Market comment 2022

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S&P Global thinks inflation will fall from 8.3% now to 5% by the end of the year, and 2.3% by the middle of next year. For the Fed, that would be mission accomplished, and the central bank would probably stop raising rates somewhere along the way, once inflation is trending down. If there are signs of a recession—such as a rising unemployment rate—the Fed might even start cutting rates again by the end of next year to help prod a recovery.

The cure for inflation is on the way

The U.S. will see inflation cut in half within six months, according to Mark Zandi of Moody’s Analytics. His call, which comes on the cusp of another key inflation report, hinges on oil prices staying at current levels, supply chain problems continuing to ease and vehicle prices starting to roll over. Everything else, Zandi believes, can stay the same. “CPI, the consumer price inflation, will go from something that’s now about a low of over 8% year-over-year to something close to half that of 4%,” the firm’s chief economist told CNBC’s “Fast Money” on Wednesday. The Bureau of Labor Statistics releases its September consumer price index on Thursday. Dow Jones is looking for a 0.3% month-over-month gain, up 8.1% year-over-year.

Inflation cut in half: Moody's Mark Zandi sees relief within 6 months

Several Fed officials felt that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action, according to the minutes of discussions among Fed officials at their policy meeting three weeks ago, echoing recent public statements.

Fed minutes: Cost of doing too little outweighs cost of doing too much

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Larry Summers has been speaking today at the Institute of International Finance annual meeting and warned that the situation in the UK debt markets could herald a global economic 'earthquake'.

"We've got the most complex, disparate and cross-cutting set of challenges that I think I can remember in the 40 years I've been following this stuff. And in all honesty, I think the fire department is still in the station."

He said interest rates would have to rise faster than forecasts suggest to keep a lid on inflation, which could lead to economic dislocation. 

"If you try to avoid that you just find yourself with a stagflation situation and having to do something harder a little later. But that's got all kinds of collateral consequences for the rest of the world."

In this situation, governments may struggle to fund themselves through debt markets, Summers said, pointing to turmoil in the UK.
"What's happened in the United Kingdom, some of that is a self-inflicted wound, but some of that is tremors of what's happening in the global system. And when you have tremors, you don't always have earthquakes, but you probably should be thinking about earthquake protection."

Government borrowing costs jump after Truss speech

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The volatility on Wall Street continued on Wednesday, this time to the downside. U.S. stocks closed in the red, eating into the prior two days' gains. While the small-cap Russell 2000 index declined the most — down 1.7% — it has outperformed the major indices recently. This performance has caught the attention of Wall Street, which is laser-focused on the impacts of the strengthening U.S. dollar and surging Treasury yields. Both of those factors likely led to Wednesday's decline in U.S. stocks. Small-cap companies — which generally have market capitalizations of less than $2 billion — tend to be less affected by currency fluctuations than larger cap companies. The stronger dollar is less likely to take a toll on these companies, as smaller caps are more likely to do business in the U.S. rather than overseas. 

While the Russell 2000 index sold off sharply from mid-August to early October with the other averages, it didn't break down through its June low, while the so-called major averages did. The Russell bottomed on Sept. 26 — putting in its most recent low — days ahead of the Dow and two weeks ahead of the lagging Nasdaq. This relative outperformance by small caps is catching the attention of Wall Street because, as Liz Young, head of investment strategy at SoFi, pointed out in a tweet, "small-caps have outperformed large-caps coming out of recessions 6 out of the last 6 times (all that we have data for)."

Why Wall Street is warming up to small cap stocks: Morning Brief

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Key measures include allowing banks to extend maturing loans to developers, supporting property sales by reducing the size of down payments and cutting mortgage rates, boosting other funding channels such as bond issues, and ensuring the delivery of pre-sold homes to buyers. “In essence, policymakers told banks to try their best in supporting the property sector,” according to Larry Hu, chief China economist for Macquarie Group. Tao Wang, chief China economist at UBS, described the package of measures as a “turning point” for China’s property sector. Along with other policies announced earlier this year, it could inject more than 1 trillion yuan ($142 billion) into real estate, she estimated.

China’s real estate crisis could be over. Property stocks are soaring

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A new exchange traded fund launched by Kaiju ETF Advisors seeks to leverage AI technology to automatically identify oversold stocks and take advantage of predicted rebounds. The actively managed fund, called The BTD Capital Fund (DIP), is designed to search for "quick-return opportunities" within the S&P 500 and Nasdaq 100. DIP seeks to capitalize on individual short-term mean reversions of large-cap U.S. stocks by using a proprietary artificial intelligence technology system to identify target areas. According to the company, the fund's AI backbone scans massive amounts of market data, applying more than 25 factors to identify possible opportunities for short-term gains.

New 'Buy the Dip' ETF uses AI tech to target oversold stocks | Seeking Alpha

Snap (SNAP) published a study showing return on investment for its AR "lenses" was six times higher than TV when it came to personal care/beauty ads. And BofA estimates users are engaging with Roblox's (RBLX) "Vans World" experience for close to an hour per sitting, he noted. Such new ad format categories add up to a $40B opportunity by 2028, Post estimates.

BofA picks potential winners, losers in 'immersive reality' trend (NYSE:RBLX) | Seeking Alpha

These shares offer significant capital gains to go along with big dividend yields. We've been swapping between shares in the sector to achieve much better results than the sector. Most of our position started and ended in the same share. If you can turn 2,677 shares into 3,417 shares, why wouldn't you do it?

