Things you need to know.
– Priced to perfection – Stocks, Bonds, Oil and Gold continue to advance.
– ECB says ‘We did NOT discuss rate cuts’ – comical because JJ said the same thing only 1 month ago.
– The 10 yr. breaches 4%
– Oil demand seen rising in 2024.
– Try Grandma Emma’s Ragu
Confidence is defined as the ‘state of feeling certain about the truth of something’….and investors are surely feeling confident about the most recent comments by JJ Powell. The idea that rates have peaked and can only go lower is now the NEW narrative….the idea that inflation is ‘sticky’ is no longer a concern, the idea that we are in for a soft landing is all the rage, the idea that the economy has slowed enough for some rate cuts without tipping us into a recession is now the new song, and so investors, traders and algo’s take everything higher…Stocks, Bonds, Gold, Oil all moving up – extending a blockbuster rally that was born on October 30th –
The Dow has now made new, all-time closing highs for 3 days in a row – gained another 158 pts or 0.4%, small and mid-caps – think Russell have exploded higher – adding 53 pts or 2.7%. The S&P continues to push higher and yesterday added 12 pts or 0.3% while the SPW (equal weighted S&P) added 80 pts or 1.3% – this as investors are clearly finding ‘other’ things to buy… and while the Magnificent 7 continue to drive the action – investors have clearly moved beyond just those 7 names as they look for opportunity – and they are finding it! The Nasdaq while rising feels like it is starting to slow down….as if it’s just a bit tired….it added 27 pts or 0.2%, while the Transports gained 300 pts or 1.9%.
Bond prices rose and you know what that means…. yields fell…in fact the 10 yr. breached 4% to end the day yielding 3.909% – down 11 bps a level not seen since August. The TLH – the 10 – 20 yr. bond etf – rose by $1.70 or 1.6%. The 3- and 6-month bills have also come off their earlier highs and are now yielding 5.19% and 5.04% respectively – down from 5.5 ish% only 1 month ago.
Oil – has gotten a boost over the last couple of days and this morning it is trading at $72 – this is up from $68 ish last week. Now what happened? Well, the IEA (Int’l Energy Agency) did what? They RAISED their demand forecast for 2024…. they think that global consumption will rise by 1.1 million bpd – that’s up 130k bpd from the prior forecast – why? Because they see improving demand coming from where? The US of all places! And I say that because that is counter to what JJ just told us…. he (they) see the economy slowing – ok – then demand should decline not rise, no? Whatever! Now OPEC + thinks demand will rise by 2.25 million bpd… Additionally – the weaker dollar is helping to support oil (and gold). Now on the negative side is always – What’s happening in China? And the most recent data suggests weakness – but they are due to report on retail sales, industrial production, business investment, unemployment and housing prices over the weekend – so let’s see what happens on Monday. In any event – oil remains in the $65/$76 trading range.
Gold pushed higher and this morning it is up another $12 – trading at $2057 an oz. this is up from $1980 only 3 days ago….the swift change in tone – driven by the FED pivot and the weaker dollar, and those two factors drove gold up and thru the trendline and is now once again looking to test 2023 highs….If the FED sticks to their latest plan and cuts rates, look for the dollar to weaken and gold to continue to gain.
Eco data today includes the Empire Manufacturing Survey – expected to be 2.1 (down from 9.1), Industrial Production of +0.3% vs. last month’s -0.6%, and Capacity Util of 79.1% vs. the prior 78.9%. Manufacturing PMI of 49.5 and Services PMI of 50.7 – None of this is expected to be a market mover – unless of course the estimates are so far off the mark.
US futures are UP…go figure! Dow futures up 100 pts, the S&P’s up 12, the Nasdaq up 60 and the Russell ahead by 20 pts! Today is a quadruple witch day…meaning all kinds of options expiry will happen at 4 pm….Don’t get caught up in the drama of it all…it will create a surge in volumes but will NOT cause big price dislocations…..CNBC will most likely tell you that we have a ‘staggering $3.1 trillion of notional open interest’ about to expire – which while true is going to be rolled into the new year – so it’s an accounting entry….do not expect to see massive price dislocations because of it.
