Things you need to know.
– S&P is now solidly in the new millennium.
– Some are still betting on numerous rate cuts in 2024.
– Tech and anything AI fueling the latest run.
– Bond yields steady to a bit higher…/prices lower.
– Oil down a bit, Tensions ease.
– Gold down, dollar up.
– Try the Rigatoni
So, the momo guys did it again! The S&P blazes another trail and continues to melt up…… – surging up and thru 5000 like a hot knife thru ‘butta’….amid what feels like a brand new rally led by ‘anything Tech’…..all while the trader types are still betting that the FED is playing ‘I’ve got a secret’…..meaning that all of this talk of NO rate cuts isn’t what they really intend on doing….and while a March cut still has a low probability of happening – there are those that are once again pushing that narrative. And, they say, if the FED does cut rates, then margins will continue to expand, the economy will continue to remain strong and corporate profits will surge and if corporate profits surge – then stock prices will follow.
But to be clear – that is NOT what the FED is saying…. the most recent narrative has been ‘not happening’…. get those 5 – 7 (and maybe even the 2 – 3) rate cuts out of your head. On Friday – Atlanta’s Raffi Bostic reiterated that the Fed remains ‘laser focused’ on 2% inflation while Dallas’s Lorie Logan reminded us that she sees NO urgency to cut rates.
Friday marked the 14th week of gains for the indexes…….the Dow – which is not a tech index – but does include 5 tech names did not end the day higher….the strength in MSFT, IBM, AAPL, INTC, CSCO – could not offset the weakness seen in CAT, AMGN, CVX, MCD, DIS, UNH, PG, MRK GS leaving the Dow searching for direction….at the end of day the Dow lost 55 pts or 0.15%. The S&P gained 29 pts or 0.6%, the Nasdaq +197 pts or 1.25%, the Russell added 31 pts or 1.5%, the Transports up 73 pts or 0.5% and the Equal Weighted S&P up 10 pts or 0.15%.
The gains – which started last year – led by tech (mostly AI) continues to push ahead – and this year the gains ARE AI….so anything that ‘sounds’ like AI gets rewarded…..the XLK up 1.35%, Semi’s – SOXX +2%, Disruptive Tech – ARKK +2.4%, Expanded Tech – IGM + 1.5%, Cybersecurity – CIBR +2.3%, Robotics – BOTZ + 1.8%, SPYG + 1%. Many of the same names carrying all of these ETF’s higher…think NVDA, AMD, AVGO, QCOM, CRWD, PANW, CSCO, MSFT, APPL, AMZN, META, TSLA – and what you need to know here is that if you own all of or a combination of these ETF’s you run the risk of being way overweight in the same names – which is great when the market is going UP, but can and will create agita/angst if the market should do a U turn and go down.
Of the 11 S&P sectors – Consumer Staples, Energy, and Healthcare were weaker…. While Tech, Industrials, Utilities, Financials, Consumer Discretionary, Communications, Basic Materials and Real Estate all gained.
So here is what I’ll say – Yes, S&P 5000 is exciting…the 22% gain since the end of October has been nothing short of amazing…..7 names are responsible for much of the move and those same 7 names are projected to post 55% profit growth in the 4th qtr. of 2023 – that’s vs. the 1.2% expansion of the S&P and those same 7 names are expected to grow earnings by another 20% in 2024…which would be double what the S&P is expected to gain. So that explains why tech is trading at a 30% premium to the S&P on a forward P/E model.
But the tone is broadening out and investors need to think ‘outside of the box’…. looking for opportunities that exist outside of tech. And those sectors include – Industrials, Healthcare and Financials…. all breaking out and all offering opportunities to diversify and protect your portfolio. SMID’s continue to underperform but are becoming interesting…. Utilities are boring, but there are some hidden gems in the group and after what is happening globally – you can’t discount Aerospace and Defense.
Now bonds came under some pressure last week and on Friday – and this after last week’s successful bill and bond auctions – which is a bit confusing…..…the TLT and TLH lost 0.2% and 0.3% respectively leaving the 2 yr. yielding 4.47%, the 10 yr. yielding 4.16%, the 20 yr. yielding 4.47% and the 30 yr. yielding 4.36%. Short duration 3 month and 6-month notes are yielding 5.4% and 5.3% respectively on an annualized basis.
The VIX (fear index) rose by 1.25% – which isn’t anything to really get worked up about, but is up 3.5% this morning….on no apparent public news – which is interesting…..….but we are going to get another 60 names reporting this week along with some key inflation data….and that could cause some angst for investors and the markets. While earnings are expected to remain strong – currently 85% of reports have beaten the estimates… there will be a lot of economic data out this week and it will be tomorrow’s CPI and Friday’s PPI that dominate the discussion.
