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London (CNN Business)Liz Ann Sonders, the chief investment strategist at Charles Schwab, thinks Wall Street is missing the point on inflation.
US inflation accelerated to 7.5% in January, the highest level in nearly 40 years, according to Labor Department data published Thursday.
Sonders thinks the news could trigger another round of Wall Street’s latest “parlor game”: guessing how many times the Federal Reserve will hike interest rates this year as it tries to keep the economy from overheating.
But Sonders argues that this strategy misses the forest for the trees.
“We don’t know. Take the Fed at their word. They’re data dependent,” she told me. “They’re not on a pre-set course.”
When the previous batch of worrying inflation data arrived, investors began obsessing over whether the Fed — which had indicated it would raise rates three times this year — would actually move four times or more. Bank of America updated its forecast in late January to include seven hikes.
Sonders said there’s two issues with this approach to debating where the market heads next.
No. 1️: The Fed has made extremely clear that it just doesn’t know yet, and plans to monitor the economy in real time.
“Against a backdrop of elevated inflation and a strong labor market, our policy has been adapting to the evolving economic environment, and it will continue to do so,” Chair Jerome Powell said at a press conference following the central bank’s latest meeting in January.
No. 2: Remaining laser-focused on interest rate hikes ignores how the Fed plans to approach its massive bond-buying program, the other lever it’s pulled to stimulate growth.
The central bank is still adding to its balance sheet, which has ballooned during the pandemic to almost $9 trillion. How quickly it decides to pivot into shrinking mode will have huge ramifications.
“This is a totally new animal here,” Sonders said.
In her view, investors should cut through the noise surrounding a single inflation reading and watch investor sentiment more broadly. In recent weeks, Sonders said, negative feelings have started to become more entrenched.
The CNN Business Fear & Greed Index, which was in “neutral” territory one month ago is now producing a consistent “fear” reading. Meanwhile, faith is also dwindling that the Fed has a handle on the situation.
Nearly 75% of CEOs say upcoming interest rates hikes are unlikely to curb inflation as quickly as the Fed would like because of supply chain constraints and rising wages, according to a survey released by the Conference Board and The Business Council on Thursday.
“The tone of the market, I think, has changed,” Sonders said. “There’s this realization of the Fed moving on the path towards policy normalization, it’s normally pretty bumpy, even if we come out the other side and get rip-your-face-off rallies along the way.”
Disney regains some magic as streaming shines
Investors had been worried that Disney’s streaming service was losing steam as competition for viewers intensifies. Now they’re breathing a sigh of relief.
Disney (DIS) said after markets closed on Wednesday that Disney+ added nearly 12 million subscribers in its most recent quarter, beating expectations. In the previous quarter, the company had only added 2 million subscribers.
Shares of Disney are up 8% in premarket trading on Thursday. They’ve shed 5% year-to-date.
Popular content appears to have helped, my CNN Business colleague Frank Pallotta reports. There was “Hawkeye,” Marvel’s new series about the avenging archer, and “The Beatles: Get Back,” an eight-hour documentary that focused on the band’s recording sessions of its last album. It was directed and produced by Peter Jackson, who was behind the mega-hit trilogies “The Lord of the Rings” and “The Hobbit.”
Big films that started in theaters also made their way over to Disney+, including “Shang-Chi and the Legend of the Ten Rings” and “Jungle Cruise.” The animated musical “Encanto” and “The Book of Boba Fett,” a new series from the Star Wars franchise, were released later in the quarter.
The company said it’s still on track to hit between 230 million and 260 million subscribers by 2024 — a positive sign after weak forecasts from Netflix sent the stock tumbling last month. Disney+ currently has nearly 130 million subscribers.
Disney’s theme parks are also mounting a comeback. The division logged revenues of $7.2 billion, more than double what it brought in the same quarter a year ago.
Uber is pushing through the pandemic
Investors ended up shaking off skepticism over Lyft’s results, sending shares up almost 7% on Wednesday. Now it’s Uber’s turn.
The ride-sharing company’s stock is up 6% in premarket trading Thursday after reporting $5.8 million in revenue for the final three months of 2021, an 83% increase compared to the same period in 2020.
The Omicron variant did affect demand for rides in late December, my CNN Business colleague Sara Ashley O’Brien reports. But it’s already starting to bounce back. Plus, the company’s food delivery business continues to look strong, even as people get more comfortable with dining out.
“Our results continued to demonstrate both how eager people are to move around their cities as restrictions ease up and how delivery has become an important part of their daily lives,” CEO Dara Khosrowshahi told analysts.
Uber’s delivery unit, which includes Uber Eats, posted its first profitable quarter as gross bookings rose 33%. Standard ride-sharing trips climbed 67%.
Another positive sign: Uber (UBER) posted an $892 million profit for the three-month period, marking its second profitable quarter as a public company, excluding certain expenses. And for the full year, Uber reported a net loss of $496 million, down significantly from the roughly $6.8 billion it lost in the year prior.
Uber’s shares dropped almost 18% last year, trailing far behind the broader market. This year, they’re down more than 4%. But the stock has fared better recently, rising 7.5% so far this month.
PepsiCo (PEP), Canada Goose (GOOS), Coca-Cola (KO), Datadog (DDOG), Kellogg (K), Philip Morris International, Tapestry (TPR) and Twitter (TWTR) report results before US markets open. Affirm, Expedia Group (EXPE) and Zillow (Z) follow after the close.
Coming tomorrow: Earnings from Under Armour (UA) and Newell Brands (NWL).
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