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The December CPI rose 0.3%, more than expected. (0:15) Hertz to shed electric vehicles in its fleet. (2:37) Dow 100,000 in 10 years? (4:23)
This is an abridged transcript of the podcast.
Our top story today so far
Retail inflation showed some resilience at the end of last year. The December consumer price index rose 0.3% on the month, with the annual rising to 3.4% from 3.2%. Economists were expecting a rise of 0.2%.
Excluding food and energy, the core CPI also rose 0.3%. That was also a little hotter than the consensus, although some surveys had it meeting forecasts. But the annual rate dipped below 4% for the first time since June 2021, ticking down to 3.9%.
Barry Ritholtz, chief investment officer of Ritholtz Wealth Management, said “under the hood, the details were more encouraging.”
He noted that the BLS said the “index for shelter continued to rise in December, contributing over half of the monthly all items increase,” but added that “in the real world, shelter measures were flat or negative.”
Mohamed A. El-Erian, adviser at Allianz, says the CPI report will “neither change the dominant market narrative nor the policy one.”
But he says, “This is, however, a bit of a warning shot, especially given that the dis-inflationary process gets harder from here.”
As far as Fed expectations are concerned, traders are still expecting a first quarter-point rate cut to come in March, pricing in a 60% chance. Six quarter-point cuts are seen through 2024.
Deutsche Bank strategist Jim Reid says: “For now at least, markets remain confident that the Fed is about to pivot soon… But so far, officials have generally been talking about later moves.”
He notes that New York Fed President Williams recently said “rates were restrictive enough to reach the 2% inflation target while reiterating the need for the Fed to maintain a restrictive stance ‘for some time.’”
“While noting the meaningful progress on inflation, he added that it was still far from 2%. So, another Fed official avoiding any signal of imminent cuts.”
Along with the CPI, investors also got the latest jobless claims numbers, and they continue to show resilience in the labor market. Weekly jobless claims fell unexpectedly to 201,000. But continuing claims fell to 1.834 million.
The markets are having an expected but not-outsize reaction to the data.
Stocks are a little lower, while rates are a little higher. The 10-year Treasury yield (US10Y) edged toward 4.05%.
Among active stocks
Warren Buffett’s Berkshire Hathaway (BRK.A) continued to put cash into shares of Occidental Petroleum (OXY), with its stake up to 34%. Berkshire went on a buying spree of OXY shares last month, accumulating more than 15 million at a total cost of about $900 million over a series of transactions.
Hertz (HTZ) is cutting its losses in its adoption of electric vehicles and has decided to sell ~20,000 EVs, or one-third of its global fleet, and reinvest a portion of the proceeds in internal combustion engine vehicles. The sale is expected to cost the company ~$245 million of net depreciation, in addition to the depreciation expense Hertz will report in Q4 2023.
CEO Stephen Scherr acknowledged the difficulty and cost of maintaining the EV fleet during the Q3 earnings call. He recognized that collision repairs to EVs “can often run about twice that of a comparable combustion engine vehicle.”
And Chesapeake Energy (CHK) and Southwestern Energy (SWN) announced an agreement to merge in an all-stock deal valued at $7.4 billion, forming a company with an enterprise value of ~$24 billion that likely will be the largest U.S. natural gas producer. Southwestern shares fell as the deal values its stock at $6.69 per share, or 2.9% below Wednesday’s $6.89 closing price.
In other news of note
Alphabet’s (GOOG) (GOOGL) Google is laying off hundreds of staff working on its voice assistant, hardware, and engineering teams.
The tech giant plays to let hundreds go at its Voice Assistant unit, while a few hundred roles are being eliminated in the hardware team responsible for Pixel, Nest, and Fitbit. The majority of staff in the augmented reality, or AR, team are also being laid off, according to a Reuters’ report.
A Google spokesperson told Seeking Alpha that “throughout the second half of 2023, a number of our teams made changes to become more efficient and work better, and to align their resources to their biggest product priorities. Some teams are continuing to make these kinds of organizational changes, which include some role eliminations globally.”
And in the Wall Street Research Corner
To the moon?
James Demmert, CIO at Main Street Research, says the Dow Jones (DJI) can cross 100,000 in the next 7 to 10 years, the S&P 500 (SP500) could hit 15,000, and the Nasdaq Composite (COMP.IND) 50,000 within the next 10 years.
Main Street, which has roughly $2 billion in assets under management, pointed to expectations of an explosion in productivity growth thanks to the onset of artificial intelligence.
“It’s entirely plausible for the Dow Jones Industrial Average to cross 100,000 in the next 7–10 years given the super cycle of productivity growth and new business cycle that we envision, which is going to cause corporate profits to surge, and corporate profits are the lifeblood of stock prices,” Demmert said.
“We believe the S&P 500 could cross 15,000 within 10 years and that the Nasdaq could cross 50,000 within 10 years, since these two indexes are more heavily weighted in technology stocks, which will be the leaders in the new AI bull market.”
Putting the calls into perspective, the Dow Industrials would need to advance by about 165% over the next 10 years to hit the target. In the last 10 years, it’s up nearly 130%. The benchmark S&P would need to gain right around 214%. It’s up 157%. The Nasdaq Composite will increase 233% over the next 10 years, which is actually less than what it’s moved up in the previous 10 years. Over the last 10 years, the Nasdaq went from 4,160 to 15,011 (end of 2023), which equals a 253% move.
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