Things you need to know.
– Do you remember?
– JJ to speak at 11 am – Will he confirm or deny rate cuts are coming?
– Europe pricing in ECB cuts in April.
– OPEC + invites Brazil to join the cartel.
– Oil prices lower – remember- cuts are voluntary – can they be enforced?
– It’s Christmas – Feast of the 7 Fishes – Try the Linguini and Lobster Sauce.
*I will be live with Stuart Varney this morning from 9 – 10 am in NYC*
Do you remember – the 30th day of November? Algo’s were changin’ the minds of investors while chasin’ the bears away? Stocks were ringin’, in the key that our souls were singin’ as we danced the year away…Ba-dee- ya – say do you remember, Be-dee-y dancin’ in November, Ba-dee-ya NEVER was a cloudy day…… (think The Eagles 1978).
And yes – it was and will be a November to remember……stocks posting their best moves in almost 16 months….and the best November in decades – (plural) – putting the bears in the corner while the bulls took to the dance floor. The Dow rose 520 pts or 1.5%, the S&P rose by 17 pts or 0.4%, the Nasdaq lost 32 pts or 0.2%, the Russell gained 5 pts or 0.3% while the Transports gained 201 pts or 1.4%. For the month the returns were blinding…. the Dow rose by 8%, the S&P by 7.8%, the Nasdaq 9%, the Russell added 8.3%, the Transports gained 7.1% while the Equal Weighted S&P added 8.5%. Leaving all of these indexes solidly in the green….
Much of the move is driven by algo’s and trader types that are betting on a dovish FED and expecting the central bank to begin cutting rates as early as March! And I’ll say it again…. Stop the insanity! We’ve got JJ and other members of the FED still telling us that they aren’t sure that we’ve stopped raising rates, (think Tommy Barkin, Mishy Bowman, Neely Kashkari, Loretta Mester….) never mind cut them. In fact – yesterday at 2:41 pm – Market Watch (news site) ran with this headline.
“Powell Won’t Endorse Market Expectations for Quick Rate Cuts”
That headline came out just hours before JJ is set to speak today at Spelman College at 11 am. According to this story – the FED Chair will attempt to cool off the rhetoric….about how many days need to pass before we see the central bank ‘panic’ and cut rates, because that is what some analysts seems to be saying….and now it sounds like that is what they are assuming Fed Governor Chrisy Waller intimated on Tuesday….when he said that
“Cuts could begin as soon as this spring (assuming that inflation continues to wane)”. (Spring begins on March 19th)
He went onto say that the FED could lower policy rates because inflation is lower, ok – but then I ask – bond yields are and will be lower as well – so why does the FED need to do anything? Recall when they hit 5% – all of these mouthpieces were saying the FED doesn’t need to raise rates because the bond market is doing the work for them…. And now? Is the bond market NOT doing the work? I wish these guys would stop…..all they do is create chaos –….which makes me want to ask – Can we see what Chrissy’s personal trading account (and those of his family along with other members of the FED) looked like prior to his comments? And can we see what it looks like this morning before JJ takes the stage and throws water on him? Remember – earlier this month JJ made sure to remind us that the Fed still has a bias towards holding rates higher for longer if not raising them again. – What is it about that comment – by the Chairman – that no one seems to be listening too?
Could it have been the eco data? Personal Income and Personal spending came in ‘spot on’ the estimates, while the PCE deflator (the FED’s favored inflation gauge) came in a bit better than the estimates. The PCE top line y/y read came in at 3% while the Core y/y read came in at 3.5% – both numbers slightly better than expected and that surely helped the mood and the commentary that the FED has no other option than to cut rates.
My friend Ryan Detrick – Chief Market Strategist at the Carson Group – reminds us that ‘almost everyone was offsides coming into November’ – think that ugly selloff that took place in October as 10 yr. bond yields kissed 5% that caused some of the weak hands to jump ship….leaving them uninvested or worse – short the market for what thought may be the beginning of the end of this run. So, when ‘the end’ didn’t appear and bond yields suddenly fell – what happened? Yup…..the smart money went on a shopping spree taking advantage of the sale (Apple down 18%, AMZN down 19%, IBM down 11% and I could go on) while the day trader types made it even more painful for the shorts forcing the ‘short’ guys to cover….and if you are unsure of what that means – let me lay it out.
When you go ‘short’ you are betting that the market or a stock is going lower, so you make money by selling something you don’t own at say $20 – hoping to buy it back at $15 – putting $5 in your pocket….and that is a viable strategy…when it works…but what happens if you sell something you don’t own at $20 and then buyers come in and the stock goes to $25 – at some point YOU need to go out and buy that stock so that you can make good on the sale – resulting in a $5 loss. So just think about the ‘demand created’ by just the short sellers alone, never mind the real buyers that want to own stock for the long run and the day traders that profit on short term moves…… And so, what do you get? A rip-roaring rally. The question is: Was that the Santa Claus rally? We are about to find out……
It is December 1st – and there are only 20 trading day left in the year…. markets have performed nicely – Tech has killed it; AI was the story in 2023 and will be the story in 2024 and beyond.
On the day – Healthcare – XLV led the pack +1.3%, Financials – the XLF +1.15%, Industrials – XLI +1.1%, Consumer Staples – XLP +1%, everything else was up less than 1% with the exception of Consumer Discretionary and Communications – both really strong names on the year – but lower yesterday by less than 1%.
And for those of you that played it a bit safer all year – the value trade didn’t disappoint, did it? The SPYV is up 14% ytd…. vs. the growth trade that is up 24% ytd….and that makes sense – the growth trade is all about technology and that is up 48% ytd.
