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European stocks slipped in early trade as markets continue to chop in the wake of the recent discounting. The FTSE 100 is off almost 1%, less than peers, with the DAX -1.3% and Stoxx 50 -1.2%. US markets were mixed yesterday with the Dow flat, S&P 500 down 0.54%, the Nasdaq –1.4% and Russell 2k –2.2%. Futures for the small caps index indicate new cycle low, weakest since Dec ‘20, but the rest are holding within Monday’s yuge range – no new highs, no new lows. Some indecision – 3% intraday swings are becoming common – but it was the tenth straight day where decliners outpaced advancers…selling continues. Earnings so far are good with 80% of the 145 companies in the S&P 500 that have reported so far beating estimates but the market has other things on its mind. Trash is still trash: COIN –5%, MSTR –10%, ARKK –4% and Tesla –11% (see below). 


US GDP came in bigger than expected at +6.9% vs 5.5% forecast…huge inventory build over the quarter which is maybe not such a great signal for Q1 2022. Ian Shepherdson at Pantheon says: “Hugely flattered by inventories; Q1 GDP will be much weaker.” Instinctively I agree and it suggests the Fed needs to crack on with the tightening as tailwinds are easing…PMIs and retail sales remember? Other data was fine but not inspiring: Initial jobless claims in line at 260k; Durable goods orders down -0.9% vs the expected –0.5% decline; Pending home sales down –3.8% vs –0.2% estimate – lack of supply. Today is PCE inflation day.


Inflation is the drag on the economy! And the Fed is worried it’s gone so slow it’s now hiking into not just market turmoil but also recessionary indicators…stagflation klaxon. The Fed ‘put’ is dead…all the market and the Fed can hope for is soft landing: inflation eases right back, supply chain problems are fixed, fewer hikes needed and we can all say Jay is a genius…only this is not the most likely outcome so yields are looking like they could invert and everyone is running for cover. Energy still the brightest spot – commodities are good but energy is also the one place where you can rely on dividends and buybacks whatever the Fed is doing to the discount rate. Don’t fight the Fed or the tape seems to be front of mind right now…omicron and Russia it ain’t. 


Apple – what’s not to like? Results for its fiscal first quarter through Dec 25th ‘21 beat on the top and bottom line, with revenues up 11% to a new record. EPS came in at $2.10 as net profits rose 20% to $34.6bn. The company successfully navigated chip shortages, albeit not without some damage – cost was $6bn, below the $10bn expected. Weaknesses? Sales of iPads were down 14%, as Apple prioritised iPhones for components and maybe some tough comps as everyone was home schooling in ‘20, otherwise beating on all product categories…iPhone +9% as the 5G thing plays out as expected (big upgrade cycle). Notably good sales in China as it became the top smartphone maker in China in the last three months of 2021, which we can attribute to both 5G + smarter pricing than in past cycles. Services…the key to keeping the multiple…another winner: +24% and margins above 72%…huge momentum in paid subscriptions. Guidance for March quarter is for another revenue record. Indicated +5% on the results. 


Tesla shares declined 11% after the solid earnings…down 30% YTD now as Elon Musk said the priority is to make a robot rather than new cars. Investors gave it the thumbs down. But you have to hand it to Musk – he sold at the top and managed to make it look like he did it because Twitter told him to. A lot of overhanging supply that will want out. Rivian and Lucid were also down double digits, -50% and –30% YTD. 


Elsewhere, the dollar continues to find bid and made a fresh high, its best since Jun ‘20. That’s leaving majors under pressure…commodity/risk/haven…whatever, the dollar is on the march and indicators still bullish.

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