Trade The Journey

Trade The Journey

New All-time Highs!

Good Morning, everyone! I trust you’re all enjoying the weekend and staying well. This past week was eventful with a plethora of economic updates, notable earnings reports, and insights from Federal Reserve officials. The market continues to anticipate rate cuts, yet the Fed seems to be tempering these expectations with a more cautious outlook.

We saw a notable increase in yields last week, triggered by a CPI report that exceeded expectations. As the week progressed, the five-year yield witnessed a significant rise, moving from 3.8% to 4.111% before settling at 4.072%. The ten-year yield also escalated, starting at 3.916% and closing the week at 4.146%. Similarly, the thirty-year yield started at 4.154% and climbed to 4.353% by week’s end.

Amid these rising yields and ongoing geopolitical concerns, the allure of the dollar has grown, with its value stabilizing around $103.128. Foreign Bond Investment saw a $37 billion boost in November, reaching heights not seen since early last year. Crude oil prices have been consistent, with $72.55 emerging as a key support level. Copper prices, closely aligned with China’s economic index due to the country’s significant consumption and importation, have encountered resistance at $3.7893.

In the midst of rising yields, the technology and communications sectors achieved new highs. On the other hand, utilities, which are dividend-paying and sensitive to yield performance, have seen a significant pullback. The materials sector has been oscillating within a narrow range of $74.74 to $85.69. A breakout from this range could signal an upswing in broader economic growth.

The financial sector, despite facing challenges from mixed bank earnings, is on the brink of reaching new heights. The consumer discretionary sector has shown impressive recovery, contrasting with the consumer staples sector, which has been hindered by the 200 SMA serving as a resistance point.

The European Central Bank (ECB) remains steadfast in its goal to bring inflation back to its target level before considering any change in its rate policy, resulting in higher yields. This approach mirrors the Federal Reserve’s emphasis on a data-dependent outlook. In Japan, recent significant earthquakes and a slight decrease in the inflation rate to 2.6% suggest that a change in its accommodative monetary policy is unlikely in the near term.

China’s economic indicators showed a mixed picture. The short-term loan prime rate remained unchanged, and unemployment saw a slight increase from 5% to 5.1%. The quarterly GDP growth rate showed a decline, though the year-over-year rate improved slightly from 4.9% to 5.2%. Industrial production saw a modest increase, but retail sales in December declined notably, falling from 10.1% to 7.4%.

Looking Ahead to the Next Week:

  • Monday: The Leading Economic Index will be released.
  • Tuesday: Earnings reports from major companies such as Netflix, General Electric, and Procter & Gamble are anticipated.
  • Thursday: Key data including Initial Claims, Durable Goods, New Home Sales, and GDP figures will be in focus.
  • Friday: The Personal Consumption Expenditures (PCE) and Pending Home Sales data will be announced.

New York Empire State Manufacturing: January

The industry faces a downturn, as highlighted by the recent ISM manufacturing report. The regional outlook shows significant contraction with business conditions reaching their lowest point since the pandemic at -43.7. Manufacturing saw widespread decreases, particularly in new orders and shipments, aligning with a reduction in demand. Despite a slight decrease in unfilled orders, they are still below the lows of 2020. As manufacturing activity and new orders decelerate, delivery times are improving. Inventory levels modestly decreased, reflecting cautious adjustments in material costs and pricing. Employment levels remain steady, indicating no rush in hiring or layoffs. The overall workweek duration has slightly decreased but is consistent with the previous year’s trend.

Looking ahead, there’s an anticipation of improved business conditions and a rebound in new orders. Manufacturers expect shipments to increase, and inventory levels are predicted to adjust as delivery times slow down. Material costs are likely to rise, influencing the prices manufacturers can charge.

Contrastingly, the Philadelphia Manufacturing Index shows continued weakness in general activity, with a marginal pick-up. Most firms report no change in current activity. Despite slight improvements in new orders and shipments, both remain in negative territory. Employment rates are stable, and the overall outlook suggests a potential decline in general business activities.

Business Inventories: November

Levels remained stable as companies cautiously navigate uncertain market conditions. Sales saw a minor uptick of 0.2%, bringing the business inventory to sales ratio down slightly to 1.37. Manufacturers and wholesalers witnessed an improvement in inventories, while retail stock levels slightly decreased. Sales performance was consistently positive across various sectors.

Retail Sales: December

December’s retail sales exceeded expectations with a 0.6% increase, surpassing the forecasted 0.4% rise. Excluding the motor vehicles and parts sector, sales were 0.4% higher than November. Year-over-year, retail sales have grown by 5.6%. However, motor vehicle and parts dealers saw only a slight increase, while gasoline sales continued to contract. Food and beverage stores, along with grocery sales, remained unchanged from the previous month. Non-store and miscellaneous retailers showed growth, and general merchandise stores, including department stores, experienced a significant rise.

Industrial Production: December

Industrial production in December marginally increased by 0.1%. This rise was reflected in the final products and consumer goods production, although business equipment production saw a decline. Nonindustrial supplies and construction production also decreased. Overall materials production saw a slight increase, with manufacturing production growing modestly. Mining output increased significantly, but utility production dropped.

December’s durable manufacturing production decreased, while nondurable manufacturing saw growth. Capacity utilization remained unchanged from November, with both manufacturing and mining capacity utilization showing stability. However, utilities capacity utilization experienced a slight decline.

Housing Starts & Building Permits: December

In the housing sector, December’s building permits rose 1.9%, standing 6.1% above the level registered a year ago. Single-family permits were also up, exceeding the previous year’s levels. Housing starts, though lower than November’s levels, showed a year-over-year increase. Single-family housing starts were below the levels of November, but completions were higher. Multi-unit housing presented a varied picture, with an increase in newly authorized privately-owned units and a decrease in units not yet started. The construction of multi-unit housing increased slightly from the previous month.

Existing home sales declined in December, even as median prices rose over the year in all regions. The supply of existing homes dropped to 3.2 months from 3.5 months, suggesting a market favoring sellers. Properties stayed on the market slightly longer than the previous month.

The MBA Weekly Index indicates a 22% increase in mortgage applications over the past year. Application volume rose significantly in the past week, with both refinancing and purchase indices showing growth. The average 30-year rate for fixed loans decreased, as did the rate for jumbo loans.

Import/Export Prices

December’s import/export prices remained unchanged overall. While fuel prices fell, nonfuel prices stayed stable. There was a decline in capital goods, foods, feeds, and beverages, but nonindustrial supplies, materials, and automotive vehicle prices increased. Export prices saw a 0.9% decrease across both agricultural and nonagricultural products. However, consumer goods export prices saw a slight increase.

Initial Claims

Initial jobless claims in January dropped to 187,000, well below the forecasted 206,000. Continuing claims also decreased, indicating a robust job market. The University of Michigan’s preliminary consumer sentiment for January showed a significant recovery, surpassing previous expectations. Inflation expectations for the year ahead reverted to 2020 levels, and the five-year ahead inflation expectations also decreased.

Technical Story:

This past week’s cash flow in Review:

This past week, I spent more than intended but somewhat within my spending plan. Unfortunately, I keep splurging when I shouldn’t. A part of me feels that I can afford to spend more because I make more but this mentality isn’t conducive to longevity. It lends itself more to a future of living paycheck to paycheck which is something I must work on.

Grade: C-

Reason: No real improvement

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