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Equites were choppy on a reassessment of earnings and monetary policy.  Bloomberg writes of the 33 S & P 500 companies that have posted results so far, 25 have beaten expectations, “the nascent trend of lagging buoyant surprises of the previous quarters.” The market is perhaps interpreting more downside profit reports.

On the other hand and as measured by the VIX, complacency is high as the markets enter the reporting season.  Again refencing Bloomberg, the VIX, which is a measurement of volatility, closed at the lowest level in a year on Friday.  Every time during the past 24 months the VIX traded to this, a selloff commenced.

Commenting about monetary policy, the market is suggesting the terminal rate will be around 4.90%, reached within the next several months and then an easing campaign commencing sometime mid-year.

As noted many times, the FOMC is unanimous in its view the federal funds rate will be over 5% and will maintain this level well into 2024.

JP Morgan wrote yesterday the Fed will increase rates to 5% by March, maintain that rate until June, and then there is a “one in three chance” rates will be 6.0% by year end as the labor market proves more resilient than Wall Street thinks.

The Federal Reserve is adamant to increase the unemployment rate to 4.6% from the current level of 3.5%.  If the size of the workforce remains constant, approximately 2 million jobs would be lost in this quest.

Several times the re shoring of jobs has been discussed as the multipolar interdependent world implodes as reliability replaces efficiencyAvailably has replaced price as the only determinant of a purchasing decision.

The last 30 years is the only time in history where countries have outsourced vital and core production to one’s adversaries, creating structural weaknesses in many nation states.

Corporate America is recognizing this potentially fatal flaw and is now re shoring productive capacity.  According to Harry Moser of the Reshoring Initiative, the growth of annual reshoring and foreign direct investment job announcements has accelerated from 6,000 year in 2010 to 350,000/year in 2022.

Writing it differently, there has been a dramatic reduction in the rate of job losses due to onshoring, where “regression analysis of BLS manufacturing data shows manufacturing employment is now 5 or 6 million higher than one would have predicted before the Great Recession.”

Wow!  Is this data reflected in today’s Wall Street’s monetary policy forecast which is in direct contradiction as to the forecast of the Federal Reserve’s?

What will happen today?

Last night the foreign markets were up.  London was up 0.05%, Paris up 0.31% and Frankfurt up 0.17%.  China was up 0.16%, Japan up 2.50%  and Hang Seng up 0.47%.

Futures are flat ahead of several profit reports and concerns over monetary policy.  The 10-year is up 19/32 to yield 3.48% as the BOJ voted unanimously to maintain its yield curve control program.

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Kent Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.