Exiting Feb, S&P 500 +7% YTD. Next key decision point is Feb CPI on March 12. Beware of "residual seasonality"

VIDEO: We discuss how the key date is likely March 12, Feb CPI day.  The key is the residual seasonal problem in Jan often spills into Feb

Please click below to view our Macro Minute (Duration: 4:53).

With the first two months of 2024 behind us, the S&P 500 is off to a strong start with YTD gains of +7%. As we noted in prior comments throughout this year, equity markets seem to be getting stronger in 2024, compared to 2023. This is measured by the resilience of stocks in the face of what appears to be a diminished number of Fed cuts.

• We wrote previously that we saw little risk to stocks from the Fed potentially making fewer cuts in 2024. This has been true so far as stocks have risen even as the timing and number of Fed cuts has been sharply reduced since the start of 2024. And this will be true but as long as the Fed is seen as turning “dovish” — that is just our opinion, but something to be mindful of.
• That is, at some point, if the “inflation is stubborn” narrative gains dominance, and the Fed is required to react to this, then markets may be pricing in a “tighter for longer” Fed. This is not our base case, and that is because we see the “stubborn inflation” stemming from two drivers:
  – auto insurance and shelter, both just statistically lagging
  – and “residual seasonality” which leads to Jan CPI surprises

• Feb CPI, released March 12, is the next key inflation report. And to us, this is also the decision point for markets in 2024. If the Feb CPI is “hot,” even if for statistically wrong reasons, we think markets could become anxious.
• This might be surprising (it was to us) — historically, a “hot” Jan CPI tends to be followed by a “hot” Feb CPI. That is, the residual seasonality that tends to drive a higher Jan often spills into Feb.
• Jens Nordvig, economist and founder of Exante, told us this peculiar pattern has a logical explanation:
  – Companies raise prices in Jan.
  – Some of these price increases are made later in the month, after the Jan survey period.
  – So that is why it shows up in Feb.
  – Thus, the spillover to Feb.
• One might wonder why this is not seasonally adjusted or corrected. That is why economists note January suffers from residual seasonality. There is an attempt to adjust for this but it is not completely isolated.
• The larger question is how equity markets will react to what appears to be a “hot” Feb CPI. To me, this seems likely to trigger renewed conviction from the inflationistas. That inflation is facing a second surge. And it seems like the Fed cannot ignore the optical issue of two CPI prints that appear to be breaking the downtrend.
• Thus, it seems like stocks could see selling pressure on the heels of this. And while it is just a short term rise, that could reverse in March/April, given the sizable rise in stocks since October 2023, we wonder if this is potentially the fundamental catalyst for a sell-off.

Bottom line: Markets could overreact to Feb CPI

Equities are getting stronger in 2024 and this remains a good omen for the full year. And there are fundamental drivers supporting this rise including the productivity boost from AI and also health productivity boost from ozempic-related drivers.

• As we noted in the last several weeks, we don’t see the signs of a near term top including:
  – (i) reaction to news (mostly positive);
  – (ii) still low levels of margin debt/speculation and
  – (iii) positive technicals.
• But in the early weeks of March, the Feb CPI seems an important decision point. This is what we are watching.
• Feb ISM manufacturing is released later this morning. If this manages to move above 50, this strengthens the case for industrials and solidifies an earnings recovery is fully underway. Bullish for XLI 0.07%  and to a secondary extent IWM -0.83%
• This is what is working in 2024 so far:
  – AI NVDA 1.17%  CDNS 0.77%  ARM AMD -0.46%  AIQ 0.09%
  – Ozempic-related LLY -1.50%  NVO -0.15%
  – Financials and Industrials XLI 0.07%  XLF 0.52%
  – Bitcoin & Miners BTC HUT -1.72%  RIOT -9.73%  MARA -12.52%
  – Feb Stealth: Small-caps IWM -0.83%  IJR -0.53%

This means that “buy the dip” remains intact.

