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STOCKS RECOVER FROM LAST WEEK’S META-FLOP
After a sharp slide last Thursday, U.S. stock indexes rallied Friday, hauled up by a 14-percent rise in Amazon’s share price and energized by a startling 467,000 gain in jobs in January, defying widespread predictions of job losses.
All three major indexes posted gains for the second consecutive week, recovering from Thursday’s crater that opened when Facebook parent Meta reported a net loss of users for the first time, disclosed $10 billion in expenses to pioneer the metaverse, and watched investors withdraw $232 billion from its market cap, slashing its stock price by 26 percent.
After turning in its worst performance on Thursday since September 2020, the NASDAQ jumped 219 points, or 1.6 percent. The Standard & Poor’s 500 climbed 23 points out of its Thursday hole, adding 0.5 percent.
The Dow Jones Industrial Average slumped on Friday’s opening, casting off as much as 300 points, then made a modest gain through the afternoon before sagging at the end of the session, closing essentially flat with a gain of 16 points.
Markets stumbled in past weeks as traders pondered the impact of the U.S. Federal Reserve’s pending interest rate hikes.
However, with the strong job report, traders are buying up shares in the belief that the economy is strong and growing stronger, and that Fed rate hikes won’t slow down economic growth.
The tech-heavy NASDAQ’s recovery was driven by a strong performance from Microsoft, with a good showing by Dow-listed Tesla adding energy to the tech sector overall.
Amazon’s 14-percent gain came after the company reported its holiday-season profits nearly doubled last year’s and that it would boost Prime membership fees.
Snapchat’s parent company soared 59 percent after showing its first-ever quarterly profit; Pinterest rose 11 percent on reporting its first annual profit ever and showing $2 billion in 2021 revenue.
U.S. bond yields shot up to 1.93 percent Friday from 1.82 on Thursday, the highest yield since September 2019.
TRENDPOST: As we have often pointed out, most recently in “Equities Continue Their Descent Into 2022” (18 Jan 2022), entire sectors of the stock market, and in many cases the markets themselves, are being held aloft by the stellar performance of a few major stocks such as Alphabet, Amazon, and Tesla, while huge numbers of also-ran companies have been sliding for weeks. And, this further illustrates how big the “Bigs” are, and the extent of their economic strength.
Over There
Abroad, the Stoxx Europe 600 was down 0.7 percent for the week after the Bank of England raised a key interest rate yet again and the European Central Bank was seen edging toward a rate hike some time this year.
Hong Kong’s Hang Seng index jumped 3.2 percent on Friday after a three-day holiday; Japan’s Nikkei 225 grew by a more modest 0.7 percent.
Yesterday and Today
Yesterday equites drifted a bit with the Dow closing flat, the S&P 500 slipping 0.4 percent and the Nasdaq falling 0.6 percent.
Today, on some positive corporate earnings news, the Dow shot up 372 points, the S&P climbed up 0.8 percent and the Nasdaq jumped 1.3 percent.
According to FactSet, about 300 of the S&P 500 components have reported earnings, with 77 percent exceeding earnings estimates and 75 percent topping revenue expectations.
While up, they are not on the fast pace of acceleration as noted by Bank of America’s Savita Subramanian who, in a note to clients, wrote, “Despite a solid beat this quarter, guidance weakened significantly. … Guidance is also sparser than usual—we note only 76 instances of EPS guidance issuance in [January], slightly below last Jan and the lowest of any January.”
TREND FORECAST: What will also bring earnings down is the growing fear that the Federal Reserve—who for nearly a year said inflation was “temporary” and then “transitory” and there was no need to stop the cheap money flow—will now aggressively raise interest rates to slow inflation, which many “investors” believe will slow the economy.
Yesterday, the Bank of America called on the Fed to hike rates 1.75 percentage points to fight inflation.
Should interest rates hit 1.75 percent, we forecast it will drive the nation into severe recession. However, it must also be noted that with the slowing down of the COVID War, economic strength will be temporarily sustained. Therefore, we maintain our forecast that the Federal Reserve will sharply raise interest rates to slow inflation which will drag the economy into deep recession, and then sharply lower interest rates by late 2023 to pump up the economy before the 2024 Presidential Election.
TREND FORECAST: We maintain our forecast that when interest rates hit above 1.5 percent to 2 percent, it will dramatically bring down equities, the economy and real estate markets.
And with its $30 trillion debt load, the higher interest rates rise, the more it will cost the U.S. to service its debt, which will in turn put downward pressure on the dollar.
