Things you need to know ~

• Stocks rally as the year ends, Naz rises by 2.5% hardly enough to change the narrative.
• The issues remain the same and unresolved (as of yet) – FED and global central banks remain aggressive and inflation remains sticky.
• This years selloff has created longer term opportunities – you just need to look…
• Try the Ricotta Coffee Cream

At this time, I would like to say Thank You, for allowing me to be a part of your daily life. May the New Year bring you peace, joy, health, happiness and continued prosperity.  It isn’t always easy – no one said it would be – but we have the love of family and friends to lean on….Take good care – Stay safe and see you on the other side – Kp
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And the whiplash continues…..and no one should be surprised as we move into the final trading day of the year….stocks rallied, yes, but it isn’t really gonna make that much of a difference – we are on track to record the worst year for stocks since the 2008 Great Financial Crisis……The Dow ended the day solidly higher gaining 345 pts or 1%, the S&P closed up 66 pts or 1.7%  the Nasdaq added 265 pts or 2.6%, the Russell gained 45 pts or 2.6% while the  Transports added nearly 200 pts or 1.5%.

Why?  Well – as I said at this point the moves are not necessarily ‘explainable’ (but take your pick – because you could craft almost any argument you wanted)  – You can’t say that one day the world is ending and then on the next day say it’s all good……The markets and the economy remain skittish, technically they have suffered and need time to heal,  they can turn on dime (as evidenced) and every single concern out there is still out there – think:  Trade, FED, Interest Rates and Balance Sheet, a resurging covid variant out of China, Slowing Global Growth, 4th Qtr. Earnings and the coming slowdown in those earnings for 2023.

Either way – the hi-freq traders, quant types and algo’s continue to run roughshod over the mkt – the humans are beginning to settle down, they are now looking at what happened in 2022 and seeing real value and opportunity in 2023.  Stocks that started the year as the ‘darlings, the favorites’ are now nothing more than the  ‘kid that no one wanted on their gym team at school’   – and don’t think that is NOT the case – it is and while I am not ‘bashing’ technology – what I am saying is we are in a different place than we were 1 yr. ago.

Look  – there are a number of things going on: one is the tax-loss selling.  Two – are the investors that are looking for dislocated names that represent true, real value, three are the investors that want to believe that the economy is sound and that earnings will be decent and they tend to buy the dip, four is that we got ourselves into an oversold position and five – lower trading volumes produce exaggerated results in both directions – Period! And that is what we saw yesterday because there was no major news that prompted the reversal.

Now – have we hit the bottom yet?  Most likely not, but my sense is that we are closer to the bottom – you know I’m saying that we test the October low of 3490 ish before we see the end….The other tell-tale sign will be if we see a day of complete exhaustion and capitulation…when for no real reason, they throw everything out the window, including the kitchen sink and that, my friends, is when you ‘back up the truck’!

All 11 broad S&P sectors in the green…..and again – as you would expect – the bargain hunters went for the most beaten up sectors as they searched for short and long term bargains – as some are just day trading the names while others are looking for those ‘diamonds in the rough’….…..Tech – XLK +2.6%, Communications – XLC + 2.8%, Consumer Discretionary – XLY + 2.6% and Real Estate – XLRE added 2.2%, – these 4 sectors are the biggest losers for 2022 falling 28%, 38%, 36% and 28% respectively. So, it makes some sense that if you are looking for bargains this is one of the first places you would go.

Communications – XLC + 2.8%, Consumer Discretionary – XLY + 2.6% and Real Estate – XLRE added 2.2%, – these 4 sectors are the biggest losers for 2022 falling 28%, 38%, 36% and 28% respectively. So, it makes some sense that if you are looking for bargains this is one of the first places you would go.