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Key incoming data March:

• 3/01 9:45 am ET: Feb F S&P Global Manufacturing PMI
• 3/01 10:00 am ET: Feb ISM Manufacturing
• 3/01 10:00 am ET: Feb F U. Mich. Sentiment and Inflation Expectation
• 3/05 9:45 am ET: Feb F S&P Global Services & Composite PMI
• 3/05 10:00 am ET: Feb ISM Services
• 3/06 10:00 am ET: Jan JOLTS Job Openings
• 3/06 2:00 pm ET: Fed Releases Beige Book
• 3/07 8:30 am ET: 4QF 2023 Nonfarm Productivity
• 3/07 9:00 am ET: Feb F Manheim Used Vehicle Index
• 3/08 8:30 am ET: Feb Jobs Report
• 3/12 8:30 am ET: Feb CPI
• 3/14 8:30 am ET: Feb PPI
• 3/14 8:30 am ET: Feb Retail Sales Data
• 3/15 8:30 am ET: Mar Empire Manufacturing Survey
• 3/15 10:00 am ET: Mar P U. Mich. Sentiment and Inflation Expectation
• 3/18 8:30 am ET: Mar New York Fed Business Activity Survey
• 3/18 10:00 am ET: Mar NAHB Housing Market Index
• 3/19 9:00 am ET: Mar Mid-Month Manheim Used Vehicle Index
• 3/20 2:00 pm ET: Mar FOMC Rate Decision
• 3/21 8:30 am ET: Mar Philly Fed Business Outlook Survey
• 3/21 9:45 am ET: Mar P S&P Global PMI
• 3/25 10:30 am ET: Mar Dallas Fed Manufacturing Activity Survey
• 3/26 9:00 am ET: Mar S&P CoreLogic CS home price
• 3/26 10:00 am ET: Mar Conference Board Consumer Confidence
• 3/28 8:30 am ET: 4QT 2023 GDP
• 3/28 10:00 am ET: Mar F U. Mich. Sentiment and Inflation Expectation
• 3/29 8:30 am ET: Feb PCE

Key incoming data February:

• 2/01 8:30am ET 4QP 2023 Nonfarm Productivity Mixed
• 2/01 9:45am ET S&P Global Manufacturing PMI January Final Tame 
• 2/01 10am ET January ISM Manufacturing Mixed
• 2/02 8:30am ET January Jobs Report Hot
• 2/02 10am ET: U. Mich. Sentiment and Inflation Expectation January Final Tame 
• 2/05 9:45am ET S&P Global Services & Composite PMI January Final Tame 
• 2/05 10am ET January ISM Services Tame 
• 2/07 9am ET Manheim Used Vehicle Index January Final Mixed
• 2/09 CPI Revisions Tame 
• 2/13 8:30am ET January CPI  Mixed
• 2/14 PPI RevisionsTame 
• 2/15 8:30am ET February Empire Manufacturing Survey Tame 
• 2/15 8:30am ET February Philly Fed Business Outlook SurveyTame 
• 2/15 8:30am ET January Retail Sales DataTame 
• 2/15 10am EST February NAHB Housing Market Index Tame 
• 2/16 8:30am ET January PPIMixed
• 2/16 8:30am ET February New York Fed Business Activity SurveyTame 
• 2/16 10am ET U. Mich. Sentiment and Inflation Expectation February PrelimTame 
• 2/19 9am ET Manheim Used Vehicle Index February Mid-MonthTame 
• 2/21 2pm ET January FOMC Meeting MinutesTame 
• 2/22 9:45am ET S&P Global PMI February Prelim Tame 
• 2/26 10:30am ET February Dallas Fed Manufacturing Activity SurveyTame
• 2/27 9am ET February S&P CoreLogic CS home price Tame
• 2/27 10am ET February Conference Board Consumer ConfidenceTame
• 2/28 8:30am ET 4QS 2023 GDPTame
• 2/29 8:30am ET January PCETame

Key incoming data January:

