Stocks End Lower, But Off Session Lows  Image: Bigstock Stocks closed lower yesterday, but off their session lows as they cut their intraday losses in half by the close. Markets were already trading lower in pre-market activity after reports that China's GDP, while hitting their 2023 full-year target of 5% (they reported 5.2%), they only reported Q4 at 1.0% vs. the previous quarter's 1.3%. For perspective, the print of 5.2% in 2023 is well above 2022's 3%, and peak-Covid's 2.24% in 2020, but below the 6% and 7% they were reporting in the year's pre-Covid. Some speculated that the market was also pressured by the hotter than expected U.S. Retail Sales report which showed retail sales up 0.6% m/m vs. estimates for 0.4%. (Ex-vehicles it was up 0.4% vs. views for 0.2%.) Why would a better than expected report weigh on stocks? The idea is that the economy is still going strong, but could cause the Fed to begin their rate cuts later rather than sooner out of fear that inflation could remain elevated, or worse, tick back up. Although, I don't think the report was strong enough to cause much concern.
I attribute some of this week's volatility to January options expiring (they expire on Friday). I believe once that's out of the way, we could see stocks regain their footing. And with the official start of earnings season this week, that bodes well for stocks moving forward. In other news, MBA Mortgage Applications rose 10.4% w/w with purchases up 9.2%, and refi's up 10.8%. The Housing Market Index rose to 44 vs. last month's 37 and expectations for 38. Import Prices were flat at 0.0% m/m vs. the consensus for -0.6%. On a y/y basis they were down -1.6% vs. views for -2.0%. Export Prices fell -0.9% m/m vs. estimates for -0.6%, while the y/y rate fell -3.2%. Although, that was an improvement from the previous month's report which put it at -5.2%. Industrial Production rose 0.1% m/m vs. estimates for -0.1%. Manufacturing Output also rose 0.1% vs. expectations for 0.0%. The Capacity Utilization Rate came in at 78.6%, under the consensus for 78.7%, but in line with last month's pace. Business Inventories slipped -0.1% as expected. The Atlanta Fed Business Inflation Expectations moderated to 2.2% y/y vs. last month's print of 2.4%. (This measures what business are expecting inflation to look like over the next 12 months.) And the Beige Book report showed 'little to no change' in economic activity in recent weeks. Consumer spending came in as expected due to seasonal demand, while manufacturing was down. The report also noted that the 'prospect of falling interest rates' was a 'source of optimism.' And that the majority of districts felt the prospects for future growth had improved. Today we'll get reports on Housing Starts and Permits, Weekly Jobless Claims, and the Philadelphia Fed Manufacturing Index. Lots of economic reports crammed into a shortened holiday trading week. The number of companies reporting earnings will begin to expand next week. And just in time to hopefully give the markets a boost by month's end, since stocks typically go up during earnings season. As they say, "as goes January, so goes the year."
Plenty of time to see stocks get into the green by month's end. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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