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Annual retail inflation in January is expecting to cool again. (0:20) Flurry of hedge fund 13F filings expected. (4:33) Valentine’s Day sticker shock. (5:02)
The top story to look out for this week
Following a week that was light on hard data and heavy on Fed chatter, there will be plenty of numbers for traders to digest in the coming days.
Thursday alone has January retail sales, manufacturing measures from the New York and Philly Fed, industrial production and capacity utilization, along with the regular weekly jobless claims figures.
Friday brings January housing starts and building permits, the University of Michigan’s preliminary sentiment for February and the January PPI. But the headliner is Tuesday’s consumer price index.
Economists expect that the CPI rose 0.2%, with the annual rate falling below 3%. The core CPI, which excludes food and energy is forecast to rise 0.3%, with the annual rate ticking down to 3.8%.
As last week’s Fed speakers echoed Chairman Jay Powell’s caution on cutting in the first quarter, the market is now pricing in just a 16% chance of a March rate reduction. But odds top 60% for a cut in May.
The J.P. Morgan rates team “notes that core CPI should step down fro a strong 3.3% 3m saar pace through December toward a 2.7% pace in coming months, supported by a drop in used vehicle prices as well as further gradual softening in rent inflation, while core PCE runs a bit above 2%.”
“The team flag the potential for regional bank concerns pulling forward Fed easing activity.”
For trades, they like 2s/5s flatteners and 5s/30s steepeners.
Meanwhile, BofA notes when it comes to inflation, nothing keeps pace with the Super Bowl.
In his weekly Flow Show note, strategist Michael Hartnett says the price of a 30-second ad during Super Bowl I in 1967 was $37,500, which jumps to $7 million for Super Bowl LVII — a jump of 185x.
And if other things could match that rise, chicken wings would now cost $43/lb (were 23c/lb in 1967), a 6-pack of beer would be $340, a gallon of gasoline would be $61, the average US house price would clock in at $4.2 million and the S&P 500 would be 16,374.
Digging a little more into the big game, Morgan Stanley points out that the Super Bowl remains one of the key periods outside the beginning of the NFL season for sportsbooks to acquire customers and more casual bettors.
Analyst Stephen Grambling thinks this year could be a boom year, with the Taylor Swift Effect estimated to drive viewership up about 10% and expand sports engagement and/or betting audience. That’s evident already in unique bets outside the U.S. and with the jump in prop bets volume this year.
Based on the expectation for an explosion of sports betting, sportbooks have been offering competitive odds this year on the Super Bowl based on the “overrounds” or the difference in the implied hold rates to prior years or other major events. In particular, BetRivers (RSI) and Wynn Bet (WYNN) have been aggressive with overrounds on the moneyline bet closer to 100% (break-even for the sportsbooks). Meanwhile, DraftKings (DKNG) and FanDuel (FLUT) were slightly more customer-friendly than peers on the point spread.
Looking to market action this week, the S&P 500 (SP500) will start the week in record territory above 5,000.
But does that milestone mean anything?
BTIG technical strategist Jonathan Krinsky says “From a pure technical perspective there is nothing significant about 5,000 in our work. Of course, from a psychological perspective, it can matter, but it’s far from a given.”
“If we look back at history at each of the prior four ‘1k point’ SPX marks, two of them saw a meaningful chop/pullback after the initial test (2,000 and 3,000), while the 1,000 and 4,000 mark offered little resistance initially.” Since “the October ’22 bottom, each 200 point SPX increment has consistently led to some corrective action (4000, 4200, 4400, 4600, 4800).”
On the earnings calendar,
Monday sees reports from Avis Budget Group (CAR) and Goodyear (GT).
On Tuesday Coca-Cola (KO), Shopify (SHOP), Airbnb (ABNB), Biogen (BIIB) and Lyft (LYFT) weigh in. Wednesday had Cisco (CSCO), Sony (SONY) AND Kraft Heinz (KHC).
Applied Materials (AMAT), Deere (DE), Wendy’s (WEN), Coinbase Global (COIN) and Roku report on Thursday. TC Energy (TRP) and Vulcan Materials (VMC) wrap things up Friday.
Also this week, hedge fund 13F filings will pour in ahead of the deadline for reporting Q4 positions.
Last week, hedge funds were net sellers, “driven by scattered covers across Info Tech (XLK), Energy (XLE) and Staples (XLP) vs. upping in Comm Services (XLC) and Industrials (XLI).
But Goldman’s head of hedge fund overage Tony Pasquariello says hedge fund buying of tech stocks is near multi-year highs, and “alongside this came a bit of a chase for upside convexity on the mega cap names.”
Valentine’s Day arrives Wednesday and romantics are going to be paying a lot more for chocolate.
Fueled by hostile weather conditions for cocoa beans in western Africa the price of cocoa futures on the New York Mercantile Exchange has skyrocketed. After bouncing around between $2,157 and $3,050 between 2019 and 2023, the price more than doubled between March 2023 to the present where it last traded at $5,600/metric ton.
In Hershey’s (HSY) latest quarterly earnings report, the world’s fifth-largest candymaker warned that historically high cocoa prices would hinder earnings growth this year. While Hershey will continue to take measures to mitigate the higher cost of ingredients, prices for consumers will continue to increase.
And in the Wall Street Research Corner
Initial public offering activity in the U.S. is likely to continue to improve throughout this year, according to a Goldman Sachs report.
Equity analysts Ryan Hammond and David Kostin say: “We expect the US economy will continue to grow, the nominal 2-year UST yield will decline modestly, and valuations will remain elevated relative to history. If soft data improve to match the hard economic data and equity investor pricing of economic growth, it could lead to a further increase in our IPO Issuance Barometer in coming months.”
The Goldman Sachs IPO Issuance Barometer rose to 119, the highest level since February 2022.
Excluding SPACs and spin-offs, there have been 10 IPOs completed in the US exchanges with more than $25 million in proceeds, 8 of which were for US-based companies, raising a total of $1.9 billion in gross proceeds.