The CPI is expected to be up 0.2% m/m and 2.9% y/y while Core CPI is expected to be up 0.3% m/m and 3.7% y/y. In addition, we will get Retail sales – expected to be -0.1%, but ex autos and gas it should be up 0.3%. Philly Fed Business Outlook -8.6, Industrial Production +0.3%, Capacity Utilization of 78.8%, Housing Starts of 0% m/m while Building Permits should be up 1.5%. Friday brings us the latest PPI and that is expected to be up 0.1% m/m and 0.7% y/y, while Core PPI +0.1% m/m and +1.7% y/y. And yes, those are good numbers… but it doesn’t really make a difference – because Janet is not worried about inflation any longer. Recall that she told the Senate Banking Committee last week that she does NOT expect prices levels to decline, but that’s ok because wages are now outpacing inflation – so no one should be having an issue any longer so stop complaining.
And if these numbers come in as expected – then expect the whole rate cut story to gain new momentum. Now look – while we don’t need any rate cuts – notice how strong the economy is – the way they are going to position it (rate cuts) is because Europe needs it….…. their economies are not nearly as strong as ours and so Christine Lagarde – ECB President will have not choice but to cut and that will open the door for JJ to support her and cut US rates. Something I think would be a mistake…but I am not a voting member of the FED.
On the political side – Jo Jo skips the Superbowl but puts out a recorded piece on ‘X’ – scolding corporate America for what he apparently just realized is ‘shrinkflation’ (been happening for 3 years) ….that’s where the manufacturers shrink the size of the packaging but do not cut the price – which is really inflation – right? They give you less, but you pay more…. but I guess all of Jo Jo’s advisors thought the Superbowl would be a perfect time to scold corporate America for that – with Jo Jo saying – ‘Come on, give me a break!’. And then over the weekend we had the MSM gushing over how ‘sharp’ Biden is – and how he is on his game no matter what the Special Counsel says….and yes – He is their man for the job….(something I am willing to bet will not be the case – come the convention).
And then you have Donny – coming out and threatening NATO countries while dissing Nikki Haley’s husband and the US military – Not smart by any measure…. …all while the Senate – led by Chucky – tries to force a $95 billion Ukrainian/Israel/Taiwan aid package down our throats after the failed border bill last week….…. I mean – it’s amazing to me – that we find ourselves in this position… These are the choices. Remember – political chaos can cause short term market chaos but does not cause long term price disruptions…. So, do not make financial decisions based on political upheaval.
US futures are mixed….…Dow -25, S&P’s +1, Nasdaq + 12 and the Russell +2. The focus today will be on tomorrow’s CPI report – with traders then refining their bets once that report is released…. If it comes in at +2.9% it will be the first time it has been below 3% since March 2021. I for one – do not think that this changes the narrative, but we are about to find out.
Oil is down 75 cts at $76.15 – there were no outbursts in the RED Sea and Israel has said that they have concluded their strikes on Raffa, so the sense is that tensions have subsided (just a bit).
Gold is down $3 and is now testing support at $2035. You can thank the ongoing talk of no rate cuts for pressuring gold. You can also thank the recent strength of the dollar (again no cuts) for pressuring Gold. The dollar index has surged 1.5% since last week – it pierced resistance at $104.15, backed off and is now kissing it again……A push up and thru could see the dollar run towards $106….and if that happens, Gold will take a hit. Now if the whole rate cut story gathers new momentum – then expect the dollar to retreat and gold to rise. And so, we wait.
The S&P closed at 5026- – up 29 pts….and now decisively in the new millennium. But the higher we go the more it feels a bit ‘toppy’ as investors reconsider their appetite. Yes, AI is changing the world, yes 80% of reports have beaten the estimates and yes, the economic data remains robust, but the market has priced that all in. Now the market has to price in the fact that rates are not getting cut as expected, so do not be surprised to see us do some ‘backing and filling’, but it is that backing and filling that gives the long-term investor the opportunity to ‘add’ to their positions.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Rigatoni w/Roasted San Marzano Cherry Tomatoes w/Bell Peppers, Red Onions and Feta Cheese
You need:
2 blocks of Feta cheese, 2 packages of San Marzano Cherry size (plum tomatoes), Red onion, 1 red bell pepper, 2 heads of garlic, s&p, Italian seasoning and Olive oil.
Preheat oven to 400 degrees.
Now – slice the tomatoes in half, core and slice the red pepper, slice the red onion, place in a baking dish – season with s&p, and Italian Seasoning, drizzle with Olive oil and mix. Now add the 2 blocks of Feta Cheese in the middle of the dish and the 2 heads of Garlic – top trimmed drizzled with oil. Place in oven and roast for 40 mins.
Get your food processor –
Place the roasted tomatoes etc. into the food processor. Remove & squeeze the roasted garlic out of the bulb and add to the mix. Puree it and then set it aside.
Boil your pasta – cook until Aldente.
In a large sauté pan – add the sauce – and add 2 ladles of the pasta water. Mix. Now add the pasta directly to the pan and coat well. If the pasta sucks it up, just add another ladle of the water…. You want it moist – not soupy. Serve immediately in warmed bowls. Have fresh grated parmegiana cheese on the table for your guests.
Buon Appetito