Bonds which were getting slaughtered all year – down double digits well into correction territory almost kissing bear territory – have taken back 50% of those losses – the TLT is now down only 8% while the TLH is down 6%. So, if you bought the TLT say in mid-October at $83 – that position alone would be up 12%…. rising even more than the market in that same time period. This morning the 10 yr. bond is yielding 4.29% – a whopping 14% decline from the panicked 5% level…. Mortgage rates have also come down a bit – going from a little over 8% to 7.5%. But don’t expect those usurious revolving credit card rates to decline…they won’t, and they haven’t and nor will they if the FED cuts rates…. just not happening….so the pressure on consumers that carry balances remains. But let me not be the party pooper……Embrace the moment and enjoy the ride…and if you stayed in the game – you are enjoying the ride even more.
Eco data today includes US Manufacturing PMI and that is expected to be just south of neutral at 49.5 (neutral is 50). ISM Manufacturing of 47.8 – further south of the neutral line, while ISM employment is expected to tick UP a bit to 47.2. (The FED would rather see this number tick down at this point…. not up).
US futures this morning are churning……Dow futures + 43, S&P’s up 1, the Nasdaq is down 13, and the Russell is ahead by 3. Fed chair JJ Powell speaks in only a few hours…. Everyone will be listening to what he says and whether or not he flips sides – going from Hawk to Dove and if he does – watch out – I can’t see how that could happen though, the FED has made it clear that that is not what he is going to say, but again – people will hear what they want to hear vs. what is being said. I still think we are just a bit ahead of ourselves and that while the algo’s will push the S&P to kiss 4608 (before this is over) – I suspect there are plenty of sellers waiting patiently for that to happen.
European markets are higher…. up by about 0.5% across the board. Traders there are also pricing in an ECB rate cut in the early spring…again – something that Christine Lagarde (ECB President) has not said – in fact – she has said quite the opposite – although the eco data is pointing towards a slowdown so it’s anyone’s guess.
Oil – is trading at $76.13 – down a bit from yesterday’s high of $79.60 – as the (short) oil traders emphasize that the voluntary add’l cuts in production are just that – voluntary….and that they will be hard to enforce, compliance will be low, smaller members will have little incentive to fall in line. – so, production will remain elevated and that will put pressure on prices…. against what some are calling ‘weak demand prospects. News that Brazil – the largest producer in South America has been invited to join the OPEC+ cartel in January…is doing little to support prices…why? because there is no evidence that they will be required to cut any of their production…. $76.25 is the trendline…. If we fail to hold it – then look for oil to test the November lows of $73. If we hold it – then I think it struggles to move much higher until we get more clarity out of OPEC – unless of course something – no one expects – happens.
Gold is trading at $2057, while the dollar index is trading at $103.41 – up from the low of $102.67 just two days ago. If JJ makes it clear that rate cuts are NOT imminent – then I would expect the dollar to take back some of the losses it has seen last month and that will put some pressure on gold…. I suspect it finds support at the $2030 level.
And all this as the VIX remains near all-time lows – This morning it is down 3 cts at $12.89…. suggesting all kinds of complacency….…. again – I think the VIXY is a cheap and simple insurance policy to help hedge your long stocks positions in the event we hit a hole.
The S&P closed at 4567 up 17 pts…. Futures this morning – suggest that traders are waiting for JJ’s speech at 11 am. What will he say and how will they react? My gut says that he remains just as he has…. cautious, yet leaving the door open both ways – while emphasizing that rate hikes are very much a possibility and that holding rates steady is the most likely response. Rate cuts – while always a possibility is not really in play…But let’s see.
Remember – I think the market is priced for perfection…a soft-landing, double-digit earnings growth in 2024 earnings, and rate cuts sooner (March) rather than later. What could possibly go wrong?
If you are invested – you’re good, if you have more money to put to work, be patient – don’t chase anything 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…. Call me to discuss.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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So as the tradition goes – it is December and in an Italian house we are preparing for the Christmas eve – Feast of the 7 Fishes. Today is the first recipe.
#1 – Linguine and Lobster Sauce
You will need: 2 live lobsters, garlic, crushed tomatoes, onions, basil, s&p.
Start with the basic marinara – Sauté crushed garlic in olive oil on med heat – do not burn the garlic…. now add 2 large slice Spanish onions (or Vidalia if you can get them) and sauté until soft – about 10 mins or so….
At this point add 3 cans of kitchen ready crushed tomatoes – NOT PUREE – if you can’t get kitchen ready crushed – then buy the plum tomatoes in juice and run them thru the blender or food processor – leaving a bit chunky….Bring to a boil – season with s&p, and fresh basil – stir. Once it boils – turn heat down to med low and prepare to add the lobsters.
First rule – Always use live lobsters. (Should be like 1 1/2 pounders each). Rinse under cold water – leaving the elastics on the claws so that you do not get clipped. Once you rinse him/her…. remove the rubber bands and put in sauce claws/face first…now he/she may flap its tail – but that is only for a second or two…. Add a second lobster. Stir and make sure that the lobsters are submerged in the sauce and turn heat to simmer…. allow to cook for about 30/45 mins. Now if you are making this the day before – remove from heat, let cool and then refrigerate. The next day – take out of fridge and let come up to room temp and then slowly re-heat to simmer…. You can just smell the goodness and feel the ocean waves hitting you in the face….
Bring a pot of salted water to a boil – add the linguine and cook for 8 / 10 mins or until aldente. Strain – always saving a mugful of pasta water – and return to pot. Add back about 1/4 of the water and stir to re-moisten…do not soak……capisce? Now add 3 ladles of sauce and toss…. Serve immediately – making sure that you have grated Pecorino Romano cheese on the table for your guests. If you like – you can remove the tail/claw meat – shred and add to sauce or you can just present it on a plate for your guests to enjoy….
Buon Appetito