• 1/02 9:45am ET S&P Global Manufacturing PMI December Final Mixed
• 1/03 10am ET December ISM Manufacturing Tame 
• 1/03 10am ET JOLTS Job Openings November Tame 
• 1/03 2pm ET December FOMC Meeting Minutes Tame 
• 1/04 9:45am ET S&P Global Services & Composite PMI December Final Tame 
• 1/05 8:30am ET December Jobs Report Mixed
• 1/05 10am ET December ISM Services Tame 
• 1/08 9am ET Manheim Used Vehicle Index December Final Tame 
• 1/11 8:30am ET December CPI Details Suggest Tame
• 1/12 8:30am ET December PPI Tame 
• 1/16 8:30am ET January Empire Manufacturing Survey Tame 
• 1/17 8:30am ET January New York Fed Business Activity Survey Tame 
• 1/17 8:30am ET December Retail Sales Data Strong
• 1/17 9am ET Manheim Used Vehicle Index January Mid-Month Tame 
• 1/17 10am EST January NAHB Housing Market Index Mixed
• 1/18 8:30am ET January Philly Fed Business Outlook Survey Tame 
• 1/19 10am ET U. Mich. Sentiment and Inflation Expectation January Prelim Tame 
• 1/24 9:45am ET S&P Global PMI January Prelim Mixed
• 1/25 8:30am ET 4QA 2023 GDP Mixed
• 1/26 8:30am ET December PCE Tame 
• 1/29 9:30am ET Dallas Fed January Manufacturing Activity Survey Tame 
• 1/30 9am ET January S&P CoreLogic CS home price Tame 
• 1/30 10am ET January Conference Board Consumer Confidence Tame 
• 1/30 10am ET JOLTS Job Openings December Mixed
• 1/31 2pm ET FOMC Rate Decision Tame 

Key incoming data December

• 12/01 9:45am ET S&P Global Manufacturing PMI November Final Tame 
• 12/01 10am ET November ISM Manufacturing Strong 
• 12/05 9:45am ET S&P Global Services & Composite PMI November Final Strong 
• 12/05 10am ET JOLTS Job Openings October Tame 
• 12/05 10am ET November ISM Services Strong 
• 12/06 8:30am ET 3QF 2023 Nonfarm Productivity Strong 
• 12/07 9am ET Manheim Used Vehicle Index November Final Tame 
• 12/08 8:30am ET November Jobs Report Tame
• 12/08 10am ET U. Mich. Sentiment and Inflation Expectation December Prelim Tame 
• 12/12 8:30am ET November CPI Tame
• 12/13 8:30am ET November PPI Tame
• 12/13 2pm ET FOMC Rate Decision Dovish
• 12/14 8:30am ET November Retail Sales Data Tame
• 12/15 8:30am ET December Empire Manufacturing Survey Tame
• 12/15 9:45am ET S&P Global PMI December Prelim Tame
• 12/18 8:30am ET December New York Fed Business Activity Survey Tame
• 12/18 10am ET December NAHB Housing Market Index Tame
• 12/19 9am ET Manheim Used Vehicle Index December Mid-Month Tame
• 12/20 10am ET December Conference Board Consumer Confidence Tame
• 12/21 8:30am ET 3QT 2023 GDP Mixed
• 12/21 8:30am ET December Philly Fed Business Outlook Survey Mixed
• 12/22 8:30am ET November PCE Tame
• 12/22 10am ET: U. Mich. Sentiment and Inflation Expectation December Final Tame
• 12/26 9am ET December S&P CoreLogic CS home price Tame
• 12/26 10:30am ET Dallas Fed December Manufacturing Activity Survey Tame
• 12/29 9:45am ET December Chicago PMI

Key incoming data November

• 11/01 9:45am ET S&P Global PMI October Final Tame
• 11/01 10am ET JOLTS Job Openings September Mixed
• 11/01 10am ET October ISM Manufacturing Tame
• 11/01 10am ET Treasury 4Q23 Quarterly Refunding Press Conference Tame
• 11/01 2pm ET FOMC Rate Decision Dovish
• 11/02 8:30am ET: 3Q23 Nonfarm Productivity Tame
• 11/03 8:30am ET October Jobs Report Tame
• 11/03 10am ET October ISM Services Mixed
• 11/07 9am ET Manheim Used Vehicle Index October Final Tame
• 11/10 10am ET U. Mich. November prelim Sentiment and Inflation Expectation Hot
• 11/14 8:30am ET October CPI Tame
• 11/15 8:30am ET October PPI Tame
• 11/15 8:30am ET November Empire Manufacturing Survey  Resilient
• 11/15 8:30am ET October Retail Sales Data Resilient
• 11/16 8:30am ET November New York Fed Business Activity Survey Tame
• 11/16 8:30am ET November Philly Fed Business Outlook Survey  Tame
• 11/16 10am ET November NAHB Housing Market Index  Tame
• 11/17 9am ET Manheim Used Vehicle Index November Mid-Month Tame
• 11/21 2pm ET Nov FOMC Meeting Minutes Tame
• 11/22 10am ET: U. Mich. November final Sentiment and Inflation Expectation Tame
• 11/24 9:45am ET S&P Global PMI November Prelim Mixed
• 11/27 10:30am ET Dallas Fed November Manufacturing Activity Survey Tame
• 11/28 9am ET November S&P CoreLogic CS home price  Tame
• 11/28 10am ET November Conference Board Consumer Confidence Tame
• 11/29 8:30am ET 3QS 2023 GDP Strong
• 11/29 2pm ET Fed Releases Beige Book Tame
• 11/30 8:30am ET October PCE Tame

