Things you need to know.
– And the rally just won’t quit – the VIX remains complacent.
– Small & Mid-Caps up 15.2% in 6 weeks
– 30 yr. – $21 billion bond auction this morning….
– Is oil making a Presidential prediction?
– Feast of the 7 Fishes – #7 Mussels Posillipo
And the rally just won’t quit…. stocks advanced again yesterday as investors, traders and algo’s await this week’s economic data and central bank policy statements. Bonds initially came under a bit of pressure but recovered into the end of day….and while a Bloomberg report suggests that ‘traders refrained from making big bets ahead of the key economic data’ – I would have to disagree…why?
Because they have been making big bets since the lows of October…. I mean – the Dow and S&P have both gained 12.6% since October 30th, the Nasdaq is up 14.5%, the Russell (small and mid-caps) have gained 15.2% while the Transports are up 13.8%. The equal weighted S&P (SPW) has joined in the fun…. rising 13.3% while the Value trade – SPYV is also up 14% since then as well…. – so, to say that no one is making any big bets, is a bit off point…. that is exactly what investors, traders and algo’s have been doing.
Gains across 10 of the 11 sectors in the S&P helped to send stocks higher. Communications stocks – XLC – came under pressure – losing 0.7% – but remember, some of that is just profit taking – the sector is up 46% ytd. Tech – XLK ended the day higher +0.9%, but the Magnificent 7 all lost ground – as small caps, and the other sectors take up the slack…. broadening out the rally to be more ‘inclusive.’ …ahead of today’s CPI and tomorrows’ PPI and FOMC reports…..But do not despair – a pause or even a pullback in the Mag 7 is constructive in my opinion…..as many of them are looking just a bit ‘extended’ and if trader types are worried about what’s about to happen, then taking some money off the table (in the outperformers) is smart for them….they are traders (not investors)…..and remember – with the market appearing to broaden out – investors want to ‘diversify away’ some of the magnificent 7 risk. As my good friend Liz Ann Sonders – Chief Investment Strategist at Charles Schwab put it –
“This year obviously was driven by the Magnificent 7. I just think that there is money that’s kind of itching to find opportunities outside of just those names.”
And itching is a perfect way to put it….
At the end of the day yesterday we saw the Dow up 157 pts or 0.4%, the S&P up 18 pts or 0.4%, the S&P Equal Weight* up 54 pts or 0.9%, the Nasdaq up 28 pts or 0.2%, the Russell ahead by 2 pts or 0.15%, and the Transports up 187 pts or 1.21%.
*And again, that just speaks to the ‘broadening out’ of this rally….
Next up – bonds – we had both the 3 yr. and the 10 yr. auctions yesterday and while the 3 yr. was received ok, the 10 yr. was a little less so – so we saw prices decline and yields rise to 4.296% for that issue…..Today we are going to get $21 billion worth of 30 yr. bonds – let’s see what that produces (although let’s not get our panty’s in a bunch….$21 billion is NOT considered a large auction)….currently the 30 yr. is yielding 4.278%. If it is not well received – you’ll see yields rise and if it is well received, then you’ll see yields hold steady and if it is really well received then yields will fall. And if that happens – that only supports the FED will cut story…. This morning – the 2 yr. is yielding 4.68%, the 10 yr. is at 4.18% while the 3- & 6-month bills are yielding 5.25% and 5.18% respectively.
Now onto oil – it looks like it found some support right around the $70 line…yesterday it rose by 0.25% to end the day at $71.40…. This after the beating it has taken over the last month – down 22% off the most recent high. We have been discussing this – it’s the non-OPEC nations that are now ‘over producing’ with the US taking the lead – we are exporting record amounts of oil to Europe and Asia all while the Saudi’s and OPEC+ try to control the price – and failing miserably. The narrative that the global economy is headed for a slowdown and possible recession is only fueling the fire for lower prices……and the latest narrative coming from former President Trump – saying this IF he is re-elected in November – the first thing he is going to do is cancel all of the Biden energy policies and drill baby drill. So, you have to ask – is the oil market making a prediction on the US election? This morning oil is down 15 cts at $71.25/barrel.
And the VIX only confirms the ongoing complacency in the markets….as it trades at $12.72…. giving support to rising stock prices…. but watch what happens today at 8:30 after the CPI report…. will the tone change, or will it only confirm that the FED has it under control? We are about to find out…. Unless we see a spike in the VIX – you can expect stocks to continue to advance.
Eco data –
Recall – the CPI is expected to be flat m/m while ex food and energy is going to show an increase of 0.3%. Y/y we are looking at +3.1% and ex food and energy of 4%….so prices are still going up – let’s not forget that…. they are just going up at a slower pace. Now, if the report is better than expected – look for stocks to continue to push higher on the ‘the FED is definitely going to cut in March’ story…..but remember – tomorrow we will get the FOMC meeting results and it is expected that JJ will try (again) to steer the conversation away from this narrative – attempting to temper expectations – but remember – people hear what they want to hear vs. what is being said…..So, I suspect he will take a bow, but remain steadfast in his position of holding rates here for longer……just to make sure that he it under control.
