Buyers Charge Back…Oil Plunges…Then Waller Drops the Half-Point Bomb! – Try the Porcini Rubbed Rib-Eye.

Things You Need to Know

• Buyers come charging back in…leaving nothing behind other than NVDA.
• Oil plunges on more possible diplomatic resolution talk.
• Chrissy Waller – drops the 50-bps bomb…
• CPI due out at 8:30 am.
• Try the Porcini Rubbed Rib-Eye

Well…apparently they want them again! Over the weekend, investors reconsidered what happened last week – the volatility we saw post the election did a fair amount of technical damage to the markets on Thursday and Friday, after the Wednesday surge.

And then yesterday – buyers came charging back – buying everything they could get their hands on…… At the end of the day – there were balloons everywhere…. the Dow gained 2.1%, the S&P added 2.3%, the Nasdaq rallied by 2.7%, the Russell up 3.1%, the Transports gained 3.1%, the Equal Weight S&P added 2.2% while the Mag 7 advanced by 2.5%.

It was chips, software, disruptive tech, cyber, banks, machinery, jet engines, transportation companies, home builders, retailers, metals & miners, aerospace & defense, quantum names, memory names, big pharma, biotech, smids, – you name it they bought it…. the stocks they couldn’t get rid of fast enough last week were back in vogue….

And here is what makes this interesting – 423 of the S&P’s 500 stocks advanced. ALL 11 sectors ended higher together for the first time since May.

Industrials up 3.8%, Tech up 3.7%, Consumer Discretionary up 2.9%, Communications up 2.5%, Healthcare and Basic Materials up 1.9%, Utilities up 1.5%, Real Estate up 1.4%, Financials up 1.4%, while Consumer Staples added 0.9% and Energy added 0.5% – even as oil plunged.

But we had one very conspicuous exception – NVDA – because apparently we needed another headline to throw into the mix! The stock fell 4.3% yesterday after Jensen Huang admitted to an affair (with another Huang – no relation) – allegedly working for Chinese intelligence. I mean WHAT?? You can’t make this stuff up – who would believe you.…

Over the weekend – the board opened an independent investigation, and suddenly investors had something else on their plates to worry about besides chip sales and AI spending. Did he ‘give up ‘sensitive information when he reached ‘the point of no return’? What will Washington do now? And what does this mean for Jensen – the man so closely identified with NVDA’s success? The company says it has no reason to believe company secrets or national security were compromised (would you expect anything else?). But those questions were enough to make shareholders nervous…and yesterday, the buyers stepped aside as some investors hit the SELL button. Today NVDA is moving higher by 0.5% in the pre-mkt.

Ok – back to the issue at hand – what changed? What brought buyers back? Well first I will say it was all the technical damage that had been done on Thursday and Friday…. (think broken trendlines and way oversold conditions) for the indexes and many stocks – …damage that seemed somewhat reasonable to some, was suddenly seen as opportunity by others….

What else fueled the rally? OIL!

Over the weekend, Trump downplayed the prospect of renewed ‘extensive’ strikes on Iran as long as diplomatic negotiations progressed. That helped take a chunk of the geopolitical risk premium out of crude. WTI settled down 4.4% at $86.85, while Brent plunged 5.9% to $92.57…and the selling from yesterday continued last night – with oil down even more…. WTI down another $2.25 or 2.6% – at $84.56/barrel, taking it right to the intermediate term trendline. Brent is down another 2.9% and has now broken down and thru all of its trendlines – putting $80 in the line of sight. Oil is now down 20% since Halloween…and if a settlement appears to be possible – then expect oil to continue to plummet….

And Diesel? It is trading at an average of $6.15/gal this morning – down from $6.52 in late September.

And that gave buyers a reason to step in – because cheaper oil eases pressure on transportation costs, business expenses and household budgets. It also offers some relief on inflationary pressures…just as investors prepare for today’s CPI report.

Now, do not misunderstand me – we do NOT have a peace agreement yet and this could all change tomorrow – the risks haven’t disappeared. But yesterday – investors saw less risk ….

