Things you need to know.
– Tech takes the lead again….
– NFLX suggests more people are staying home.
– Eco data remains robust.
– Bond auction disappoints – Treasury to announce borrowing schedule.
– Try the Lamb Chops with Orange Butter
Tech takes the lead again…..The ‘tech heavy’ Nasdaq 100 up 55 pts, the S&P eked out a 4 pt gain while the Dow lost 100 pts, the Russell gave up 14 pts the Transports lost 138 pts and the S&P equal weight gave back 35 pts….The strength in tech a direct result of all of the good news we are hearing from the global ‘chip’ sector of the industry…and that good news is sweeping across the whole industry as the demand for sophisticated chips fuels the surge….It started with Dutch chipmaker ASML – that surged higher after reporting blowout earnings and offered upbeat guidance – that sent the stock up 8.5%, taking tech names in Europe higher as well….and that just confirms what we heard last week from Taiwan Semi – and so investors go all in on tech (again). Tech names were quoted higher in the pre-mkt and when the opening bell rang on Wednesday morning – you could feel the excitement – and investors would not be disappointed….
All of your favorites surging higher…MSFT + 1% is now a $3 trillion company, NVDA +2.5%, META +1.4%, GOOG +1.1%, AMD +5.8%, QCOM +0.6%, AVGO + 2.2%, INTC +0.4%. The semi-ETF – SOXX +1.5% and the SPYG (the Growth Trade) gained 0.6%.
Now not to be forgotten – NFLX up 10% or $52 to end the day at $544 – also reported earnings on Tuesday evening and they reported that they added 13 million new subscribers in the 4th qtr. of 2023, they raised their guidance and said that operating margins will hit 24% in 2024…JPM analyst – Dougy Anumth – who has an overweight rating on it and at $610 price target told investors that ‘the results speak to how Netflix is taking a step closer to becoming global tv.’ Raymond James analyst Andy Marok – thinks it fairly valued – added that ‘even the most ardent bears will have trouble finding weakness in the 4q with the call and the numbers reading like a laundry list of successes….’ While Morgan Stanley’s Benjy Swinburne puts a $1000 price tag on it by – get this – 2029! Is this guy kidding me….2029? Dude! In any event – the excitement in NFLX dragged the other names in the sector higher as well…. ROKU +3.1%, FUBO TV + 3.2%, DIS +1%, WBD + 1.2% and PARA +0.4%.
But the broader market did not enjoy the company of aggressive buyers at all….as seen in the lackluster performance of the Dow, the equal weighted S&P, the Russell, and the Transports…. Why? Well, the Fed Fund Futures markets are now pricing in a 45% chance of a March rate cut down from 80% last week and 100% 2 weeks ago….and that is causing some concern that stocks have gone too far – at least in the short term…..Look, the economy remains strong – so why the disappointment?
A strong robust economy can handle 5.25% rates….I mean – they’ve been at that level for months now and the economy does not appear to be gasping for breath…..in fact quite the opposite……and in fact – historically – 5% rates are normal….but, let’s be honest…….the most recent surge in the markets was a direct result of the multiple rate cut narrative that permeated investor psyche at the end of the year….a narrative that I think was born out an mis-interpretation of FED commentary. Or is that just me? Am I the one who has mis-interpreted……I don’t think so….there are plenty of analysts and strategists that do not think the FED should cut rates – that there is no reason to stimulate the economy by cutting rates…according to the data – the economy does not stimulating….but that does not stop the trader types from stamping their feet…..
In fact, yesterday’s eco data further supports this argument…. S&P US manufacturing PMI, which was expected to be 47.6 (contractionary) actually came in at 50.3 (expansionary) while the Services PMI came in at 52.9 (expansionary) vs. the expected 51.5 (expansionary). This data suggests a healthy economy….it does not suggest the need for stimulus. Today brings the first go around of the 4th qtr. GDP and that is expected to come in at 2%. We are also going to get Personal Consumption of 2.5%, Durable Goods of +1.5%, New Home Sales of +10%, this on the back of the strong Mortgage Apps report yesterday that showed applications grew by 3.7% week over week. 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.
Across the broad S&P sectors – we saw strength in Tech – XLK + 0.7%, Financials – XLF + 0.4%, Communications – XLC + 0.6% and Energy – XLE +1.4%. The other 7 sectors ended the day lower…. with Utilities – XLU, Consumer Staples – XLP, Real Estate – XLRE and Basic Materials – XLB all down 1.3%. Healthcare – XLV down 1%, Industrials – XLI – 0.6% and Consumer Discretionary – XLY down 0.4%.
Bonds came under a bit of pressure with both the TLT and TLH down 0.6% and that sent bond yields up just a bit……the 2 yr. is now yielding 4.37% while the 10 yr. is yielding 4.15%. The 30 yr. bond climbed to its highest level – 4.40% this year after a WEAK auction of 5 yr. notes…. Remember – the treasury is about to announce their borrowing schedule for the February – April time frame and it is expected to be ‘heavier’ – Capisce?
