“Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria,” — Franklin Templeton

1. 4Q GDP up 2.9% in 4Q, Still Risks a Stall in 2023 — Gross domestic product rose at a 2.9% annualized pace, down from 3.2% in the third quarter. A separate report on labor markets published Thursday also pointed to a resilient economy, rather than one on the verge of a slump, with weekly jobless claims unexpectedly falling. For the Fed, which has hiked interest rates at the steepest pace in a generation over the past year, the data suggest that there’s still a path to what’s known as a “soft landing.” That’s a scenario in which tighter monetary policy cools household spending and lowers inflation – but avoids squeezing the economy so hard that it ignites mass layoffs nationwide.
2. Corporate Layoffs Spread Beyond High-Growth Tech Giants — this week, four companies trimmed more than 10,000 jobs, just a fraction of their total workforces. Still, the decisions mark a shift in sentiment inside executive suites, where many leaders have been holding on to workers after struggling to hire and retain them in recent years when the pandemic disrupted workplaces. Unlike Microsoft Corp. and Google parent Alphabet Inc., which announced larger layoffs this month, these companies haven’t expanded their workforces dramatically during the pandemic. Instead, the leaders of these global giants said they were shrinking to adjust to slowing growth, or responding to weaker demand for their products. The U.S. labor market broadly remains strong but has gradually lost steam in recent months. Employers added 223,000 jobs in December, the smallest gain in two years. The Labor Department will release January employment data next week.
3. Consumer Spending Fell 0.2% in December as Inflation Cooled — spending by U.S. households decreased 0.2% in December from the prior month, the Commerce Department said Friday, compared with a downwardly revised 0.1% decrease in November. Households cut spending on goods last month and increased spending slightly on services. The personal-consumption expenditures price index—the Federal Reserve’s preferred gauge of inflation—rose 5% in December from a year earlier, after increasing 5.5% in November.
The core PCE-price index, which captures underlying inflation after removing volatile food and energy prices, rose 4.4% in December from a year earlier—its slowest pace since October 2021. That compared with 4.7% in November. The central bank aims for 2% annual inflation.
4. Tesla Has Become One of the Hottest Stock-Option Trades on Wall Street — Tesla options trading has surged recently: Nearly three million contracts now change hands on an average day, according to Cboe Global Markets data. That is up from 1.5 million a year ago and more than any other stock. Only wagers on the SPDR S&P 500 ETF outpace those on Tesla. Tesla now accounts for roughly 7% of all options trading on an average day, based on Cboe and OCC data. On Jan. 6, the busiest day on record, more than 5.2 million contracts traded, nearly 10% of all options. Activity in Tesla options surpassed volumes tied to the Invesco QQQ exchange-traded fund—which tracks Nasdaq-100 stocks—in December for the first time in nearly two years. And it edged out trading in Apple Inc. options on a sustained basis in July, a notable feat for the S&P 500’s now sixth-largest company by market cap to leapfrog the leader.

The week ahead — Economic data from Econoday.com:

“Any idiot can face a crisis – it’s day to day living that wears you out.” – Anton Chekhov

