Will this week be one of great significance? There are multitude of events occurring. A very crowded economic calendar. A Fed meeting. Several of the mega size tech companies post results including members of the “Magnificent Seven.”
Often, weeks that are expected to be eventful are uneventful and vice versa.
Reflecting upon last week, the performance of the economy in the third and fourth quarter was remarkable, exceeding all estimates.
By definition and as confirmed by several Fed officials, Boomflation—strong demand creating high inflation—is present for the first time in at least fifty years. Third quarter nominal GDP was 8.3%. After inflation, real growth was 4.9%. Fourth quarter nominal GDP was 5.3% and real GDP was 3.3%.
A major reason why society is not feeling the perceived economic boom is that inflation is up about 21% since 2020 but wages are only up about 10%. There is other data that suggests even a greater disparity.
The nominal increase in wages however is impacting earnings growth. A Seeking Alpha headline read:
Earnings Have Been Horrible Thus Far for The S&P 500
- Earnings growth for the S&P 500 has fallen by 4.7% in Q4, with sales growing by 3.5%.
- Margin expectations for Q4 have declined to 9.9%, dragging down Q1 margin expectations to 11.4%.
- Falling margin expectations are impacting earnings estimates, with full-year 2024 estimates lower at $240.52 per share
This headline is a contradiction to other headlines, suggesting earnings are exceeding dumb-down expectations. Perhaps an accurate conclusion to make one could pick and choose the data/information is to be utilized to support one’s preconceived expectations or bias.
Perhaps the most objective person is the person who states everyone is subjective, looking for evidence to support one’s inherent confirmation bias.
Changing topics and perhaps just a reiteration of data, according to the Treasury Department the 12-month interest coverage on the national debt has now exceeded $1 trillion or about 17% of the budget. Four years ago, it was around $350 billion.
If current spending, deficit and interest rate projections materialize, several firms are projecting the interest coverage on the national debt will be $3 trillion by the 2030’s fourth quarter. Wow!
Perhaps the only consistency with federal projections is that the projections are historically low balled. What happens to spending if the there is the inevitable crisis that shatters projections (Great Financial Crisis, COVID)
Unfortunately, it may take a crisis for Washington to address the unsustainable fiscal issues.
What will happen this week?
As noted above, the economic calendar is comprised of numerous top tier data points including the JOLTS Job Openings, ADP Employment Survey, the BLS Labor report, sentiment survey, the ISM, and durable goods orders. As already noted there is a two day Fed meeting that commences on Tuesday.
And then there are earnings. Will the Seeking Alpha headline be regarded as prophetic or just noise or click bait?
Last night the foreign markets were mixed. London was up 0.26%, Paris up 0.01% and Frankfurt down 0.46%. China was down 0.92%, Japan up 0.77% and Hang Seng up 0.78%.
Futures are flat. The geopolitical environment is deteriorating at a fast pace, but market complacency remains. The 10-year is up 8/32 to yield 4.11%.