The 5 yr. auction drew a yield of 4.055% vs. the expected 4.035% – and all that means is that the buyers ‘demanded’ a bigger rate of return (higher yield) – which meant that they bid down…..Lower prices forces yields higher….and that begs the question – what will happen next week when Janet announces the coming borrowing schedule. But this should surprise no one…we discussed this during the 4th qtr.….
Oil – well it traded right up to the top of the very tight range that we have been in – rising 1.3% or $1 a barrel to end the day at $75.36…..This morning – oil is up again rising 1.5% or $1.13/ barrel at $76.30…..the news that China’s central bank announced deep cuts to bank reserves – resulting in about $140 billion worth of stimulus in their economy….and that is expected to increase demand for oil….blah, blah, blah….. In addition, there is the ongoing conflict in the RED Sea and while it has not disrupted oil flow supply yet, that narrative could change at any moment…. Oil is now on the north side of what was trendline resistance at $75.42…. leaving $78 as the new target….
Gold takes a dip lower on a firmer dollar…….and the dollar is firmer because it is expecting no change in monetary policy…. A cut in rates would weaken the dollar and help support gold, while a hold in rates will further support the dollar and put pressure on gold……..and that is what happened yesterday – gold fell by $15 to end the day at $2,0.35 – leaving it 6 pts above trendline support at $2,029. … Yesterday I told you that with the odds falling daily that we will get a cut in March – Gold will churn within its current trading range and that is what it did…. The current trading range is defined as $2,030/$2100. In order for gold to stabilize here – there needs to be complete clarity surrounding monetary policy in the next 3 months –
This morning Dow futures + 100, S&P’s +2, Nasdaq down 7 and the Russell is up 10. Investors will digest today’s earnings reports and await the economic data. After the bell last night, we heard from both TSLA and IBM…. TSLA fell by 6% after Lonnie warned of slowing volume growth while IBM surged 8% after beating earnings and upgrading guidance. (recall, IBM is one of my favorites and has been for a while).
Stocks in Europe are lower as investor await a policy decision from the ECB – they are expected to leave rates unchanged….but they are also expected to hint at an April cut…..PMI’s across the zone did rise leaving some to question whether or not a rate cut is needed….Norway held rates steady at 4.5% and indicated that they would remain at these levels for ‘some time ahead’. Turkey on the other hand hiked rates to 45% as inflation surges out of control – rising to nearly 65% in December up from 62% in November…. At 6:15 am…. markets across the zone are down between 0.2% and 1%
The S&P closed at 4868 – up 4 pts….as the momentum carries us higher and higher…. driven by technology….and the idea that the FED and other global central banks are preparing to cut rates….In the event that the FED makes it clear that while they are considering all options – there is no plan to cut rates at a specific time or by a specific amount – I would expect some of the air to come out of the balloon – and you should too. Now if they suggest that cuts are coming to a theater near you…. then I suspect that the algo’s will continue to push stocks higher… The S&P is up 20% off the October lows – without as much as a 3% pullback…during the past 12 weeks…so don’t panic if we see some weakness post the FOMC meeting next week. In fact, I am rooting for some weakness…. but weakness does not suggest a crash, it just suggests some ‘weakness’ because this straight up thing is not normal….and we need to shake the branches a bit to confirm investor commitment.
The VIX has once again fallen to the lows….and remember what I said last week after the VIX spiked….If we saw the VIX retreat then we could expect stocks to advance and that is what happened….but, my gut says that the next move in the VIX is up, so get ready for stocks to retreat.
Look – I can’t emphasize it enough….do not be surprised by some event that disrupts the move up….do not be surprised if we suddenly hit a wall….and back off…Know what you own and why own it – build a portfolio with a theme….Talk to your advisor – better yet, give me a call.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Grilled Lamb Chops w/Orange Butter
Orange/ Cilantro Butter – like any herb butter – this is simple to make… You need – 1 stick of butter, fresh minced cilantro, ground coriander, orange zest, s&p.
You can make the butter ahead of time and put it in the freezer so that it is ready to use and always has some for a later time. It never hurts to make them and have them available to you in a flash. Remember – herbed butters are your creation – make what you like. Try different combinations of herbs to arrive at a new favorite.
Let the butter rest on the counter for about 1 hr. so that it softens. Do not melt the butter in the microwave or on the stove – you do not want to cook the butter – capisce?
In a bowl – add the butter, minced cilantro (like 3 tblsp), a dash of coriander and about 1 tsp of orange zest – mix well – now season with s&p… cover and refrigerate for about 20 mins. Now remove the mixture from the fridge and place in wax paper – now ever so gently – form into a log – wrap in saran wrap and put in the freezer so that it hardens up.
Preheat the grill.
Brush your chops with a bit of olive oil and then season with s&p – a nice thick cut chop on the grill works well with this.
Now place the chops on the grill – careful not to burn. Should be about 5 / 8 mins on each side depending on thickness – you want a nice pink center. Remove from the grill, cover, and let rest for 3 mins or so. Now place on a warmed plate and top with a slice of the Orange/Cilantro butter. Serve this with wild grain rice and a green veggie. Enjoy with a nice Pinot Noir.
Buon Appetito