Key incoming data October

• 10/2 10am ET September ISM Manufacturing Tame
•  10/3 10am ET JOLTS Job Openings August Hot
•  10/4 10am ET September ISM Services Tame
•  10/6 8:30am ET September Jobs Report Mixed
•  10/6 9am ET Manheim Used Vehicle Index September Final Tame
• 10/10 11am NY Fed Inflation Expectations Mixed
•  10/11 8:30am ET September PPI Mixed
•  10/11 2pm ET Sep FOMC Meeting Minutes Tame
•  10/12 8:30am ET September CPI Mixed
•  10/13 10am ET U. Mich. September prelim 1-yr inflation Mixed
•  10/16 8:30am ET October Empire Manufacturing Survey Tame
•  10/17 8:30am ET October New York Fed Business Activity Survey Tame
• 10/17 8:30am ET September Retail Sales Data Hot
•  10/17 9am ET Manheim October Mid-Month Used Vehicle Value Index Tame
•  10/17 10am ET October NAHB Housing Market Index Tame
• 10/18 8:30am ET September Housing Starts Tame
• 10/18 2pm ET Fed releases Beige Book Tame
•  10/19 8:30am ET October Philly Fed Business Outlook Survey Tame
• 10/19 10am ET Existing Home Sales Tame
• 10/19 12pm ET Fed (including Powell) at Economic Club of New York
•  10/24 9:45am ET S&P Global PMI October Prelim Tame
•  10/26 8:30am ET 3Q 2023 GDP Advance Strong
•  10/27 8:30am ET September PCE Tame
•  10/27 10am ET Oct F UMich Sentiment and Inflation expectation Tame
•  10/30 10:30am ET Dallas Fed September Manufacturing Activity Survey Tame
• 10/31 8:30am ET 3Q23 Employment Cost Index Mixed
•  10/31 9am ET August S&P CoreLogic CS home price Mixed
•  10/31 10am ET October Conference Board Consumer Confidence Tame

Key incoming data September

•  9/1 8:30am ET August Jobs Report Tame
•  9/1 10am ET August ISM Manufacturing Tame
•  9/6 10am ET August ISM Services Mixed
•  9/6 2pm ET Fed releases Beige Book Tame
•  9/8 9am ET Manheim Used Vehicle Index August Final Tame
•  9/8 2Q23 Fed Flow of Funds Report Tame
•   9/13 8:30am ET August CPI Mixed
•  9/14 8:30am ET August PPI Tame
•  9/15 8:30am ET September Empire Manufacturing Survey Tame
•  9/15 10am ET U. Mich. September prelim 1-yr inflation Tame
•  9/18 8:30am ET September New York Fed Business Activity Survey Tame
•  9/18 10am ET September NAHB Housing Market Index Tame
•  9/19 9am ET Manheim September Mid-Month Used Vehicle Value Index Mixed
•  9/20 2pm ET September FOMC rates decisionMarket saw Hawkish
•  9/21 8:30am ET September Philly Fed Business Outlook Survey Mixed
•  9/22 9:45am ET S&P Global PMI September Prelim
•  9/25 10:30am ET Dallas Fed September Manufacturing Activity Survey
•  9/26 9am ET July S&P CoreLogic CS home price
•  9/26 10am ET September Conference Board Consumer Confidence