If we look further down the scale – we also saw big one day gains in some of the other years worst performers….ARKK – Disruptive Tech – which was down 72% on the year – gained 5.2% yesterday.  Semiconductors – SOXX which was down 38% on the year – gained 3.2%, Clean Energy – think wind & solar represented by the ETF – PBW (Invesco)  gained 4.2% but is still down 45% ytd.  Retail – XRT added 2.54% but remains lower by 33%. Biotech’s – XBI gained 4.4% but remains lower by 26%. The Software ETF  – IGV  which is down 35% ytd also gained 3% yesterday…and that includes names you know and love – MSFT, ADBE, CRM, ORCL, ATVI – do you see the pattern?

Now some of the years best gainers did trade higher – but not nearly with the same Uummph…..Traditional Energy (think fossil fuels) – XLE rose 1% leaving it up 56% on the year – think names like XOM + 78% ytd, CVX + 52% ytd,, SU +35% ytd…….Coal and mining stocks (also traditional fossil fuels) continue to do well adding to their outstanding performance during the year…names like AMR (Alpha Metallurgical) is up 145% ytd, BTU – (Peabody Energy) – also a ‘coal’ name is up 166% this year….ARCH (Arch Resources) another ‘coal’ name is up 55% ytd….and Oil Services – yes sir – those are all higher on the year too!  SLB +76%, HAL + 70%, BKR +22% while the ETF – OIH is up 65%….So anyone who says there is no opportunity – is not looking in the right places….

Back to the broad 11 sectors – we saw gains 1+% in Industrials, Financials, Healthcare and Basic Materials with Utilities gaining 0.7%.

Treasury yields – Do I need to discuss?  Yes, they are on the rise and remain inverted…..and getting more so….the 3 month T-Bill is yielding 4.26%, the 2 yr.  yielding 4.38%, the 5 yr. is yielding 3.97% while a 12-month CD at the bank could fetch you 4.5%.

Oil which traded back up to $80 and kissed the trendline – backed off and is now trading at $78.40….the next time we test resistance will most likely see it pierce up and through and then hit the intermediate trendline at $82.30.

Gold is trading above all 3 trendlines at $1825/oz appearing to want to test the June high at $1900/oz/.  In any event the new trading range appears to be $1780/$1900.

This morning – US futures are churning LOWER – The Dow down 110 pts, the S&P off 15, the Nasdaq down 45 and the Russell lower by 9 pts.  Expect lots of churn today – it is the last day to take  advantage of any tax loss selling for your 2022 tax return – due in April and as portfolio managers look for 2023 opportunities to have in their portfolios for their year-end statements.
European markets are lower as well…all down about 0.7% as morning turns to afternoon,.

The S&P closed the day at 3849 – up 66 pts.  No matter what happens today – it isn’t really changing the narrative at all….Just remember – the pendulum swings too far – in both directions – all the time….so corrections and repricing’s are just part of the efficient mkt theory – We just need to decide if the pendulum is still swinging to the left or has it reached its arc and is preparing to swing to the right creating big opportunities for the longer term investor – while creating ‘trading opportunities’ for the quants and HFT guys.  So keep your eye on the ball and as a long term investor – you need to eliminate the noise and focus on the long term.

Know what you own and why you own it – Make sure the story has not changed,   If you believe the story has changed then get rid of it – but be careful…..the knife cuts both ways – and any sense of closure  on any one of THE issues facing the markets will create a positive headline and the mkt will eat it up……Capisce?

Take good care,

Chief Market Strategist
kpolcari@slatestone.com

Ricotta Coffee Cream

One greater and simpler desert for the holidays –

Ricotta Coffee Cream – If it takes you longer than 1 min – you did something wrong!
This is a combination of Ricotta cheese, rum and espresso coffee……

You need:  1 1/2/ lbs. of fresh whipped Ricotta Cheese, 2/3 cup of sugar, 5 tblspn of dark rum, 1 1/2 c of espresso – (an espresso cup, not a coffee cup)

Get out the food processor (or blender) – add the ingredients.  Blend until you have a nice creamy consistency.

Pour the mixture into individual glasses or small desert cups/bowls.  You can use white wine glasses for a more dramatic effect.  Place in the fridge and allow to cool overnight.  After your dinner party – remove from the fridge – adorn with fresh coffee beans and serve.

Enjoy