Things you need to know –
– APPL, AMZN, GOOG miss and warn….traders taking just a bit back..
– NFP report today….will it be stronger or weaker?
– Unemployment – will it tick up?
– Oil – moves lower on ‘lack of China demand’ OMG
– Try the Pork Cutlets Wrapped in Prosciutto and Pine Nuts
WOW……the JJ effect continued to push stocks higher….as the speculation continues to build about when the pivot happens…..Members of the FED telling the investment community to slow down…..listen to what the JJ is saying and what it means vs. what you think he is saying and what it means….Capisce? The Dow ended the day slightly off – down 39 pts. The other indexes surged higher…. the S&P though rose 61 pts or 1.5%, the Nasdaq continues to race ahead – gaining 385 pts or 3.25%, the Russell tacked on 41 pts or 2% while the Transports added a cool 445 pts or 3%.
The economic data remains mixed…..Non-Farm Productivity rose 3%, Unit Labor Costs rose by 1.1% below estimates of 1.5%, (that’s good), Factory orders rose by 1.8% below the estimate of +2.3% but well above last month’s -1.9%. Durable goods EX transports fell by 0.2% while Capital Goods Ordered and Shipped fell by 0.1% and 0.6% respectively. (Those are mixed signals)
Much of the speculation during the day revolved around what would happen after the bell when the 3 BIG A’s reported…..what would they say and what would traders do? During the day – they took APPL up 3.5%, AMZN + 7.3% and GOOG +7.25%, Traders and algo’s clearly excited about what they would hear…..Well…..
Apple, Alphabet miss! Amazon beat but warned….…… Supply chain issues, China issues, consumer demand issues, manufacturing issues, dollar strength issues, ad spending issues, economic pressure issues, rising cost issues, cloud issues all forcing these companies along with a host of others to emphasize cost cutting (think layoffs) and other methods to improve efficiency across the business lines….
Timmy Cook(ie) – Apple CEO said it clearly – ‘the wind was in our face for the fourth quarter…’
This, a clear reference to the famous Irish blessing –
‘May the road rise to meet you, May the wind be always at your back, May the sun shine warm upon your face, the rains fall soft upon the fields’
…to be clear – that is 3 months…..that’s an annuaWell, the wind was clearly not at his back…..the luck of the Irish was not on his side this quarter, or was it? Look, let’s put this in perspective….can we? Apple reported revenues of $117.5 billion in the quarter…l run rate of $470 billion – just remember that…. And while that is down $6 billion from one year ago it wasn’t really a surprise….analysts had expected a slowdown, estimates were slashed coming into earnings, anyone that did not expect to hear some weakness has been living under a rock…..…earnings per share of $1.88 are down from $2.10 but that was expected too – None of this WAS a surprise at all….…..and let’s not get crazy – they generated more than $111 billion in trailing 12 month free cash flow. Are you worried that they can’t pay their dividend? I don’t know about you, but I’m sure that we are NOT going to see a ‘go fund me’ page to assist here…..
Apple is up 22% ytd, it surged by more than 3.5% yesterday so the 3% move lower in the after-hours (and this morning) did nothing but take away yesterday’s gains….This is NOT a disaster by any stretch…..A disaster would be if we saw the algo’s take 20% out of the name – then I’d say – Hmmm….maybe we need to rethink this….but I am not….and while we are sure to hear all about this today from a range of analysts and strategists – I am not phased at all…..It’s Apple – get over yourself.
Alphabet – they saw a marked slowdown in ad revenue – as they ‘attempt to weather the storm’ for their core advertising business that is exacerbated by a weakening economy and new competitive challenges coming from the artificial intelligence community…..Ok – again, really? Does anyone think that Alphabet is going to get run over by anyone in the AI sector? ChatGPT? Open AI? Hardly…. they are either going to partner up with them (not happening, MSFT beat them to the punch), buy them (most likely not happening) or put them out of business (a much better shot…) …It’s simple….nothing to see here! GOOG was up 7.25% yesterday and is up 22.6% ytd…this morning it is quoted down $5 or 5%….. Remember what I say – Do not chase names, patience is a virtue, let them come to you….and today most likely will be a day when they come….Are you really going to get out of the name over this one report?
Amazon – while they beat they did warn of a ‘period of reduced growth’ pointing to the difficult economic environment and what that means for their cloud-computing business….Again, the stock is up 34% ytd – that’s 4 weeks – and they took it up 7.3% yesterday ahead of the report – a report that was expected to be ‘cautious’ yet they took it up anyway…..so this morning’s weakness – 5% in the pre-mkt doesn’t even wipe out Thursday’s gain….so again….Was this news a surprise? What have we been talking about for months now?