Key incoming data August

• 8/1 10am ET July ISM Manufacturing Tame
• 8/1 10am ET JOLTS Job Openings Jun Tame
• 8/2 8:15am ADP National Employment Report Hot
• 8/3 10am ET July ISM Services Tame
• 8/4 8:30am ET July Jobs report Tame
• 8/7 11am ET Manheim Used Vehicle Index July Final Tame
• 8/10 8:30am ET July CPI Tame
• 8/11 8:30am ET July PPI Tame
• 8/11 10am ET U. Mich. July prelim 1-yr inflation Tame
• 8/11 Atlanta Fed Wage Tracker July Tame
• 8/15 8:30am ET Aug Empire Manufacturing Survey Mixed 
• 8/15 10am ET Aug NAHB Housing Market Index Tame
• 8/16 8:30am ET Aug New York Fed Business Activity SurveyNeutral
• 8/16 2pm ET FOMC Minutes Mixed
• 8/17 8:30am ET Aug Philly Fed Business Outlook Survey Positive
• 8/17 Manheim Aug Mid-Month Used Vehicle Value Index Tame
• 8/23 9:45am ET S&P Global PMI Aug Prelim Weak
• 8/25 10am ET Aug Final U Mich 1-yr inflation Mixed
• 8/28 10:30am ET Dallas Fed Aug Manufacturing Activity Survey Tame
• 8/29 9am ET June S&P CoreLogic CS home price Tame
• 8/29 10am ET Aug Conference Board Consumer Confidence Tame
• 8/29 10 am ET Jul JOLTS Tame
• 8/31 8:30am ET July PCE Tame

Key incoming data July

• 7/3 10am ET June ISM Manufacturing Tame
• 7/6 8:15am ADP National Employment Report Hot
• 7/6 10am ET June ISM Services Tame
• 7/6 10 am ET May JOLTS Tame
• 7/7 8:30am ET June Jobs report Mixed
• 7/10 11am ET Manheim Used Vehicle Index June Final Tame
• 7/12 8:30am ET June CPI Tame
• 7/13 8:30am ET June PPI Tame
• 7/13 Atlanta Fed Wage Tracker June Tame
• 7/14 10am ET U. Mich. June prelim 1-yr inflation Mixed
• 7/17 8:30am July Empire Manufacturing Survey
• 7/18 8:30am July New York Fed Business Activity Survey
• 7/18 10am July NAHB Housing Market Indexin-line
• 7/18 Manheim July Mid-Month Used Vehicle Value Index Tame
• 7/25 9am ET May S&P CoreLogic CS home price Tame
• 7/25 10am ET July Conference Board Consumer Confidence Tame
• 7/26 2pm ET July FOMC rates decision Tame
• 7/28 8:30am ET June PCETame
• 7/28 8:30am ET 2Q ECI Employment Cost IndexTame
• 7/28 10am ET July Final U Mich 1-yr inflationTame

Key data from June

• 6/1 10am ET May ISM Manufacturing Tame
• 6/2 8:30am ET May Jobs report Tame
• 6/5 10am ET May ISM Services Tame
• 6/7 Manheim Used Vehicle Value Index May Tame
• 6/9 Atlanta Fed Wage Tracker April Tame
• 6/13 8:30am ET May CPI Tame
• 6/14 8:30am ET May PPI Tame
• 6/14 2pm ET April FOMC rates decisionTame
• 6/16 10am ET U. Mich. May prelim 1-yr inflation Tame
• 6/27 9am ET April S&P CoreLogic CS home price Tame
• 6/27 10am ET June Conference Board Consumer Confidence Tame
• 6/30 8:30am ET May PCE Tame
• 6/30 10am ET June Final U Mich 1-yr inflation Tame

Key data from May

• 5/1 10am ET April ISM Manufacturing (PMIs turn up) Positive inflection
• 5/2 10am ET Mar JOLTS Softer than consensus
• 5/3 10am ET April ISM Services Tame
• 5/3 2pm Fed May FOMC rates decision Dovish
• 5/5 8:30am ET April Jobs report Tame
• 5/5 Manheim Used Vehicle Value Index April Tame
• 5/8 2pm ET April 2023 Senior Loan Officer Opinion Survey Better than feared
• 5/10 8:30am ET April CPI Tame
• 5/11 8:30am ET April PPI Tame
• 5/12 10am ET U. Mich. April prelim 1-yr inflation Tame
• 5/12 Atlanta Fed Wage Tracker April Tame
• 5/24 2pm ET May FOMC minutes Dovish
• 5/26 8:30am ET PCE April Tame
• 5/26 10am ET U. Mich. April final 1-yr inflation Tame
• 5/31 10am ET JOLTS April job openings