Things you need to know.
One of the joys of the holiday season is the opportunity to say Thank You and to wish you the very best for the new year. May Peace, Joy, Health & Happiness be yours during this Holiday season and into the New Year. Thank you for letting me be part of your life….
Now – Try the Butterscotch Clusters!
So, the anxiety from Wednesday – that saw stocks fall more than 1.5% evaporated yesterday…. the sell off that created some concern – because it came out of nowhere was nowhere to be found on Thursday…. Stocks which have been on a tear for the last 8 weeks – resumed the rise…. Raising the stakes for investors, traders and the algo’s, never mind the anxiety it continues to create for the FED.
At 4 pm – the Dow rang the bell up 325 pts or 0.9%, the S&P gained 49 pts or 1%, the Nasdaq added 185 pts or 1.3%, the Russell added 35 pts or 1.7%, the Transports gained 265 pts or 1.7% while the Equal Weighted S&P added 78 pts or 1.2%.
All while investors are digesting the weaker reports and more importantly weaker guidance from FDX, GIS and now NKE – down 12% this morning after reporting a rise in gross margins – now 44.6%, a 19% increase in net income, for the qtr., but they projected WEAK forward guidance – just 1% revenue growth for fiscal year 2024 (which ends on May 31st) citing ‘increased macro headwinds in Greater China and other emerging markets – in addition – they announced $2 billion in cost cuts (think layoffs) which will cost them $450 million pre-tax in the current quarter – when the news came out in the afterhours – the traders and algos’ took a quick 12% ($14) out of the stock and this morning it remains down 12%. Which now leaves many to start to wonder – Could this be a preview of what we are about to hear when earnings season kicks off? We are now 3 for 3 in WEAK forward guidance…. Capisce?
And then we have the Hootie’s (Iran) – they continue dropping bombs on US navy ships – while they threaten to drop them on cargo ships and tankers if they try to navigate the Red Sea thru the Suez Canal allowing shipping to travel between the Asian and African continents emptying into the Mediterranean allowing for shipments to Europe and the Northern African and Asian continents….think Libya, Algeria, Morocco, Israel, Lebanon, Turkey etc.……rather than have to go all the way around the Cape of Good Hope at the Southern end of the African continent and then up thru the Southern Atlantic, into the Northern Atlantic….causing all kinds of chaos, expense, increasing the time to market – Remember – 12% of world trade goes from the Indian Ocean – thru the Red Sea into the Suez Canal – but Iran is disrupting that crucial shipping lane…and that is causing problems for everyone…
Notice we aren’t even talking about Ukraine/Russia or even Israel/Hamas the way we were only 1 month ago…. It, like so many other things seem to fade into the background…
The eco data revealed that the 3 qtr. GDP was revised a bit lower – at 4.9% down from 5.2%, Personal Consumption fell to 3.1% down from 3.6%, The Core PCE Price Index – coming in at 2% – better than the expected 2.3%, Philly Fed Business Outlook fell by 10.5 vs. the estimate of -3 and the Kansas City Fed came in at -1. Some suggesting (again) that this weaker eco data and now the weaker guidance that we’ve seen these past 2 days only supports the FED cut narrative….I’m not buying it….I just don’t see how the FED can honestly say that they need to cut rates – When they tell us that unemployment is at historic lows, the consumer is spending like there is no tomorrow the job market remains robust and we have, according to the FED chair, avoided a recession – never mind that the bond market remains inverted now for nearly 2 years….with no end in sight.
And speaking of bonds – we saw prices remain steady leaving yields at levels not seen in months…the 2 yr. is yielding 4.35%, the 10 yr. is yielding 3.89% and the 30 yr. is yielding 4.03%. A conventional 30 yr. mortgage is now closer to 6.7%, while the 5/1 arms are closer to 6%…. You can still get 5.4% on a 12-month CD or you can take advantage of shorter duration bills like the 3- and 6-month bills and earn 5.14% and 5.04% respectively. Remember – the fall in yields equates to easing in the economy…. just look at the mortgage market – last month you were getting an 8% mortgage – today if you qualify – you can get a 6.7% mortgage…. That’s a 16% decline in the ‘cost of money’. Is that not easing? And you can find the same decline in the commercial real estate market as well….Where you won’t find any easing is in the ‘Buy now/Pay later’ space or the revolving cc space – where you can find rates as high as 30%…that’s not a typo…if you don’t pay the balance. And there are plenty of people that don’t pay the balance in full every month.
