Things you need to know –

–         Buyer Exhaustion?  Or Earnings Caution?

–         Macro data points to weaker data – more to come…

–         Earnings remain mixed at best – did MSFT really disappoint?

–         FED remains in lock down mode – but markets expect a 25-bps hike.

–         Oil – a bit lower – it’s the slowing economy story (again)

–         Try the Baked Artichokes Hearts.

So stocks couldn’t carry on….the rally in TECH that we saw late last week and Monday of this week was snuffed out yesterday….It felt like more buyer fatigue than anything else….this as investors continue to look for clues in the forward guidance and await the FED results next week.  The Dow was the only one that ended the day higher…rising 104 pts or 0.3%, the S&P fell 3 pts, the Nasdaq gave up 30 pts, the Russell lost 5 and the Transports gave back 120 pts or 0.8%.

Look, while there are some that keep telling us that we won’t have a recession there are others that do not agree….and so the tug of war continues…one day investors are concerned about the FED being too hawkish and sending the country and the market into a tailspin and the next day – they tell us ‘don’t worry, not happening’.   

Investors then deciding how to allocate funds in the new year….do they stick to the defensive (value/dividend) plan that worked in 2022 or do they begin to move (ever so gently) into the growth plan…?  And what about bonds?  They are alternatives now that you can get 4.4% (guaranteed) on 3-month money and 4.15% on 2 yr. money….and nearly 4.75% in a 12 month CD at your local bank.

We have seen money move into the beaten up sectors over the past week – but wonder – is it still a bit premature?  Or – is now the time to go shopping?  While I would not suggest you flip the plan – I do believe that there are options….and opportunities – it just takes a bit of work and you can enhance your portfolio by adding some of the better known, large cap names that remain under pressure but will pop once we get through this.

Much of the excitement yesterday was all about the earnings all day…and more specifically what TXN & MSFT would report after the bell…..TXN did beat the number and did beat revenue forecasts but saw sales drop for the first time since 2020….saying that weaker demand in all end markets was responsible for the decline in revenues.  The stock fell in post market trading and this morning is quoted down $3 at $174.40/$175.  MSFT – the first of the real ‘tech titans’ reported a beat on earnings – they recorded their slowest revenue growth since 2016, net income fell 12% although they did see cloud revenue climb.  Forward guidance was weaker than what many analysts had expected – with CEO Nadella telling us that he expects to report $51 billion in revenue this quarter – which is a 3% increase y/y….  which in my book is ok considering the environment – but I am but one lone wolf in the pack….The stock surged 4% in the post market but overnight traders had a change of heart and this morning – the stock is quoted down $5 at $237.20/$237.60.  If they get really carried away – I suppose we could see it trade down to $220 ish (November low) over the next couple of days….but I don’t think so….I am a buyer of MSFT on weakness.

In other news

3M announced 2500 job cuts – citing ‘weakening consumer demand’ while WMT is raising wages for hourly workers starting next month….Starting wages for warehouse and store workers will rise by 17% – going from $12 to $14/ hr.  Hmmm – I wonder how they are going to come up with that increase in base wages?  Higher prices anyone? 

The mixed results is making investors nervous and hesitant to be as aggressive in taking on more risk – especially after the FOMO surge higher on Friday and Monday and that is what we saw yesterday – a small pullback, but a pullback just the same.  Earlier in the day – we learned that US Manufacturing PMI and US Services PMI also declined – while not as much as expected, but still declined remaining in contractionary territory just the same. The Richmond Fed survey –though – was worse than expected – coming in at -11 vs. the -5 reading that was expected.

We are now one week away from the next FOMC meeting – and by now we all know what we are about to hear….rates to rise by 25 bps – taking the range to 4.5% – 4.75%….Now while there is still the possibility that he takes it up 50 bps – I would give that outcome a 0% chance at this juncture in the road…they have made it very clear that the next move is 25 bps….so anything different will send the markets into a tailspin….  What I then expect is going to happen is that he is leaving the door open to 2 more 25 bps hikes – March and May and then he will suggest that the FED will pause….He will not commit to that schedule just yet, but that is what my gut tells me…at that point -the range will be 5% – 5.25%….a place he has identified as the first pause.  Remember though, that there are some bond guys – Jeffrey Gundlach to be specific – that told us last week – that the FED would stop after the March move which would leave us in the 4.75% – 5% range. – Saying that investors should listen to what the bond market is telling us vs. what the FED is telling us.  I think he actually said that the ‘FED has no idea what they are doing’….You gotta love this, no?  (The FED remains in lockdown mode until next week).

