6 Monster Stock Market Predictions: Week of January 9, 2023 Edition
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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. .
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)
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%.
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 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.
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.
Graphics used with permission from Bloomberg Finance LP. This report contains independent comments to be used for informational and educational purposes only. Michael Kramer is a member and investment advisor representative of Mott Capital Management. Mr. Kramer is not affiliated with this company and is not on the board of any related company that has issued these shares. All opinions and analysis presented by Michael Kramer in this analysis or market report are solely the views of Michael Kramer. Readers should not treat any opinion, point of view or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell any particular security or pursue any particular strategy. Michael Kramer’s analyzes are based on independent research and information he believes to be reliable, but neither Michael Kramer nor Mott Capital Management warrant their completeness or accuracy and should not be relied upon as such. Michael Kramer is under no obligation to update or correct the information presented in his analysis. Mr. Kramer’s statements, guidance and opinions are subject to change without notice. Past performance is not indicative of future results. The past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investment instruments based on that index. Neither Michael Kramer nor Mott Capital Management guarantee any specific results or benefits. He must be aware of the real risk of loss when following any investment strategy or commentary presented in this analysis. The strategies or investments discussed may fluctuate in price or value. The investments or strategies mentioned in this analysis may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended to be an appropriate recommendation for you. You should make an independent decision regarding investments or strategies in this analysis. Upon request, the assessor will provide a list of all referrals made during the past twelve months. Before acting on the information in this analysis, you should consider whether it is appropriate for your circumstances and strongly consider seeking the advice of your own financial or investment adviser in determining the suitability of any investment.