Happy New Year! With a new year, comes a refresh of the financial markets. Year-to-date figures have been reset to December 31st prices, tax-loss harvesting is complete, and so on.
We have no idea what 2023 will bring, but I’m cautiously optimistic. However, I do anticipate a rough first and second quarter. The consumer is struggling, layoffs are accelerating and we still have a war going on in Europe. It’s not all doom-and-gloom, though, as commodity prices continue to fall, giving some relief when it comes to profit margins.
Next week, earnings season for Q4 2022 begins. Expect a lot more posts in the coming weeks, as I try to cram as many earnings in as possible. If you want me to focus on any companies in particular, let me know in the comments!
For now, let’s see what’s been going in this week.
Key Events
US JOLTS Report (Job Openings and Labour Turnover Summary) for December
On Wednesday, we got the first US JOLTS report of the year, relating to December 2022.
This report was surprising, and has given some optimism that the Federal Reserve could be forced to slow down their interest rate hikes even further.
In December, 223,000 new jobs were added to the market in December, less than the 256,000 in November. Unemployment also fell to the lowest level since 1969.
In isolation, low unemployment and high numbers of jobs being added would be a bad sign, particularly if coupled with increasing wages (due to higher competition in the workforce). However, in December, wages increased 4.6% year-over-year, and 0.3% month-over-month (3.6% YoY); incredibly low numbers considering inflation was at 7.1% YoY in November. Not only this, but US wages have trended below inflation since 2019, so many analysts believe wages are simply trying to catch up with years of real-terms decline.
Diane Swonk, KPMG chief economist said, “you had a cooling in wage gains with an increase in participation and a fall in the unemployment rate. You hit it on all three notes.”.
Stock Market News
Tesla (TSLA) – 2023 Delivery Numbers, Price Reductions & Cybertruck Preparations
On Monday, we saw the release of Tesla’s 2023 production and delivery numbers. We also saw a steep reduction in price of their vehicles in China and some progress towards the production of the Cybertruck…
Let’s start with production and deliveries. In 2023, Tesla produced over 439,000 vehicles (+47% YoY) and delivered (i.e., vehicles were sold and received by the customer in this period) over 405,000 vehicles (+40% YoY). While these are record numbers and incredibly impressive, the deliveries missed analyst expectations and have fuelled the fire of concerns with regard to demand.
In the last week of 2023, we heard that Giga Shanghai would be slowing production for a short period to allow for New Year celebrations as well as to upgrade lines of the factory. Unfortunately, this also fuels demand concerns, as it’s believed by analysts that production has been cut due to being unable to sell the vehicles. In fact, this week, Tesla reduced the prices of vehicles in China by between 6% and 13.5%. This brings Model 3 and Model Y prices to the lowest ever seen in China.
The benefit of these price reductions is simple. These vehicles are now at similar prices to their main rival in China, BYD. It’s expected that this will push up demand and allow Tesla to continue at full production capacity in the near future. Elon Musk, Tesla’s CEO, has already stated in previous earnings reports that Tesla will absolutely favour production volume over profit, if it’s required during the expected recessionary period. Whichever way you look at it, demand is starting to look thin.
Finally, we saw the delivery of Tesla’s 9,000 tonne giga-press has arrived at Giga Austin, Texas. After several years of delays, it looks like we’ll actually see the launch of Cybertruck this year.
Amazon (AMZN) – Further Layoffs Announced
This week, Amazon announced it will be extending its previous layoff announcement.
In November 2022, it was revealed that around 11,000 staff will be made redundant. Just six weeks later, this has been increased to ~18,000 employees. While this sounds like a large number, this is only 1.2% of Amazon’s workforce! Regardless, this is a further sign that over-hiring occurred during the Covid-19 pandemic.
Salesforce (CRM) – Further Layoffs Announced
Similar to Amazon, Salesforce announced layoffs back in November. It previously guided that less than 1,000 of their 80,000 employees were going to be laid off.
This week, however, it’s bad news for staff. The revision sees over 7,000 employees, or around 10% of the total workforce, set to lose their jobs.
Next Week
US CPI (Inflation) Data for December
On Thursday 12th January, the all-important inflation data for the US comes in for December. This report is absolutely crucial and will dictate whether we see a continued decline, or a rally, in US stocks.
Expectations are that we’ll see a 6.5% year-over-year reading, down from 7.1% in November.
If this reading comes in higher than expected, it’s likely the Federal Reserve will increase interest rates by another 0.50%. If the reading meets or beats expectations (i.e., is lower than 6.5% YoY), it’s more than likely the Fed will slow their increases to 0.25%. As always, all eyes are on the Fed.
Company Earnings Reports
Here’s a list of the companies I’ll be covering next week:
- Bank of America (BAC) – 13th January
- JPMorgan Chase & Co (JPM) – 13th January
Let me know your thoughts on this week’s events, in the comments below!
Love these weekly updates! Will be interesting to keep an eye on salesforce moving forward, apparently blaming the layoffs due to overhiring during the pandemic. I wonder how many other companies will follow suit in the next few weeks/months