40% Upside With 10% To 15% Yields | Seeking Alpha

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U.S. consumers have lowered their inflation expectations for all timeframes, the Federal Reserve Bank of New York said in its November 2022 Survey of Consumer Expectations on Monday. For the one-year-ahead horizon, the consumers' median inflation expectation declined by 0.7 percentage point to 5.2% and for the three-year horizon by 0.1 pp to 3.0%. Both decreases were broad-based across education and income groups. Median five-year inflation expectations, which have been surveyed in the monthly SCE core survey since the beginning of 2022 and first published in July 2022, also slipped, by 0.1 pp to 2.3%, the NY Fed said.

U.S. consumers dial down inflation expectations, NY Fed survey says | Seeking Alpha

Still, it wasn’t immediately clear that pulling the plug on the location-tracking app would do much in the short term to stimulate travel and economic activity. Similar mobile apps operated by provinces and other regional Chinese governments will remain an impediment to movement as long as they stay in use. The bigger obstacle to an economic rebound may be a nationwide surge in Covid cases unlike any that China has experienced so far, as authorities loosen pandemic rules heading into the depths of winter. Even with newfound freedoms and a new messaging push emphasizing the relative mildness of the Omicron subvariants of the coronavirus, many would-be travelers, shoppers and restaurant diners have chosen to remain at home. As a result, Beijing and other large Chinese cities have resembled ghost towns, a far cry from the celebratory Covid reopenings seen elsewhere around the world.

China Halts Location Tracking App as Covid Restrictions Fall

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ChatGPT is part Wikipedia, part researcher, part analyst, and part poet. It can write a short paper on the causes and outcomes of the French Revolution. It can write a seven-paragraph essay on why nihilism should be your personal philosophy. It can write an epic poem on the need to brush your teeth regularly. It can write a formal, yet sarcastic letter to your neighbor on why he shouldn’t trim your trees without permission. It’s breathtaking. It’s also scary when you think about its potential to mimic human prose and poetry. ChatGPT is currently in “free research preview,” which means that you can use the service for free. It does require you to sign up for OpenAI, which can be as simple as authenticating the service via your Gmail account. Once inside, you get a seemingly limitless numbers of text prompts to play with. But don’t expect this to last forever, because OpenAI typically licenses its models to third parties and then takes it own service offline.

ChatGPT is the dazzling, scary future of AI chatbots

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A senior World Health Organization official said on Wednesday that China’s flare-up started “long before” restrictions were lifted, but since the sudden shift in policy major cities in Beijing appear to have experienced a huge surge in cases of Covid-19. Authorities have said it is “impossible” to measure, since most people are not being tested. “The explosion of cases in China had started long before any easing of the zero-Covid policy,” WHO emergencies chief Michael Ryan said on Wednesday. “There’s a narrative that, in some way, China lifted the restrictions and all of a sudden, the disease is out of control,” he added at the UN health agency’s headquarters in Geneva.

“The disease was spreading intensively because the control measures in themselves were not stopping the disease.” In Sichuan, a doctor surnamed Li told Reuters that their tertiary hospital was “overwhelmed with patients”. “There are 700, 800 people with fever coming every day,” Li said. “We are running out of medicine stocks for fever and cold. A few nurses at the fever clinic were tested positive, there aren’t any special protective measures for hospital staff and I believe many of us will soon get infected.”  Claims of rampant infections among hospital staff are also spreading across social media. One Chongqing resident said primary care in their city had “imploded”.

“80% of the newly admitted patients in our small third-level respiratory department in a remote city are positive,” they wrote on Weibo. “From December 8, when the first positive patient was allowed to be admitted, to today, December 13, at least half of the medical staff in our department were infected. At the beginning the infected were allowed to go home to rest, but now as long as it is not very serious symptoms, they are not allowed to go home.”

Chinese doctors and nurses reportedly told to work while infected as Covid surges | China | The Guardian

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U.S. regulators secured what they said was "complete access" to inspect the books of public accounting firms based in mainland China and Hong Kong. The move was seen as crucial for several Chinese tech companies that have their shares traded on U.S. stock exchanges. New regulations in the U.S. have given the Securities and Exchange Commission the power to de-list the shares of Chinese companies with shares traded in the U.S. if those companies don't allow U.S. inspectors access to auditors reports for three consecutive years.

Alibaba, JD.com waver; U.S. gets 'complete access' to Chinese auditors' books | Seeking Alpha

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A shortfall of immigrants is worsening widespread labor shortages and hobbling the U.S. economy at a time when more than 10 million jobs remain unfilled, particularly in low-paying and physically demanding industries such as hospitality, agriculture, construction and health care. While the slowdown in immigration began well before the pandemic, the covid crisis intensified the process as the Trump administration effectively halted the flow of foreign-born workers into the United States. 

Although legal immigration has rebounded somewhat since then, particularly in the last six months, major shortages remain, rippling through the economy at a time when the labor force is also missing workers from early retirements, ongoing health problems and caregiving challenges. Labor force shortages are also contributing to higher prices for some goods and services, as companies raise wages to compete for a smaller pool of workers and to keep existing staff...

“There is no question: We need more immigration,” said Adam Ozimek, chief economist at Economic Innovation Group, a nonpartisan business organization. “Immigrants aren’t just workers, they are particularly flexible, mobile workers, who help address acute labor shortages wherever they emerge. And that’s particularly important in this constrained economy we’re facing right now.”

Trump, covid slowed down immigration. Now employers can’t find workers.