And Ford also disappointed – parts shortages, think semiconductors (which is curious since last week INTC and the semiconductor industry told us about the glut in semi’s and how it was going to pose problems for the sector for months….) – CFO Johnny Lawlor telling reporters that the miss ‘was largely due to the ongoing computer chip shortage’ – that’s getting to be a convenient excuse, no? Everything is about chip shortages…..so then, where is the glut? Ford posted an 89% drop in net income y/y….4th qtr. revenues were up 16.7% though to $44 billion as the lack of inventory allowed them to keep prices high and not offer discounts. So if revenues were up 16.7% how was net income down 89%? Well, executives tell us that they got hit with ‘higher than anticipated supply-chain costs, elevated expenses related to vehicle quality’ and higher labor costs….. Ouch……maybe the need new bean counters…….they also announced plans to do more ‘belt tightening’ as they look for ways to save money beyond the already announced $3 billion they expect to save by 2025. Now, investors have taken Ford up 23% ytd – 4% of that was yesterday’s move……..this morning, traders are taking 7% out of the name…..
OK – onto what’s happening today….it’s all about the NFP report…and while we expect to see a gain of 185k jobs…there are estimates as high as 350k new jobs…which is NOT something that the FED wants to see…they would rather see a loss of 350k jobs! Unemployment is expected to tick up to 3.6% from 3.5%…still historically low and well off of where so many economists tell us it needs to go to….the estimates range from 4% to 6.5%…..and when it gets to where it’s going, it will need to stay there for an extended period of time…..Other parts of the report detail Average Hourly earnings m/m +0.3% and y/y of +4.3%….
We will also get S&P US Services PMI of 46.6 (contractionary) and ISM Services PMI of 50 (neutral) but up from last month….again NOT what JJ wants to see….he would rather see it remain in contractionary territory for another couple of months….to help him crush demand and then inflation…..an uptick in the services PMI speaks directly to his point that while the overall trend is lower – the FED is NOT done yet and must continue along the path of higher rates to accomplish their goal.
Oil continues to churn a bit lower – trading at $75.80 this morning….guess why? One guess, come on….you know……the markets are awaiting further signs of demand from China and apparently we aren’t getting them today….which is comical…because on Monday – after all of the big banks get long oil, we’ll get the headline – “China re-opens Strong!” “Oil Demand to EXCEED supply!” “The Big Banks See OIL topping $100/Barrel” Remember – the Saudi’s do not want to see oil trade below $80 for very long….if it doesn’t recover on its own – then expect OPEC+ to cut production…..
Gold fell $40 yesterday as traders booked profits ahead of today’s NFP report….and what it could mean for monetary policy….a stronger report will embolden the FED and send gold lower while a weaker report will help it find stability.
US futures are lower this morning on the back of the recent rally that has taken stock significantly higher and on the back of the negative headlines out of Apple, Amazon and Alphabet….Dow futures down 80 pts, the S&P off 30 pts, the Nasdaq down 175 pts and the Russell down 3. The action should be no surprise after the moves up….In fact – we have gotten ourselves into a short term overbought condition….No one should be surprised if we see stocks consolidate back to the trendline at S&P 4000….over the next couple of weeks.
European markets are also lower as investors across the continent are also digesting the data, the earnings and the recent surge higher across those markets….
Yesterday – we heard ECB President Chrissy Lagarde tell us that after raising rates by 50 bps, we can expect further hikes in March (50 more) and that she is not veering off course….as she looks to reel in inflation. The BoE also raised rates by 50 bps – but softened the language on future moves…..suggesting that the end is close…… Ok…. let’s go with that……
The S&P closed the day at 4179 – up 60 pts…and holding well above the trendline…. As I said – do not be surprised to see stocks consolidate as they digest all of the data –macro- economic as well as micro-economic. While we did close on the highs and that usually suggests another high, I don’t think we’ll get it today….we are moving into the weekend, traders have significant short term profits so I expect many to hit the sell button to lock them in…..But that does not mean the long term trader follows the herd…..Picking tops and bottoms is NOT what you do….You build a strong foundation…. dollar cost averaging into it and reinvesting all the divvy’s is the plan…. Buy names on weakness (as long as the weakness is not a fundamental shift in the sector or the name).
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
Pork Cutlets Wrapped in Prosciutto and Pine Nuts Sauce
This is an easy recipe to make and one that you will enjoy time and again…
For this you need: Pine nuts, Raisins – plumped in hot water and then drained, capers – rinsed and soaked in cold water, finely grated Grana Padano Cheese, Chopped flat leaf Parsley, butter, chopped garlic, pork cutlets (pounded thin), prosciutto, s&p.
Pre heat the oven to 475 degrees.
Chop the nuts, raisins, and capers and mix well. Add in the grated cheese and parsley – set aside. Season the cutlets with s&p.
In a non-stick pan – melt some butter and sauté the garlic over med heat… Now add the seasoned cutlets and cook for no more than 2 mins per side. Now remove from heat. Next dress each cutlet with the nut/cheese mixture – roll it up and wrap in a slice of Prosciutto di Parma (you can use a toothpick to hold it together). Place in a baking dish and top with a touch of butter. Bake in the oven for 5 mins and remove.
Serve immediately with a tossed greens – simple – Arugula & spinach dressed with s&p, oregano, squirt of fresh lemon, touch of olive oil and red wine vinegar.
Buon Appetito
