Where the strength is in this market

Let’s talk about three data points since the nerve-wracking Fed meeting yesterday that help explain why the central bank does as it does.

(1) GDP. It rose straight by almost 7% last quarter, against 5.5% estimate. For the year, the economy grew by 5.7 per cent. And that is in “real” ex-inflation terms. Add the price increases, which were 4% for the year as Commerce calculates it, and that means nominal GDP rose almost 10% last year. It is way higher than the 4% pace it had sought to advance last decade as the Fed had to turn its course towards its austerity plans. And keep in mind that the Fed is currently still making quantitative easing! For an economy that is booming by 10% and a relationship between employment and the population in the best age, which has recovered in just two years to 79% in December – something that should seven years to reach the last decade, despite a higher starting point, as MKM’s Michael Darda continues to point out. “In short, the Fed is behind the curve,” he writes.

(2) Technical earnings. First, it was Microsoft that rose yesterday with strong earnings despite the ugly action after the Fed market. Its cloud business grew “only” 46% year-on-year, but the CFO said the segment will see growth “acceleration” in this quarter. And today we’ve got ServiceNow up 13% after having 40% billing growth, its strongest year-on-year growth since 2018. “The overall concern / anxiety about ‘deceleration’ in software has been DEBUNKED, “Bank of America’s technology retailers wrote this morning. Which is a big deal – it means that the fundamentals of an important part of the technology sector look solid, just when other “pandemic winners” like Netflix and Peloton have hit a demand gap for Covid.

(3) Tesla. Its recent rise to the trillion-dollar mark only created humans more nervous about what would happen to the market if its growth history ran out. But last night’s earnings did more to show why its premium has been justified – not from all the stuff about autonomous driving and the “humanoid” bot, but from nuts and bolts in its car dealership. Tesla’s gross profit for the automotive industry last year was a staggering 30.6%, up from 24% the year before under a historic supply chain squeeze and a chip shortage that keeps it running at full capacity. Compare that to General Motors and Ford, which are running at 14% and 12% respectively in their most recent quarters, according to Reuters. Its turnover increased by 65% ​​last year – before its massive new factories in Texas and Berlin even got online. Shares have actually fallen 5% this morning – and who knows where they will end up shaking – but its success is no mirage.

In short, the US economy is showing strong growth even during the outbreak of Omicron; a sustained shift toward software and digitization, which Goldman says should help increase productivity in the long run; and continued success at the forefront of innovation. It may not be a recipe for all stocks to perform well, but it is certainly no recipe for failure.

See you at 1pm!


Twitter: @KellyCNBC

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