There is no real eco data today other than Mortgage Apps….which is not going to drive the action….tomorrow though brings us the Chicago Fed Survey, Personal Consumption and the first whack at 4th qtr. GDP…..it is expected to show that the economy expanded at a 2.6% clip – down from the 3rd qtr. rate of 3.2%.  We will also get Wholesale and Retail Inventories, Durable Goods and Capital Goods Ordered and Capital Goods Shipped.  We will also get New Home Sales – which are expected to be down 4.7%….but recent headlines are suggesting that 62% of home builders are now offering ‘lots of extra’s’ at no cost, money towards down payments for those that need it, 4 months of mortgage payments, 6 – 12 months of property tax payments, and ‘free upgrades’ depending on where you live that could be pools and hot tubs or finished basements…….so let’s see if that works…

But Friday is the day to watch – that is when we get the PCE (Personal Consumption Expenditure) – the FED’s favored inflation gauge…..and that is expected to be down from last month….and last year…and that is good, but we know this already….Unless the decline is significantly larger than the expectation, my sense is that it’s already priced in. – but we know how finnicky the markets can be….

And it is another big earnings day…..TSLA to report AFTER the bell….so expect all kinds of speculation all day…..what are the analysts telling  you, what is the option market telling you, and what are you telling you? Other names to watch today, IBM (love this name and I own it), BA, GD, NEE, ADP, PGE, FCX, T, USB, NSC….So as you can see – these reports represent a broad range of the economy…..EV’s, Tech, Defense, Electricity, Mining, Communications and Data/Transaction Processing….

Oil lost a little bit yesterday…. they re-hashed the slowing US economy story…. Citing slowing manufacturing and services PMI’s…..The China re-opening being pushed to the back burner because it doesn’t fit that narrative…..the markets are waiting on industry supply data – an increase in supply would suggest lower prices ahead, but remember – OPEC+ could easily reduce production if demand/supply concerns increase. (and the have made that very clear that that is an option on the table).  This morning – oil is trading down 12 cts at $80/barrel – but it did trade as low as $79.57 overnight.  In the end – I am still bullish on oil and am looking for higher prices in the weeks and months ahead.  Recall – the Reuters poll calls for oil to AVERAGE $89.37/barrel for the year.  

Treasury prices rose just a bit as investors opt for stability and that pushed yields just a bit lower…..but the curve remains inverted…..  

European markets are also just a bit lower – despite improving business conditions in Germany and an improving Eurozone composite PMI read. Germany’s  IFO – says that the Business Climate Index rose to 90.2 up form 88.6 on ‘considerably less pessimistic expectations’.  Speaking of Germany – they are sending 14 Leopard 2 battle tanks to Ukraine…to assist in the fight against Vlad.  And speaking of Vlad – has anyone heard from him lately?  Rumors are becoming louder and louder that he is suffering from something – (we can only hope) – so maybe this Russia/Ukraine war IS coming to an end sooner than we all think…..Thoughts?  Markets across the region are down about 0.4%.

US futures are weaker….the Dow down 180 pts, the S&P down 30, the Nasdaq down 145 and the Russell down 9.  Traders and investors are bracing for the slew of earnings today and the rest of the week along with the economic data.  So far, only 65% of reports have beaten the estimates and that is 10% below the historical average….and remember – this is AFTER we have seen lowered revisions….and we still have 2 ½ weeks to go….so the question I asked yesterday remains relevant….Have investors/traders taken stocks to levels that can’t be supported by what we are about to hear?

The S&P closed the day at 4016 –  down 3 pts….and if this morning’s weakness persists – then we will pierce 4000 and look to test the trendline at 3980….Will it hold or will it fail?  A failure to hold will change the tone and it will also cause the algo’s to go into a more aggressive sell mode (think technical failure) which could see the S&P trade down to 3925 ish.  In any event – the weakness should be viewed as an opportunity to ‘go shopping’. Remember, as a long term investor – we keep talking about not chasing stocks, but letting them come to you….and while that can be a bit unsettling – they will come…and if you have built the portfolio I keep talking about and buy your names on weakness – then when they come after them again (like they did on Friday and Monday) – you are along for the ride….Stick to the plan….

Take good care.

Chief Market Strategist
kpolcari@slatestone.com

Baked Artichoke Hearts

Ingredients – olive oil, 3- 14-ounce cans artichoke hearts rinsed and drained (you can use frozen, but if you do – defrost and pat dry before using), garlic minced, crushed red pepper flakes.

For seasoned breadcrumbs – plain breadcrumbs, s&p,  Onion Powder, Garlic Powder, Fresh grated Parmegiana cheese, chopped parsley, lemon juice and a bit of white wine….(you know me- Pinot Grigio Santa Margherita). For both the breadcrumbs and for you.

Preheat oven to 375.

Mix the breadcrumbs.  Set aside. Just a splash of the wine – do not ‘soak’ them.

Mix the minced garlic and olive oil together in a bowl. Spoon half of the garlic oil into a large Pyrex baking dish.

Next, place the artichoke hearts into the baking dish and top them with the remaining garlic oil. Sprinkle the hot red pepper all over the hearts.

Now – sprinkle the seasoned breadcrumbs on top and bake for 15-20 minutes or until hot all the way through and the breadcrumbs have browned.  Then put them under the broiler for about 1 min (max) just to get them a bit crunchier.   

This is a great side dish for dinner or even as an appetizer.

Buon Appetito