Things you need to know.
– Treasuries continue to rally; Yields continue to decline.
– Bitcoin and everything ‘crypto’ finding NEW life.
– Market continues to ignore the FED, but the FED is not wavering.
– The US is now exporting ‘record’ amounts of oil to the world – putting pressure on prices – The Kingdom is NOT happy.
– The VIX continues to suggest it’s all a Bed of Roses!
– Feast of the 7 Fishes – #3 Feta Shrimp
Treasury prices continue to rise – the TLT rose 2.15%, the TLH gained 1.7%, yields plummet – the 2 yr. yielding 4.6%, the 5 yr. yielding 4.17%, 10 yr. ended the day yielding 4.17%, and the 30 yr. is yielding 4.31%. Tech stocks and Consumer Discretionary stocks were the only groups that ended higher -the – XLK + 0.6% and XLY + 0.2%. The Dow lost 80 pts, the S&Ps lost 3, the Nasdaq gained 45 pts, the Russell lost 26 and the Transports gave back 235 pts…
And as expected the magnificent 7 continue to march forward…. NVDA +2.1%, APPL + 2.1% – now a $3 trillion company…. AMZN +1.4%, GOOG + 1.35%, MSFT +1% etc.….
The biggest losers in the S&P were Energy – XLE – 1.75%, Basic Materials – XLB -1.37%, Industrials – XLI – 0.8% and Consumer Staples – XLP – 0.8% as well.
Retail – which is a big consumer indicator lost 2.7%, Airlines down 1.5%, Metals & Miners lost 2.5% – but they are up 15% in just 2 weeks…. Defense and Aerospace lost 0.8% – but again – this group is up 18% since Oct 7th…. when the war in the middle east began.
Bitcoin and everything in that eco system have all found new life in the latter half of 2023 – this after the spectacular collapse of FTX’s SBF and Binance’s CZ….…Bitcoin piercing $44k, up 160%, COIN trading at $140, up 102% since September 1st, Ethereum trading at $2,287 up 44% since mid-August.
So, back to bonds for one minute…..There is a huge disconnect between what the market is telling us the FED is going to do vs. what JJ (FED Chair) is telling us what the FED is going to do…and I made this point last week – people hear what they want to hear vs. what is being said…..And so, this is where the rubber hits the road….who is right?
Well, don’t expect anything to change next week when the FED meets – they are expected to hold rates steady and repeat the narrative that leaves the door open to moving higher…..last week – JJ did say that while rates are ‘well into restrictive territory’ they could still go up but he also made it clear that they are not moving down. Although that is exactly what the market is apparently hearing….
Now, I would say be careful what you wish for…. the only reason I can see that the FED will cut rates is because they ‘broke the system’…. the economy goes into a tailspin, unemployment spikes higher and defaults – across the board surge. Defaults here include – revolving credit card, student loans, CRE, home mortgages and HELOC’s…… beyond that happening – I am just not sure why the FED needs to cut rates when S&P earnings for 2024 are estimated to be UP 11%, inflation while not at the target is falling, wages appear to be stabilizing and should soon be rising faster than the rate of inflation, unemployment remains closer to historic lows……housing has not collapsed, economic data is not horrendous and the bond market is DOING THE WORK for the FED – notice where yields are today at least for now. Remember – when yields were rising – everyone said the FED need not do a thing, because the bond market was carrying the load – OK…then let the bond market carry the load on the way down too! Just food for thought.
In any event – what have we learned? We have learned that trying to pick tops and bottoms is a losing strategy…. all the uncertainty that surrounded the markets all year has left many scratching their heads – wondering what they did wrong…in the end – investors that do not have a plan become influenced by ‘perception vs. reality.’ And like I say – unless something ‘significantly fundamental’ has changed the story for stocks or the broader market – making a plan and sticking to it – is always a safe bet. Remembering that no matter what – there are always opportunities – you just have to search.
And speaking of opportunities – stick with the AI & Tech theme for sure in 2024 (and beyond)! But look at the small and mid-caps…the IJJ and IJT are both up 15% and 12% respectively in the past 6 weeks and there is lots of building interest in this sector as it has been an underperformer this year…. up about 5.5% ytd. Healthcare is another sector I like, Energy, Financials, Value & Defense continues to be a place where we should see interest…… – But in the end – talk to your advisor, create a plan, and then stick to it…. remembering that it’s not ‘timing the market, it’s time in the market’.
On the economic front – we have Mortgage Apps today and the ADP employment change…. estimates call for an increase of 130k new jobs…. Unit labor costs are due out at 8:30 and they are expected to be down as well and that’s a plus tick! Friday brings us the NFP report and that is data point to watch at the end of the week…. It is expected to show an increase of 190k new jobs. Unemployment is rumored to be higher this month – and that means we could see an unemployment rate with a 4% handle on it…and that is up 0.6% from the summer lows of 3.4% – (a data point that suggests a recession is on the way)…again moving in a way that the FED needs to see in order to kill demand and bring inflation down even faster…….the fear is that once this ball starts rolling – where does it end? Will it move fast enough that it will break the economy, or will they be able to navigate that soft landing? Avg hourly earnings up 0.3% m/m and 4% y/y while the labor force participation rate stays steady at 62.7%. Univ of Mach Sentiment Survey continues to suggest that American’s expect 1 yr. inflation to be 4.3% and 5 – 10 yr. inflation to run at 3.1%…. which again is 1 full percentage point above the current target….
