Things you need to know.

–         Breathe…that’s what global markets did yesterday and are doing again today.

–         5 yr. bond auction was strong, 7 yr. auction today.

–         Cyber Monday suggests we spent more than $12 billion!

–         Central Banks around the world remain ‘non-committal.’

–         Try Nana’s Cheesecake (a Holiday favorite).

And stocks finally gave up – the indexes all ended a bit lower – not dramatic – but they were all a bit lower – this after the 4-week rally took it from ‘oversold’ to ‘overbought’. Investors – which have been putting money to work as if there was not tomorrow have finally become a bit exhausted………. the Dow gave up 57 pts, the S&Ps lost 9, the Nasdaq gave up 10, the Russell lost 6 and the Transports gave back 190 pts…

Bond prices rose, yields fell…. the $55 billion auction of 5 yr. bonds found strong demand – sending the yield down by 7 bps to end the day yielding 4.412%. This was as the 2 yr. $54 billion auction was not so well received ended the day down 6 bps at 4.88%. The 10 yr. bond (no auction yesterday) fell by 8 bps to end the day yielding 4.4%. The TLT rose by 1.7%, the TLH +1.2% and the iShares Aggregate Bond Fund rose by 0.5%. Today there is a $39 billion 7 yr. bond auction – so let’s see how that goes…they are currently yielding 4.448%.

The biggest underperformers in the broad 11 S&P sectors were Industrials, Communications, Healthcare while Utilities, Consumer Staples, and Real Estate were the day’s winners.

Retailers – which you thought might have caught a bid – post the strong spending all weekend – did not – the XRT fell by 0.6% on the day. AMZN though – did rise by 0.7%. Wayfair +7.5%, Shopify +5% and Etsy +3% as the excitement built over the Cyber Monday (which is so much more than just ‘cyber’) shopping spree – and all of these names are quoted higher this morning.  The estimates for Cyber Monday called for $12 billion – which would be a 6.1% increase y/y – Early reports suggest that American’s spent more than $12 billion -but the tally is still being counted.  For the week – now known as Cyber Week – Americans are expected to spend $37.2 billion……but we’ll have to wait til next week to learn what that number is.

Today apparently is now called ‘Travel Tuesday’…..Not sure when that happened –  I had to google it – to find out that it has been a ‘thing’ since 2017 – but never really made the splash that Black Friday or Cyber Monday did – that is until this year…I guess the travel industry is tired of being forgotten about. Now Travel Tuesday is to the travel industry what Black Friday is to retail and what Cyber Monday is to the tech industry…. It is a day where apparently you can find ‘travel only’ deals offered by anyone in the travel industry…. airlines, hotels, tours, travel agents etc.….

On the economic front – we learned that New Home Sales fell more than expected – down 5.6% vs. the expected -5.1%. The Dallas Fed Manufacturing survey – yeah, that was weaker too…down 19.9 vs. the expected -16.  Later in the week – we will get plenty of other opportunities to decide whether or not inflation is cooling off and the economy is slowing….

And all this did was give some investors another reason to embrace the idea that a slowing economy will hasten those FED cuts that some are screaming for…. Even as the FED continues to tell us (and them) that that is NOT the plan…. But those bets have sent stocks higher all while it sent volatility lower…. Recall, yesterday, I told you that the VIX – the fear index is trading at levels last seen in 2020 – yesterday it closed at $12.69 – down 45% off the October high – which tells you two things.

First there is massive complacency – which should concern you and second – you can buy rather cheap insurance. The VIXY etf – is down 36% during that same period…and this morning you could buy it at about $17.50 for what I think is very little risk.  I mean can we get any more complacent? I don’t think so…. If we get a headline that challenges the current narrative – the VIX and the VIXY will shoot higher as stocks fall……so as you lose money on your long positions, you’ll make money on the VIXY etf……thus the term ‘hedging your position’.

Oil – which we have been discussing daily- fell again yesterday…losing 70 cts to end the day at $74.86/barrel.  The headline is that the Saudi’s are ‘asking’ other OPEC+ members to cut their output (this was in yesterday’s note) – but those ‘other members are resisting (think Angola and Nigeria) ….

Look – while the Saudi’s and the EIA and a few big US investment banks – JPM – are calling for demand to outstrip supply and for prices to rise beyond $100 barrel – that story appears to be changing – or at least that is what they want us to believe…. We have now seen a 17% drop in oil since October – the IEA (not EIA) is now predicting that the world has plenty of supply going into 2024 – that they anticipate the ‘emergence of a new supply surplus’ – just when the economy is expected to slow (according to them) …. And if all of this comes true – then maybe those guys calling for rate cuts are onto something…. Hmmmm…. I’m still not convinced, are you?

