December CPI Puts Rate Cut Expectations Under Pressure: Will U.S. Stocks Continue to Ascend? [Learn Premium Review]

Invest With Cici wrote a column · Jan 12 15:29

December CPI Puts Rate Cut Expectations Under Pressure: Will U.S. Stocks Continue to Ascend? [Learn Premium Review]

Market Overview: December CPI Surpasses Expectations, Dampening Rate Cut Forecasts

In the second week of 2024, after the stock market failed to continue the frenzied trend from the end of 2023 and experienced a decline in the first week of the year, it rebounded during the first four trading days of the following week, effectively recouping the previous week's losses. The $S&P 500 Index (.SPX.US)$ , which fell 1.52% last week, rose 1.77% this week; the $Nasdaq Composite Index (.IXIC.US)$, which dropped 3.25% last week, increased by 3.07% this week.

In these first two weeks, market trends continued to hinge on expectations for interest rate cuts. Last Friday, the release of the non-farm employment data, which showed robust job growth, should have dampened expectations for a cut due to a strong labor market. However, a weakening in the services sector index that supports the U.S. economy offset the potential negative impact on these expectations. Furthermore, this Thursday’s release of the December CPI data served as yet another crucial indicator influencing rate cut prospects. Like the strong employment figures, the higher CPI threw cold water on hopes for an imminent rate reduction. Our analytics of Federal Reserve policies indicate that if robust employment is paired with a rebound in inflation, the Fed seems to have no reason to rush into a rate cut.

Therefore, considering that interest rate expectations are currently a major driver for US stock performance, these two weeks’ data points do not paint an optimistic picture. Despite this week's market rebound, investors should remain cautious.

To gauge what might influence the Fed's decisions on interest cuts further, we should keep an eye on the PPI released today, PCE (Personal Consumption Expenditures ) Price Index data due at the end of January, and the next CPI data coming out in February.

Market Hotspots: There's a lot of buzzing this week, so let's break it down

1. CES, the Consumer Electronics Show in the US, with AI PCs being the highlight

The CES 2024 is in full swing in Las Vegas, and AI applications in consumer tech have emerged as the star of the show this year. Along with new product launches by $Intel (INTC.US)$ and $NVIDIA (NVDA.US)$, chip stocks have been shining this week. The $PHLX Semiconductor Index (.SOX.US)$ climbed by 3.42%.

- NVIDIA kicked off Monday by unveiling their GeForce RTX 40 Super series of graphics cards, boasting their high-performance AI capabilities as a powerhouse for gaming and creativity. This news sent their stock price soaring 6%, smashing record highs.

- Intel announced its first-generation system-on-chip (SOC) plans to launch AI-supported PCs this year, with an aim to also integrate these chips into vehicles.

2024 looks set to be a breakout year for AI in consumer tech, painting diverse expectations for the "Fabulous Seven" markets, with analysts forecasting an average rise of 21.87%.

2. SEC approves Bitcoin spot ETFs, allowing investors to trade spot ETFs directly in the securities market

The hotly anticipated Bitcoin spot ETFs have been officially green-lighted by the US Securities and Exchange Commission (SEC), with 11 ETFs hitting the market on Thursday. Bitcoin's price spiked over $2,000 at one point during trading. Observers say that Bitcoin spot ETFs could attract tens of billions of dollars in new investments, making Bitcoin investment easier, cheaper, and safer for retail investors in some respects. Still, with Bitcoin's volatility, investors should be aware of the risks.

3. Bank earnings reports are imminent, with bad debt as the market's focal point

Banks are set to release their earnings this Friday, opening the curtain on Q4 reports for U.S. stocks. With the pressure of sustained high interest rates, attention this quarter has shifted from the loss of deposit customers to the impact of rising bad debts on bank profits.

The big four U.S. banks are projected to account for a total of $24.4 billion in bad debts in Q4 2023, nearly $6 billion more than the same period in 2022. Stay tuned for the outcomes.

Week's Premium Learning materials

Trading Lessons: To better investigate market trends, investors often analyze prices on different time frames, like weekly, daily, and hourly. Different market participants prefer trading in various time frames. This week, we have learned a powerful trading technique used to analyze stock price trends named multiple time frame analysis.

Opportunity Mining: We analyze a rising star in the beverage industry $Celsius Holdings (CELH.US)$, over a mere five-year span, Celsius’s stock has skyrocketed by an impressive 2,600%! 🚀 The growing popularity of energy drinks has carved out a new niche, one that has fostered the rise of some extremely successful enterprises. Notably, Monster Energy Drinks $Monster Beverage (MNST.US)$ has realized unparalleled success, becoming the best-performing stock in the S&P 500 Index over the past quarter-century. How is Celsius vs Monster Energy?

Trading Insights from Learn Group

@Ray2021
After 737 accident news, BA $Boeing (BA.US)$ sold off. candlestick fall below bollinger band and RSI oversold. So i did a PUT vertical spread believing the big gap down will be filled.

@ZnWC
Tech stocks like Magnificent Seven will fluctuate significantly after the CPI I thought. Pltr $Palantir (PLTR.US)$ is a tech stock that follows the trending of tech stocks, Jefferies Downgrades Palantir Technologies to Underperform, Lowers Price Target to $13. This is one info that Pltr may fluctuate significantly in short term. The other possible reasons are inflation data, Fed meeting and Pltr Q4 earnings report (due in February 2024). Whichever way the share price goes (plunge or surge),
Based above, I did straddle that suits the current market ambiguity, straddle strategy will ensure I'll profit. With $16.70 as the current price, I've selected Puts and Calls at a $18.50 strike price, expiring in 29 days (9 Feb 2024). Profitability begins once the stock reaches $15.97 or $21.03, as per breakeven points (refer to screenshot 2).

You can use a long straddle when you expect a security or asset's price to make a big move but don't know the direction of movement. More knowledge on using different Option strategies go Practical Options Trading Strategies.

Trading Insights is a Learn activity, call for submissions weekly within the group, gathering recent trading cases from you all. Each week, we will select 1-3 cases for a focused showcase, and the contributors of the chosen submissions will receive 188 points. Feel free to contribute!🧡🥰

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