January 10th Market Overview

Happy Friday.

Between the jobs report coming in hot at 256,000 vs 155,000 expected, Fed rate cut expectations dropping, and rising inflation concerns, the market is getting mixed signals today. Markets don't like uncertainty, and that's reflecting in the indices today.

Three weeks ago I sent out a 2nd email on the day warning that the day likely marked a short term top and that day = defensive Signal for me. That was Dec. 18th.


I apologize for the click bait from Wednesday, someone figured out what the fella was talking about and sent me the 7 companies for those who are curious.

1. Arm Holdings $ARM

2. Cloudflare $NET

3. ASML Holding $ASML

4. Palantir Technologies $PLTR

5. Symbotic Inc. $SYM

6. SentinelOne $S

7. CRISPR Therapeutics $CRSP
   
   
   Let's dig in...

Executive Summary

• Wall Street doesn’t like robust jobs report: December payrolls beat to 256,000 vs 155,000 expected yet indices are down
  

• Strong labor market pushes March Fed rate cut odds down to 25% from 41% - hot jobs data suggests less urgency to ease policy
  

• LA wildfire crisis intensifies: AccuWeather estimates $135-150B economic impact, JPMorgan sees $20B insurance losses
  

• $DAL leads airline sector ▲ 9% on strong Q4, projects record 2025 with EPS above $7.35
  

• Consumer inflation fears return: 5-year expectations reach highest level since June 2008

Market Overview

Key Market Drivers

1. December payrolls exceeded estimates at 256,000, with unemployment rate dropping to 4.1%
   

2. University of Michigan consumer sentiment missed at 73.2, below 74 consensus
   

3. Five-year inflation expectations jumped to highest level since June 2008
   

4. Fed funds futures now show 97% probability of rates holding steady in January
   

5. March rate cut probability drops to 25%, down from 41%

Stock Spotlight

• $DAL: ▲ 9% after Q4 adjusted EPS of $1.85 vs $1.76 expected. Projects FY25 EPS above $7.35, free cash flow exceeding $4B. Company forecasts best financial year in history for 2025
  

• $TSM: Record 2024 revenue, ▲ 39% YoY on AI chip demand surge
  

• $COST: December comp sales ▲ 9.8% vs 5.2% expected, e-commerce ▲ 34.4%
  

• $WBA: ▲ 28% despite $265M net loss, cost-cutting initiatives show promise
  

• $NVDA: Bank of America maintains buy rating, $190 PT, cites $2T AI infrastructure opportunity

Big Name Updates

• $TSLA: Recalls 239k vehicles (2023-2025 Model X/Y, 2024-2025 Model 3/S) over circuit board issues; launches upgraded Model Y in China with 5% price increase

• $META: Supreme Court weighs TikTok ban, potential January 19 enforcement

• $AMZN: Launches retail ad service for U.S. retailers’ websites, iHerb among early adopters

• $AAPL: Executive departs Jakarta amid iPhone 16 ban talks collapse

Other Notable Company News

• $ARM: Explores Ampere Computing acquisition, $8B valuation for data center expansion
  

• $SNOW: Barclays upgrades to overweight, PT 190, cites AI product momentum under new CEO
  

• $NKE: Piper Sandler upgrades to overweight, PT 90, on marketplace cleanup efforts
  

• $AMD: Goldman downgrades to neutral, PT 129 on ARM-based CPU competition concerns; S&P upgrades credit rating to A
  

• $DIS: Reports 157 million ad-supported monthly active streaming users
  

• $SQ: Changing ticker effective January 21, 2025
  

• $MCY: Mercury Insurance pledges wildfire claim support despite policy ambiguities

Sector Watch

Bond Market

The 10-year Treasury yield is at 4.745%, highest since late 2023, while the 2-year yield jumped more than 10 basis points to 4.369%.

Yield curve steepening reflects diminished rate cut expectations after solid employment data and elevated consumer inflation expectations.

Policy Watch

Fed officials signal increased caution on rate cuts. Musalem called December’s decision a “close call,” while Bowman suggested the current stance may not be restrictive enough.

Chicago Fed’s Goolsbee projects rates “a fair bit lower” in 12-18 months if inflation remains stable. Schmid estimates 2% inflation target may not be reached until 2026.

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What to Watch

1. Insurance Sector Impact: AccuWeather estimates LA wildfire damages at $135-150B

   • JPMorgan doubles insured loss forecast to $20B

   • $MCY, $ALL, $CB most exposed to region

   • Monitor potential rating agency actions

   • Watch for policy coverage disputes
     

2. AI Chip Restrictions: Biden administration’s new export controls

   • Three-tiered system targeting $NVDA, $AMD

   • Gulf states and Southeast Asia markets affected

   • Implementation expected by Friday
     

3. Wage Negotiations: BOJ watching ongoing negotiations

   • Potential upgrade to supercore inflation estimates

   • January rate decision still under consideration
     

4. Consumer Sentiment: Monitor inflation expectations

   • One-year outlook rose to 3.3% from 2.8%

   • Five-year expectations at highest since 2008
     

5. Fed Policy Path: March rate cut probability drops to 25%

   • Watch for updated economic projections

   • Key focus on labor market “deceleration”

   • Market prices 97% probability of rates holding steady in January

   • Monitor Fed speaker commentary on inflation trajectory

P.S.
 
Please fuel my coffee pot with a quick click to our sponsor today. 

Thanks for reading 🙂

- John