The VIX remains well into complacent territory at $12.80 and to me that suggests that the next move is Up and not Down…. Which is why the VIXY etf is an attractive and cheap insurance option against a downturn. Remember – If we get a headline that challenges the current narrative – the VIX and the VIXY will shoot higher as stocks fall……and while nothing says that is about to happen – my guess is that it’s about to happen…. reminding us that it’s always good to be prepared.
Oil continues to get pummeled and guess why now? The US is exporting unprecedented amounts of crude to the world market…. about 5.7 million bpd now and expected to go to a high of 5.9 million bpd – and let’s see if that is confirmed today when the EAI reports the data. In addition – OPEC + and the Saudi’s continuing to mull over what their next move should be…. this morning – oil is trading down 80 cts at $71.50/barrel – well below the 200 dma trendline…now testing levels last seen during the summer.
Gold is up $2 at $2,038/oz – as it continues to consolidate its latest surge higher on the back of the collapse in treasury yields. The dollar – which tested a low of 102.67 (when gold pierced $2050) has now recovered a bit and is trading back at $104 – leaving it with the trendline band – $103.57 / $104.47. In that band will allow Gold to settle down, if we pierce it to the upside – then gold will back off again and if we breach it to the downside then gold will surge higher.
US futures are up (small)……. the Dow +41, the S&P +8, the Nasdaq +25, and the Russell +4. The markets are debating the staying power of this recent rally (on the idea that the FED is about to cut) vs. the commitment of the FED to hold rates steady. Remember – JJ does NOT want to see a bubble in stocks – because if it explodes it will get ugly quickly. So, he needs to remain stoic and stick to the ‘higher for longer’ narrative until it is clear absolutely clear that we have defeated inflation – and that is not clear just yet….and as long as the administration continues to spend the longer JJ will have to stick to the plan.
Remember – there is a huge amount of gov’t funding coming to the markets…. $600 billion this month and then $860 billion in just the first qtr. of 2024…. Janet has been mum about what happens in the 2nd, 3rd, and 4th qtrs. of 2024. So, let’s see how the market reacts to all of that supply…. remembering that the Japanese, the Chinese, and the FED are all net sellers of treasuries not buyers.
European markets are all a bit higher this morning…. up between 0.3% and 0.5%. The ECB’s most hawkish officials now telling us that ‘inflation (across the zone) is showing a remarkable slowdown’ – and this is suggesting that they are ready to slash rates – maybe even sooner than original estimates…but again – those comments did not come from ECB President Lagarde….and like JJ – she has been clear that a rate cut is not on the table….(yet).
The S&P closed at 4567 – down 3 pts as the market is feeling just a bit tired after the run that we’ve all seen. .…I think so much of the ‘good news’ has already been priced in – so we need to digest it…and that could mean we just churn in place to catch up or we churn a bit lower to see who falls out of the trees…. Remember – we will see some end of year tax loss selling over the next couple of weeks and that may put some pressure on the market but nothing dramatic. I remain bullish and I remain invested.
It feels like the algo’s want to re-test the 2023 high of 4608 again…. (40 pts away)– just because they can – and if we do, I suspect that again we will find plenty of resistance….…
If you are invested – you’re good, if you have more money to put to work, be patient and if you are just starting out – begin by giving yourself exposure to the total market – consider the ITOT (iShares total market ETF) or the VTI (Vanguard total market ETF) and then as you build it – you can broaden it out….time is on your side…Remember – there is always a starting point and it’s a long game….….where you end doesn’t depend on where you start, it depends on how you play the game. Call me to discuss.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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# 3 – Feta Shrimp
Feta Shrimp – This one is easy and can be served a number of ways. Either in a large bowl with toasted garlic bread or over a pasta – maybe like an Orecchiette or even over white rice…
For this you will need: 2 lbs. of large cleaned and deveined shrimp, sliced garlic (a lot), thin sliced plum tomatoes, feta cheese, butter, s&p, olive oil & Madeira wine. * You can prepare all of this ahead of time and place in bowls to have ready for you when you are ready to cook. The thing about this dish is – you have to make it and serve it right away…
Begin by heating up ½ stick of butter and some olive oil on med high heat. Add a handful of sliced garlic and sauté for 4 mins or so…do not burn. Next add in enough shrimp so that you cover the bottom of the pan – do not pile them on top of each other… When they turn pink – flip them over.
Now add enough Madeira wine to “bathe” the shrimp – (do not drown or cover them in wine) – Turn heat to hi… season with s&p, place sliced plum tomatoes all over and then top with crumbled feta cheese. Cover and allow the steam to soften the tomatoes and soften the cheese. No more than 3 mins. Remove and place in a large serving bowl. Repeat process until you have cooked all of the shrimp. When serving – make sure that you have enough garlic bread for your guests.
*If you are putting over pasta – then boil the pasta – strain and mix adding extra feta cheese to the hot pasta to help make it creamy and delicious.
Buon Appetito.
