Things you need to know –
- BARD disappoints, GOOG gets whacked – did the algo’s over-react?
- 6% is now becoming the FED’s narrative – hello?
- DIS laying off 7K people and investors love it.
- AFRM laying off 500 people and investors hate it.
- OIL and GOLD steady
- More FED speak tomorrow.
- Try the Drunken Spaghetti
Stocks ended the day lower…. the Dow lost 207 pts or 0.6%, the S&P gave up 46 pts or 1.1%, the Nasdaq lost 203 pts or 1.6%, the Russell lost 30 pts or 1.5%, and the Transports gave back 95 pts or 0.6%.
Ok – so we got a chance to dissect and digest both JJ’s latest comments on FED policy as well as fact check Joey’s SOTU speech – which at the very least was entertaining – especially when he got angry towards the end – challenging the audience to ‘just name another leader’ that has been harder on China than he has…..this after Xi Xi sent a ‘weather balloon’ across the country to check on our climate….and report back to the CCP to make sure that we’re all good. But let’s move on….
And what did we learn from JJ? Nothing new….he remains on the path of higher and more restrictive rates – and that is what he and his cohorts have been telling us for weeks now. Yesterday we got NY’s Johnny Williams telling us that the ‘official peak rate forecasts are very reasonable’ and that policy needs to remain restrictive for a ‘few years’…Yes – a FEW years…..……Hmmm… Webster’s Dictionary defines a ‘few’ as a small number of….so when we say a few years – it could mean more than two (because that’s a couple) but less than say 5…..or maybe less than 4…which means Johnny is suggesting that rates will remain restrictive until 2027? So, I guess the pivot that is supposed to happen in 6 months isn’t happening? And then we heard from Fed Governor Lisa Cook who ‘echoed’ all of these statements (including all of the latest ones repeated by the gang….) saying that ‘We are NOT done yet’! And just fyi – The Atlanta FED’s ‘Sticky Inflation Number’ remains high….at 6.7% y/y….
*Sticky inflation is an index of the components of the CPI that are slow to change and affect you the most…. – so in this case – think food, utilities, healthcare, and staples…ALL things you NEED vs. the stuff you don’t like used cars and tv’s.
And then Bloomberg reports that ‘sentiment is shifting’…..and how do they know this? They pulled data from the interest rate options market – and what they found is this…….. Someone is making a fairly substantial wager on where rates are headed….making a very big bet that terminal rates (neutral) will reach 6% by September – which is 75 bps higher than what the FED originally told us was neutral and is 125 bps higher than where we are currently….……….(which means the FED will tighten for 5 more meetings) and if that comes true – this bet will pay off to the tune of $135 million IF the fed tightens until September……Hmmmmm, so the first thing I would ask is – who is this person and who is he/she connected to at the FED or at Goldman Sachs or at the WSJ …..and then who is he/she connected to on Capitol Hill because word has it that ‘other investors’ (think names like Nancy, Chucky, Bernie, Lizzy….) jumped on board and made the same bet…..Capisce? Just something to consider and chew on as we move through time….Let’s just put this on the back burner for now and let it simmer.
Now maybe investors are starting to consider what higher rates mean for the markets? That just maybe the hawkish commentary will make it more difficult for stocks to push higher and that maybe we are at the year’s high already…I mean ytd the S&P is up 7.5%, the Nasdaq up 14%, the Russell is higher by 11%, and the Transports are higher by 15%…. Others suggest that JJ needs to push back on the enthusiasm – like he tried to do last month – in order to clear out the massive disconnects that have the ability to disrupt the markets. In any event – the mood is shifting…..from cautious and anxious to constructive and while constructive is good – it does not mean that we won’t continue to experience bouts of volatility…as the conversations go from hawkish to dovish to hawkish again….coupled with a weakening economy and weakening earnings….. The action yesterday wiped out all of the gains on Tuesday and so we remain in the same place….
Nasdaq gets whacked…. Thanks BARD!