Gold got smashed yesterday – falling another $17 to end the day at $1997 – piercing one trendline at $2008 and kissing the next trendline at $1989. This as the FED rate cut and falling inflation stories gain speed. But if that’s the case – then the dollar should weaken (and it has) and so Gold should find stability and support. This morning the dollar is lower – down 36 cts at $103.73 and gold is up $10 at $2002.
US futures are up and that suggests that investors, traders and algo’s are all expecting a better-than-expected CPI report…. At 6:50 am – the Dow is up 45, the S&P +2, the Nasdaq +18, and the Russell +5. Treasuries prices are up this morning and that is putting pressure on yields and that is also putting pressure on the dollar and that is helping stocks move higher.
Now – ORCL – (you remember that software company don’t you?) reported disappointing (underwhelming) 2nd qtr. revenues on their slowing cloud sales….Traders are so unhappy – after taking it up 17% in the last 5 weeks – that they are taking it down 9.5% this morning in pre-mkt trading at $105.10 ….and that takes it down and thru all 3 trendlines….at $112.89, $110.34 and $107.05 – which means $100 is in the bulls eye….that is the October low.
European markets are mixed…. Germany and Spain a bit lower while the UK France and Italy are all slightly higher. The UK reports that wages grew at a 7.2% annual rate in November while job vacancies declined, and unemployment remained stable at 4.2% and that will be welcomed news by the BoE – who reports their monetary policy decision on Thursday. Now while – it is good news – the labor market in the UK remains too strong to suggest that they are cutting rates anytime soon. Remember – inflation in the UK is still 3 x’s higher than their target.
The S&P closed at 4622 up 18 pts and making another new closing high for 2023 and if we get a good report today – then we can expect another new closing high at 4 pm. And all this does is reinforce my argument for staying ‘in’ vs. trying to pick tops and bottoms…..Now, while I still think the market feels a bit tired after the run that we’ve all seen, it just doesn’t want to stop (yet), but that doesn’t mean that you should chase the outperformers….in fact – what we saw yesterday was just that….the outperformers were weak, while the broader market was stronger.
And now some of the street’s strategists are putting out their 2024 ‘guesses’ and most of them are in the 5k point range….which is up at least 8% from here…Some are even up as much as 14%….and that just means that we are pricing to perfection….we are assuming that S&P earnings will grow at the 12% estimate, we are assuming that inflation is under control and that the FED will cut rates by 100 bps. We are assuming that the FED has navigated a soft landing and that we have avoided a recession and we are assuming that the unemployment rate does not explode higher…. And while I hope that all comes true – I am remaining committed to the plan…and that’s all you can do, create a plan and then stick to it as long as the story doesn’t change. But remember – trees do NOT grow to the sky…. The market will not continue to advance just because it has advanced…. growth become maturity and maturity becomes decline….and the lifecycle and business cycle go from trough to peak and peak to trough…It’s just what it is….
Review your plan, talk to your advisor, and remember – investing is not ‘trading’ it’s investing…it a focus on the long term and not the daily machinations of the markets. Don’t be emotional, do your homework, take advantage of dislocations in names that you own or want to own….do not chase and if you are just starting out – don’t be dismayed – time is on YOUR side.
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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Feast of the 7 Fishes – #7 Mussels Posillipo
This recipe comes to us from the suburbs of Naples – Posillipo is a well to do suburb of Naples; it was built during the 19th century by the very affluent – high on a bluff with a view of that famous Bay of Naples. Posillipo is a recipe that you can use for both clams and mussels – I am suggesting that you use the mussels for the Christmas eve dinner.
You need: Mussels….3 doz… thoroughly washed of any sand. White wine, Clam juice, garlic, olive oil, s&p, 1 28 oz can have imported Italian Plum tomatoes – (Not in Puree), Fresh Basil
In a pot – heat the olive oil and sauté the garlic – until lightly browned – do not burn.
Add 1 1/2 c of dry white wine – nothing fruity – stir and let come to a boil – after about 2 mins…rough crush the tomatoes and add to pot with the juice.
(When you rough crush – you literally crush them in your hand – over a bowl to catch the juice. – you can also use the blender – but do it quick – do not puree) Add enough of the tomatoes to give it some substance and color – you do not need to add the whole can if you are not serving it over linguine.
Add the small bottle of clam juice and fresh basil leaves. Season with s&p. Turn heat down to simmer and cook for about 15 mins or so. Now add the mussels to the pot and cover tightly. Cook until the shells open – should be maybe 8 to 10 mins more…. Discard any mussel that refuses to open.
Present this dish in a large bowl with the mussels bathing in the Posillipo sauce. This dish demands toasted garlic bread to dip in the sauce.
Buon Appetito.
