Things you need to know ~
- The mood turns sour – TSLA and AAPL pre-announce slowing demand!
- FED mins due out today…what will we learn? (Nothing)
- Oil – takes a hit – It’s the demand destruction story all over again
- Gold pushing higher…
- Try the ‘Shcarola and Bean Soup’
So not really the way you wanted the year to start at all. Stocks gave up an early morning, pre-market rally to end the day lower….although, not on the lows of the day, which were fairly significant, but lower anyway. The Dow lost 11 pts after swinging 537 pts from hi to low, the S&P gave up 15 pts after swinging 84 pts from hi to low, the Nasdaq lost 80 pts but swung 304 pts before the day ended, the Russell lost 11 pts after swinging 48 pts and the Transports rose 6 pts after its 239 pt. swing….
Now the positive mood was ruined when TSLA revealed that they delivered fewer vehicles (405k) vs the expected (420k) average estimate despite significant incentives in their biggest markets – the deliveries – by the way – were a quarterly RECORD for TESLA (that’s good, no?), but fell short of the 50% increase they were aiming for. It was also the 3rd straight quarter that they missed on deliveries and that caused a bevy of analysts to cut their price target on the stock. Current 12 month price estimates range from $85 to $450 – the median is now $250/sh which is a 132% increase from last nights close.
Now what baffles me is that it’s not like they haven’t punished TSLA over the past 12 months….they have – the stock was down 65% in 2022 (think sexy growth names under fire by the FED rate increases)….yet, after yesterday’s headline TSLA traded down 15% more to $104.64 by mid-day only to ‘rally’ into the bell to close at $108.05, a 12.5% loss on top of the 65% loss suffered in 2022….Here is where it goes off the rails – they clobbered the stock over the last 12 months, then yesterday they pre-announced a RECORD number of deliveries (earnings report not due until January 25th) in a ‘challenging environment’ none the less and the algo’s weren’t satisfied and took 12.5% more out of the name. Much of the miss was sales in China (or lack of) to which I would say – Have you not realized what has been going on in China? They were welding doors and windows shut forcing people to be ‘jailed’ in their homes (think zero covid policy -which has failed) – and you’re surprised that TSLA missed on deliveries? Missed by 15k cars? The way they sold that stock yesterday, you’d think they missed by 200k cars! TSLA is now trading at levels last seen during the height of the original covid crisis – June 2020….just sayin’…..
And the we heard that Timmy Cook at Apple is telling its Chinese suppliers to make ‘fewer components for air pods, watches and MacBooks for the 1 qtr. due to ‘weakening demand’……I say, that Timmy is sourcing components from other parts of Asia but is playing the ‘woe is me card’ with the Chinese….Foxconn is Apple’s biggest supplier and while Shenzhen, China is their biggest hub, they also produce components across the world in Thailand, Malaysia, Czech Republic, South Korea and Singapore…so my gut says that China is in such disarray – Timmy is trying to move sourcing to other countries.
I for one and not buying the slowing demand story for Apple products at all – partly because I think the original estimates were too high to begin with (like TSLA). So, think about this – If you estimate that you’re going to deliver 10 units and then only deliver 8 units, which is up from 6 units last year, is that slowing demand? Come on, think about it? Which is also why I only buy Apple on down days and don’t chase it on up days….It’s always better to let the sellers come to you vs. the other way around.
There have already been 5 downward revisions to EPS estimates over the past month with current EPS coming in at $1.93 (the range goes from $1.82 – $2.09) which would represent an 8% decline in eps year over year….But we know that…..It’s in the public square…And by the way, it’s been a ‘challenging environment’…and if the FED has their way, it is going to get more challenging.
In the end – the algo’s were stunned, unable to reconcile what has been going on… but let’s be real – what will they report this quarter for revenues? $82 bill? $85 bill? $100 bill? In any event – it is still an obscene amount of money that they print on a quarterly basis…so let’s not get crazy! Earnings are due out on January 27th…. 2023 revenues are expected to grow by 3% to $405 billion…but let’s see what they say then…. my gut says that this is just another over- reaction…that the pendulum swings too far to the left and before you know it, the arc begins to come back to the right….Apple was down 28% in 2022 and was down another 3.7% yesterday….it is trading at levels not seen since May/June 2021…I think that Timmy is ‘buying some insurance’ for when he reports on the 27th – he’ll surprise to the upside….but hey, that’s me…you do you.
And then the conversation turned to the FED minutes being released on Wednesday…What would they say? What will they reveal about who is worried that the sticky inflation (that we don’t have) will linger longer than expected…..the mins will suggest that many of the members expect inflation to be higher at the end of 2023 than previously thought. Current year end inflation estimate is now 3.1% up from 2.7% – a significant DECLINE from where we are now and where we have been…So, what’s the issue? The issue is – what will the FED have to do to get us there? Is the current schedule of rate increases enough, or will they need to keep raising rates into May (vs. the expected March pause date)? And if they raise the inflation target from 2% to 3% then boom, it’s all good!
