Things you need to know.
– US and UK launch retaliatory strikes against the Hootie’s (Iran)
– Taiwan to hold elections tomorrow…. Sit tight.
– Iowa Caucasus’s to happen on Monday.
– Earnings set to hit the tape…DAL beats and stock trades down 4%
– Hunter takes the pressure off of Jo Jo – who hasn’t been seen in 3 days.
– The temperature in the RED Sea is about to hit the boiling point.
– Try the Steak Pizzaiola
Stocks ended the day mixed…. The Dow up 15 pts, the S&P down 3, the Equal Weight S&P down 20, the Nasdaq ended flat, the Russell lost 15 and the Transports gave up 68 pts.
Yesterday morning we asked if the CPI report would be ‘the evidence’ that the FED and the country needed to suggest that the economy was cooling off enough….to allow them to cut rates…. Would it be the report that would give legitimacy to the ‘multiple rates cut’ narrative? And while it was already expected to tick ‘up’ (vs. down) – the question did not seem unreasonable…. I mean how could they suggest inflation was cooling IF the report was expected to show an uptick? It was illogical, no?
Yes, it was…… – the November CPI report released at 8:30 was in fact HOTTER than even the estimates…. which I’m sure surprised a lot of people…. Especially those that have been calling for 4, 5 & 6 rate cuts during a presidential election year…. That fact alone would suggest that they should FED remain neutral….
The headline this morning defines it.
“Inflation Ticks UP After Cooling”
The top line rose by 0.3% (vs. the expected +0.2%) m/m and it rose by 3.4% y/y (vs. the expected 3.2%). Ex food and energy – showed an increase of 0.3% m/m and 3.9% y/y….Now, they tried to bury that in the fact that Avg Hourly earnings m/m were up 0.8% and y/y of +0.5% suggesting that while prices ticked up – there is nothing to worry about because your wages went up as well. Hmmm – Ok – Run with that…. What the report showed was that Americans paid more for rent, auto insurance, homeowners’ insurance, medical visits, utilities & food – but don’t stress – we paid less for furniture, toys, and sporting goods! Isn’t that just a kick in the pants? The stuff we NEED – almost every day is costing us all more, but the stuff we DON” T need is costing us less. I guess someone missed their Econ 101 class freshman year in college.
Then we heard from JPM’s Chief Global Strategist Davey Kelly to tell us that
“The bottom line is that the most likely path for inflation from here is not upwards or sideways, but rather down.”
Most likely? Davey! It ticked UP, not down…. Did you miss that fact in the report? Surely at some point – it will go down (confirming you bottom line) – but that wasn’t yesterday and it most likely will not be in today’s PPI report either….
Expectations for today’s report are for the PPI to rise by 0.1% m/m and 1.3% y/y…. Ex food and energy it is expected to rise by 0.2% m/m and 2% y/y. Remember – prices increases or decreases in the PPI take about 4 – 6 weeks to make their way thru the system….and prices at the PPI level – reflect the prices paid by the manufacturers to produce the items we buy…..So, an increase in this report today – would suggest that next month’s CPI report will be likely be higher again….or at the least holding steady at the new elevated levels…But that’s just a minor fact – nothing to see here….
And then we had the launch of the long-awaited Bitcoin ETF’s – and while it was exciting for some – Bitcoin did trade as high as $49k – Vanguard will have none of it…saying that they are not offering any Bitcoin ETFs on their platform because of ‘suitability issues’ Saying that.
“…these products do not align with our offer focused on asset classes such as equities, bonds, and cash, which Vanguard views as the building blocks of a well-balanced, long-term investment portfolio.”
And while they are free to offer it or not – this decision did not sit well with a lot of investors – with many of them lighting X on fire calling for #BanningVanguard….This is going to be an interesting story – they let investors buy GBTC – which was the Grayscale Bitcoin Trust – for months now….but when the SEC approves 11 new ETF’s they halt the ability for investors to participate…in fact you could only SELL GBTC on Vanguards platform yesterday….BlackRock’s iShares Bitcoin Trust ETF saw over $1 billion knock on the door yesterday….a massive record for day one trading volume…..In any event – it is sure to be an ongoing story – especially if we see $100k price tags on it. In the end – I’m not really sure that this made any difference at all…. investors have been able to buy Bitcoins for years now – using crypto exchanges like Coinbase…. In any event – it is what it is….
