• First Word
Mon February 6

The strong January jobs report (+517k vs 188k expected), along with strong JOLTS (aka job openings) and Fed Daly's comments (hawkish), was overall too "hawkish"-ly tilted for equities, and thus, the sell-off on Friday.the strong jobs was a too much of a good thing as...

2022 EPS of $240 vs Street $220? S&P 500 likely further rise +200-400bp from ATH here + markets increasingly agreeing with Fed view of patience on rates
  • First Word
Thu February 2

Powell cited "disinflation" 13 times in Feb FOMC presser (0 in Dec). Fed moved forward goal post = strengthening case >20% gain in 2023.

Going into this Fed decision day, investors told us anyone "rational" expects the Fed to come out hawkish, particularly given how much financial conditions eased since October:Equities were under selling pressure early in the session falling as much as 1% and then sinking further post-Fed decision. But by the end...

  • First Word
Wed February 1

Unless Fed moves "goal posts," equity markets increasingly playing different game (easing financial conditions). Tech leading "cancelled" buy the dip strategy. Base case still >20% rise in 2023.

The most important Fed meeting of 2023 will announce its rate decision on 2/1 at 2pm ET. The consensus pundits and media argue the Fed will be "hawkish" pushing back on the rise in stock prices, meaning they expect Powell to crush the equity rally YTD of >6%. But we...

  • First Word
Mon January 30

Bond and equity volatilities at lowest levels since 2021 = supportive >20% rise in 2023. Updating "Granny shots" +12 adds (-12 deletes). 2023 YTD +39bp outperformance. 2022 +395bp outperformance. List adds attached.

The most important event in the coming week is the Feb FOMC decision (2/1). We will have more comprehensive thoughts on Wednesday, but as many are aware, we expect the Fed to become increasingly tolerant of easing financial conditions. Why? Because inflation is tanking and the Fed and markets are...

  • First Word
Fri January 27

S&P 500 no longer fearful above 200D as our "unpopular opinion" of inflation undershoot now looking to be central case. Technology/FAANG arguably best upside 1H2023 story.

Friday (1/27/2023) is an important comeuppance day with two key pieces of incoming economic data:Core PCE inflation (Dec) andU Mich 1-yr inflation (Dec final). Why is this day so pivotal? The incoming data will arguably determine which narrative best explains inflation and the course of the Fed for 2023 and...

  • First Word
Wed January 25

Market breadth surge in 2023 strengthens case stocks surprise to upside in 2023. Also strengthens case Oct 13th was low + Fed made unforced error in Dec.

Equities have been off to a solid start in 2023, gaining nearly 5% so far. As shown below, this strong start in 1st 5 days, particularly when the prior year was negative (ala 2022), bodes well for the remainder of 2023:1st 5 day >1.4% + neg prior year = 7...

  • First Word
Mon January 23

A Fed "pause" in spring is pregnant pause and a pretext for a substantial easing of financial conditions. Supports why stocks could rise 20%-25% in 2023.

More than a few of our clients have told us that "falling inflation" is consensus and therefore priced into equities and these same clients tend to lean bearish as they view the next chapter in the market narrative as "falling EPS due to Fed hikes." But I don't agree that...

  • First Word
Thu January 19

Downturn in PPI portends continued leg down in CPI. Of 11 sectors, 4 have solid EBIT correlation to PPI (commodities, utes). Least impacted are Technology, Discretionary, Comm Services and Financials.

Since the S&P 500 intraday low of 3,491 on 10/13, the S&P 500 has rallied ~15%, even after the decline posted on Wed (1/18). The 200-day moving average is 3,975 and this remains an important level. Since April 2022, the S&P 500 has not managed to close above the 200D...

  • First Word
Wed January 18

Inflation is having its "Volcker moment" as 34% of CPI (by weight) in deflation, the same point in Oct '82. As for "cash is a great alternative," S&P 500 in 10 days exceeds 4% return of cash, "cash"-ites have to wait another 355 days to match the return of stocks.

MACRO CATALYST WATCH: WEDNESDAY 8:30am ET: Dec PPI (Producers Price Index) Core Street +0.1% MoM (was +0.4% last month)PPI Core (ex-food and ex-Energy) should show same type of continual improvement seen in CPI.If Dec is +0.1% or so, this takes 3M annualized to 2.39%, down from 2.69% last month. In...

  • First Word
Fri January 13

The "big news" in December CPI is 59% of components are now in deflation, a leap of 800bp in a single month (50-yr avg 50%). Reason to view this as repeatable low CPIs = easing FCI = falling VIX = rising stocks.

CATALYST WATCH: FRIDAY U Mich Inflation 1-yr is reported 1/13 at 10am ETwe expect inflation expectations could fall below 4% (mid-month) vs 4.4% last month, validating the accelerating leg down in inflation _THE "BIG NEWS" IN DECEMBER CPI IS 59% OF COMPONENTS ARE NOW IN DEFLATION_ Ultimately, the December CPI...

  • First Word
Wed January 11

"Rule of 1st 5 days" implies +26% gain 2023 (7 of 7 times). Dec CPI (1/12) could persuade markets it is less costly for Fed to change narrative than drive US into recession = financial conditions ease = upside stocks.

With the first 6 trading days of 2023 behind us, the S&P 500 is off to a solid start with >2% gains. We have a lot of clients telling us they are being "paid to wait" because they are earning 4% on their cash. This is true, but we think...