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Quarter-point cut expected, but tariffs could boost inflation next year. (0:18) Micron set to report earnings. (2:14) Goldman’s 12 Days of Trading. (4:50)
The following is an abridged transcript:
It’s the most wonderful time of the year, if you’re a macro fan.
The Federal Reserve meets for the last time this year and all of Wall Street expects a quarter-point rate cut to wrap up 2024.
After the November jobs report and CPI failed to set off any alarm bells for the hawks, traders are pricing more than 96% chance that rates move to the range of 4.25% to 4.5%.
The November PCE price index figures are also due this week, but not until after the FOMC has made its decision. The Fed’s favorite inflation gauge arrives along with the personal income and spending report Friday.
Pantheon Macro economist Samuel Tombs says: “Core PCE inflation … will remain well above the 2% target next year if Mr. Trump follows through on his tariff and deportation threats. For now, we are factoring in a 0.5 pp uplift to the headline and core PCE deflators in 2025 from tariffs, which is the boost we estimate would result from Mr. Trump’s current plan to increase tariffs on Mexican and Canadian imports by 25%, and on Chinese goods by 10%. But tariffs likely will be threatened, imposed and removed on a wide range of countries sporadically and opportunistically.”
“The Fed will continue to ease policy in 2025, but less quickly than required to stabilize the unemployment rate, given stickiness in core PCE inflation and the long lags between policy changes and the response in the real economy,” he added. “Tariffs ought to be a one-time shock to inflation, but households’ medium-term inflation expectations remain elevated in the wake of the 2021-to-22 inflation surge and the Fed cannot risk a bigger deanchoring. So, after easing by 25bp this month, we expect the FOMC to skip January and then ease by 25bp at alternate meetings thereafter.”
Also on the economic calendar, November retail sales are released Tuesday. The consensus is for a 0.6% rise, with a 0.5% rise ex-autos.
In addition, FedEx (FDX) and Nike (NKE) report earnings on Thursday, ad should provide a further glimpse into the health of the U.S. consumer.
Also on the earnings front, Micron (NASDAQ:MU) will give investors more insight on the semiconductor sector and AI demand when it reports on Wednesday.
Victor Dergunov, leader of The Financial Prophet Investing Group, says excellent guidance in its last earnings report “should materialize into robust earnings this quarter. Micron announced first-quarter guidance of $8.7 billion (midpoint). This represents an increase of approximately 4.6% over the previous estimate, which is significant.”
“Servers continuously need more memory, especially considering the enormous demand due to AI. Micron’s revenues surged by a staggering 93% last quarter due to enormous AI server demand,” he added.
But SA Analyst Hunting Alpha is more cautious, noting that although numbers suggest “that Sep 2024 has been good for Micron’s NAND business, the outlook is more challenging with pricing cuts and a slowdown in order demand.”
“MU valuations are at a premium relative to both its peers and the broader historical P/B valuation band, reducing the attractiveness of buys.”
Also on the earnings calendar, Heico (HEI), Amentum Holdings (AMTM) and Worthington Enterprises (WOR) report Tuesday.
Joining Micron on Wednesday are Lennar (LEN), General Mills (GIS), Jabil (JBL) and Toro (TTC).
Along With Nike and FedEx on Thursday. Accenture (ACN), Cintas (CTAS) and Paychex. (PAYX) release numbers.
Winnebago (WGO) weighs in on Friday.
In the news this weekend, Apple (AAPL) is working on a foldable iPad. Bloomberg says the company has been working on the new version for the past couple of years and is targeting a release for around 2028.
Apple is the only major smartphone maker without a foldable device.
Apple is aiming to avoid the crease that current foldable devices have when they are in their open position. Prototypes have an almost invisible crease. But it’s too early to know if the crease can be avoided completely.
And the Nasdaq announced a reconstitution of the Nasdaq 100 index (QQQ).
Palantir (PLTR) is joining while Super Micro Computer (SMCI) is out. Also joining are MicroStrategy (MSTR) and Axon Enterprise (AXON), while Illumina (ILMN) and Moderna (MRNA) will leave the index.
Last week, Super Micro received a letter from Nasdaq informing the company that Nasdaq has granted its request for an extension, as it works to maintain its listing on the stock exchange.
Super Micro Computer has also reached out to Evercore to help the company raise capital, according to Bloomberg. The company is looking at a potential private investment in public equity, or PIPE, and is approaching private equity firms to gauge interest.
For income investors, companies that have an ex-dividend date coming include Meta Platforms (META), AIG (AIG) and Walt Disney (NYSE:DIS) on Monday. And Salesforce (CRM) on Wednesday.
Companies expected to increase their quarterly dividends include ServisFirst Bancshares (SFBS) to $0.33 from $0.30, Fulton Financial (FULT) (FULTP), to $0.18 from $0.17 and Mosaic (MOS) to $0.22 from $0.21.
And in the Wall Street Research Corner, Goldman Sachs tactical specialist Scott Rubner was out Friday with his take on the 12 Days of Christmas (with 12 trading days left … 11 now but we’ll let that pass in the spirit of the season).
Rubner says: “We are entering the best seasonals of the year for U.S. equities. I am looking to fade the equity market in the second half of January as risk of overshooting remains high.”
Now to the days:
Twelve handle vol-ing:
“Volatility is no longer a coach on the sidelines – it is the quarterback calling the plays from the huddle.”
Eleven Trillion passive flow-ing:
$11.73T is the current tally of passive assets under management.
Ten Billion Gamma muting:
2024 was a market of long index gamma which helped mute any material moves. Index desks were short gamma only twice.
$9 Trillion AUM is in money markets:
A move of just ~1% out of money markets represents a hefty $90 billion worth of rotational flow.
Eight realized vol a-grinding:
Two-week S&P 500 realized vol is 8% – “it pretty much doesn’t get lower than this.”
Seven magnificent stocks a-rising:
A basket Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA) is up +50% versus the S&P 500’s +27% advance.
Six Thousand hats a-tossing:
He’s ordered an “SPX 7K hat.”
Five crypto coins:
“Dear crypto friends – welcome to passive flows and congrats on the ETFs.”
Four years of Trump:
Three trades are deregulation, financial beneficiaries and small business activity.
Three Trillion market-caping:
The Mag 7 stocks represent a record 33% weight in the S&P 500.
Two turtle dovish cuts:
“Seems like a lot of bonds to buy if yields move lower.”
And a Santa rally in the S&P:
Investors are getting into the third-best two-week period of the year since 1928, followed by the best two-week period of the year since 1929.
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