Now – GOOG suffered at the hands of investors as they launched BARD – their version of an ‘interactive, conversational ChatBot’ for Google Search that is to compete directly against a MSFT version of ChatGPT for their Bing search engine…. ChatGPT – as you might know – is an AI powered chatbot developed by OpenAI (a company founded by none other than Elon Musk and Sammy Altman in 2015 and now has more than 100 million active daily users after its official release on December 5th, 2022….Yes, 100 million uses in 2 months – let that sink in) and is based on ‘Generative Pretrained Technology (GPT). It uses deep learning techniques to interact and generate human like responses to questions in a conversational manner…..It has wowed the world with its ability to answer questions and create responses that you would never know was written by computer….It’s amazing really, but at the same time a bit unnerving…..In fact – the latest headlines have men/women using ChatGPT to write love letters/messages to their significant others for Valentine’s day – which only suggests to me that these men and women don’t know how to express themselves or feel emotions at all – but that is what we get – they have all given up on what it means to be human/vulnerable/emotional etc.…. (but let’s not go there right now).
Students are also using it apparently to write term papers and college essays and high school book reports….etc.….Again, why not – it’s the easy way out – don’t have to do any research or any work – just sit there and let your brain turn to mush…. In any event – GOOG’s BARD failed miserably in its answer to a fairly easy question…..and investors didn’t like it at all…taking the stock down more than 9% before it recovered just a bit to end the day lower by 7.5%. So, not a good day for GOOG at all and you can bet that Sunny (CEO Sundar Pichai) is not happy….But let’s be honest – it is new technology and we all know how sensitive new tech can be….I don’t expect it to derail GOOG at all, it will only make them more determined to win….and while I do not own GOOG individually – I would still not bet against it.
And then after the bell – we heard from both DIS and AFRM – Now DIS beat, they announced 7k job cuts, a $5.5 billion dollar restructuring and a restoration of the dividend – by year end – Recall that the divvy was suspended during covid to conserve cash – and traders loved it…taking the stock up 6% or $7/sh in the afterhours session…..leaving DIS up nearly 30% ytd….
AFRM on the other hand missed earnings and announced a 19% reduction in force – which equates to about 500 people….CEO Maxxy Levchin telling employees that he acted to slowly as the economics changed and as a result 500 people were about to get a pink slip….Reminding everyone that ‘it is an economic reality that you must live within your means and match growth of headcount with growth of revenues…’ – But unlike DIS – investors are NOT happy….and they took the stock down 17% in the after hours after taking it down 6% during the regular trading session. Remember though – the stock is up 65% ytd…..going from $10 to $16 in the last 5 weeks.
In any event – the tone is completely different this morning….futures are UP and UP big….Dow futures +240, S&P’s up 35, the Nasdaq up 150 while the Russell is up 20…..the focus today is NOT about anything FED…..the market is pushing all of that to the back burner and celebrating the fact that Mickey and Minnie are alive and well….. and this is confusing especially since the conversation is now turning to a much more hawkish FED than even last week…. Talk of 6% rates is now becoming the narrative…..members of the FED keep hinting at it, hoping investors listen….I guess the rubber will hit the road when the FED actually takes rates to 6% leaving many to say ‘what happened? How come no one ever said anything?’
I am in the camp that the earnings recession we have been talking about hasn’t been fully realized yet and that investors – while wanting to be optimistic – are just a little bit ahead of themselves…which is why I keep saying – If you are invested and you have a well-designed/balanced portfolio then there is no need to chase anything….if they want to take the market up – let them…enjoy the ride….patience really is a virtue and buying stocks on a pullback is better than chasing stocks in a ‘FOMO’ dynamic….
Look – we have broken out of the trading range 3600/4000 – and are now headed towards the August highs of 4300 ish…and if we get there the market will be trading at 19.5 times earnings….a very healthy multiple but one that is really expensive in the current economic environment…Unless of course – you all expect the FED to PIVOT and cut rates – because the economy needs more stimulation….Yeah, not happening…..
Now – at 4300 the S&P would be up 12%….add in divys for total return and maybe you are at 15%….while it’s good….I just am not convinced yet that we can get there because when the FED doesn’t stop raising rates in March the way many expect – is when reality hits home…..Which doesn’t mean – sell everything and go to cash, it just means don’t be anxious to put money to work. Be methodical, look for where the opportunities are and remember – the STPN (Stuff that People Need) will weather the storm….more than the stuff that people DON’T need. Value will continue to outperform growth in the months ahead….but remember – you have to account for where you are in the life cycle and risk scale metric….This isn’t a one size fits all conversation, which is why you need to talk to your advisor.
Now oil – remains at $78.70/barrel…..think Chinese demand…..even as US inventories rise…..
Treasuries remain inverted…..no change there….so expect them to continue to offer investors an alternative in a nervous environment as you can lock in 4.4% rates for 2 yrs. or 4.7% rates on rolling 6 month T-bills
Eco data today is about Initial Jobless Claims and Continuing claims….
The dollar index – DXY continues to hang onto the trendline… If it fails – I would expect it to test the 101ish support zone again. A push higher will see it test longer term resistance at $107.10.
Gold keeps kissing $1900 again after testing and holding support at $1868 earlier in the week. I still think the next move is up and not down.
The S&P closed the day at 4117 – down 46 pts…. And while I do expect some churn and consolidation – it just doesn’t feel like it is coming yet…. We are still holding well above the trendline at 4000, and if they want to take ‘em higher – I’m happy to go along for the ride and you should be too. I am not chasing anything at all, but rather trying to identify where the next opportunity is – consider Aerospace and Defense names – RTX, LMT, GD, NOC.
Remember – build a strong foundation…. dollar cost average into it and keep reinvesting all the divvy’s is the plan…. Buy names on weakness (as long as the weakness is not a fundamental shift in the sector or the name).
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
The market commentary is the opinion of the author and is based on decades of industry and market experience. SlateStone has conducted reasonable due diligence on the contents, however, no guarantee is made or implied with respect to these opinions, and the information provided is subject to change without notice. This commentary is not intended to be relied upon as authoritative or as a recommendation or advice, nor should it be construed as an offer, or the solicitation of an offer, to buy or sell any financial product, or an official statement or endorsement of Kace Capital Advisors. Please consult with your financial advisor for your specific situation.
Kace Capital Advisors is a paid promoter for SlateStone Wealth, please see further disclosure here and refer to SlateStone’s Form ADV for further disclosures and information about SlateStone Wealth
 |
Drunken Spaghetti
Yesterday I gave you Champagne Chicken- so today I give you drunken spaghetti?
Now you cook the pasta in water and red wine – a nice Chianti or “vino di tavola” (table wine). No need to use an expensive red – go out and buy a chianti. The trick is that you add equal parts of water and wine – bring to a boil and add the pasta – cook for 7 mins and then strain – reserving a mugful of water/wine. You then finish it off by sautéing in a pan with butter, garlic, pancetta and & 1 cup more of the wine… read on…
You need – a nice chianti, garlic, butter, spaghetti (you can use fusilli, linguine, bucatini, capellini but it should be a long pasta – not penne or mostaccioli, ravioli etc.), olive oil, chopped parsley, pancetta and red pepper flakes (optional).
Add equal parts water and red wine to pot and bring to a boil. Add salt. Add pasta. Cook until al dente – like 7 mins or so.
In the meantime, peel the garlic and slice it. – chop some pancetta. Place the butter and olive oil in a sauté pan large enough to fit the pasta and place it over low heat to slowly melt the butter. Now add the pancetta and cook just until almost crispy… now add in the chopped garlic. Sauté. (Here is where you will add the red pepper flakes if you choose)
When the garlic gets toasty add the additional cup of red wine and about 1/4 cup of pasta water… turn up the heat until the liquid simmers. Strain the pasta – reserving a mugful of water… toss the pasta into the sauté pan with the garlic & wine. Mix well, tossing and stirring over med hi heat until the liquid is absorbed. Do not let it “dry out” … you can always add a bit more of the water if it does. Taste. Good?
Serve immediately in warmed bowls….be sure to have plenty of Pecorino Romano cheese on the table…
