Market’s Fears Dissipate

Tomorrow, the Federal Reserve will make its last interest rate decision for 2023 and update its economic projections. With the market increasing its probability of rate cuts throughout the last few months, it will be a closely watched and discussed event. 👀

We’ll get producer prices tomorrow morning, but today’s focus was on the consumer price index.

Headline CPI rose 0.1% MoM and 3.1% YoY, essentially in line with expectations. Additionally, the core index, which excludes food and energy prices, rose 0.3% MoM and 4% YoY. Those were also in line with estimates. 🔺

While continued disinflation is good news, the rate of change continues to slow. Shelter prices, which account for a third of the CPI weighting, rose 0.4% MoM and 6.5% YoY. That said, analysts still say the lagging impact from its calculation is the primary driver for it staying elevated. 🏘️

Overall, though, services inflation remains a sticky component and highlights the work the Fed still needs to do to achieve its 2% inflation target. Analysts say today’s report should temper the market’s expectations for rate cuts a bit, which it did.

However, looking into next year, the Fed Fund Futures market still shows the market expecting a rate cut as early as May of 2024, with several more to follow. That could be too aggressive and cause the stock and bond market to give back some of its recent gains. ◀️

As for the stock market, the bullish sentiment is alive and well. Not only did the S&P 500, Nasdaq 100, and Dow Jones Industrial Average hit new 2023 highs today. But the S&P 500 Volatility Index (VIX), commonly called the market’s fear gauge, hit new lows. 🐂

It’s unclear what the Fed will do and say tomorrow. But what is clear is that the bulls are betting on a supportive stance, given that the last two months have seen prices rally across the board. 🤷

The multinational industrial conglomerate Johnson Controls International was back on investors’ radars as its stock price remained out of control. 🫨

The maker of building heating systems reported a 3% YoY increase in sales to $6.9 billion. Fourth-quarter adjusted earnings per share of $1.05 was up 6% YoY. As for orders, they rose 9% YoY organically, and its record backlog of $12.1 billion was also up 9% YoY. 📊

CEO George Oliver said the company continues to post strong sales growth and margin expansion and is entering its new fiscal year with a record backlog. Strength in both its install and service businesses throughout this year shows the company’s value proposition, even in a challenging macroeconomic environment. 

With that said, the company’s adjusted earnings guidance for fiscal 2024 missed estimates. It now expects $3.65 to $3.80 per share vs. the $3.92 consensus view. Organic sales growth of mid-single-digits is also likely, either inline or a slight downtick from current levels. 🔻

Overall, investors remain concerned that weakness in its Asia-Pacific region will continue due to China’s slow economic turnaround. Should its other markets continue to slow, that would weigh further on overall results. Hence, management used an optimistic but cautious tone.

$JCI shares fell 6% on the day and are at the lower end of a three-year trading range. 📉

It’s been three years since Fornite-maker Epic Games sued Apple and Google for allegedly running illegal app store monopolies. And despite losing a similar battle against Apple, the game-maker has secured a win against Google. 🏆

The jury in Epic v. Google delivered its unanimous decision after just a few hours of deliberation. They found a few key things:

• Google has monopoly power in the Android app distribution markets and in-app billing service markets, and Google did anticompetitive things in those markets.
• Google has an illegal tie between its Google Play app store and Google Play Billing payment services.
• Google’s distribution agreement, Project Hug (which deals with game developers), and deals with OEMs are all anticompetitive.

Most importantly, it found that Epic was injured by the behaviors above. 

Epic Games said in a company blog, “Today’s verdict is a win for all app developers and consumers around the world. It proves that Google’s app store practices are illegal and they abuse their monopoly to extract exorbitant fees, stifle competition, and reduce innovation.”

Google plans to challenge the verdict, saying that the trial made it clear that it competes fiercely with Apple’s App Store and app stores on Android devices and gaming consoles. 👎

However, it’s important to note that this victory is not quite sealed yet. Judge James Donato will decide the appropriate remedies, given that Epic never sued for monetary damages. Instead, it wants the court to tell Google that every app developer has total freedom to introduce its own app stores and billing systems on Android. 🧑‍⚖️

The judge has already said he will not decide what percentage fee Google should charge for its products, among other things. As a result, we’ll have to wait and see what happens when both parties meet the judge in January to hash out a remedy.

Google shares were down marginally on the news. But the broader implications of this trial are likely to be a major deal for Google, Apple, and other tech giants, as this battle represents just one part of a much larger conflict in the tech space. ⚔️