Now onto the Geo-Political front……the temperature is rising in the RED Sea….as the Hootie’s continue to disrupt global commerce and attack merchant ships in the waterway as well as US and UK navy ships trying to protect the channel…….Leaving many to ask – are we just going to let Iran take control? Are we going to let Iran kick ‘sand in our face’…. Where is the Secretary of Defense? What is going on…..Oh, right – he is MIA….which means that Jo Jo is in charge (never mind that he has NOT been seen in 3 days) ….and Jo Jo along with British PM – Rishi Sunak launched an attack on the Hootie’s in Yemen after Jo Jo warned them that they would ‘bear the consequences’ of those repeated missile attacks on commercial shipping thru the RED Sea.
Well, – the majority of container ships are no longer using the RED Sea and the Suez Canal – they are avoiding the RED Sea and re-routing their ships around the Cape of Good Hope at the southern tip of Africa – resulting in longer delivery times and increased costs to the shippers -which means increased costs to global citizens never mind the complete disruption of global trade. As you can imagine – the Hootie’s and the Iranians pledge to make the US pay for these strikes….so we can all expect this to continue to heat up in the days ahead… Which again supports the idea of Aerospace and Defense names in your portfolio…. Just an observation….
The only two sectors of the 11 S&P sectors that ended the day higher yesterday was Tech + 0.5% and Energy +0.25%…..everything else was a bit lower…the worst performing sector was Utilities…..- 2.3% on the idea that interest rates are NOT coming down….remember – many investors buy utilities for the income they produce – think dividend yields of 3% & 4% and when it suggested that we would see 4 – 6 rate cuts in 2024 – suddenly Utilities – which were the 2023 underperformers became this years outperformers…or at least they were until yesterday’s CPI report…..The idea that investors will get 4+% in money markets or short duration T bills with zero downside risk – becomes more desirable for some investors – so they hit the SELL button utility stocks and that is what causes utilities to decline…. – but remember – for every seller there is a buyer….so let’s see how this story plays out…
Away from that – we saw ongoing strength in the Semi’s, Cybersecurity, AI, Homebuilders & Airlines. Most everything else was a bit lower and that makes sense if you look at what the indexes did – ending lower….
Now today is also the start of the beauty pageant…..and it gets started with the banks and they are not expected to be ‘robust’ – but this is NOT a surprise – estimates have been coming down – the focus is on the guidance….(as it always is….this is also not a new idea…..) Look for reports from JPM, BLK, BK, WFC & C…. We will also hear from UNH and DAL. (DAL reports and beats and the stock is trading down 4%). And as I have discussed – while the estimates have been cut – I do not expect these companies to ‘miss’ – they have had plenty of time to forewarn – so if they were going to miss these very public estimates – they deserve what they get….In any event – the group has rallied hard in the past 8 weeks – so seeing some profit taking should not alarm you – unless it is because they missed and then had to come clean…..Remember – as a long term investor – you are always looking for ‘best in class’ – as a day trader you just want ‘movers and shakers’ because you want to trade the volatility.
And speaking of volatility – the VIX remains near historic lows – which gives strength to stocks as it suggests complacency….….but beware – if the geo-political issues heat up and/or if forward guidance from reporting companies disappoints – then I would expect the VIX to spike higher and that will catch the algo’s off guard…sending stocks lower…..something a long term investor welcomes…..
Oil is spiking higher on the latest news out of the middle-east….this morning WTI is up $3 or 4% at $75/barrel…..last night’s actions do change the narrative just a bit…..oil has traded up and thru its short term trendline – but will run into the long trendline at $75.80….. A level that should have found plenty of supply – BUT if the situation is the middle-east becomes a much bigger issue – then expect oil to push right up and thru – as buyers will become more aggressive – allowing sellers to take advantage…..The bigger issue here is could this now become a larger regional conflict causing yet another military issue for the US and the world.
