A big week coming for markets, plus inflation, shipping, Nielsen rankings, and the week in review
The Sandbox Daily (1.27.2023)
Welcome, Sandbox friends.
Today’s Daily discusses the big events to watch next week, the Fed’s preferred measure of inflation shows continued easing, the cost of container shipping, Nielsen’s 2022 streaming rankings, and a brief recap to snapshot the week in markets.
Let’s dig in.
Markets in review
EQUITIES: Nasdaq 100 +0.96% | Russell 2000 +0.44% | S&P 500 +0.25% | Dow +0.08%
FIXED INCOME: Barclays Agg Bond -0.15% | High Yield -0.30% | 2yr UST 4.201% | 10yr UST 3.507%
COMMODITIES: Brent Crude -1.26% to $86.37/barrel. Gold -0.11% to $1,944.5/oz.
BITCOIN: +0.07% to $23,059
US DOLLAR INDEX: +0.08% to 101.916
CBOE EQUITY PUT/CALL RATIO: 0.68
VIX: -1.17% to 18.51
Grab your popcorn
While only a few weeks into 2023, the market is rallying strong across a variety of breadth and momentum metrics, with many different factors contributing (size, style, sector). Rates and the dollar are coming off the boil. The VIX has collapsed, slipping briefly into the 17s today.
But the rubber meets the road next week and we’ll see if this largely technical-driven rally has further legs – i.e. fundamentals confirm the move.
The heart of earnings season arrives next week – plenty of good read-throughs on the consumer and the economy – however the spotlight is brightest on the mega-cap tech names reporting on the back-end.
Sprinkle a Fed interest-rate policy announcement (Wednesday 2/1) and a Bureau of Labor Statistics labor report (Friday 2/3) on top, and we have a LOT for investors to digest.
Grab your popcorn…
Source: Wall Street Horizon
PCE inflation easing amid slowing demand
The Federal Reserve’s preferred inflation measures eased in December to the slowest annual paces in over a year while consumer spending fell, helping pave the way for policymakers to further scale back the pace of interest-rate hikes.
The headline Personal Consumption Expenditures Index (PCE) rose +5.0% YoY, down from +5.5% in the prior month and the lowest inflation rate since September 2021. Core PCE inflation eased to +4.4% from 4.7% in the prior month and the lowest since October 2021.
On a month-over-month (MoM) basis, PCE rose by just +0.1%.
The main contributor to the deceleration was goods inflation, particularly durables. Durable goods prices were up just +1.4% YoY, the least since February 2021 and a steep drop from the cycle peak of 10.6% y/y in early 2022.
Services inflation, which is stickier, was unchanged from the prior month at 5.2% YoY. It has ticked down from its cycle peak of 5.5% YoY last October, but it is still near its highest level since 1985. Housing and utilities prices, which accounts for more than a quarter of the services price index, are still posting above-average monthly gains. They were also up 8.4% YoY in December, the most since October 1982 and keeping upward pressure on services inflation.
Source: Ned Davis Research, Bloomberg
Container inflation revisited
A little over one year ago, congestion at America’s West Coast ports were making (CNBC) headlines (WSJ) everywhere (1600 Penn.), and the global cost of shipping containers had reached record highs.
Today, using data from Freightos, shipping costs have come back down to Earth, with some routes approaching pre-pandemic levels. The Freightos Baltic Index (FBX) – a widely recognized benchmark for global freight rates – has fallen 80% since its peak in late 2021.
The vast majority of trade is conducted over the world’s oceans, so skyrocketing shipping costs can wreak havoc on the global economy. In fact, our heavy reliance on global supply chains places these big, boring, and bulky containers at ground zero of global trade – which is why we saw so much attention on freight costs, logistics, port management, and ultimately, the impact on inflation.
Source: Visual Capitalist
Just in time for the weekend
Nielsen, the global leader in audience insights and analytics, released their year-end streaming rankings for series and film.
Stranger Things, one of Netflix’s biggest shows ever, is the runaway favorite as the supernatural drama pulled in more than 52 billion minutes of viewing time in 2022 – the biggest figure since The Office (back when it was on Netflix) racked up 57 billion minutes of viewing in the pandemic-lockdown year of 2020.
With streaming now the default viewing mode for a plurality of TV users, consumption of streaming content rose by about 27% versus 2021 numbers, and viewers in the United States spent the equivalent of 19.4 million years on streaming platforms — that’s a shade under 10.2 trillion minutes.
When it comes to movies, Disney+ finds much greater success as it relies heavily on its deep IP library that includes Disney, Pixar, Marvel and Lucasfilm’s Star Wars.
The week in review
Talk of the tape: The path of least resistance has been higher, with positioning and technicals flagged as key tailwinds amid all the attention coming into the year on the bearish consensus for stocks in 1H23. Earnings/guidance have tended to underwhelm to the downside but have also found some reprieve from the low bar dynamic. The Fed is on track for another slowdown in the pace of tightening next week, with the market expecting a 0.25% increase to the Fed Funds range of 4.25-4.50%. The latest inflation data is adding support for disinflation and soft-landing narratives. China reopening and Bank of Japan liquidity are some positive external drivers as of late adding to the recent change in sentiment.
Stocks: The major market averages finished higher, reversing last week’s losses. Equities have done well despite fourth quarter earnings coming in lighter-than-expected. Investors believe that cooling inflation and a slowing economy should allow for the Fed to pivot on monetary policy. This is also helping the market averages. Emerging markets continue to perform well as Hong Kong and Chinese stocks outperformed given positive reopening/policy support dynamics.
Bonds: High-yield bonds and bank loans are off to their strongest start in a calendar year since 2019. Spreads should settle into a range near-term supported by receding recession risks, earnings, a strong technical, and improving capital market access.
Commodities: Oil and natural gas prices finished the week mixed. Natural gas prices have been trending lower as warmer-than-anticipated weather and storage facility inventories remain at record seasonal highs. OPEC+ plans to meet next week to review crude production levels with the group expecting no change to current output policy. The major metals, including gold, silver, and copper finished the week mixed.
Source: Dwyer Strategy, LPL Research
That’s all for today.
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.