The January Inflection

The next two weeks will be about earnings and the Fed. As you all know, the Fed will be raising interest rates this year to stem price increases as the CPI (+7%) and PPI (+9.7%) inflation readings leave no choice for a hawkish stance. The stock markets have been moving higher but thinning out as leadership narrows and valuations are now in question as the Fed removes the QE punchbowl.

As you can see in the chart below, the month of October was the last time period of consistent gains since the summer. Since then, the S&P has wedged into a diagonal pattern that could top later this month and give way to several weeks of a corrective pullback. Also, the technicals in the options market signaled a very high level of pessimism as evidenced by a high put/call ratio which we have not since the low on 12/3 – a contra indicator that signals a potential reversal higher on Monday. If this all plays out as I have outlined, equities could rally into new highs right around the Fed meeting and then reverse to the downside to close out January. A downside projection would be somewhere near the bottom of this chart by late Spring which could re-set valuations to more attractive levels. Stay tuned!

The S&P futures by Kisco Capital.

Chart of the Week!

With consumer interest in electric vehicles increasing, the global market for EV batteries has grown to the size of $27 billion in 2021 and is expected to continue expanding. (Statistica)

Global EV Batteries

Economic & Central Banking Snippets 

  • Cass Freight said its shipments index for December rose 7.7% compare to last year and 4.5% higher than November. The company commented that “…the record backlog of 105 containerships off Southern California and sharp declines in intermodal volumes in early 2022 still demonstrate capacity constraints on freight volumes, the strong finish to 2021 shows progress as the trucking industry has begun to build driver and equipment capacity in spite of extraordinary challenges.” 
  • The Fed’s Beige Book survey was out this week and reflected intensifying wage gains in each reporting district.
  • The Bank of Korea hiked interest rates by 25 bps to 1.25% and expect more to come. The central bank said “Inflationary pressures are expected to be much larger than earlier expected. There are uncertainties surrounding the pandemic, but they are unlikely to derail the domestic economy’s recovery.”
  • The Consumer Price Index (CPI) in December rose 7% (core was 5.5%) compared to last year as inflation continues to push higher.
CPI Data
  • The December Producer Price Index (PPI) was up 9.7% (8.3% ex food and energy) compared to last year.

Macro Snippets

  • Some U.S. supermarkets are reducing hours and cutting services as Covid-19’s Omicron variant infects cashiers, baggers and stockers, deepening grocery chains’ staffing challenges. Shopper demand for groceries, meanwhile, remains high. (WSJ)
  • Tesla will reportedly delay production of its Cybertruck until early 2023. The truck was originally announced in 2019, with a promise to begin production in late 2021.
  • Block, formerly Square, intends to move forward with plans to build a Bitcoin mining system. The company says the plan will make bitcoin “more distributed and efficient.”
  • Ford Motor’s (F) market value breached $100 billion for the first time, as more investors bet on the Detroit automaker’s electric vehicle strategy. Ford is now worth more than its century-old rival General Motors (GM), which has a market cap of about $88 billion, but is still dwarfed by EV leader Tesla (TSLA), which has a market cap of over $1 trillion.
  • Delta Air Lines (DAL) reported earnings, beating analysts expectations for the fourth quarter, sending its stock price up 2.7%. However, the company said that the surge of the omicron variant of COVID-19 will drive it to a first quarter loss on weaker-than-expected bookings.
  • A judge has ruled that the Federal Trade Commission (FTC) can proceed with an antitrust suit against Facebook. The FTC alleges the tech company is abusing a monopoly position in social media.
Paul J. McCarthy

That is all for now and thank you for being a subscriber!


Paul J. McCarthy, III

President – Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.