Things you need to know.
– Stocks surge up and thru resistance establishing a new all-time high.
– Tech is once again taking charge…as AI gets more and more sophisticated.
– The VIX falls 14% in 3 days, Oil and Gold remain in a tight trading range.
– Still no clarity on what the FED will do – but the black-out period begins.
– Lots of eco data and lots of earnings….
– Ronnie suspends his campaign – Haley ramps up her attack on Donny.
– Try the Short Rib/Meatball Sunday Sauce.
*And then there were two……. Ron DeSantis makes a surprise Sunday afternoon announcement – suspending his campaign for President and throwing his weight behind Donny – leaving Nikki Haley the lone survivor in what was a relatively brief, uneventful primary race. And while this news will not price stocks in the long term- I suspect that markets will react positively to his announcement for no other reason than it begins to clear up any political uncertainty on the GOP side….Recall – the market hates uncertainty…..so anything that eliminates it – helps to support it.
And in fact – US futures are higher this morning….
I guess, now we have to watch what the DEMS do in response to what appears to be a ‘fait accompli’ – a second act for the former President. (Remember – a ‘fait accompli’ essentially means that ‘something has already happened – leaving no option other than acceptance’) Now, will this drive the Democratic party to consider ‘urging Jo Jo to move over and let someone else (yet to be announced) take the wheel…. Because – given what the polls say (and I know it’s early) – A Trump / Biden race is a Trump win… So, this may now force the Democrats to reconsider their current strategy…but hey, that’s just one man’s opinion. And this has now entered a new stage.
Stocks advanced broadly on Friday, Bonds advance nicely too – sending yields lower as the Taiwan Semi news (return to solid growth with upbeat guidance) and the Apple upgrade continued to fuel the fire that has engulfed the tech space…and then on Thursday evening (after the bell) SMCI – Super Micro Computer – joins in the fun announcing preliminary results that only continued to fuel the advance….…..On Friday – The stock soared to a record jumping 100 points in one swift move – going from a $300 stock to a $400 stock in seconds….That’s a 34% jump in a $300 stock – which only suggests that investors (and algo’s) are yearning for anything that sounds like the ‘next tech’ opportunity…..Preliminary results suggested EPS of $5.40/$5.55 – this vs. the estimate of $4.55, Net sales of $3.6 bill vs. $2.82 billion – and that is all the street needed to hear…because what it says is that the ‘tech’ sector is now expected to ‘blow the doors’ off the bus during earnings season – and if they don’t – it’s gonna get ugly – fast…..….…As of Friday- ytd performance (that’s 3 weeks) has the XLK is now up 4%, the Nasdaq is up 2%, the Semi’s are up 7%, Cybersecurity is up 3.5%..
Now just so you understand the relationship – Taiwan Semi supplies chips to NVDA (and a host of others) – and if Taiwan Semi – see’s better days ahead – then we have to assume that Jensen Huang (NVDA CEO) and many of the other are about to stun investors when they report in the coming weeks. NVDA is now up 20% in the first 3 weeks of the year and (imo) only going higher…. Talk of an NVDA split is also gaining steam (think when they announce?) and only giving additional life to the stock as it now kisses $600/sh.
In the end – it was an exciting day across the board – Dow added 400 pts or 1.05%, the S&P’s up 59 pts or 1.25%, the Equal Weighted S&P up 50 pts or 0.8%, the Nasdaq up 255 pts or 1.7%, the Russell up 21 pts or 1.1% and the transports gained 102 pts or 0.7%.
Bonds – represented by the TLT and TLH were both higher – ending the day up 0.3% and 0.2% respectively. The 2 yr. yield is now 4.38% and the 10 yr. is yielding 4.12%.
And as stock prices rose – the VIX (fear index) fell…..We discussed this inverse relationship last week….so no one should be surprised that we saw the VIX decline by 6% on Friday….leaving it down 14% since this ‘little rally’ began late Wednesday….Taking it from kissing trendline resistance at $15.30 to resting on trendline support at $13.18. Another up day will see the VIX test the January lows of $12.40 and if that happens – expect the broader market to advance by another 1.1%…Individual names up even more…And so we wait….
Oil continues to hug the trendline at $73.70 ish…. closing just below it at $73.40. The ongoing conflict in the RED Sea keeps it on edge. Over the weekend we heard that Jo Jo bought 3.2 million barrels of oil for the SPR paying an average of $75.96/barrel …. (BP, XOM and PSX were the suppliers of that oil). In addition – the Arctic freeze knocked out 15% of US Gulf Coast (USGC) crude last week (creating a temporary decline in US supply). This morning oil is down 30 cts at $73.13 – the USGC issue is no longer an issue and Libya restarted production at their largest oil field – both events boosting global supply. The sense is now that while oil remains sensitive to the conflict in the mid-east – it appears to be fairly priced and remains well in the $70/$75 range.
Gold is also hugging it’s trendline at $2,051…. rallying back from the lows created last week ($2,025) on all of the talk of those impending rate cuts that were to begin in March….With the odds falling daily that we will get a cut in March – Gold, oil and other commodities will churn within the current trading range….This morning Gold is down $6 at $2,043 – but did test as low as $2,039 overnight – as gold traders are not convinced that a cut is coming in March. I am still in the camp that gold remains in the $2,030/$2100 trading range.
