The focus is on the release of consumer inflation data for November, as well as the announcement of the results of the Fed meeting.
⚠️ Macroeconomic data:
– Consumer price index (November)
– Fed meeting results
– Retail sales volume (November)
– Philadelphia Fed manufacturing activity index (December)
📰 Notable Reports:
Dec. 12 – Oracle #ORCL.
Dec. 15 – Adobe #ADBE
The market is betting that the Fed will raise interest rates by 50 bps, to 4.25-4.5%. Bank of America believes that Fed Chairman Powell will once again oppose a turnaround in tightening QE, and will note that the only way to get inflation back to target levels is to weaken the labor market, which is still overheated. The bank expects the Fed to point to a 200bp rate cut between 2024 and 2025 in its new economic forecasts.
Yum Brands #YUM Investor Day:
Cowen thinks the Dec. 13 event will be a positive catalyst for stocks. Management is expected to provide positive commentary on the prospects for restaurants in China as well as Taco Bell in the U.S. Management’s statements on the impact of inflation and labor shortages on the business will be key for the entire restaurant sector.
Developments in the health care sector:
On Dec. 12, Pfizer #PFE will hold an event on new drug development. On December 13 and 14, the FDA will decide on drug approvals from Cytokinetics #CYTK and Zai Lab #ZLAB. The ASH conference will feature drug updates from Legend Biotech #LEGN, GlycoMimetics #GLYC, Roche #ROG, AZN #AZN, Merck #MRK and Bristol-Myers Squibb #BMY.
Other Corporate Events:
Eli Lilly #LLY, Terex Corporation #TEX, Arthur J. Gallagher #AJG, Ligand #LGND, Denbury #DEN, QuidelOrtho #QDEL, J.M. Smucker #SJM, Krispy Kreme #DNUT, Ericsson #ERIC and Hillenbrand #HI will host investor events this week. On December 15, the Fortune Brands Home & Security #FBHS business split into two companies, Fortune Brands Innovations #FBIN and MasterBrand #MBC.
The release of Avatar:
Avatar: The Way of the Water from Disney #DIS will premiere on December 16. Weekend grosses are estimated at $150 million to $175 million. The original 2009 film grossed $2.9 billion at the worldwide box office all-time. The event could be positive for the stock of theater operators AMC #AMC, Cineworld #CINE, Cinemark #CNK, IMAX #IMAX, Marcus #MCS, Reading #RDI, Cineplex #CA and National CineMedia #NCMI.
💡 Barron’s conducted a review on CVS Health #CVS, operator of the largest pharmacy chain. Analysts are positive about CVS’ expansion initiatives into the health services industry, and note the stock’s attractive valuation. The stock currently trades at a forward P/E of 11x, which is an excellent level for building a long-term position.
💎 The coming week will be eventful, in fact it will be the most important period in terms of macro data for the rest of the year. On Tuesday, consumer inflation data will be released, on Wednesday the Fed will decide on the rate and comment on its future strategy. The consensus of analysts lays into their estimates that inflation has passed its peak and will begin to decline steadily and the regulator will end its rate hike cycle in the first quarter of 2023.
We believe the consensus is overly optimistic and are positioning portfolios accordingly. It is likely that inflation will be above target levels for longer than expected, accordingly, the rate will have to be raised to higher levels, which will negatively impact corporate profits and credit quality. In the current environment, active portfolio management is coming to the forefront, a buy and hold strategy could yield near-zero results on the horizon over the next year.