It was one of those days when the stock market couldn’t get in gear. Target’s (TGT) earnings set the tone yesterday, and retail sales sealed the deal – too strong for the Federal Reserve. But that report had so much hair on it from inflation to California’s stimulus checks to shrinkage and lower volumes.

Be that as it may, the Atlanta Fed marked up their estimate for the fourth quarter Gross Domestic Product (GDP).

Now it’s at 4.4% from 4.0% and the initial forecast of 3.1%. I’m not sure how this influences the Federal Open Market Committee (FOMC); it’s not the recession they are angling for, although there is a lot of deception in the estimate. For investors looking for the micro-investing story, equipment and intellectual property increases bode well for the stock market. Conversely, residential investment destruction continues.

Meanwhile, the Cleveland Fed year-over-year percentage changed in the Consumer Price Index (CPI), and the Core CPI is still elevated.

Wage Peak

Wages appear to have peaked, although finding qualified talent is still the most persistent issue for businesses large and small.

It may choke Arti but it ain't gonna choke Stymie. - The Little Rascals

Fed Won’t Stop Jawboning

With all this in mind, the Federal Reserve will keep laying it on thick, as jawboning has been a very effective tool. But the actions are piling in, and the so-called lag effect is real.

Yesterday, Fed Governor Waller was at it again, cautioning investors against assuming inflation has peaked. In fact, he made sure everyone knew that he wouldn’t be blindsided: “I will not be head-faked by one report.”

There is no doubt data will move up and down, and inflation will not come down in a straight line until it’s in freefall mode.

That’s the worry for most – staying the hawkish course too long to avoid embarrassment.

Portfolio Approach

There are no sector weighting changes this morning in our Hotline Model Portfolio.

Today’s Session

Markets are taking a hit this am, with every sector in the red, as the Fed speak on the war on Inflation ratchets up. This morning, Fed Bullard stated that policy on rates is not yet “sufficiently restrictive.” He added that the dovish case for rates is 5% and hawkish is 7%.  The Fed doesn’t seem to like the tick up in the stock markets and are doing their best to beat it back down.

Treasury rates are up, with the 2 year at 4.46% and the 10 year at 3.78%, and the dollar is rising again, adding pressure to the market.

Economic News

There is lots of data out this morning.

Initial jobless claims declined by 4,000 to 222,000 but slightly below the consensus for 225,000.  The number is not what the Fed wants to see.

A better gauge, the 4 week moving average was up 2,000 to 221, 000.  

Housing has been under pressure due to rising material cost and worker shortages.  Starts declined 4.2% from last month to an annualized rate of 1.425 million at the end of October versus 1.41 million in September.

• Single Family -6.1% to 855,000
• Multifamily -0.5% to 556,000

Building permits were also down, declining 2.4% to 1.526 million in October versus expectations for 1.512 million. This was the lowest read since August 2020.

• Single family -3.6% to 839,000
• Multi-family -1.0 to 687,000

The Philadelphia Fed Manufacturing Index decline 19.4% in November from 8.7% in October, well below the expectations of -6.2%, and the lowest read since May 2020. General activity, new order, and employment declined (but still not enough for the Fed apparently).  Prices and shipments were up.  While the future index gained a bit, overall it suggest that companies believe that there will be reductions in activity and new orders six months from now.

Comments

Does Warren Buffett’s play on TSM have anything to do with China’s eventual move to take over Taiwan? If China does move on Taiwan, how might that affect TSM’s price? Bob on 11/17/2022 9:43:02 AM

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