The dollar – is also doing what? It is down 7 cts at $103.22 and is about to test trendline support at $103.06… The weakness suggests that currency traders are betting on a rate cut. A move down and thru the trendline could see the dollar trade down to $102…. but the FED would have to commit to coming rate cuts – anything short of a commitment will leave it unclear and that will offer support for the greenback…which will keep the dollar, gold and oil right here.
In addition to another big week of earnings…we have a lot of economic data…. Philly Non-Manufacturing Survey (think services), Richmond Fed Manufacturing and Business conditions reports due on Tuesday. Wednesday brings Mortgage apps, S&P Manufacturing PMI of 47.5 (contractionary) and Services PMI of 51 (expansionary). Later in the week – we are gonna get New Home Sales – which are expected to be up 10% (which makes some sense since we saw Mortgage apps up big, but Existing Home Sales down).
Remember what we discussed – Home builders can make buying a new home much more enticing vs. an existing home…. Why? Because they can offer you ‘free upgrades’ (think kitchen cabinets, upgraded counter tops, tile, flooring etc.) They can offer lower rates on mortgages, since they own the mortgage company, they can do landscaping etc.…. all things that an existing home seller cannot do….so while we saw existing home sales down last week – do not expect to see that in New Home Sales.
Thursday brings the first go around of 4th qtr. GDP and that is expected to come in at 2% – down significantly from the 3rd qtr. pace of 4.9%. Friday brings us the all-important PCE deflator – the FED’s favored inflation gauge….m/m is expected to tick up to 0.2% while y/y is expected to remain unchanged at 2.6%. The core deflator (ex-food and energy) is expected to be +0.2% and 3% respectively.
This week also marks the start of the FED’s blackout period…. ahead of next week’s FOMC meeting on the 30th/31st…. So, expect any new FED commentary to come through Goldman Sachs or Nicky T of the WSJ. And when it does – it will be presented as ‘their’ views of what the FED will do, Capisce? (Wink, wink).
The Geo-Political front –
Over the weekend – we learned that Israeli PM Netanyahu rejected the latest Hamas terms for release of hostages…. which included – an end to the war, the withdrawal of forces from Gaza, and the release of terrorists who killed those 1200 people on October 7th. And if that wasn’t enough – Hamas also demanded that they must be permitted to exist – that all Israeli talk of destruction must end. Good luck with that….
And on the other side of the canal – we still have the Hootie’s causing all kinds of trouble while the Biden administration reported that the 2 missing navy seals from last week are now presumed dead – nothing further is being said.
US futures are up…. Dow futures + 50, S&P’s +12, Nasdaq up 100 and the Russell is up 4. Watch for earnings – because it is a big week – about 60 names……. from defense names LMT, RTX, GD, NOC, to old American classics – T, JNJ, VZ, PG, TXN, DOW, MMC, HAL, V. TSLA is sure to be a highlight this week and they report on the 24th.
Stocks in Europe opened higher…. markets across the region are all up about 0.7%. Investors there await January flash Eurozone consumer confidence data.
The S&P closed at 4839 – up 59 pts…. Now if you look at the charts – you’ll see that we had been stuck in this 4700/4800 trading range for 2 months now…testing both levels (support & resistance) numerous times…. The breakout we saw on Friday now suggests that the momentum is building and that the path of least resistance is up rather than down…
Now many are still asking – when will the FED pivot? Last week – odds suggested an 80% chance of a March cut – today it’s 50/50 at best….and in my opinion it’s less than 30%…only because there is NO reason to cut….so I’d really say it’s 0% – but I can’t honestly say that because so many things can still happen before we get to March…So, I’m going with 30%….
On Friday – we heard from Atlanta Fed President Raffi Bostic who urged the FED to proceed ‘cautiously’ – given all of the global unrest (politically and otherwise). Earlier in the week – San Fran’s Mary Daly (remember her?) also warned of cutting rates too quickly saying it would be ‘pre-mature to think interest rate cuts are around the corner while Philly’s Patty Harker seems to be assured that inflation is under control – giving the sense that he is all in on cutting rates. So, in the end – what do we have? More confusion.
In any event – talk to your advisor – as a long-term investor you want to create and stick to the plan.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Sunday Sauce – Beef Short Ribs and Meatballs
So, I made this yesterday and posted the pics on my X – @kennypolcari. We had it for dinner, and it was delish…
For this I used – 3 beef short ribs, garlic, onions, olive oil, s&p, fresh basil, and two cans of crushed ‘kitchen ready’ tomatoes.
Start by seasoning the ribs with s&p. Then brown them in the pot – creating a nice crust. Now remove and set aside. Add the crushed garlic and sauté for 3 or 4 mins…then add in the sliced onions and sauté as well. Once the onions are nice and soft – add in the two cans of tomatoes and 1 can of water. Bring to a boil, season with s&p and add the fresh basil. Once it boils – reduce to a low simmer and add back in the short ribs.
After you make your meatballs (tomorrow’s recipe)– fry them in a frying pan and then add them and the frying oil to the sauce as well. Yum. Try to add them to the sauce as you cook them, otherwise you’ll find yourself just eating them as they come out of the pan.
Let this simmer for 2 hours and then it’s done. Remove the ribs and shred the meat and add back to the sauce….
Boil up the pasta and bam – It’s time for dinner. You can add fresh ricotta if you want but always have fresh grated parmegiana cheese on the table.
Buon Appetito
