious on markets, earnings have been good and a support:
  – 62% of companies reported
  – 79% beating
  – avg overall beat is +7.4%
• After Tuesday’s close were the reports by SMCI 3.55%  and MCY 8.33% . MCY 8.33%  is a SMID Granny Shot. And as the screenshot below highlights, the market reaction is positive:
  – SMCI 3.55%  +8% post-report
  – MCY 8.33%  +20% post-report

• There is also a lot of Fed speak this week, but Powell’s testimony is the most important (above):
  – 2/11 Tue 8:50 AM ET: Hammack Speaks on Economic Outlook
  – 2/11 Tue 10:00 AM ET: Powell Testifies to Senate Banking   
  – 2/11 Tue 3:30 PM ET: Williams Gives Keynote Remarks   
  – 2/11 Tue 3:30 PM ET: Bowman Speaks on Bank Regulation 
  – 2/12 Wed 10:00 AM ET: Powell Testifies to House Financial Services   
  – 2/12 Wed 12:00 PM ET: Bostic Speaks on Economic Outlook   
  – 2/12 Wed 5:05 PM ET: Waller Speaks on Stablecoins   
  – 2/14 Fri 3:00 PM ET: Logan Speaks in Moderated Q&A  

BOTTOM LINE: Investors are “buying the dip” as 2025 is tracking better than expected

Overall, there are six reasons that show 2025 tracking better than our base case:

• Barometer “first 5 days” positive = 82% win-ratio
• Sentiment capitulation on Dec to Jan chop = good
• Inflation tracking “softer” than consensus view
• Fears of “day 1 tariffs” overblown = USD weaker
• Cyclicals leading YTD = risk-on signal
• January barometer “positive” = 89% win-ratio

• January 2025 closed +2.7%. This is the January barometer “as January goes, so goes the year”:
  – The January barometer is as follows:
  – If January positive:
  – Median FY +19%, 89% win-ratio
  – If January negative:
  – Median FY +0%, 50% win-ratio
• The top sector ideas remain:
• Bitcoin
• Small-caps
• Financials
• Industrials
• Technology

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44 SMID Granny Shot Ideas: We performed our quarterly rebalance on 11/25/2024. Full stock list here -> Click here

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PS: if you are enjoying our service and its evidence-based approach, please leave us a positive 5-star review on Google reviews —> Click here.

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Key incoming data February:

• 2/3 9:45 AM ET: Jan F S&P Global Manufacturing PMI Tame
• 2/3 10:00 AM ET: Jan ISM Manufacturing PMI Tame
• 2/4 10:00 AM ET: Dec JOLTS Job Openings Tame
• 2/4 10:00 AM ET: Dec F Durable Goods Orders Tame
• 2/5 8:30 AM ET: Dec Trade Balance Tame
• 2/5 9:45 AM ET: Jan F S&P Global Services PMI Tame
• 2/5 10:00 AM ET: Jan ISM Services PMI Tame
• 2/6 8:30 AM ET: 4Q P Non-Farm Productivity Tame
• 2/6 8:30 AM ET: 4Q P Unit Labor Costs Tame
• 2/7 8:30 AM ET: Jan Non-Farm Payrolls Tame
• 2/7 9:00 AM ET: Dec F Manheim Used Vehicle index Tame
• 2/7 10:00 AM ET: Feb P U. Mich. Sentiment and Inflation Expectation Hot
• 2/10 11:00 AM ET: Jan NY Fed 1yr Inf Exp Tame
• 2/11 6:00 AM ET: Jan Small Business Optimism Survey Tame
• 2/12 8:30 AM ET: Jan CPI
• 2/13 8:30 AM ET: Jan PPI
• 2/14 8:30 AM ET: Jan Retail Sales Data
• 2/18 8:30 AM ET: Feb Empire Manufacturing Survey
• 2/18 10:00 AM ET: Feb NAHB Housing Market Index
• 2/18 4:00 PM ET: Dec Net TIC Flows
• 2/19 9:00 AM ET: Jan M Manheim Used Vehicle index
• 2/19 2:00 PM ET: Jan FOMC Meeting Minutes
• 2/20 8:30 AM ET: Feb Philly Fed Business Outlook
• 2/21 9:45 AM ET: Feb P S&P Global Manufacturing PMI
• 2/21 9:45 AM ET: Feb P S&P Global Services PMI
• 2/21 10:00 AM ET: Feb F U. Mich. Sentiment and Inflation Expectation
• 2/21 10:00 AM ET: Jan Existing Home Sales
• 2/24 8:30 AM ET: Jan Chicago Fed Nat Activity Index
• 2/24 10:30 AM ET: Feb Dallas Fed Manuf. Activity Survey
• 2/25 9:00 AM ET: Dec S&P CoreLogic CS home price
• 2/25 10:00 AM ET: Feb Conference Board Consumer Confidence
• 2/26 10:00 AM ET: Jan New Home Sales
• 2/27 8:30 AM ET: 4Q S GDP
• 2/27 10:00 AM ET: Jan P Durable Goods Orders
• 2/28 8:30 AM ET: Jan PCE Deflator

Economic Data Performance Tracker 2025:

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: