Things you need to know.

• And BANG! Stocks go higher!
• Janet cuts the funding requirement – I think it’s baloney! Bonds rally.
• The FED is behind the Iron Curtain…Now we wait.
• MSFT, GOOG, AMD due out AFTER the market closes.
• Tensions in the RED Sea remain high.
• Try the Dove Sole Meuniere

Stocks started the week with a BANG!  All of the indexes rising as one of the biggest weeks of the year kicked off…. This week – we are going to get 100 (or 20%) of the S&P names to report – 30 of them today including 2 of the Magnificent 7 on the docket – GOOG & MSFT.  META, AMZN & APPL will report on Thursday.  And to keep the pressure on all day- both GOOG – expected to earn $1.59/sh and MSFT – expected to earn $2.77/sh are due out AFTER the market closes. AMD is also expected to report after the bell as well and investors are looking for them to report $0.77/sh…  And after what we heard from TSMI and ASML – investors/traders and algo’s are all expecting the best….and again- it isn’t so much about the earnings as it is about the guidance…. (which is true for all stocks, but SO true this week for these names in particular).   There is a lot riding on what they will say……and what they say will drive the next move for TECH and for the broader market……

As the closing bell rang, we found the Dow added another 225 pts or 0.6%, the S&P up 37 pts or 0.75%, the Equal Weight S&P up 40 pts or 0.6%, the Nasdaq up 173 pts or 1.1%, the Russell up 33 pts or 1.7% and the Transports up 33 pts or 0.2%.

One last thing here – the surge last year and the surge this month is being driven by TECH and AI and the future of humanity…. Let’s not kid ourselves…. but – there is such a thing as getting just a bit ‘ahead of ourselves’ in terms of stocks prices and performance.  All we need is one negative report that somehow doesn’t support what the market expects and BOOM….we could see the branches shake causing a lot of investors to ‘fall out’ (just look at what happened in October of 2023) –  Last month – I spoke to you about what the RSI (Relative Strength Index) means…..and what investors should be aware of….

On the upside – 70 is the level that suggests the beginning of ‘overbought’ and the higher it goes the more ‘overbought’ it becomes…. Right now – the Nasdaq RSI is 73.8421 (not hugely overbought – but in fact in ‘overbought’ territory).  MSFT’s RSI is 78.744, GOOG’s RSI is 78.218, AMD’s RSI is 73.216…. So, I’m just saying – we are in overbought territory…which doesn’t mean they can’t go higher – it just means that we are in ‘antsy’ territory – which argues against ‘chasing’ these names…. Now when ASML reported last week – its RSI was 69.249 and that stock surged another 15% thru last night….…. this morning – the RSI stands at 82.8447…. which screams to me – don’t be surprised to see some consolidation. I like the name, I’m in the name, I’m participating with the name, but I am not chasing the name.  But also remember – TECH stocks in general are ‘momentum’ (momo) plays – ….the momo guys love them, the algo’s love and the trader types love them….….and the momo guys can drive them higher – but once the momentum is exhausted on the upside – then you get some momentum to the downside….Capisce?

And just to put everyone on the same page  – the Dow’s RSI is 70.476, the S&P is 75.4588, The Russell is 66.0564 and the Transports are at 59.498…And that just suggests that the S&P is ‘outperforming’ while both the Russell and the Transports are ‘underperforming’ which you can also confirm by looking at their YTD performance numbers.  Next –

And in a surprise move – Janet (Yellen) surprised the markets by cutting the quarterly funding ‘estimate’ from what was $980 billion to $760 billion….Now pay attention – they cut the ‘estimate’ – the actual announcement isn’t due until later this week – but what makes this significant is the fact that last week – there was ‘underwhelming’ interest in the 5 yr. auction at the current rate – So, the treasury had to concede and sell those bonds at lower prices to attract buyers and you know what that meant……lower bond prices means higher yields…….So the news was meant to try and settle the markets – suggesting that the ‘need’ for funding is LESS (which we know is BS) – hoping that when they have the auction – buyers will show up…..

And that news caused the algo’s to continue to go all in – sending bond prices up and yields down – the 2 yr. is yielding 4.31% and the 10 yr. is yielding 4.05% – all while the TLT and TLH rose by 1% respectively.….….because all the algo’s can do is read the headline and interpret the words….so a lower funding requirement is taken as bullish…..

