Things you need to know.
– The story continues….1 more FED head tries to talk it down while another one talks it up…
– Bonds just churn.
– Stocks advance on declining volumes (think Holiday).
– Oil advances as the Iranian’s create chaos in the Red Sea.
– Japan to buy US Steel?
– Try the Candied Almonds – I mean just try them….
The story remains the same……investors, traders and algo’s continue to believe that rate cuts are coming….so, they push stocks higher…. I mean you can’t make this up….and it just feels a bit orchestrated to me….it doesn’t feel like a natural market reaction by any stretch……After JJ’s comments last week – that suggested the FED is on the path of lowering rates – we’ve had, 4 FED members come out and ‘kind of’ dispute that narrative, attempting to convince us that they aren’t ‘really considering’ cuts….(as per Johnny Williams).
Add in Atlanta’s Raffi Bostic, Cleveland’s Loretta Mester and even Chicago’s Austan Goolsbee (who is normally more dovish) – they have all come out to push back on all the narrative. But the market is NOT listening…. the algo’s are shrugging off any commentary that doesn’t fit their narrative – hoping to force the FED into a position where they will have NO other option……
On the other side is disgraced – San Fran President Mary Daly (you remember her, don’t you? Think SVB) – yesterday she came out in support of the idea that rates are indeed going lower, (overly dovish) that the FED has accomplished its mission and will now begin the process of lowering rates…. And that is who the algo’s chose to listen to – because it fits their narrative. I mean – it’s chaotic and disruptive…. but – you can’t help wondering – what is going on???? Well, it is an election year…. Capisce?
On the one hand – the FED has tried to make it clear that they are now data dependent….so here is the rub – the market is betting that the data collapses causing the Fed to cut rates 5 x’s to prevent an economic collapse (think deep recession) – NOT an event that anyone should be celebrating….Remember – be careful what you wish for….The committee on the other hand is betting that the data does NOT collapse – allowing them to ‘tweak’ rates just a little bit….Capisce?
The argument is now – Not if, but when will they begin to move lower and how many cuts can we expect in 2024? And the answers – as you can imagine – run the gamut…. Traders are pushing for 5 cuts, the FED has not committed to any specific number, but 3 cuts seem to be the consensus…., one dept at Goldy is suggesting 3 cuts while another dept is calling for 5. Nicky Timarous (WSJ fame) has yet to opine – but pay attention when he does – because the FED uses him to ‘spread the word’. He is their ‘deep throat’.
At the end of the day – the Dow ended flat, the S&P added 22 pts, the Nasdaq gained 92 pts, the Russell lost 2 pts, the Transports lost 53pts and the SPW (equal weight S&P) gained 4 pts.
On top of that we got hit with $40 billion worth of mergers and acquisitions….the biggest one – and the one that everyone should be a bit concerned about is that Japan’s Nippon Steel is trying to buy the iconic US Steel for $14.1 billion – and if they do – it will create the 2nd largest global steel company – behind China’s Baowu Steel – giving Japan’s biggest steel producer a ‘large foothold’ in the US…..especially at a time when demand is expected to surge as a result of rising infrastructure spending. The latest deal – at $14.1 billion swamps the $7.25 billion deal offered by Cleveland Cliffs over the summer….and as you might imagine is already facing pushback from a range of parties….the Union, 3 Senators and even some regulators – the WH though has been mum on this news….….X – surged by 26% to end the day at $49.59 – expect to hear more about this story in the day’s ahead.
Bonds were little changed – yields rose just a bit – but nothing to be concerned about. This morning they are churning in place. The 10 yr. is yielding 3.91% and that is sending mortgages lower – and that is causing every real estate broker to tell us how great the housing market is going to be this spring…. buyers are lining up! Ready to pounce on the sellers…If buyers are ready to pounce – then sellers are not going to be anxious to sell at a discount. And if rates are coming down and prices are going up – where is the bargain? There isn’t…. higher prices on lower rates equates to higher mortgage payments…. period – Unless you’re paying cash. An 8% mortgage on $500k is $3,665/mo, a 7.25% mortgage on $600k is $4,093/mo. What am I missing? Why do you think that lower rates will encourage lower prices? It’s illogical…. Whatever.