In Europe we heard from ECB President Christine Lagarde and she told us that the ECB has not, did not and will not discuss ANY rate cuts and as such – traders and investors that are betting on an ECB cut should re-think that decision…..OK – but there are others that are willing to challenge her…saying that the contrast between the stronger US economy and the weaker European economy is interesting…. Because a stronger economy – no matter where – would dictate higher rates, while a weaker economy would dictate lower rates….so in the US we have a stronger economy yet – the FED is about to CUT rates while the European economy is weaker yet she remains steadfast in holding rates higher….once again saying ‘the ECB did NOT discuss rate cuts at all’. Just curious – didn’t JJ say that too only last month. In any event – markets across the region are mixed – The UK and Spain lower by 0.5% while France, Germany and Italy are all up by 0.5%.
The S&P closed at 4719 – up 12 pts….and if the futures are any indication – we can expect higher prices at the end of the day too…but it is early and so much can happen….so I would suggest you sit back and regroup…..Stocks are now in a very overbot condition……Bullishness is strong – which is in itself a contra indicator….because in October when stocks were selling off – Bearishness was strong – stocks were never going up again……you could hear people screaming “FIRE”….and then look what happened……stocks have surged by more than 15% – small and Mid-caps by more than 22%….and bonds by 20%…Today – it’s as if stocks will never go down again…..Capisce?
Leaving me again to say – stop trying to time the market – make a plan, understand the parameters and go for it…. Where you put the money is defined by your age and risk score…. talk to your advisor, they can help you navigate the landscape.
Remember – 2024 is an election year – both sides are battling for position – Expect the narrative to be ‘Look how great this is – inflation is down, and the Fed is cutting rates. But remember – the FED is not supposed to change monetary policy in an election year unless something has completely broken – for fear of being labeled political…. but it has already begun…. A story on Bloomberg yesterday already ignited this fire –
“The greatest risk concern is politics – (now that JJ has made it clear that he is cutting into a Pres Elec year). The US has an election year, which promises to be ugly and divisive. If the FED does start cutting in early 2024, any really negative consequences wouldn’t become clear until AFTER the election. If Jo Jo’s approval ratings on the economy do begin to improve, and it’s hard to see how they wouldn’t if the FED’s projections are right, we can assume that DJT will call foul. The PERCEIVED INDEPENDENCE of the FED, an important and much criticized institution, matters a lot. It’s about to be tested.”
Get ready – it has only just begun…. it’s gonna be a long year……
Review your plan, talk to your advisor,
Call me to discuss. 212-381-6194
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kenny Polcari or SlateStone Wealth.
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.
While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.
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.
Grandma Emma’s Ragu –
Now Ragu is a type of sauce that is made with ground beef and pork, onions, tomato puree, red wine and seasonings. Think of Ragu as the ‘mother’ and then think of Bolognese as the ‘child’ – Bolognese is a type of Ragu…. but with key differences…. Ragu sometimes has vegetable chunks, Bolognese does not, Ragu is typically made with red wine, Bolognese is usually made with White wine.
Today I am giving you a Ragu that comes from a very dear friend of mine…. who lives in Cortona, Italy 6 months of the year – where he imports cheese and produces olive oil – you can find his website here: Alamodicortona.com.
You need ½ lb. each of ground beef and pork, 2 – shallots, 1 clove of garlic – chopped, 3 tbsp. of PEANUT oil (don’t go yelling at me), 3 tbsp. of olive oil, 5 sage leaves – finely chopped, 2 sprigs of Rosemary – no stems – finely chopped, 15 whole basil leaves, 1 bouillon beef cube, 1 tsp of salt, 1 tbsp. of tomato puree, 1 can of San Marzano kitchen ready tomatoes – (not puree) and water.
Heat the peanut oil in a heavy pan (medium heat).
Add shallots and garlic and sauté (do not let them brown). Add the tomato puree, increase the heat and sauté for about 1-2 minutes.
Add the chopped meat. Brown the meat well. Reduce heat to medium.
Then add the sage, rosemary, basil, bouillon and salt.
Sauté for 1 minute.
Add the tomatoes and ½ can of water. Mix well and bring to a boil – taste and adjust salt if needed. (Note there is no pepper in this dish).
Add olive oil and stir one last time.
Reduce the heat so that it simmers gently and let it simmer with the lid half covered for about 4-5 hours (important, DO NOT stir the sauce anymore)
When ready – boil a pound of spaghetti – strain and toss with the Ragu. Always have plenty of fresh grated parmegiana cheese on the table.
Buon Appetito.
