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Alvaro Pereyra - CEO of Northbound

Weekly | Basis for valorization

Your weekly summary with the most important news for your investments-

Weekly | Basis for valorization

Your weekly summary with the most important news for your investments, in this edition:

  • Performance of stock indexes.

  • Financial highlights.

  • Economic outlook and upcoming events.

During the second week of the year, the stock indexes managed to largely reverse the losses registered at the beginning of the new year: 

  • The Dow up +0.3%.

  • The S&P 500 +1.8%.

  • The Nasdaq up +3.1%.

  • With the 10-year sovereign yield easing to 3.94% (-10 basis points) due in part to the good quarterly results of some of the country's main financial institutions and the mixed inflation figures for the month of December, which we will analyze in greater detail below. 

In between, the announcement of BlackRock's US$12.5 billion purchase of Global Infrastructure Partners (GIP) and Citibank's announcement of a 10% cut in its labor base (20,000 employees) also brought new energy entering the new year, despite the fact that the latter financial institution posted an unexpected fourth quarter loss of US$1.8 billion after managing provisions of US$3.8 billion. On the political front, congressional leaders reached an agreement to extend fiscal spending until early March to avoid a government shutdown. Meanwhile, former President Donald Trump won the Iowa Republican primary with over 50% of the vote followed by Florida Governor Ron DeSantis with only 20%.

This week will again be marked by quarterly results from major investment banks including Goldman Sachs and Morgan Stanley along with figures from other financial institutions such as Charles Schwab, Interactive Brokers, PNC Financial, Regions Financial and Travelers among many others. In between there will be an array of verbal interventions by Federal Reserve (Fed) representatives that will surely align with some of the comments managed by European central bank representatives yesterday from the Davos Annual Convention. where for example German Central Bank President Joachim Nagel noted: 

"I think it is too early to talk about [interest rate] cuts." 

On the macroeconomic front, retail sales and industrial production data will be released in the United States. In addition, Chinese economic activity data will be released tonight after last week's Chinese inflation figures showed a deflationary process with 12-month inflation at -0.3% and producer inflation at -2.7%. Despite this, the Chinese economy is estimated to have expanded 5.3% during the fourth quarter of the year (up from 4.9%).

Let's start by briefly analyzing the US inflation data after the headline figure closed the year at 3.4% (up from 3.1%), exceeding market expectations of 3.2%. While the underlying figure marginally eased to 3.9% (from 4%). However, what allowed the market to take a breath on the upside was the data related to producer inflation where the headline figure closed at 1% (from 0.8%) while the core figure eased to 1.8% (from 2%) with some sectors such as goods showing clear deflation going into 2024. This combination of data was enough for market participants to find encouragement that inflation continues to ease towards the 2% target. However, as JP Morgan CEO Jamie Dimon summarized last Friday in his quarterly statement, we still need to be vigilant as he summarized the economic scenario as follows: 

"The U.S. economy remains resilient, with consumers still spending, and markets currently expecting a soft landing. It is important to note that the economy is being driven by large amounts of past government deficit spending and [monetary] stimulus. There is also a continued need for increased spending due to the green economy, restructuring of global supply chains, higher military spending, and rising health care costs. This could make inflation more persistent and rates higher than markets expect. In addition, there are several downside risks to watch for. Quantitative tightening is draining more than $900 billion of liquidity from the system annually, and we have never seen a full [economic] tightening cycle. In addition, the ongoing wars in Ukraine and the Middle East have the potential to disrupt energy and food markets, migration, and military and economic relations, in addition to their horrendous human cost. These significant and somewhat unprecedented forces lead us to remain cautious. While we hope for the best, the past year demonstrated why we must be prepared for any environment."  

On the corporate front, according to Factset, S&P 500 companies' sales are expanding on the order of +2.8% while earnings are expanding by -0.4% with the latter figure being in positive territory entering the quarterly earnings season the previous week. The unexpected loss recorded by Citibank with provisions in the order of US$3.8 billion generated a dislocation in the expected results of the bank. The company added this provision, which included expenses related to the reorganization being carried out, reserves in relation to the Argentine and Russian markets and an amount close to US$1.7 billion to refinance the FDIC bank fund. As mentioned above, the investment fund manager BlackRock added infrastructure assets to its investment portfolio through the acquisition of GIP. With this, according to its CEO, Larry Fink, commented as follows: 

"clients entrusted us with US$289 billion in net inflows in 2023, including US$96 billion in the fourth quarter. We enter 2024 with solid momentum of $10 trillion in assets under management, accelerated flows and an organization positioned for the future."

In conclusion, the focus will continue to be on economic activity and inflation data ahead of the next Fed meeting in two weeks (January 30 and 31) while S&P 500 companies' results will have to justify market valuation, in particular the technology sector substantiating the introduction of its artificial intelligence related flows.

This Week

Monday (January 15)

Quarterly Reports

  • United Microelectronics Corporation

  • GameSquare Holdings, Inc.

  • Trio Petroleum Corp.

Economic Reports

  • Producer Price Index Monthly Change Report

Tuesday (January 16)

Quarterly Reports

  • Morgan Stanley

  • Goldman Sachs Group, Inc. (The)

  • PNC Financial Services Group, Inc. (The)

  • Interactive Brokers Group, Inc.

  • Pinnacle Financial Partners, Inc.

Economic Reports

  • NY Empire State Manufacturing Index Report

Wednesday (January 17)

Quarterly Reports

  • Prologis, Inc.

  • The Charles Schwab Corporation.

  • U.S. Bancorp.

  • Discover Financial Services.

  • Citizens Financial Group, Inc.

Economic Reports

  • Retail Sector Monthly Sales Change Report

Thursday (Jan. 18)

Quarterly Reports

  • Truist Financial Corporation

  • Fastenal Company

  • PPG Industries, Inc.

  • M&T Bank Corporation

  • J.B. Hunt Transport Services, Inc.

Economic Reports

  • Preliminary Building Permits Report

  • Philadelphia Fed Manufacturing Index Report

Friday (Jan. 19)

Quarterly Reports

  • ICICI Bank Limited

  • Schlumberger N.V.

  • The Travelers Companies, Inc.

  • Fifth Third Bancorp

  • State Street Corporation

Economic Reports

  • Preliminary Michigan Consumer Sentiment Report

Now you have more information about your investments. See you next week with more news.

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