I am in the camp that Janet made that move AHEAD of the FOMC announcement tomorrow to support JJ–  and what is expected to be a shift in FED thought….We are expecting to hear that the FED has taken any rate hikes OFF the table – which doesn’t mean that rate cuts are ON the table – it just means that – they assume we hit the peak and the most likely next move – at some point – will be down and not up – but that says nothing about how long they will keep them unchanged at current levels.  And that is what the markets will want to hear…. It wants to know (specifically) when the FED is going to make the first cut…. They want JJ to commit –and if he doesn’t – They will hear what they want to hear vs. what he really said…… Which is exactly what happened in November.

March – which was the Vegas bet – has lost its luster and while there is still a 50/50 shot, the bookies are pushing a May cut instead (80/20)….with trader types pushing a May start and then a cut at nearly every meeting after that….which makes NO sense at all….This is a Presidential election year – the FED is not supposed to make ANY move (up or down) in the six months leading into the November election… So, it will be difficult to understand how the FED would justify any move after May and before the election…. But – with all of the angst and tension building this early in the process (think Donny) – it should NOT surprise anyone if they do… Just sayin’

There wasn’t’ any eco data to speak of yesterday – but today we will get the Conf Board Consumer Confidence report -expected to be 114.5 – up 4 pts over last month…and the JOLTS report which is expected to show a decline in Job Openings…. That too would be considered bullish…

This morning – US futures are ticking slightly lower!  Dow futures – 62, S&P’s -6, Nasdaq -6, and the Russell is -1.  The VIX is up by 1%…. but feels like it’s ready to explode – it just needs 1 negative headline…just one…… Markets are trading cautiously ahead of all of the earnings reports today…and all of the speculation about what JJ will say tomorrow….  Investors are also paying close attention to the unfolding developments in the RED Sea….  How will the US react to the drone attack over the weekend?  Today’s WSJ points out that there was a ‘mix up’  by the US in the drones over the weekend – Oh boy…..….….In any event – Geo-political issues do not price stocks in the long term, they do though, create chaos in the short term and that chaos can prove to be an opportunity.

Oil is holding tight in the $75.50/$80 level – trading at $76.80…. Gold remains in the $2,030/$2100 range…. trading at $2,050.

Stocks in Europe are all higher…. Eurozone GDP data is out…. German GDP fell by 0.3% – following 2 qtrs. of flat growth.  France reported 0%, while Italy and Spain grew by 0.2% and 0.6% respectively.

The S&P closed at 4927 up 37 pts taking us into a new century….….….as the momentum carries us higher and higher…. All on the idea that the FED and other global central banks are preparing to cut rates and that TECH earnings are ready to blow the doors off the bus…..….Anything short of all of this ‘positivity’ will be a reason for the trader types to ‘lock in’ these profits…..and be a reason for the long term investor to be patient – Remember – as a long term investor – you are invested…you are participating….and you have cash on the side to take advantage of the coming sale….And if you are just starting out – go slow….no need to rush anything….Time is on your side.

Remember – I am rooting for some weakness – but am not sure we will get it this week due to all of the events taking place…. But if we do, I’m a buyer….

Look – I can’t emphasize it enough…The FED will keep all their doors open….and while they will decide not to raise rates any further – they will not commit to a cut date…. but the question is – will JJ suggest one at the press conference?  Will the journalists put him in a corner like they did in November? 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… give me a call to discuss.

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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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.

Dover Sole Meuniere

Janet’s announcement feels a bit ‘fishy’ to me so try the – Sole Meunière – easy to make and can be varied according to your own tastes:

You will need:  Dover sole (or lemon sole) flour, s&p, butter/oil, lemon, parsley and capers (optional).

Rinse and pat dry the filets – Combine flour, salt and pepper – dredge the filets and set aside.

In a skillet over medium-low heat, melt the butter and add a splash of Olive oil to prevent the butter from burning.   As soon as the butter stops foaming place the filets in the pan – being sure not to overcrowd the pan (maybe 3 fillets at a time). Cook for 2 – 3 mins then turn and cook for an additional 2 – 3 mins depending on thickness of the filet.  Only turn once during cooking.

Place the filet on a warmed platter and melt a bit more butter in the skillet – turn off the heat so that you do not burn the butter…. squeeze the fresh lemon into the butter – add capers and stir together.

When completed – pour this sauce over the filets – sprinkle with fresh parsley and serve immediately.   Serve this dish with French cut green beans – that are first blanched in salted water, then shocked in a cold bath then quickly sautéed in a bit of butter and s&p.  Easy, quick and good for you.

Buon Appetito