Things you need to know.

–        Auto Generated AI – get ready….

–        Magnificent 7 – push higher.

–        NFP due out at 8:30 – the clock ticks

–        Have the Saudi’s lost control?

–        Feast of the 7 Fishes – #5 Bay Scallops in Black Truffle Cream

Get to know ‘Auto Generated AI’ because it’s here….and what does that mean – Computers are now able to ‘read, write and understand’ human language.  Did you understand me?  They are now capable of understanding, reading, and writing the spoken and written word….  Welcome to the ‘new world’ and AI is the on-center stage…. Markets, investors, traders and algo’s got all revved up yesterday after it became even clearer that the AI boom is THE story and will keep firing market gains.  Google +5.35% introduced ‘Gemini’ – which is supposed to be ‘the largest and most capable AI model ever built’ (which makes me wonder whether or not we should all be a bit nervous) …..and AMD +9.9% pledged that their ‘new accelerator chips’ will be able to run the software faster than any of the competitors….and as you might expect that ignited the Magnificent 7 – (and the broader mkt)  sending them higher on the year……MSFT +0.6% or 52% ytd,  AMZN +1.6% or 75% ytd, META +2.8% or 172% ytd, NVDA +2.4% or 218% ytd, AAPL +1% or 50% ytd and TSLA +1.35% or 98% ytd.

All this shows that the AI revolution continues to drive investor sentiment, investor excitement and productivity into the new year and beyond.  And this sent ‘anything tech’ higher…. Cybersecurity – CIBR +0.5%, Semi’s – SOXX +2.7%, Disruptive TECH – ARKK +0.5%, Robotics & AI – BOTZ + 0.7%.

At the end of the day – the Dow rose 63 pts, the S&P gained 36, the Nasdaq up 200 pts or 1.4%, the Russell added 16 pts and the Transports gained 70 pts. Treasury prices fell – the TLT down 0.5% and the TLH down 0.4% – and that pushed the 10 yr. yield up to 4.15%, the 2 yr. yield up to 4.62% and the 30 yr. yield up to 4.28%. The 3- & 6-month bills are yielding 5.24% and 5.15% respectively.

Oil – continues to churn at $70 as it appears that OPEC+ just might be losing its grip on the oil markets. Recall that they announced an add ’l one million barrels per day of cuts in late November……but that did nothing to change the narrative leaving so many skeptical that they can pull that off even as the crown prince and Russian President Putin assure the world that they can. Remember – there is little incentive for some of the smaller suppliers to adhere to OPEC driven production demands.  In addition, new supplies are coming from the NON-OPEC members – with the US at the top of that list and that is (once again) causing agita for OPEC.  

Again – the story is all about a slowing global economy leading to deteriorating demand – something I do not subscribe to…. but it is what it is, and you can’t argue with the fact that oil is down 22% off the recent high.  We have opposing views…the EIA and OPEC are betting on demand to increase in 2024 while the IEA is betting that demand will fall in 2024 – and again that’s what makes a market – both buyers and sellers. 

Now remember what I said yesterday morning about the eco data and the Challenger Job Cuts report?  If not – here it is.

The Challenger Job Cuts report… measures the change in the number of job cuts y/y ANNOUNCED by employers –

and yesterday that number came in at -40% – which sounds like a good number – cuts were 40% lower than last year…. but don’t be fooled – Yesterday they announced 45k cuts, yes it was down from 76k last year…so that’s good, no?  Well – it is also 24% MORE than the 37k job cuts announced last month….so what is it?  Good or Bad?  Well, I guess it is how you look at it….do you want the positive story – then you’ll focus on the y/y number, do you want the more realistic story – then you might focus on the m/m data…

In the end – the story suggests that the job market is weakening and that many employers have taken down the ‘help wanted’ sign….and while some will say it is normalizing – Andy Challenger – Sr. VP at Challenger, Gray & Christmas expects to see more layoffs going into the new year and that should send the unemployment rate higher….….And what is really interesting is that the TECH sector is getting hit the hardest – I guess AI is putting some of those guys out on the street – we have seen 163k cuts in 2023 – which is up 102% from this time last year. Retailers cut 78k jobs this year – up 283%, Health Care up 99% at 57k cuts, Financial firms up 189% at 51k – in the end – the message – companies are expecting slower growth, so they are cutting ‘overhead’ to save profit margins…..AND they are using ‘smart technology’ (think auto generated AI)  to replace lost jobs. 