1. US Retail Sales Slide by Most in a Year in Broad-Based Decline — US retail sales fell in December by the most in a year, suggesting consumers are losing some of the resilience that’s kept the economy growing in the face of rapid inflation and steep Federal Reserve interest-rate hikes.
The value of overall retail purchases decreased 1.1% in December after a downwardly revised 1% drop in the prior month, Commerce Department data showed Wednesday. Excluding gasoline and autos, retail sales fell 0.7%. The figures aren’t adjusted for inflation. inflation has shown more consistent signs of slowing in recent months, putting the Fed on track to again slow the pace of interest-rate hikes. The central bank is expected to raise rates by a quarter point when it meets in two weeks.
2. US Producer Price Index Declines by Most Since Start of Pandemic — The producer price index for final demand fell 0.5% last month, the most since April 2020, and was up 6.2% from a year earlier, Labor Department data showed Wednesday. The median estimates in a Bloomberg survey of economists called for the index to fall 0.1% from a month earlier and rise 6.8% from December 2021. The monthly decline was driven by a plunge in goods prices, notably energy and food. Excluding those components, the so-called core PPI rose 0.1% in December and 5.5% from a year earlier.
3. Fed’s Brainard Favors High Rates for Some Time to Cool Inflation — Federal Reserve Vice Chair Lael Brainard said interest rates will need to stay elevated for a period to further cool inflation that’s showing signs of slowing but is still too high. “Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” Brainard said in prepared remarks for a University of Chicago Booth School of Business event. Brainard said that economic data in the past few months shows cooling consumer demand and wages and tighter financial conditions, all welcome outcomes for policymakers trying to rein in inflation that last year surged to a 40-year high.
4. Treasury Has About $500 Billion of Headroom After Debt Limit Hit — the Treasury Department has about $500 billion of extraordinary measures available that will allow the US to dodge a payments default as Congress works out an agreement on raising the debt limit, which the nation hit late last week.
Treasury Secretary Janet Yellen notified congressional leaders late last week that her department would be deploying two special accounting maneuvers to avoid breaching the debt limit. The Treasury later released a list of the extraordinary measures available, with some figures on how much financial space they offer. The initial two steps taken can free up about $350 billion of extra borrowing authority through early June, according to a Jefferies analysis of data from the department. The initial measures involve changes for two government-run funds for retirees. Later in June, a one-time move would then become available allowing the Treasury to suspend reinvestment in the Civil Service Retirement and Disability Fund, potentially creating an additional $143 billion in headroom, according to the Treasury’s release.
5. U.S. Existing-Home Sales Slid Last Year as Interest Rates Surged — Sales of previously owned homes, which make up most of the housing market, slid 17.8% in 2022 from the prior year to 5.03 million, the National Association of Realtors said Friday. The pandemic-fueled housing boom of 2020 and 2021 carried over to the start of last year. Then the Federal Reserve’s effort to cool the economy and curb inflation by raising interest rates flattened housing-market activity as borrowing rates more than doubled. In October, mortgage interest rates climbed to 7.08%, a two-decade high. More recently, mortgage rates have declined. The average rate on a 30-year fixed mortgage fell to 6.15% this week, the lowest rate since September. Mortgage applications for home purchases rose 25% on a seasonally adjusted basis in the week ended Jan. 13 from the prior week, according to the Mortgage Bankers Association.

The week ahead — Economic data from Econoday.com:

Most people are driven by greed, fear, envy, and other emotions that render objectivity impossible and open the door for significant mistakes. — Howard Marks

1. World Bank Cuts 2023 Global Growth Projection as Inflation Persists — The bank expects global growth to slow to 1.7% in 2023, down from an estimate of 3% growth in June. That would mark the third-weakest pace of global growth in nearly three decades, overshadowed only by the 2009 and 2020 downturns, according to the World Bank. A separate report showed that global inflation, while starting to cool, remains historically high. The forecast growth rate only narrowly keeps the global economy out of recession territory. The international development organization cited a coalescence of high inflation, rising interest rates, lower investment and Russia’s invasion of Ukraine as threats to growth, along with pandemic-related disruptions in China and stress in its real-estate sector.
2. U.S., Allies Prepare Fresh Sanctions on Russian Oil Industry — In meetings across Europe this week, Treasury officials are discussing the details of the coming sanctions on Russian oil products, which are set to go into effect Feb. 5. The penalties will set two price limits on Russian refined products: one on high-value exports such as diesel and another on low-value ones such as fuel oil, according to people familiar with the plans.
The new limits will follow moves last month by the U.S., European Union and their allies in the Group of Seven advanced democracies to cap the price of Russian crude exports at $60 a barrel. Those sanctions have had a relatively muted impact on global prices, encouraging Western officials who want to pressure Russia’s budget while minimizing volatility in critical global energy markets.
3. U.S. Inflation Slowed for Sixth Straight Month in December — The consumer-price index, a measurement of what consumers pay for goods and services, rose 6.5% last month from a year earlier, down from 7.1% in November and well below a 9.1% peak in June. Core CPI, which excludes volatile energy and food prices, climbed 5.7% in December from a year earlier, easing from a 6% gain in November. Many economists see increases in core CPI as a better signal of future inflation than the overall CPI. Core prices increased at a 3.1% annualized rate in the three months ended in December, the slowest pace in more than a year and down from 7.9% in June.
The figures added to signs that inflation is turning a corner following last year’s surge. They also likely keep the Fed on track to reduce the size of interest-rate increases to a quarter-percentage-point at their meeting that concludes on Feb. 1, down from a half-percentage point increase in December.

