The Economic Debate Intensifies as Earnings Season Begins

The market finished with mild losses on poor breadth on Thursday following higher-than-expected CPI and unemployment claims. The numbers were mild, but with bonds sinking and the 10-year Treasury yield steady at over 4%, there is more debate about whether the economy is really as healthy as the bulls believe it is.

Earnings begin on Friday morning with banks. JPMorgan Chase JPM will be particularly important due to their guidance about interest rates. The market has mostly been ignoring the recent upside pressure on rates, but it will matter to banks if they believe it will persist.

Friday morning also brings PPI and the University of Michigan Sentiment survey. These numbers will be seen as further evidence of whether there is an uptick in inflation and economic slowing.

Technically, the market has been holding near recent highs and dip buyers showed their resolve again by buying early weakness before a little softness at the close. The biggest concern about the recent action is the poor breadth, which is a symptom of underperformance in small-caps IWM. 

In addition, the Magnificent Seven (MAGS) names are no longer the strong leaders they once were. Nvidia NVDA is outperforming, but the group is at the same levels it was back in July and has lost its position as a safe haven.

Tesla TSLA is seeing a sell-the-news reaction to its Robotaxi presentation, but Uber UBER is trading up by over 5%. We added to our UBER position on Tuesday and will continue to look for more entry points.

Our primary focus now is navigating earnings. Earnings season always offers some new opportunities, but it also produces landmines when companies disappoint. I’ll be watching carefully to make sure I adjust position sizes to take into account the increased risk that earnings presents.

We have slight weakness early on Friday as market participants await more news flow.

At the time of publication, Rev Shark was long UBER.