SVET Reports

SVET Markets Weekly Update (Jan 30 — Feb 3, 2023)

In the fourth week of 2023, NASDAQ increased by 4.3 percent. It opened at 11512 on Monday and closed at 12006 on Friday. The upward trading trend for the week was influenced by the FOMC’s decision to add 0.25 points to its bank’s rate, which was previously at 4.5. In contrast, after a jump on Monday’s session, BTC spent the rest of the week declining, falling from 23743 at the start of the week to 23431 on Friday.

Week’s notable macroeconomic updates:

- Fed Interest Rate Decision: 4.75 percent (fact), 4.75 (prognosis);
- Non Farm Payrolls (Jan): 517K (fact), 185K (prognosis);
- Unemployment Rate (Jan): 3.4 percent (fact), 3.6 (prognosis);
- JOLTs Job Openings (Dec): 11.012M (fact), 10.25M (prognosis);
- CB Consumer Confidence (Jan): 107.1 (fact), 109 (prognosis);
- Dallas Fed Manufacturing Index (Jan): -8.4 (fact), -11 (prognosis);
- ISM Manufacturing PMI (Jan): 47.4 (fact), 48 (prognosis).

On Monday, NASDAQ experienced a setback starting with a morning gap at 11512 and continued to decline throughout the day, reaching a low of 11393 (-1.0 percent). Meanwhile, BTC, which had started correcting the night before, began the day at 23057 and ended the session at 22743 (-1.3). It appears that the January rally may become more challenging as both NASDAQ and BTC are approaching strong resistance levels (11.5K-12K and 23K-25K).

On January 30, the only notable macroeconomic data released was from the Dallas Federal Reserve’s Business Outlook Survey, which gathered information from over 1,000 executives in the manufacturing, services, energy, and lending industries in Texas. The general business activity index remained negative but improved by 12 points to -8.4, while the employment index rose to 17.6, significantly higher than its average of 7.9 It aligns with other macro indicators from this month, signaling slightly improved economic conditions, supported by a robust job market.

Tuesday’s stock markets reacted positively to selective corporate earnings reports (notably, McDonald’s 2.59 earnings per share (EPS), which was higher than the expected 2.45, and General Motors’ 2.12 EPS, exceeding expectations of 1.68). The NASDAQ rose from 11,398 to 11,594 (+1.7 percent) during the day session.

At the same time, cryptocurrency traders acted more rationally, keeping the value of Bitcoin (BTC) at its previous levels (O: 23,126, C: 23,095). It appeared that whales procrastinated ahead of the FOMC’s decision. Some of them might have even been paying closer attention than usual to the latest macroeconomic data released by a number of government and quasi-government agencies.

Among them:

Compensation costs for both civilian and private industry workers increased 1.0 percent in Q4 compared to 1.2 percent in the previous quarter (source: Employment Cost Index by the Bureau of Labor). However, in December, private sector salaries rose faster (+4.4 percent) compared to government salaries (+4.0 percent) over the year.

What is more important, however, is that among private industry occupational groups, compensation costs increased by 4.2 percent (year-over-year) for natural resources, construction, and maintenance workers, but rose to 6.9 percent for service occupations. The FOMC pays attention to the service side inflation, specifically.

The Shiller Home Price Index continues its gentle downward slope that began in July 2022, with a decrease of another 0.8 percent in November. This is slower than the expected decrease of 1.0 percent. This trend is confirmed by the Federal Housing Finance Agency’s (FHFA) House Price Index, which monitors the average price of single-family houses for mortgages guaranteed by Fannie Mae and Freddie Mac. It fell 0.1 percent nationwide in November, while a decrease of 0.4 percent was expected.

The Chicago Purchasing Managers’ Index (PMI), produced by the Institute of Supply Management, dropped by 0.8 points to 44.3 in January, after sharply rising to 44.9 in December. Notably, the prices paid for materials, including steel, increased, accelerating by 7.4 points to 72.5, breaking a five-month streak of declining prices. This is a result of the new upward trend in commodities started by China getting back on track after its self-imposed nationwide lockdown.

The Consumer Confidence Index produced by the Conference Board decreased in January, contrary to expectations of no change. It now stands at 107.1 (1985=100), down from 109.0 in December. However, the FOMC is likely to pay more attention to the Dallas Federal Reserve’s Services Revenues Index. This index showed that growth in the Texas service sector activity resumed in January, rising six points to 4.9, recovering sharply from -0.6 in December. From the FOMC’s perspective, this could be another argument for the continuation of the Federal Reserve’s restrictive monetary policy.

