6 Monster Stock Market Predictions: Week of January 9, 2023 Edition
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8/1/23
SHARES – $JPM, $C, $BAC
MACRO: $SPY, $VIX, #CPI
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It will be a big week for inflation, with the January CPI report estimating a 6.5% y/y rise, down from 7.1% in November. We’ll get import and export prices on Friday and confidence figures from the University of Michigan. Jay Powell will be in a question and answer session on Tuesday, January 10 at a Central Bank Independence event. I’m not sure how much monetary policy discussion there will be, but it could open the door for Powell to talk about the importance of financial conditions and that the Fed’s fight against inflation is not over.
S&P 500 (SPY)
Friday’s rally made little sense, given the strong unemployment reading and the recession-like numbers in the ISM Services report. (You should be free to read: the stock market hasn’t figured out yet that bad news is now bad news) The rally was twofold, driven by a weaker dollar and due to the sharp decline in implied volatility. Over the past year, we have seen these types of rallies time and time again.
The rally looks like a cup, a handle tilted up, or a flag being raised. The result will probably be the same in both cases, an index that returns to 3,800.
VIX 9Day (VIX9D)
The VIX 9-day index fell sharply on Friday, and it seems likely that ahead of Powell on Tuesday and the CPI report on Thursday, we should see implied volatility pick up, likely pushing stock prices lower. .
CPI
I have no idea if the CPI report comes out hotter or colder. I’m interested to see what happens when the CPI and the core CPI move closer to each other and whether or not the CPI gets stuck in the 5-6% region. (Should be free to read – The December CPI report leaves the market with no margin for error)
6
Given that the sticky CPI measures have still been rising and appear to be in the upper 5-6% region, we are at the point where if CPI is going to stall, this is the time that we should see it unfold.
The Cleveland Fed’s 16% trimmed average CPI is firmly in the region of 6.6%.
Dow
The Dow’s outperformance remains a mystery to me; it could simply be that money is flowing out of the high-growth names of the NASDAQ and back into the more stable names of the Dow. While I admit it, I’m not sure how it works because Microsoft, Apple, and Salesforce are all in the Dow. Still, the Dow is a price-weighted index, so stocks like Goldman and United Health have a much more significant impact than Microsoft, Apple, and Salesforce. We’ve seen this type of churn before, during previous Nasdaq bubble cycles. If this is correct, then the Dow still has a lot more to go up, or the NASDAQ has a lot more to fall.
JPMorgan (JPM)
JPMorgan will report the results on Friday the 13th, to kick off earnings season. JPMorgan’s earnings estimates have been rising for fourth-quarter results and have helped boost the share price, which likely means the company will need to pace and turn up the quarter to keep shares rising. I’m not sure we’re in a win-raise environment, but what do I know?
Bank of America (BAC)
Bank of America will also report results on Friday the 13th, but unlike JPMorgan, Bank of America’s quarterly estimates have been falling and are at the lower end of the range. It makes one wonder why the stock has been going up. It suggests that the market believes that the results are going to be better than expected, which means that Bank of America will have to deliver better than expected results for the stock to continue rising, or the stock will likely return to its recent lows.
Citigroup (C)
Meanwhile, Citigroup will also report on Friday morning, and like Bank of America, shares have been rising while earnings estimates have been falling. Still, one wonders why analysts are raising JPMorgan’s estimates while cutting forecasts for Bank of America and Citigroup. It probably means that JPMorgan’s estimates are too high or that Bank of America and Citigroup’s estimates are too low.
Anyway, good luck this week.
Miguel
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