Same with the consumer side of the economy. In 2021 total U.S. consumer debt hit $15.6 trillion, a year-over-year jump of $333 billion in the fourth quarter and up over $1 trillion for the full year, according to the Federal Reserve’s New York district, which released the data today.
Therefore, as interest rates go higher, consumers will not be able to afford taking on more debt… and neither will businesses and the real estate sectors, which will in turn drag down economic growth.
To quantify the extent of this rising debt load and its implications, the quarterly rise was the biggest since 2007—the eve of the Panic of ’08—and it was the largest annual gain ever.
China Won Trade War
Barely making the U.S. news is that once again, despite four years of Donald Trump fighting the Chinese in his Trade War to limit their exports, Today, the Commerce Department reported that the U.S. trade deficit hit a new record in 2021.
Imports for the year spiked 20.5 percent to $3.39 trillion from 2020. On the U.S. export side, while they rose 18.5 percent, it totaled only $2.53 trillion for the year.
Falling short of its purchase agreements made with Mr. Trump, America’s annual goods-trade deficit with China grew $45 billion to $355.3 billion.
GOLD/SILVER: Despite the reality of strong interest rate hikes rising the opportunity cost of holding non-yielding bullion, gold, closing today at $1,826.19 per ounce, is up some $20 per ounce from last week’s close. Silver was up 58 cents, closing at 23.21 per ounce, up over a dollar from last week.
TREND FORECAST: We maintain our forecast that precious metals will decline as interest rates sharply rise, since interest rate hikes raise the opportunity cost of holding non-yielding bullion.
And as we note, but the media is ignoring, it will cost Washington much more to service the $30 trillion U.S. debt burden… which will in turn also put downward pressure on the U.S. dollar and push safe-haven assets such as gold, silver and bitcoin higher.
And beyond government debt, the higher interest rates rise, the heavier the business and personal debt loads grow. Thus, the higher the levels of defaults, the deeper the economy falls. And the deeper it falls, the higher safe-haven assets will rise.
Again, as we note in this and previous Trends Journals, global economies have been artificially inflated with years of cheap money. Therefore, when the cheap money flow dries up, most economies will sink into recession and depressions.
And as illustrated now and in the past, when all else fails, as Gerald Celente says, they take you to war. In the current atmosphere of interest rate hikes and economic uncertainty, the United States has sharply ramped up the Cold War with Russia, its hot war in Syria and support of the United Arab Emirates and Saudi Arabia in the Yemen War.
OIL: After hitting seven year highs, oil prices dipped on the news that the U.S. and Iran were reviving their nuclear talks and that the U.S. would remove oil sanctions on Iran which would in turn increase supply. However, prices are still up sharply from a year ago, with Brent Crude falling 1.82 percent, closing at $91.00 per barrel today, and West Texas Intermediate slipping 1.9 percent, to finish the day at $89.57 per barrel.
TREND FORECAST: We maintain our forecast that military tensions in the Middle East and Ukraine will continue to be major factors that could spike oil and natural gas prices higher.
The more war talk and military actions escalate, the higher oil prices will rise, which in turn will dramatically push inflation higher. As inflation spikes it will force central banks to radically raise interest rates to fight it… which will sharply drive down equity markets and economies as money becomes too expensive to borrow.
And should Brent Crude spike above $100 per barrel, with interest rates rising and oil prices moving higher, it will put strong downward spending pressure on the general public.
BITCOIN: Bitcoin’s price grew 10 percent yesterday, rising back above $40,000 after falling below that benchmark on 20 January.
As noted over the past several weeks in the Trends Journal, while the word on The Street has been that the glory days of bitcoin are over, we have disagreed. As we go to press it is holding in the $44K per coin range which is up some $6K per coin since last week. Thus, those who played that market made a profitable play.
TREND FORECAST: As we have been noting for over five years, a major factor in forecasting the future price of bitcoin and other crypto currencies is dependent upon government regulations.
The recent downward pushes in price followed the prospects that the U.S. Federal Reserve is on the path of creating a digital dollar. And as we have been reporting, a number of nations are also taking measures that would create their own digital coins while restricting crypto growth.
We maintain our forecast that bitcoin will find strength to hit new highs when it breaks above $55,500 per coin. We had also forecast, the downward breakout point would be hit should prices fall below $25,000 per coin. If they go that low, bitcoin could well fall back to the $10,000 range.
(For more crypto trends and forecasts, please see our TRENDS IN CRYPTOS section.)