Oil is trading below all 3 trendlines – and is now in the $70/$76.24 trading range…and you know how I feel about it….Crown Princey Mohammed bin Salman is not happy…so my money says that he has something up his thawb (a thawb is the ankle length garment that Arab men wear – also called a thobe, or khameez)….…But only time will tell.

Gold ended the day up $11.70 at $2033/oz…this after kissing a high of $2037 and a low of $2026….the Dollar – as discussed continues to weaken and is on track to for its steepest monthly drop in over a year – and that is giving strength to the precious metal…..See yesterday’s note….The dollar index remains below it’s long term trendline and appears to be in the $102.90/$103.60 trading range. And if the economic slowdown narrative gains even more steam – resulting in an even stronger FED cut story sooner vs. later – then expect the dollar to test lower and you know what that will do to gold!  Boom!

US futures are flat this morning…. the Dow +11, the S&P – 3, the Nasdaq -25 and the Russell -1. The sense is that the November rally is running on empty….and that we are running into resistance right in here. Markets around the world are also all taking time to digest the November action. Central bankers around the world – all chiming in – saying that monetary policy remains ‘uncertain.’  The ECB saying outright that they are NOT at a point where they are considering rate cuts. I think JJ has said the same thing, it just interesting – people hear what they want to hear vs. what is being said.

We will hear from Fed Governor Chrissy Waller and Chicago Fed President Austan Goolsbee today and Cleveland Fed President Loretta Mester on Wednesday. In addition, look for comments from the ECB Governing Council and the BoE Governor Andy Bailey tomorrow as well.

European markets are mostly lower as well – with only Spain registering gains. The rest of the Eurozone is low by about 0.5%. The action there also being credited to an ‘overbought’ condition and ongoing discussions about what next on the rate front. In any event – no one has offered to or hinted at cutting rates anytime soon.

The S&P closed at 4550 – down 9 pts as the market is feeling just a bit tired after the run that we’ve all seen.  Today’s eco data is all about the Housing price index (not a directional driver in my opinion). We will also get Consumer Confidence and both the Richmond and Dallas Fed survey results. With the absence of any new news around rates….…I think so much of the ‘good news’ is already been priced in – so we need to digest it…and that could mean we just churn in place to catch up or we churn a bit lower to see who falls out of the trees…..  I think we’ve hit a wall….and that the famed Santa rally may have already happened. 

It still feels like the algo’s want to re-test the 2023 high of 4608 (50 pts away)– just because they can – but if we do, I suspect that it will find plenty of resistance….…

If you are invested – you’re good, if you have money to put to work, be patient and if you are just starting out – go slow….…create your thesis, begin by feathering it in, time is on your side…Remember – there is always a starting point and it’s a long game….….where you end doesn’t depend on where you start, it depends on how you play the game.  Call me to discuss.

Take good care.

kpolcari@slatestone.com

Sources:  Bloomberg, CNBC, Reuters, Wall Street Journal

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The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.

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Nana’s Cheesecake

A holiday staple…

I made this last week for Thanksgiving and posted the pics – and promised to give you the recipe – so here it is….

This recipe once again reminds me of my Grandmother – It will bring a smile to your face and will quickly become a staple on your desert table along with the Italian pastries – cannoli’s, Profiteroles, sfogliatella, parigini, pasticiotto… (the Christmas version has a twist – it uses eggnog instead of milk and is very good.   

Preheat oven to 375 degrees.

Crust –

1 1/4 cup flour, 1 1/4 tsp of baking powder, 1/4 c sugar, 1 stick of melted butter, 1 beaten egg, 1 tsp vanilla.

Put all ingredients into a deep-dish pie plate and mix directly with a fork. Once formed – using the back of a tablespoon – gently spread it out into the plate and up the edges.

Filling:16 oz of cream cheese, 2 beaten eggs, 1 c sugar, 1 tblspn flour, 1 1/4 c whole milk, 1 tsp vanilla

Combine all ingredients into a blender and mix well. Now pour the mixture directly into the crust – sprinkle with cinnamon and place in the middle rack in oven. Bake for 35 mins…Remove – it will appear shaky… no need to worry… as it cools it becomes solid and creamy. Refrigerate and when ready serve – you can serve it just plain or with any fruit topping you like.

Buon Appetito.