In the end – one day does not make a trend…and it’s not like we didn’t know all of this – unless of course, you’ve been living under a rock.
Oil – which was trading above $80 got whacked yesterday….falling 3.85% or $3/barrel….after testing trendline resistance….near $82.30…. So what happened? Think FED minutes…and a slowing global economy….and the potential for ongoing ‘intensified’ rate hikes….See above…it’s the demand destruction story all over again…. Recall yesterday’s IMF (Int’t Monetary Fund) warning of a ‘tougher’ 2023 – suggesting demand destruction as major global economies go into recession…all while a Reuters 2023 oil price poll suggests that oil prices will AVERAGE $89.37/barrel – which means it has to trade substantially higher at some point during the year…So, get ready….we remain in the $74/$82 range for now.
And Gold…..is on the run…..up $18 at $1863/oz….up 13% from the November lows….We are now above all 3 trendlines and appear to want to test the $1900 level that I pointed out yesterday. So, sit tight…patience is a virtue.
And yes, the treasury market is still inverted as yields continue to rise…the 3 month note is now yielding 4.35% – up 10 bps from yesterday morning….the 2 yr. is yielding 4.35% and the 10 yr. is yielding 3.7%.
This morning US futures are HIGHER….at 5:30 am – Dow futures are rising by 90 pts, the S&P up 16 pts, the Nasdaq ahead by 75 pts and the Russell up 10 pts. But this is the way it began yesterday…before they turned south…But, let’s be optimistic…..
Eco data today includes – Mortgage apps, ISM Manufacturing – exp of 48.5 – still contractionary, JOLTS job openings of 10 mil + and the FOMC mins at 2 pm.
European markets are all up better than 1.25%…..Inflation figures for Germany were better than expected – coming in at 9.6% down from better than 10%, so that’s a positive…..France is due to announce today while Italy is due tomorrow. European investors are also awaiting the FED mins -as if they will reveal anything new.
The S&P closed the day at 3824 – down 15 pts. Calls for a test lower remain the most popular…I am the camp that we test the October low of 3490 at its worst….Others are suggesting 3000 to 3200…..I think that’s a bit dramatic. Now, the being said – the path forward is still full of potholes – so prepare
yourself…..
And speaking of potholes, how’s Kevin McCarthy doing? The House has now held 3 votes for Speaker and he isn’t winning….For me, the disgust is that the GOP has had 8 weeks to prepare for this moment and they screwed it up. You’d think that they would have had this all buttoned up for yesterday’s vote, but no, that was not the case and then they want to know why American’s are disgusted.
Keep your eye on the ball and as a long-term investor –eliminate the noise and stick to the plan.
Investing is dynamic, not static….Create a well-diversified portfolio that will weather the storm….Remain alert, because any sense of closure on any one of THE issues facing the markets will create a positive headline and the algo’s will eat it up……Capisce?
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
Escarole and Bean Soup
This is a simple yet heart warming dish….in an Italian house – we call it ‘shcarola and beans’ –
For this you need: olive oil, diced pancetta, celery ribs diced, medium onion diced, 3 cloves garlic sliced, 2 medium Russet potatoes peeled and cut into small cubes, 3 16-ounce cans of Cannelloni beans, 1 head escarole washed and chopped, 6 cups chicken stock – homemade strained chicken soup is better, S&P to taste, 1 small Parmigiano Reggiano rind, Parmigiano Reggiano for serving.
In a large heavy pot sauté the pancetta in olive oil over medium-low heat until most of the fat renders (about 10-12 minutes). Next, add in the celery and onion and continue to cook for about 7 more minutes or until the veggies are softened.
Add in the potatoes and cook for 5 minutes, stirring frequently to coat with the oil.
Add in the garlic and cook for 2 minutes more, then add the chicken stock,
Parmigiano rind, and beans. Bring to a boil then lower to a simmer.
Let the soup simmer for around 15-20 minutes or until the potatoes and beans are tender. Using a wooden spoon, mash some of the beans and potatoes against the side of the pot to help thicken the soup.
Next, add the escarole and cook until tender. Once tender (about 5 minutes) season with salt and pepper to taste. If the soup is too thick, add more chicken stock or water to thin to desired consistency.
Remove the cheese rind and serve in bowls with a drizzle of extra virgin olive oil and grated Parmigiano. Make sure to serve with plenty of crusty Italian bread as well. Enjoy!
Buon Appetito.