Oil has been quietly rallying…. during all this…. WTI crude now trading at $74.60/barrel, up 70 cts this morning….and up 8% off of last week’s low. It is a combination of a couple of things…. but the most recent issue we can point at is the conflict that is taking place in the Red Sea…. driven by the Iranians via the Hootie’s…. (See above). Now, on the contra side – overnight Angola announced that they are pulling out of OPEC over a disagreement on production quota’s – leaving OPEC as a 12-nation cartel that is trying to control oil prices…. but with another member saying ‘adios’ to the Kingdom – many are now wondering what’s next? Analysts telling us that this should not ‘rupture OPEC+ or jeopardize current supply cuts’ for now…. but they better get their sh*t together…. that announcement did slow today’s advance in oil…. We are now cuddling up to the trendline…. will $74.60 offer enough resistance to keep oil down – or will we see a push up and thru? We are about to find out….
Gold was a bit higher yesterday after the eco data once again suggests that rates are going lower and this morning it is up $18 on that continued excitement…. At 6:30 gold is trading at $2,070/oz. Lower rates will force the dollar lower and that will be good for Gold and other commodities – recall that commodities are priced in dollars – so lower rates translate into a weaker dollar and a weaker dollar should send commodities up while a stronger dollar send commodities down.
And all you have to do is LOOK at what the dollar index is doing…..and guess what – It is not rising….the DXY is down 23 cts at $101.60 today leaving it down 2.5% in just over a week….all while Gold is up 4% and oil is up 8% in that same time frame….the BCOM (Bloomberg Commodity Index) – which is an index of 34 commodities (gold, oil, silver, corn, cattle, soybeans, live hogs, zinc, wheat, gas, lead, cotton, coffee etc.) – is also up 4% during that same period – Are you beginning to see a pattern here….And just a reminder – higher commodity prices translates into higher prices for the everyday products we need….Hmmmm – and higher prices sounds like higher inflation to me – but what do I know….
Today brings us the famous PCE Deflator – JJ’s favorite inflation gauge and that is expected to flat m/m (0%) and up 2.8% y/y and if that number is on target or better – then expect Fed Fund Futures to show a 100% expectation of a March rate cut…. In addition – we will get Durable Goods, New Home Sales – which are expected to be higher and of course the U of Mich Sentiment Survey….
US futures are lower this morning….again I am not reading too much into this at all…it is Friday before Christmas and a long weekend, stocks have shot higher, the action is being driven by computers….and so any weakness doesn’t suggest good or bad, it just suggests churning in my opinion….Why, because nothing has changed….the narrative is what it is….as of this morning – the market expects 3 rate cuts, but that could change at 8:30….remember – there are some street analysts that are calling for a cut at EVERY FED meeting starting in March and if that is true – then expect 7 rate cuts next year – which leaves me to ask – are they really going to cut as we move into the election? Sadly, I guess, anything is possible…. I just don’t think they could be that dumb – but again – ANYTHING is possible.
European markets aren’t really doing anything now as the day comes to a close and Europeans get ready to celebrate the Christmas holiday.
The S&P rose by 49 pts yesterday…. taking us back to 4746…. leaving the S&P up 23% ytd…. trailing the Nasdaq by 20% age points…. this morning’s action – weaker futures – should not be a surprise nor should it cause you to do anything. Enjoy the holiday, spend time with your family….
I continue to urge caution thru the start of earnings season….which is only 3 weeks away….and if FDX, GIS and NKE are any indication of what we can expect – then it’s easy to see how stocks could trend lower – but remember – analysts have taken expectations down….so the bar is low…..but what they can’t take down is what the C-Suite will say about future guidance…and that is the key. Now this 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…. Don’t get caught up in the euphoria of it all…. Keep a level head – make a plan and then stick to it. You can keep new money in your gov’t mm acct – that is paying you 5% to hold it there while you wait to put it to work….and when you do – don’t do it all at once…. Remember Aesop’s fable – Slow and Steady Wins the Race….
This year’s underperformers (think healthcare, utilities, Energy, Consumer Staples) could be next year’s outperformers….…. while the outperformers may take a break (or maybe not) …which is why I say – talk to your advisor….
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.
Next week is kind of a vacation week – I’m taking some time to be with my family….Next note will be on Friday – the final trading day of the year. Merry Christmas and Happy New Year. I remain grateful to so many people – Thank you.
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.
Butterscotch Clusters
Here is a personal favorite of mine – they are Butterscotch/Peanut clusters (all in 10 mins) and are a Christmas favorite…. My grandmother used to make every year and every time I eat them – it brings me back to an earlier time… Today it is a tradition that I do with my girls – and it always brings them back to an earlier time.
For this you need – Nestle Butterscotch morsels, salted peanuts, and Chinese noodles…. (You know the crunchy ones).
Begin by setting up a double boiler – when ready add in the butterscotch morsels…. stir until melted…. now add in the noodles and the peanuts…. stir to coat really well. When ready – remove from the heat and with a tablespoon – take scoops of the mix and plop them onto wax paper…. They will harden into clusters in about 10 mins….
Buon Appetito.
