Here's Everything You Need To Know Today

With no meaty economic data on the horizon—markets are struggling to find a direction as a new crop of earnings hits.

The market has been running fairly hot even when our rate environment remains unclear—so we’re honestly happy to see a little bit of pullback in early trading. We’re not calling for a full-on correction or anything, but some cooler price action can help us avoid a ‘melt-up’ that leads to a sharper drop towards the middle of the year.

Once again, a lot of the positive price action hitting the market today simply comes from big names beating less-than-stellar expectations. Retail names may have been a little too conservative about their prospects before the holiday season—and investors are happy to reward big wins and bigger moves from the players who were able to adapt and survive.

So, let’s explore some of the biggest headlines moving the price action today as traders pack the market during a holiday-shortened week.

While the market has stomached persistent inflation fairly well this week, we still want to remain cautious while traders overreact to market events both good and bad.

The main thing pushing the PPI was the services side of the equation—with hospital outpatient care expenses surging 2.2% in the last year. This lines up with some of the tough earnings reports we’ve seen from healthcare and insurance stocks. That’s going to be something we watch a lot closer now that we’re seeing more of a pattern here.

For now: as we push into the back half of Q1, we’re getting a much better idea of what businesses will perform better through 2024. It’s looking more and more likely that we’ll stay in a higher interest rate environment for longer, but enough firms are compounding their efficiency improvements from last year enough to convince traders that we can weather this storm (for now).

Some of the price action we’re seeing is honestly the market swinging back after huge overreactions in Q4. Back in October—Alphabet, Meta, and Snapchat all put out cautious guidance indicating that ad demand may dry up during the 2023 holiday season. Now that most major ad platforms have reported solid holiday revenue—it turns out those fears were overblown.

Still, this market demands nothing short of fine-tuned perfection. So most of the sell pressure we’re seeing is great companies that fell just short of expectations or issued guidance for 2024 that was just too conservative. Moves like that help us stay confident that most of this market isn’t running too hot. That is—unless you’re the mob of options traders who have jacked up Super Micro Computer stock more than 300% in the last 6 months.

With some traders piling into winners in an ever-more desperate hunt for alpha, we have to be extra cautious in our investing strategy for the next few months while earnings have a chance to catch up with valuations—or at least until the market decides it has seen enough and opts for a correction.

So, let’s examine the main winners and losers driving the price action today and get a better sense of what the market wants from these companies. That way we can find the best opportunities for our money while the more degenerate bulls push borderline ludicrous gains out of some tech winners.

And then—in another shock: Japan’s economy slipped into a recession. Analysts have been concerned about growth in Japan for a while now—but no one had priced in a full-blown recession yet.

Wildly, this latest GDP report from Japan has also confirmed that Germany has overtaken Japan as the world’s 3rd-largest economy.

While markets aren’t immediately overreacting here, cooling growth worldwide could drag on major markets and this is something to keep an eye on. While slower growth will help cool inflation—The Street will always be worried about interest rates pumping the brakes a little too hard. Because of that—traders hit a moment of equilibrium early today with no consistent winning trend.

So, let’s look at the trends that really are powering the market. Inflation is still hammering some businesses that can’t build more efficient operations fast enough, while other businesses are getting crushed by the very interest rates that are being used to solve inflation. And then there’s the crypto market—which is achieving momentum of its own and building toward escape velocity out of nowhere. There’s a lot to unpack during trading days like today, so let’s zero-in on the bigger dynamics: