Daily Brief - A Week of Critical Insights

TLDR: This week, the US stock market teeters near all-time highs, with investors' eyes peeled for a flurry of Federal Reserve speeches and critical economic data.

The curtain rises with the S&P Case-Shiller home price index today, offering a snapshot of the housing market's health amid changing economic conditions.

Following this, the spotlight shifts to a trio of Federal Reserve Presidents from New York, Boston, and Atlanta, who are slated to speak tomorrow. Their insights are eagerly awaited, given their potential to sway market expectations regarding the Fed's monetary policy direction.

Adding to the week's significance, the core Personal Consumption Expenditures (PCE) inflation data, set for release on Friday, is anticipated to show a 0.4% increase for January. This figure is particularly noteworthy as it's expected to push annualized inflation metrics above the Fed's 2% target.

The main contributors to this month's PCE increase are predicted to be escalating energy costs and ongoing supply chain challenges, highlighting the complex inflationary pressures the economy faces.

The climb in US 10-year Treasury yields to around 4.3% underscores the market's cautious stance on inflation and the Fed's future interest rate policies. While optimism hints at the possibility of a rate cut by June, the recent wave of economic data has only led to a recalibration of expectations.

As we stand on the precipice of these developments, all eyes are on the upcoming PCE release.

Market Movers: If 10Y yields cross 4.3%:

Here are the historically best and worst performing sectors when 10Y yields have crossed 4.3%:

Top 3 Performing Sectors:

1. Consumer Discretionary - Average 1-month return: 1.4857%
2. Financials - Average 1-month return: 1.2900%
3. Consumer Staples - Average 1-month return: 0.5100%

Bottom 3 Performing Sectors:

1. Materials - Average 1-month return: -0.2433%
2. Energy - Average 1-month return: -0.9325%
3. Real Estate - Average 1-month return: -4.8900%

Asset Spotlight: Southern Copper valuation at a high

In the 5 past occurrences when valuation indicators for Southern Copper were at a high, analysis from Toggle indicated a pattern of a median downward movement in the stock's price over the next 6 months.

Last quarter, Southern Copper Corporation missed Q4 2023 estimates due to lower sales volumes of key metals and a significant decrease in revenue and profitability, alongside reduced operating margins and adjusted EBITDA.

Earnings Update: Devon Energy reports tonight

The company's recent acquisitions in the Williston Basin and the Eagle Ford Shale are anticipated to bolster earnings, despite severe winter weather expected to have curtailed production volumes by 2%, deviating from the forecasted 640,000-660,000 barrels of oil equivalent per day (Boe/d).

Moreover, Devon's aggressive share repurchase strategy, which saw $1.25 billion spent in the first nine months of 2022, alongside its efficient cost structure and favorable commodity prices, are poised to underpin earnings growth.

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