Daily Brief - Consumer vs. Inflation

TLDR: In a twist of economic fate, recent PMI data adds a new chapter to the narrative of the U.S. consumer's role in the economy's battle against inflation.

The Services ISM report for January revealed a reading of 53.4 percent, surpassing expectations and highlighting an economy that refuses to bow down to inflationary pressures.

This data, juxtaposed against a backdrop of robust consumer spending and an unwavering job market, suggests an intriguing plot twist in the economic saga.

Yet, the devil lies in the details, as the data reveals the Prices Index, a critical measure of inflation within the sector, jumped significantly, suggesting that inflationary pressures are far from contained. This rise in prices, especially notable in transportation costs affected by global disruptions, has sparked concerns over the persistent inflationary trend despite a generally positive economic outlook.

Moreover, the Manufacturing PMI also saw a notable increase, reaching a level of expansion for the first time since April 2023. This resurgence, fueled by greater new orders and positive output expectations, suggests a manufacturing sector that's rebounding with vigor, potentially adding more layers to the inflation conversation.

As the U.S. consumer continues to spend, buoyed by confidence and a solid job market, the recent PMI data injects a nuanced perspective into the discourse on inflation. It hints at an economy that's growing, yes, but also grappling with inflationary pressures that are stubbornly persistent.

Market Movers: When PMIs are expanding?

Here are the historically best and worst performing SPX stocks when both services and manufacturing PMIs are expanding:

The top 3 performing stocks on a 1-month horizon are:

1. Penn National Gaming (Ticker: PENN) with a 1-month return of 15.16%
2. Lam Research (Ticker: LRCX) with a 1-month return of 13.98%
3. Netflix (Ticker: NFLX) with a 1-month return of 10.25%

The bottom 3 performing stocks on a 1-month horizon are:

1. Wynn (Ticker: WYNN) with a 1-month return of -10.04%
2. CF Industries (Ticker: CF) with a 1-month return of -8.85%
3. United Airlines (Ticker: UAL) with a 1-month return of -6.86%

Earnings Update: Chipotle reports tonight

Analysts covering Chipotle have been increasingly bullish in the lead-up to this earnings announcement, with several upward revisions to revenue estimates over the last thirty days. This suggests a strong performance expectation for the company.

However, it's worth noting that Chipotle has missed Wall Street's revenue estimates five times over the last two years, which adds an element of uncertainty to the anticipation surrounding the earnings report.

Discover how other companies could react post earnings with the help of TOGGLE's WhatIF Earnings tool.

Asset Spotlight: Microsoft volatility at a recent low

In the 27 most recent occurrences when Microsoft's volatility indicators hit a new low, analysis from Toggle indicated a pattern of a median upward movement in the stock price over the following three months.

Recently, Microsoft announced a revenue increase of 18% in comparison to the same period in the previous fiscal year, with the company's operating income for the quarter reaching $27.0 billion, which represents a substantial growth of 33% from the prior year.