The week ahead — Economic data from Econoday.com:

“Be who you are and say what you feel, because those who mind don’t matter and those who matter don’t mind.” — Bernard Baruch

1. Amazon to Lay Off Over 17,000 Workers, More Than First Planned — the Seattle-based company in November said that it was beginning layoffs among its corporate workforce, with cuts concentrated on its devices business, recruiting and retail operations. At the time, the company expected the cuts would total about 10,000 people, but a person with knowledge of the issue said the number could change, The Wall Street Journal reported. Thousands of those cuts began last year.
2. Fed Minutes Show Officials Feared Markets’ Rallies Could Hinder Inflation Fight –minutes of the Fed’s policy meeting last month, highlighted the tricky communications task that has vexed the central bank over the past six months. The Fed’s rapid rate increases last year have fanned investors’ hopes that inflation will slow quickly over the coming year. In the run-up to the December meeting, longer-term bond yields tumbled, reflecting both optimism about a speedy decline in inflation and fears of a recession this year.
But many Fed officials are anxious they won’t be able to defeat inflation unless they can slow the economy by tightening financial conditions, such as by raising borrowing costs or lowering stock prices.
3. Hiring, Wage Gains Eased in December, Pointing to a Cooling Labor Market in 2023 — after two straight years of record-setting payroll growth following the pandemic-related disruptions, the labor market is starting to show signs of stress. That suggests 2023 could bring slower hiring or outright job declines as the overall economy slows or tips into recession.
Employers added 223,000 jobs in December, the smallest gain in two years, the Labor Department said Friday. Average hourly earnings were up 4.6% in December from the previous year, the narrowest increase since mid-2021, and down from a March peak of 5.6%. All told, employers added 4.5 million jobs in 2022, the second-best year of job creation after 2021, when the labor market rebounded from Covid-19 shutdowns and added 6.7 million jobs. Last year’s gains were concentrated in the first seven months of the year. More recent data and a wave of tech and finance-industry layoffs suggest the labor market, while still vibrant, is cooling.
4. New Alzheimer’s Drug Approved by FDA, Promises to Slow Disease — U.S. health regulators gave early approval to a new Alzheimer’s drug from Eisai Co. and Biogen Inc., the most promising to date in a new class of medicines that may help slow cognitive decline caused by the disease.
The Food and Drug Administration granted conditional approval to the drug, called lecanemab, based on an early study finding it reduced levels of a sticky protein called amyloid from the brains of people with early-stage Alzheimer’s. The companies will sell it under the brand name Leqembi.
Eisai said it would sell the drug at a price of $26,500 a year for the average patient, and that it would be available commercially by Jan. 23. A preliminary report by the Institute for Clinical and Economic Review, a nonprofit that works with drugmakers and insurers to evaluate drug prices, said a fair price would be in the range of $8,500 to $20,600 a year.

2022 Market Recap — below is the highlight of events happened in 2022
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The week ahead — Economic data from Econoday.com:

“Happy New Year — wishing our readers a Prosperous, Healthy and Happy New Year — due to a shorten holiday week, no Weekly Recap will be posted”

The staffs at EGS.

The week ahead — Economic data from Econoday.com: