Things you need to know.
– JJ says, ‘Don’t go Betting the Ranch’ and traders ‘Bet the Ranch.’
– The NERI Index supports double digit growth in 2024.
– Gold makes a new high, and Oil continues to come under pressure.
– Bitcoin pierces $41k – many suggesting $100k is the next stop.
– VIX moves lower – consider some insurance.
– Feast of the 7 Fishes – #2 Filet of Sole
JJ comes out swinging, telling us that the FED is not on the path of cutting rates – but did say that the FED’s policy is – hold on, here it comes – ‘Well into restrictive territory’ and that caused the algo’s and traders to go wild, go all in, taking stocks to ‘almost; new highs….the Dow rose 295 pts or 0.8%, the S&P up 27 pts or 0.6%, – leaving it just 14 pts away from making a new 2023 high, the Nasdaq rose 79 pts or 0.5%, the Russell gained 53 pts or a whopping 3% while the Dow Transports raced ahead – adding 445 pts or 3% as well. Apparently, the idea that we are ‘well into restrictive territory’ must mean that we are at the high end of the range, we can’t possibly go any higher and the only thing we can do is cut rates! I mean isn’t it clear? 5% fed funds are ludicrous! It’s unheard of! Who could possibly think that 5% is ‘ok’?
And then Bloomberg tries to justify the move be telling us that JJ”s new phrase – ‘restrictive territory’ is code for a rate cut…or at the least – something more ‘dovish’ and at this point anything that sounds dovish means the fix is in…..and stocks surged…Mind you – his comments were also ‘laced with caution’ – reminding us that NOTHING is carved in stone….and until we hear from Nicky T (WSJ) and Goldman Sachs – both mouthpieces for the FED – it still isn’t completely clear what the next move is….but as you can see, the bulls seem to be in control and that is forcing all of the bears – who set themselves up for a fall (think going short) – to run for cover and when they do that it means the SHORT interest becomes BUY interest….and BAMMMM – there it is….and stocks surged….
And before you forget – while earnings season just ended, it’s about to begin again in just 6 weeks…. but let’s think about what just happened and ask ourselves this? Is the earnings recession over? 3rd qtr. net income was 4.1% higher y/y…. this after we had 3 straight quarters of declines….EPS for the S&P were up 7.1% when you add in the effect of buybacks. And like so many tell us – it is not so much about the earnings, because they are history – it’s about what the C-suite has to say about the future….and the majority of them did not disappoint. And Ed Yardeni’s NERI index – which is the Net Earnings Revision Index – measures ‘trends in analyst’s forecasts’…and while downward revisions are increasing – consensus for y/y growth in revenues and earnings ‘remain solidly positive’ thru 2024. S&P consensus earnings for 2024 are $245 in earnings per share across the S&P 500. That’s an 11% jump from 2023’s $221/sh. That implies a significant reacceleration in profits, which to me suggests an ongoing robust economy – which then begs the question again – Why does the FED have to CUT rates?
So, who were Friday’s beneficiaries? Real Estate – XLRE was the clear winner – +2.1%, Industrials – XLI +1.6%, Consumer Discretionary – XLY +1.4%, Utilities – XLU + 1.2%, Basic Materials – XLB + 1.15%, Financials – XLF +0.7%, Energy – XLE + 0.5%, Healthcare – XLV +0.4%, while Tech – XLK and Communications – XLC both gained 0.2%.
Further down the line – we had Homebuilders XHB + 3%, Retail – XRT +3.8%, The Value trade – SPYV +0.9% while the Growth trade – SPYG + 0.4%. Metals and Miners – XME +2.8%, (AMR one of my favorites up another 5%) Cybersecurity – CIBR + 1.2%, Robotics & AI – BOTZ + 2.3%, and Cathy Woods’s Disruptive Tech – ARKK tacked on 5%! Aerospace & Defense – ITA + 1.2%
Bonds rallied sending yields lower…the TLT (20 yr. bond etf) + 1.6%, the TLH – (10-20 yr. bond etf) + 1%. The 30 yr. bond yield lost 10 bps to end the day yielding 4.38%. The 10 yr. treasury yield plummeted by 13 bps to end the day at 4.19%. The 2 yr. yield lost 14 bps to end the day at 4.53%. The 3- and 6-month bills are yielding 5.19% and 5.14% respectively…. – and again, I ask – When bond yields were RISING – everyone begged the FED to stand pat, because the bond market was DOING the work for the FED and so if that is true, then when yields are FALLING – Why are those same people begging the Fed to cut? Isn’t the bond market doing the work for the FED?
Mortgage rates should surely start to retreat even just a little bit – the current 30 conventional rates on Friday were 7.68% down from 7.8% last week, 15 yr. rates were 6.82% down from 7.02% and the 5/1 ARM came in at 6.79% down from 7.98%! – this assuming of course that you have a 740 + FICO score.
Friday’s eco data was mixed – S&P US Manf PMI came in at 49.4 and ISM Manf PMI came in at 46.7 – both in contraction territory yet ISM New Orders remains in an uptrend – coming in at 48.3 – up from 45.5 last month. Today will bring us Factory orders – exp of -3% vs. last month’s +2.8% so that’s nearly a 6% swing, Durable Goods expectations of -5.4%. Tomorrow brings us the JOLTS (Job Openings & Labor Turnover Survey) report and that is expected to show a decline – which will support the idea of a weaker labor market and rate cut, while Wednesday brings us the ADP employment report of +120k new jobs and Friday brings us the monthly NFP report (Non-Farm Payroll) – and that is expected to show an increase of 180k new jobs for November. Unemployment is expected to remain the same at 3.9% (but there are some calling for a 4 handle this month).
US futures this morning is lower….……Dow futures -50, S&P’s -10, the Nasdaq is down 50, and the Russell is UP 6. Treasury prices are a bit lower and yields up about 5 bps…. gold has been all over the place and the dollar is up small. Bitcoin – something we have not spoken about in a long time pierced $41k and all of the ‘experts’ are out there again calling for it to pierce $100k in 2024. It is up more than 150% ytd.
European markets are mixed…. Germany and Spain in slightly positive territory while the rest of the zone is down about 0.3%. Eurozone manufacturing continued to weaken in November coming in at 44.2 last month. That is now the 17th consecutive month of declines for that index. Remember – traders in Europe are also betting that the ECB is about to reverse course and move lower rather than hold steady or go higher.
And the oil story continues to get uglier…. putting pressure on prices and on the Saudi’s and OPEC+. This after they were not able to kill the negative story about swelling oil supplies (think non-OPEC production) as they try to cut production among the members…. The NON-OPEC producers are now producing at ‘record levels. – Output here at home is now more than 13 million bpd – this even more than under the Trump administration….and I am sure that Bernie must be rolling over in his grave…Oh wait, he’s still here, it was Kissinger, Munger, Rosaline Carter and Sandra Day O’Connor who passed away last week…. my bad!
So, a couple of thoughts here….$76.25 WAS the trendline…. And we FAILED to hold it – which means that we were about to test the November lows of $73 and we did! Overnight we tested as low as $72.86 before rallying back to $73.50. But do not expect the Crown Prince to sit idly by…. oh no…. falling oil prices is not what the kingdom ordered….
Gold rocketed higher on Friday – rising $40 to end the day at $2090/oz joining in the celebration as gold traders also assume that JJ is done and that rates MUST be about to fall. The dollar index moved lower as well, and this morning is trading at $103.30 down from $103.41 last week. I told you last week that gold wants to test the May 2023 high of $2134 and overnight we tested and pierced that old high to trade at $2151/oz before backing off. At 6 am – Gold was trading at $2086 – now down $4.
And all this as the VIX continues to trade lower…. getting more and more complacent with each passing day as if stocks will never go down again…….and you know what that means….? 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.
You could also consider buying the inverse ETF’s that represent the different indexes and get you ‘short’ ….…The DOG (industrials) trades at $31 and is down 6% ytd, the SH (S&P) trades at $14 and is down 15% ytd and the PSQ (gets you short the Nasdaq) trades at $10 and is down 32% ytd. And if you are REALLY negative – then you could buy the SPXS – which is the Direxion 3x’s levered inverse S&P etf. (levered 3x’s is the KEY point here). Remember though – NONE of these strategies are long term – they are strategic and need to be employed carefully.
The S&P closed at 4594 after kissing 4599…. rising 27 pts on the day. I told you that it felt like they wanted to take the S&P right up to test the 2023 high at 4608 and for all intents and purposes – they did….This morning it feels just a bit weaker, not a selloff by any stretch….but at some point there has to be some consolidation. Stocks are overbought and bond yields are over sold….do not be surprised to see this rebalance (if they let it rebalance).
Remember – we have been talking about how 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, understand you risk profile, know where you are in the life cycle….Call me to discuss.
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.
Feast of the 7 Fishes – #2 Filet of Sole
This is also simple to make and is a personal favorite… For this you need: Filet of Sole, Eggs, Italian Style Breadcrumbs, flour, Olive Oil, and tartar sauce.
Beat 6 eggs in a large bowl to make an egg wash.
Place Flour on a separate plate, place Italian breadcrumbs on a separate plate. Now make a production line. Flour – eggs – breadcrumbs.
Next – dredge in flour – shake off excess then introduce into the egg wash – remove from the egg wash and place on the plate with the breadcrumbs. Using a fork make sure that you cover the filet in breadcrumbs. Place on a clean plate. Repeat until you have breaded all of the fish.
Next turn the oven to broil and pour olive oil in a pan – maybe like 1/8 inch in pan. Heat the oil under the broiler…. now be careful and watch – as the oil gets hot you need to make sure that you are ready to broil the filet. Take a pinch of breadcrumbs and toss in the pan…do they sizzle right away? If so – then you are ready. Now place the filets in the hot oil and then flip to the other side…now let them broil to a nice golden brown…. Open oven door and with a spatula – carefully flip the filets over to brown the other side… Once browned – remove and place in a serving platter. Serve this with tartar sauce and any leftovers make great “fish filet sandwiches the next day!” (Make sure you use toasted Italian bread, melt some provolone cheese – add a bit of tartar sauce).
Buon Appetito
