Confidence or Arrogance?

By Jeff Kelly on January 19, 2024

There’s always a fine line between confidence and arrogance. It’s always good to be confident and in some endeavors a bit of arrogance helps as well. The market action this week is full of confidence and has a touch of arrogance too.

Earnings reports so far have been uninspiring. The financial stocks have been particularly poor. Despite these reports the market has focused on what lies ahead. If good things come to pass over the balance of earnings season, we’ll say there was great confidence displayed. If, however, technology and AI (let’s face it, here lies the gains and the potential excess) does not deliver we will see a prompt retracement of recent gains. We’ll point to arrogance and complacency.

The advance in the latter half of this week was also without the support of interest rate declines. This makes it even more significant. There is good news from the Corporate Bond markets. January has seen record issuance so far. Buyers are aggressively purchasing anything the companies offer. One can conclude this will lead to more buyback of stock after earnings season concludes.

New year US corporate bond issuance tally tops $45 billion

To give you an idea of the hopium built into some equities, this morning we saw a large financial company report an 83% decline in earnings from last year. They also painted a poor outlook for the 1^st half of 2024. The stock price is up 11% on the day as I write. I will be surprised if we see this kind of leeway given to any misses in technology.

The market’s mood was brightened by earnings from Taiwan Semiconductor. They put forth a good report (although still down from last year) and increased guidance for the full year. They manufacture chips for many companies and have good insight into industry trends.

TSMC beats profit and revenue expectations in the fourth quarter

The next two weeks have about 60% of the S&P 500 reporting earnings. This period will likely determine the market direction for the balance of the quarter. We could be setting up a “sell on the news” situation. But for now, it’s hard to argue with the markets performance, fundamentally driven or not.

CHARTS FROM THE WEEK PAST

Earnings season is off to a slow start.

10% of the S&P 500 have reported. Earnings growth down 3.39%. Sales up 5.26%. Financials have seen almost 40% of companies report and earnings growth is -10.3%.

The yield curve is starting to steepen.

A precursor to rate cuts later in the year.

Car insurance at 47-year highs.

December housing starts (blue) -4.3% month/month vs. -8.7% est. & +10.8% prior (rev down from +14.8%) … building permits (orange) +1.9% vs. +0.6% est. & -2.1% prior (rev up from -2.5%).

Philly Fed Manufacturing index at -10.6 vs. -6.7 est & -12.8 prior (rev down from -10.5) … new orders up to -17.9, shipments improved to -6.2, avg work week moved up to -0.9 … employment up slightly to -1.8 … key indicators all still contracting, though.

Wage growth and unionism both moving higher.

Credit Card companies, here is Discover, with 30-day delinquencies at financial crisis levels.

This with full employment.

Charge offs for Discover have only been higher during the financial crisis.

S&P 500 year over year growth is poor, excluding a few large tech stocks it’s negative.

401K hardship withdrawals at high levels despite the “great economy”.

P/E multiples low for equal weighted S&P 500 and high for cap weighted S&P 500.

China’s Hang Seng Index trades at p/e lower than the Nasdaq’s price to book for the 1^st time.

A big difference in how these indexes are valued.

The large boost from government spending will begin to fade this year.

Global Monetary conditions headed lower.

The fourth quarter profit outlook is poor.

This can lead to the “better than expected” response. Outlook is the worst since 2019. 

Elections in 2016 and 2020 didn’t move markets until the fall.

Last week had the largest inflows to bonds since April of 2023.

Right on cue bonds sold off this week.

Commodity Trading Advisors with low exposure to oil.

Congress set to add more cowbell despite the deficit.

Insiders are big sellers.

Alcohol consumption at highest point since 1980.

Forward P/Es for large cap stocks higher than small and mid-caps.

Shanghai to Shang-low.

Americans spend too much on Pharmaceuticals compared to other OCED countries.

WEEKEND HOMEWORK

A good podcast from Tim Ferris on starting or changing workout, nutrition in the new year.

Andy Galpin (@DrAndyGalpin) is a tenured, full professor at California State University, Fullerton, where he is also co-director of the Center for Sport Performance and founder/director of the Biochemistry and Molecular Exercise Physiology Laboratory. He is a human performance scientist with a PhD in human bioenergetics and more than 100 peer-reviewed publications and presentations.

Performance Coach Andy Galpin — Rebooting Tim’s Sleep, Nutrition, Supplements, and Training for 2024 (#716)

It’s a great weekend ahead. Lots to do. Lots to be grateful for. I hope yours is terrific!