Today brings us the much anticipated – NFP report – and that is expected to show an increase of 190k new jobs while the unemployment rate is expected to remain at 3.9% – but the whisper number in fact has a 4 handle on it.  Avg hourly earnings m/m up 0.3% while y/y they are expected to be up 4%….

US futures this morning is mixed…. Dow futures +60, S&P’s +5, the Nasdaq is down 17, and the Russell is up 46. And while the Dow and S&P are kissing all-time highs……they feel a bit tired….and there appears to be plenty of resistance right in here……especially as we wait for today’s NFP report…..defined as ‘pivotal’ because there are big bets on the outcome……Will today’s report force JJ to reconsider his ‘higher for longer’ narrative next week -when the FOMC meets for the final time this year or do all of these ‘trader types’ have it wrong?   Recall that the trader types are betting on a 1.25% decline in rates next year- which takes the FED funds rate to 4% – which by the way is more than double the cuts that some FED official seem to be calling for….In the end – JJ has basically assured us that he is ‘likely’ done raising rates but he is not calling for any rate cuts anytime soon…calling those requests – premature.  

European markets are a bit higher; Gold is churning in place and the VIX continues to bounce around the bottom…. getting more and more complacent with each passing day as if stocks will never go down again…….and you know what that means….?   Again, I think the VIXY is a cheap and simple insurance policy to help hedge your long stocks positions in the event we hit a hole. 

The S&P closed at 4585 up 36 pts after bouncing between 4565 and 4590….…. All eyes will be focused on the clock – 8:30 will be the moment we get them ready and then we can see how the algo’s and traders react.  I repeat – they want to take us to the 2023 high of 4608……just to see if resistance is really there.  And if the report shows any weakness – less than 190k jobs then they just might…. A stronger job report will give them a chance to reconsider what they think the best should be.  While the move up feels great – there has to be some consolidation (I think) – stocks are (short term) overbought and bond yields are (short term) over sold….do not be surprised to see this rebalance (if they let it rebalance).

Remember – we have been talking about how the market is priced for perfection…a soft-landing, double-digit earnings growth in 2024 earnings, and rate cuts sooner (March) rather than later and while I would love to see that all come true – Don’t be surprised if it doesn’t. 

If you are invested – you’re good, if you have more money to put to work, be patient – don’t chase anything and if you are just starting out – go slow, understand you risk profile, know where you are in the life cycle….Call me to discuss.

Take good care.

kpolcari@slatestone.com

Sources:  Bloomberg, CNBC, Reuters, Wall Street Journal

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The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.

While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.

Kenny Polcari is the Chief Market Strategist for SlateStone Wealth.  Neither Kenny nor the partners of SlateStone Wealth are compensated in any manner by the issuers of any securities mentioned in the publication.

Bay Scallops in Black Truffle Cream Sauce

Feast of the 7 Fishes – #5

For this you need:  Bay scallops (the little ones), olive oil, butter, heavy cream, white wine, shallots, garlic, black truffle, white truffle oil, s&p, Brussels sprout leaves and fresh grated Parmegiana and Medium Shells (optional)

Ok – you can make this dish in 15 mins…. Put a pot of salted water to boil.

In a large sauté pan – begin with a ½ stick of butter and a splash of olive oil – turn up the heat to med.  Now add in the sliced shallots and chopped garlic…sauté in the pan for 5 – 8 mins…. now – turn up the heat and add in the rinsed bay scallops – you want to hear them quickly.

If you are serving pasta – Add the pasta to the boiling water – stir.

Next – once the scallops are seared – turn the heat down to med and deglaze the pan with some white wine – allow it to steam off a bit – now add the heavy cream and shaved black truffle.  Stir well.  Now add in the white truffle oil – this is key – you DO NOT need much – it is very potent…add – mix, taste.  If you need a bit more than do so…but go easy – do not overpower.

Now take the leaves of the Brussels sprouts (cut the bottom and the leaves fall off) and add to the pan – this will give a nice contrast in color.  Season with s&p.

Taste the pasta – should be almost aldente…. strain – reserving a mugful of water.  Add the pasta shells directly to the sauté pan – pour about ½ of the pasta water in the pan and mix well…. Taste and adjust if necessary.  Next add a handful of the cheese and mix. You will notice that the shells capture the scallop and some of the cream sauce…. perfect.

Serve immediately.  Enjoy your favorite white wine.

Buon Appetito