Payrolls seen rising by 150,000 with jobless rate staying at 4%. (0:18) Target set to report earnings. (1:46) DeepSeek claims cost-profit ratio of 545%. (3:01)Show NotesEarnings CalendarTime to stop using bonds as a hedge?Episode transcripts: seekingalpha.com/wsb Sign up for our daily newsletter here and for full access to analyst ratings, stock quant scores, dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions.
Chapter 1: What are the expectations for the February jobs report?
Welcome to Seeking Alpha's Wall Street Brunch, our Sunday look-ahead to this week's market-moving events, along with the weekend's top news and analysis. Hello, today is Sunday, March 2nd, and I'm your host, Kim Kahn. The February jobs report arrives this week in a more dovish environment than the January numbers.
The figures arrived pre-market Friday as usual, with economists expecting that non-farm payrolls rose by 150,000 and the unemployment rate stayed steady at 4%. Average hourly earnings are forecast to have risen 0.3%.
Following a relatively weak January payrolls print and benign core PCE price index countering a hot CPI, the market is once again pricing in a quarter-point Fed rate cut in June and three cuts by the end of the year. But Wells Fargo economists noted this past week officials expressed the desire to hold rates steady on account of stalled inflation and increasing uncertainty.
All told, the recent FedSpeak supports our view that mounting upside inflation risks will keep the FOMC on hold over the next several meetings. Wall Street will also be looking for any impact on the data from the federal layoffs implemented by Doge. Wells Fargo says federal payrolls will likely see a decline of $5,000 to $10,000 this time around.
Chapter 2: How are federal layoffs by Doge affecting the job market?
Decline of federal employment in the realm of 25,000 to 50,000 spread over the next few months seems reasonable, they added, but from what we know now, the reductions in the size of the federal workforce will not alter the overall trajectory of the labor market over this year.
Chapter 3: What is the outlook for the U.S. labor market in 2023?
Even considering the noise in near-term headwinds to job growth, we would stress that federal civilian employment makes up a small portion of total payrolls, 1.5%, in the United States. Furthermore, we were already expecting slower hiring and modest upward movement in the unemployment rate this year as labor demand remains tepid and labor force growth slows.
Chapter 4: What are the earnings expectations for Target?
Earnings are thinning out this week, but Target's numbers will be closely watched following Walmart's cautious guidance that raised worries about consumer spending. Analysts expect Target to post EPS of $2.25 on sales of $30.85 billion for its fiscal Q4 on Tuesday. In the last 90 days, there have been 24 upward revisions to the bottom line versus just two downward revisions.
On sales, there have also been 24 upward revisions with no downward revisions. For fiscal Q1, the forecast is for EPS of $2.06 on sales of $25.13 billion. SA analyst Future Rich Investing, who has a buy on Target, says it's quite clear that even with low future financial and dividend growth, the share's intrinsic value is higher than their current trading price.
Chapter 5: Which companies are reporting earnings this week?
With the broad market's current overvaluation, in the near future, many investors will prefer to invest in more stable, well-established companies with lower P-E ratios, cheaper, such as Target, they added. Also on the earnings calendar, on Monday, Okta, GitLab, California Researches, and Surgery Partners report earnings.
Joining Target on Tuesday are CrowdStrike, C-Limited, AutoZone, and Ross Stores. Marvel Technology, Viva Systems, Zscaler, Brown, Foreman, and Campbells weigh in on Wednesday. On Thursday, Broadcom, Costco, Kroger, Burlington Stores, and BJ's Wholesale issue numbers.
In the news this weekend, DeepSeek claimed a theoretical daily cost-profit ratio of 545% related to its V3 and R1 models, but it warned that actual revenue would be much lower.
The AI startup's post on GitLab was the first time it disclosed any profit margin information from inference tasks, which is the stage that involves trained AI models making predictions and doing tasks after they have been trained. DeepSeek said in the post that, assuming the hourly rent for an NVIDIA H800 is $2, DeepSeek the total daily inference cost for its V3 and R1 models would be $87,072.
It said in contrast, theoretical daily revenue generated by the models is $562,027. That would total more than $205 million in revenue in a year. But DeepSeek said actual revenue would be substantially lower because the cost of using its V3 model is less than the R1 model, just some services are monetized, and developers pay less for off-peak usage.
And Beijing is telling artificial intelligence researchers and entrepreneurs to avoid visits to the U.S. That's according to the Wall Street Journal. Officials are worried that Chinese AI experts traveling could disclose confidential information on the country's progress with AI.
Sources said there's no outright travel ban, but there is guidance from Chinese officials discouraging local AI executives and those in other sensitive industries to avoid non-urgent trips to the U.S. and its allies. For income investors, McDonald's, Nike, Lockheed Martin, and Sherwin-Williams all go ex-dividend on Monday.
McDonald's pays out on the same day they'll be serving Shamrock Shakes, March 17th. Nike pays out on April Fool's Day, Lockheed has a payout date of March 28th, and Sherwin-Williams pays out on March 14th. And in the Wall Street Research Corner, BlackRock strategist Rick Reeder says the traditional hedging role of bonds and portfolios has waned, and investors should be optimizing for income.
Last year, returns across 70,000 debt securities were negatively correlated with duration and positively correlated with starting yield. The takeaway is straightforward. When hedging value is negative and repayment schedules come with historically high certainty, fixed income investing should prioritize income over interest rate risk, he said.
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