Gold also spikes higher on the conflict in the middle east – remember – gold is the ultimate ‘safety play’ and in times of uncertainty and stress – it makes sense that investors want to own gold…. This morning it is up $32 at $2,050/oz…. leaving us still in the $2,030/$2100 trading range.
US futures are thrashing around…. Dow futures up 8, S&P’s down 2, the Nasdaq -40 and the Russell is up 1. The country is about to run out of money again – January 19th is the newest default day…but Chucky (Schumer) is proposing a short term funding bill to avoid this….and while the DEMS will make this an issue and blame the GOP – this is a non-event….this is just noise….So, pay no attention.
Next – while the focus will be on the PPI and earnings…the conflict in the middle-east is brewing on the back burner and the Taiwan elections are only 24 hrs. away…..….and it is Friday – the long weekend is upon us and so much can happen – so don’t be surprised if we see the markets come under pressure as morning turns to afternoon. But remember – geo-political issues can cause short-term chaos in the markets but do not usually set long term prices.
Stocks in Europe are higher…. all up by more than 0.8%…. the UK economy reported that GDP rose by 0.3% – beating expectations…. Yesterday’s US CPI report does not seem to be an issue for them – so they too await the start of earnings season both here and there. The overnight military action does not seem to be concerning to the European markets yet…But the day is young.
The Taiwan elections are this weekend…. we know that China is already creating angst…. raising the temp in the region…. Xi Xi has made it clear that he wants to take Taiwan…and with all of the chaos in the middle east and in Eastern Europe – now is as good a time as any to make a move…I mean – in his mind – what will the US do then? What can the US do? Will the Europeans jump in to stop it? Oh boy…. It is a tangled web….
The S&P closed at 4780 – Leaving it kissing up against its most recent highs- but unable to pierce it…. There is a lot happening – both economically and politically in the weeks ahead – Don’t forget the Iowa Caucus happens on Monday….….
S&P earnings for 2024 are expected to be $240 and if you put a 20 multiple (very aggressive) on that – it brings you to what? S&P 4800! Where are we? Oh right – 4780…. So, while it is early in the year – let’s not be blinded…. What happens if S&P earnings are not $240/sh…. Well, we are about to get a taste as earnings season kicks off. Sit tight…Talk to your advisor.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Steak Pizzaiola – another hearty and heart-warming meal…
You will need a couple of things: A nice rib eye, or T-bone – (about 3/4″ thick), Olive oil, Oregano, garlic, onions, red and green bell peppers, can have crushed tomatoes (not puree), some red wine, salt, and pepper. *Crushed red pepper flakes (optional).
In a saucepan – heat olive oil and add crushed/sliced garlic and move it around for a couple of mins until it is nice and golden… add a sliced white onion and julienned bell peppers – turn heat to medium and cover. When the onions and peppers are soft (about 5 mins) add the crushed tomatoes, oregano and *red pepper flakes. Turn heats up and bring to a quick boil then reduce heat to medium. Add red wine (about 1/2 cup) salt and pepper and let simmer and thicken up… about 10 / 12 mins.
Next – rub steaks with olive oil, salt, and pepper – do not drown the steak in oil – just enough to massage the steaks and prepare them for the skillet. Heat skillet (high) and add steaks (if you have a ribbed skillet this works best) You can sear for about 4 mins then turn over and continue cooking for another 4 mins. Then add the tomato sauce to the skillet – cover and turn heat to simmer and cook for another 10 mins. This should give you a nice medium steak – If you prefer you can let simmer longer for more well done.
When done – remove steaks from skillet – slice into thick strips and arrange on plate. This should be enough to feed 4 adults. Next – stir the sauce in the skillet pan to deglaze – making sure to scrape the pan for any bits left behind. Spoon sauce over the steak and serve immediately. Present this meal with a large mixed salad of Arugula, Boston Bib & Romaine topped with tomatoes, red onions, cucumbers – dressed in a red wine vinaigrette. For wine – enjoy a nice Brunello di Montalcino.
Buon Appetito
