Things you need to know.
– The March rate cut narrative is NOT DEAD.
– Tech led the way down and then it led the way UP.
– AMZN & META Tear it Up, AAPL gets slapped.
– It’s NFP day…. estimates range from 110k – 250k jobs created.
– Factory Orders and Durable Goods after that
– Try the Bone in Rib-Eye Tagliata
Stocks rallied hard on the ‘day after’ the Dow gained 369 pts or 1%, The S&P added 60 pts or 1.25%, the Nasdaq surged – adding 200 pts or 1.3%, the Russell added 27 pts or 1.4%, and the Transports rallied – adding 130 pts or 0.8%.
Now the rally had multiple parts….
The first part fueled by the idea that JJ wasn’t convincing enough on Wednesday – Yes he said that ‘it’s not the time’ yet some people heard ‘Not so fast buddy….there is still plenty of eco data that could force a cut…’.…..….and so the March rate cut narrative remains alive and well….even though JJ said – we took it off the table.
Now today’s NFP report may just be the data point they are pointing to…..…The rate cut ‘guys’ think it will be a weak number rather than a strong one….the estimate calls for the NFP report to show an increase of 180k new jobs…..the ‘rate cut’ guys are saying that the ‘whisper number’ will show only 110k new jobs and that – in their minds – means that a March cut is ‘hot’…..while the ‘hold the rate here’ guys are predicting something stronger than the estimate….
Goldman has a 250k number on it…and if that is the case – then you can kiss any idea of a March, May and June rate cut goodbye…In fact – if the NFP is that high – then a rate HIKE narrative could be reborn…. Unemployment is expected to come in at 3.8% – historically low…. Remember – economists say that the unemployment rate has to have a 5 handle on it before we see the CPI at 2%. – and we are a long way away from a 5% unemployment rate, but layoffs did surge by 136% in January….and that is a concern…because at some point those people have to show up in the data….amd
So again, I am in the camp that a March cut is NOT on the table…but if they want to take stocks higher – I don’t mind…. Happy to go for the ride….
And then part two….
The rally fueled by the very names that led the decline – ahead of earnings from AAPL, AMZN and META…. ….and why is that – because – investors finally decided that the ‘over reaction’ to the most recent tech reports – was just that – an overreaction…. Look – could the rally that began in late October – that priced these stocks to ‘perfection’ have anything to do with the latest response? Of course, it could…and did….
Yes, AI is the major story – it isn’t becoming the major story, it IS the major story…..and there is a lot going on there – much of it well known and priced in….The earnings reports and guidance were – in my opinion – outstanding, But it was almost impossible for the stocks NOT to sell off…..because you can’t tell me that MSFT’s 33% profit surge – powered by AI is a reason to SELL the stock…… It’s illogical……and nor was it logical for long term investors to sell GOOG, AMD, AAPL, AMZN, & META etc……but people did sell these names….the trader types doing nothing more than locking in profits…the big asset manager types are doing what you pay them to do – manage risk.
Now asset managers that sold some of these names are doing so because they need to manage overall risk – they are managing billions of dollars….They need to make sure they are balanced, both in theme and in weightings…..so when the prices of some of this stuff causes these portfolios’ weightings to skew – then policy demands that they have to figure out a way to bring it back in line and most of the time that means that they ‘peel some off’ of the outperformers and re-allocate or hold in cash – awaiting another day….
And according to BankAmerica – institutions (think mutual funds, insurance companies, pension plans, etc.) last week ‘sold the most US equities for a single week in a decade.’ Goldman Sach’s ‘tactical specialist’ and managing director – Scotty Rubner tells clients that.
“If the US stock market goes down a little from here, it could go down a lot.”
And to think – Goldman clients ‘pay’ for that insight.
In any event – some of that newfound cash either stays in cash, gets reinvested in other sectors or other asset classes……Bonds come to mind….…. and in fact – while the stocks indexes were getting slapped, the bond etf’s were rallying…the TLT +5.8% and the TLH +4.5% and that sent bond yields lower…the 2 yr. is now yielding 4.23% and the 10 yr. is at 3.887%…. a low not seen since December 2023.
Drum roll please…….
And then after the bell- it happened…. AAPL, AMZN and META all reported….and they killed it…. AMZN, & META surge higher…. AAPL gets trounced…. I am not sure why? They earned $119.5 billion in one quarter (that’s 3 months), iPhone revenues $69.7 bil vs. 68.5 bil, and here is the problem – Greater China revenue of $20.8 bil, vs. $23.5 bil – and so for that they take the stock down 6% in the after-hours session? Are you kidding me? – they just earned $119.5 billion in 3 months….I don’t’ care what happens in China….I am not selling my AAPL because of China…in fact – on the weakness I am buying MORE! It’s ridiculous……
But this is exactly where a large asset manager will ‘peel some off’…. AAPL is 6.6% of the S&P….so if he/she is overweight – say AAPL is 9% of their institutional portfolio– then it begs the question by the boss – Why are you overweight? Did you see what’s happening in China? Bring your position in line…and so they sell stock…. It’s nothing more than a math problem…. The fundamental story for AAPL did not change overnight…. the weakness in China should not have been a surprise if you have been paying attention to the conversation over the past 6 months….
Just fyi – the ‘panic selling’ in AAPL is taking it down 2.5% this morning, leaving it sitting directly on the trendline – $182.50…- So, here is what you need to consider? Will it hold the line or breach the line…? A breach could see it pull back to the mid $170’s…. which would represent a 12% pullback off the December high of $199.96.
META is surging by 16%….and what was their ‘golden buzzer’…. well – they threw 22% of their people out in 2023, they tripled profits, they announced a $50 billion stock buyback, and they announced a 50 ct quarterly dividend. Do I need to say anything else? This morning the stock is quoted up $65/sh. Did you see the post about the person (unidentified) who bought 32,000 calls (yesterday – before the announcement) that’s equal to 3.2 million shares of META…. And then at 4:05 pm – they announced all of this good news and BANG! That trade produced a $160 mil profit…. amazing how that happens…no?
In any event – it is what it is….
Now in preparation for today’s NFP report – yesterday’s Initial Jobless Claims did show a minor increase, labor productivity advanced and US factory activity climbed to its highest level in more a year and half. – Those are not results that scream for a rate cut…at all…..but they just can’t let it go….And by the way……Neither can Goldman, BankAmerica or Barclay’s – these 3 ‘investment banks’ are sticking with the March narrative….Again, Goldman is confused…on the one hand they are projecting a 250k job creation number – yet at the same time they are calling for a rate cut in March….
This morning futures are higher. the Nasdaq exploding up 182 pts, the Dow up 10, the S&P up 30 and the Russell is up 3. Again – I would just be careful about chasing any of these names up here…..If you are establishing a new position – go easy….and if you already own it, celebrate, if you want to add more – be patient and if you want to take you money off the table then hit the SELL button…
Expect all kinds of analysis over the NFP report today. In addition, we are going to get Factory Orders – expected to be up 0.2% and Durable Goods Orders – expected to be flat…. Now that doesn’t make sense to me – why? Because there is a lot of building going on – New Home Sales were up 8% m/m, Construction Spending was up 0.9% …. which means there is a lot of demand for ‘durable goods’ – think appliances, AC units, heating units, consumer electronics, furniture…. So, if Durable Goods comes in flat – then it seems to me that there is a disconnect somewhere…. Just sayin’…. I mean – are we gonna build all these units and then not put in a kitchen? Or an AC unit? How about a heating unit? And where are you gonna sit? And how are you gonna control the ‘smart house’ without consumer electronics?
Oil fell yesterday to test trendline support at $73.80 on rumors that there was a ceasefire between Israel and Hamas – that was later denied, but it is true that a proposal has been offered. This morning – OPEC+ is keeping production and output policy in place and the Saudi’s hope that that will keep supplies tight forcing prices higher…. WTI is up 0.35 cts at $74.20/barrel.
Gold shot higher over the past two days on concerns of a global real estate meltdown…. which would increase the likelihood of a March cut and that sent the dollar down…bonds up, yields down and gold – up. Gold did trade as high as $2,080/oz yesterday before closing at $2,071. This morning it is churning right here and remains in the $2,030/$2100 trading range.
European markets are up…. The BoE left rates unchanged – but there was a split vote….2 voted for an increase, 1 voted for a decrease and the others voted to hold rates steady…. leaving investors there to bet on the side of a cut…. ECB inflation data eased slightly in January, but services inflation data held steady. Ata 6:30 am – markets across the region are all up. The UK + 0.2%, Spain up 1.1% and all the others are snuggling up in between.
The S&P closed at 4906 – up 60 pts…. The idea that we are going to test 4800 today is out of the question…. but we most like will test the January 30th high of 4931 – where it feels a bit tired….
You know me…. I am a long-term investor……I only react to news in stocks I own – when it changes the fundamental story…. When it doesn’t, I check the box and move on…. when it does, then it does…. In any event – call me to discuss. 212-381-6194.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Porcini Rubbed Rib-Eye – Tagliata Style
For this you need: Dried porcini mushrooms, sugar, s&p, garlic, olive oil and balsamic vinegar, boneless rib-eye, arugula, red onion, shaved parmesan cheese and one lemon.
Grind 1 oz of dried mushrooms until fine…you can use a mortar and pestle or a food processor.
Next combine the mushroom powder with 2 tbsps. of sugar, 1 tbsp. of s&p, 4 garlic cloves (chopped) and about 1/4 cup of olive oil. Set aside. You can make a container of this rub up to this point and store in the fridge in a sealed jar. When you get ready to use it – take it out of the fridge. Mix and then massage it into your meat of choice.
In this case – we are using a bone-in rib-eye – again you can use a different cut if you want, but I love the rib-eye.
Season the meat with salt. Now massage the porcini rub into the meat, making sure to coat it well.
Preheat your oven to 400 degrees.
In a large cast iron skillet – add about 1 tbsp. of olive oil and heat it up. Add the steak and listen to it sizzle, brown on both sides. Now, place the skillet into the oven and let it cook for about 5-8 mins – depending on its thickness. If you have an instant read thermometer it should read 135 degrees when inserted in the center. Remove and let stand for 10 mins – tent it to keep it warm.
Now slice the steak at an angle so that you can fan it out on the plate. Lay down some arugula and red onion, place the steak on top and then drizzle with a bit more of the olive oil and a squirt of fresh lemon juice. Then top with the shaved cheese.
Buon Appetito.