Oil rallies a bit and this morning it is trading at $72.50 – this is up from last week’s $68. Iran is causing all kinds of problems for shippers in the Red Sea – forcing shippers to go around Africa and reroute those ships around the Cape of Good Hope – and this will create delays and extra costs for oil and other goods. Look – 12% of world trade goes from the Indian Ocean – thru the Red Sea into the Suez Canal – but Iran (think Hooties) is disrupting that crucial shipping lane…and that is causing problems for everyone….The Hootie attacks are a direct threat to the oil industry and that is raising fears of disruptions to the flow of oil (from Saudi Arabia) and so the recent rally has taken oil up 7% since early December. Hmmm – Now that’s interesting…. from a Saudi perspective, no? Just sayin’.
Gold steadies a bit and is now trading at $2040 – as the Fed’s easing path remains muddied….and some members pour cold water all over the idea of rate cuts…Remember – higher rates will cause the dollar to strengthen and that is usually a negative for gold while lower rates will cause the dollar to decline and that is usually considered a positive for gold. In any event – gold remains in the $1990/$2050 trading range.
Today brings us Housing Starts and Building Permits (both expected to be weaker), tomorrows are Mortgage Apps, Existing Home Sales, Conference Board Consumer Confidence numbers, Thursday is GDP, Core PCE, and Friday brings the PCE Deflator and Personal Income and Real Personal Spending.
I continue to urge caution – which doesn’t mean I am not in the market or that I am telling you to not be in the market – quite the contrary…. I’m just saying tread lightly – stocks have gone straight up for 8 weeks now…. I mean straight up – no pullback. Don’t get caught up in the euphoria of it all….Keep a level head….….the market action has been strong and while I love the fact that stocks are up (portfolios are up) – I am not convinced that the Goldilocks narrative is going to play out the way the market is suggesting…..My fear is that this sharp rally is just setting us up for disappointment – at least in the early part of 2024. Everyone is saying – that there is so much money on the sidelines (in cash or cash equivalents) that was earning more than 5%, but, when rates get cut – this money will be looking for better returns – thus the rally…..So, I ask – what happens if the FED doesn’t cut, what happens if inflation remains ‘sticky’ what happens if the narrative is not the narrative? Which is exactly why – you build a diversified portfolio that helps moderate risk to ride thru a storm.
US futures are up – LOL…. were you expecting me to say something else? Dow futures +16, S&P’s +5, Nasdaq +19 and the Russell is up 6. Investors are beginning to hit the road here and abroad…. expect volumes to dry up, which can and will only cause moves to become even more exaggerated….
European markets are churning….….…. although there are finance ministers and central bank governors from the Group of 7 that are meeting this morning…not sure anything is gonna get done…. but they want you to know that they are working hard into the holiday. At 7 am – markets across the region are mixed – up or down small – nothing dramatic.
The S&P closed at 4740…. Up 22 pts…. even as the FED tries to talk back the excitement. Expect the tone to settle down but the action may become more exaggerated due to the coming holiday shortened week and holiday vacations…. I suspect the FED will continue to try and control the latest narrative – successful or not – we’ll soon see. Let’s see who else comes out of the woodwork to counter JJ’s latest commentary….
If you are invested – you’re good, if you have more money to put to work, be patient – don’t chase anything, let it come to you…. and if you are just starting out – understand you risk profile, know where you are in the life cycle…. Call me to discuss. 212-381-6194.
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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Kenny Polcari is the Chief Market Strategist for SlateStone Wealth. Neither Kenny nor the partners of SlateStone Wealth are compensated in any manner by the issuers of any securities mentioned in the publication.
Candied Almonds
This is just another Christmas tradition….
For this you need two things. Almonds and white sugar.
Spread out a sheet of aluminum foil on the counter.
Put 1 c of sugar in a deep pot. Turn the heat to HI – add the almonds – Like a 25 oz bag….
Now with a wooden spoon just stir….as the sugar heats up it will melt – but you need to keep stirring until it becomes dark and nutty brown. Stir to coat all of the almonds…. Now – quickly move the pot to the aluminum foil – and spread the almonds out over the foil. Let them cool. Now if you live in the NE – you can put them outside in the cold air to harden, if you live in a warm climate – use the freezer (15 mins) to cool them off –
Once they harden – then just break them apart and put in a candy bowl and have them on your coffee table for guests to enjoy…. Trust me – they won’t be there for long.
Buon Appetito.
