The Fed, ever the hawk in sheep’s clothing, is still dangling the idea of rate cuts—but not just yet. Chris Larkin summed it up bluntly: “It’s about patience.” Translation? If you’re holding out for pivot dreams, you might want to check back in June.
In the meantime, inflation’s back in the driver’s seat. It used to play second fiddle to jobs reports, but not anymore. Now, with Powell & Co. laser-focused on crushing CPI back to the magical 2%, every data point feels like a landmine.
Thursday’s CPI: A Nothingburger or a Fed Trigger?
The big number this week is Thursday’s Consumer Price Index for December. Economists are penciling in a 0.2% bump—slower than November’s 0.3%, but not exactly a cooling breeze. Annual inflation could tick up from 3.1% to 3.2%. Not panic-worthy, but not soothing either.
Ned Davis Research’s Joe Kalish thinks a hot read could rattle markets more than folks expect. And don’t forget oil: WTI popped over 3% last Wednesday thanks to the latest round of Middle East flare-ups. Kalish warned that falling inflation expectations were partly built on cheap oil—if that flips, so does the narrative.
Bank Earnings Incoming: Big Expectations, Bigger Risks
Earnings season kicks off with the usual suspects: JPMorgan, Bank of America, Citigroup, Wells Fargo. JPM already got a pat on the back from Goldman as the bank to beat in 2024, with shares at record highs. But the pressure is on. Forecasts are calling for an 11.8% jump in S&P 500 earnings this year—well above the 10-year average. That’s a bold bet considering recession odds still hang in the air like a stale cigar.
Each quarter is expected to bring solid gains: Q1 at 6.8%, Q2 at 10.8%, Q3 at 9%, and a wild 18.2% for Q4. But if wage growth keeps climbing and inflation rears its head, those rosy outlooks could go south real quick.
Jobs Report: Good News That No One Wanted
Last week’s jobs report threw a wrench into the “soft landing” story. December added 216,000 jobs—way above the 170,000 consensus. But it was the wage growth that spooked the Street: up over 4% year-over-year. Higher wages mean more spending, more pricing power, and more reason for the Fed to keep rates elevated. It’s great for workers. Terrible for rate doves.
Morgan Stanley’s 2024 Stock Picks: Not Boring, for Once
In the hunt for alpha, Morgan Stanley dropped its 2024 favorites. It’s a surprisingly spicy list:
Spotify ($SPOT): Up 137% last year, and still has room to run, says MS. Price hikes and smarter royalty deals could make it a cash cow.
T-Mobile ($TMUS): Riding the Sprint merger momentum with a fat $12B buyback coming. Shares gained 13% last year—MS says there’s more where that came from.
Howmet Aerospace ($HWM): A stealth play in both OEM and aftermarket aerospace. Up 37% in the past 12 months. MS likes the management and the growth trajectory.
BlackRock ($BLK): Betting on flows back into fixed income, with upside in indices, ESG, and private markets. A solid long-term play.
UnitedHealth ($UNH): Always a defensive darling. Doesn’t grab headlines, but it’s steady, and in this environment, that’s gold.
Bottom line? 2024 is already shaping up to be a tug-of-war between macro fears and micro hopes. Inflation’s not dead. The Fed’s not done. And earnings better deliver—or this market might not wait around to see how Act II plays out.