Tuesday’s stock markets reacted positively to selective corporate earnings reports (notably, McDonald’s 2.59 EPS — expected 2.45, and General Motors’ 2.12 EPS — 1.68). NASDAQ rose from 11,398 to 11,594 (+1.7 percent) during the day session. At the same time, crypto traders acted more rationally, keeping the value of Bitcoin (BTC) at its previous levels (O: 23126, C: 23095).

It appears that whales hesitated prior to the FOMC’s decision. Apparently, their indecision was influenced by recent negative macroeconomic data, including a 1.0% increase in compensation costs in Q4, a decrease in the Shiller Index (-0.8%), a drop in the Chicago PMI (-0.8 points), a decrease in the Consumer Confidence Index, and an increase in the Dallas FED Services Index (+4.9).

On Wednesday, Despite Powell reiterating his old statements that the rate won’t go down any time soon (at least until the end of this year) and that FOMC will hike it two more times as minimum, markets decided that 0.25 rise is enough of a good news and continued to push up.

As a result, NASDAQ covered the distance of 2.0 percent (o:11573, c:11816) and BTC added 2.3 (o:22979, c:23573) during the seven hours session. BTC kept moving up on the after-hours reaching 24253 on its top. That was not, however, accompanied by an increase in volumes, which might indicate that the same group of players, which started this rally, just carries on regardless retail traders not stepping in to support the gained over-bought levels.

On a fundamental side there is also not much positivity with ISM Manufacturing PMI under-performing (decreasing to 47.4 despite of expected 48) and JOLTS over-performing showing 11.012 new jobs despite of 9.5M expected by analysts.

If you feel things are going the wrong way in Silicon Valley, there is a reason for that. The Challenger Job Cuts report, published on Thursday, February 2nd, revealed that out of 102,943 cuts announced in January by all employers, a 136% increase from December, 41,829 cuts (41%) were made by technology companies. This is a 58-fold increase from January 2022, when only 72 technology-related job cuts were made.

The total number of cuts in 2022 reached 363,824. In line with this, the Bureau of Labor Statistics recorded a 3.0% increase in nonfarm business sector labor productivity in the fourth quarter of 2022. Clearly, the individuals hired in 2021 simply didn’t have enough time to make a significant contribution :)

FYI: The U.S. Bureau of Labor Statistics measures nonfarm business sector labor productivity by dividing real output (Gross Domestic Product) by the total number of hours worked by all persons in the nonfarm business sector. This results in a measure of output per hour worked, which is the standard definition of labor productivity. The Bureau uses data from the National Income and Product Accounts and the Current Employment Statistics program to calculate this measure.

At the same time, the Department of Labor showed a 3K decrease (to 183K, below market expectations of 200K) in the number of new claims for unemployment benefits in the fourth week of January. This decrease in the tech industry was compensated by an increase in other industries, for example, in Transportation, as according to the Census Bureau, “orders for transportation surged 16.9%, driven by a 115.5% increase in orders for non-defense aircraft and parts”.

NASDAQ rose another 1.1% (opening at 12,065, closing at 12,200) during Thursday’s session, while BTC remained below 24,000 (opening at 23,766, closing at 23,872). The January “whale rally” has prompted a pause to allow retail buyers to catch up. Otherwise, institutional investors, who dominated the BTC market in 2021, will have no one to offload their “immutable wealth” to in times of need, such as during the next FTX-type event.

The record surge in employment (517K, well above the 185K forecast) reported by the Bureau of Labor Statistics took traders by surprise and caused the markets to stumble on Friday. NASDAQ (open: 11946, close: 12006) formed a double-top on the hourly chart, indicating a technical weakness, while BTC (open: 23346, close: 23338) continued to range, remaining (formally) within its rising channel.

Job growth was led by gains in the leisure and business services sectors. Employment also increased in government, reflecting the return of workers from a strike in California (+75K). Other key indicators also showed marginal improvements, including the ISM Non-Manufacturing PMI, which increased to 55.2 (above the expected 50.6) and the unemployment rate, which decreased to 3.4 percent (lower than the predicted 3.6) in January.

Now, traders are faced with an important dilemma: either the post-enclosure surge in economic activity, which continues to support the labor market (despite ongoing layoffs in some sectors, such as technology, finance, and real estate), will be offset by a lower consumer demand that is being aggressively suppressed by the Federal Reserve and inflation will continue to decline, or the shortage of labor, rising wages, and a booming stock market will prevent this from happening and lead to the FOMC extending its policy of raising interest rates.

Basically, if all things are equal, the future of the markets depends on how a few people interpret a stream of macroeconomic data over the next 2 to 3 months. This is a guessing game, which does not result in consistent price trends. Therefore, the fifth week, which does not have any important macroeconomic releases scheduled, may be a volatile one.