January 12, 2023
We’ve spent the week talking about the setup for a weak inflation report, and a bullish breakout in stocks.
We got the former this morning. The latter is yet to be determined.
As expected, there were well-placed Fed speakers, lined up, following this morning’s inflation data, ready to counter the optimism about the prospects of a less restrictive Fed, with promises that they would not be less restrictive.
But the credibility of the Fed’s tough talk is rapidly deteriorating, as the monthly change in prices, over the past seven months, averages to just 0.12%. Annualize that, and inflation has been running below the Fed’s 2% inflation target, for many months now.
The focus now turns to earnings and the health of the economy.
How much damage has the Fed done to consumer and business behaviors?
Earnings season will kick off tomorrow, with Q4 reports from all of the big banks. Head of the largest bank, Jamie Dimon, said earlier in the week that the consumer is still strong, balance sheets are in good shape, and “they are spending more than pre-covid.”
Those comments give us nice clues on what the banks should say tomorrow.
With this in mind, let’s take a look at how the economy performed during this Q4 period.