Then came the reassessment of last week’s election panic and while the results have not changed – the interpretation did. Suddenly, the idea that the Dems would bring the AI buildout to a screeching halt looked like – just what it was – an overreaction. Many strategists (me included) pushing back on the hysteria – arguing that fears of sweeping restrictions on data-center development were a bit excessive.

Look – more regulation, tougher approvals and delays can change where projects get built and when the spending happens and those are legit concerns…. but remember – money and investments will go to where they are treated best…. And if some of the blue states – put up all kinds of barriers and do not want development and job creation – then guess what? That development will go to friendlier places – think red states….…. In the end – investors went from the AI trade is over to – this might just be a bit more complicated.

Add in Friday’s solid NFP jobs report and continued strong corporate earnings growth…and buyers had every reason to question whether last week’s selling had gone too far.

Now bonds did NOT join Monday’s celebration. The TLT and TLH barely moved…The 10-year yield finished the day at 4.88% while the 30- yr yield was at 5.26%. Yes, cheaper oil offered some inflation relief…but investors are still not convinced that another hike in December has been halted…. futures are still pricing in an 80% chance of a 25-bps rate hike next month.

And now, this morning, there is a new twist…Fed Governor Chrissy Waller put a HALF-POINT December hike on the table. Yes folks, you heard me correctly……50 basis points is now on the table.

Now, Waller describes the economy as strong and the labor market as stable…but inflation remains too high. If October’s monthly inflation numbers (today’s CPI) improve as he expects, he leans toward a 25-bps increase. But if core CPI m/m comes in above the 0.2% estimate then he will push for a 50-bps hike.

His concern? The Fed’s credibility. Under that hotter-inflation scenario, he warned that raising rates by only a quarter point could undermine confidence in the Fed’s determination to get inflation under control. Think about that…investors spent Monday celebrating falling oil and buying stocks and now Waller reminds them that the Fed could surprise them on the upside and step on the brakes a bit harder.

To be clear he has NOT committed to a 50-bps hike, he just made it conditional on the inflation evidence…and that raises the stakes for this morning’s CPI report.

And that matters for bonds AND stocks…because higher yields raise financing costs and that puts more pressure on valuations. This morning – the 10- yr is yielding 4.89% while the 30 yr is yielding 5.27%.

Gold did exactly as you’d expect- as oil prices plunged….it rose $70 or 1.7% to end the day at $4,140 – failing to pierce resistance at $4,186…. but this morning after Wallers remarks – gold is down $65 or 1.5% – trading at $4,075. – Leaving us in the $3,910/$4,186 trading range.

And earnings continue to impress – CEG beat and raised, KKR beat and reported that fee-related earnings rose 27%! Today we will hear from SEA, VOD, CRWV and PBR – representing Consumer Discretionary, Communications, AI cloud tech and Energy….

This morning – European markets are all higher…. up more than 1.5%.

US futures are mixed– Dow futures up 173 pts, S&P’s up 6, Nasdaq down 60 while the Russel is up 2. (NVDA is up 0.5%).

The S&P closed at 7,549 – up 173 pts., taking us back up and through 7,500, but leaving us below intermediate resistance at 7,620. Now remember – on Friday we tested long-term support near 7,330, and yesterday we tested resistance near 7,620…That is quite a swing in just two sessions!

For now, we are in the 7,330/7,620 trading range… And even if buyers push through 7,620, short-term resistance is waiting just overhead at 7,672…so there is more work to do. Yesterday’s rally was powerful, but the next test is whether buyers can build on it and hold those gains. Getting through resistance is one thing…staying above it is another.

Remember – days like Thursday can be unnerving and days like yesterday be exciting….…. In the end – having a well-diversified plan is the best option…it helps to keep you grounded and focused. We are just 8 weeks until year end…. a lot can happen – but my gut says we end the year somewhere in the 7800’s.

If you’d like to discuss your goals, evaluate the risk in your portfolio or simply get a second opinion, give me a call at 561-931-0190 or better yet – click on this link to connect. https://slatestone.com/contact-us/

I’m always happy to provide a complimentary portfolio review and risk assessment.

Take good care,

Kp

[email protected]

Source: Bloomberg, CNBC, Reuters, Wall Street Journal

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