Things you need to know.
– NFP was stronger? Or was it?
– Dow, S&P and Nasdaq make NEW closing 2023 highs!
– 3, 10 and 30 yr auctions this week – Will bonds go on Sale?
– CPI, PPI and FOMC are all due this week.
– Jo Jo buying Oil – so it finds support at $70…
– Gold lower on higher for longer narrative
– Feast of the 7 Fishes #6 – Try the Stuffed Calamari
And the NFP report was stronger than expected (or that’s what you’d think by looking at the top line number)….we created 199k new jobs – vs. the expected 185k – but if you delete the 30k auto workers that went back to work (15%) – because those are not ‘new jobs created’ then the number is really 169k….and if you delete the ‘new’ gov’t jobs created – 49k (29%)– then the number is only 120k workers….weaker than expected…..…………..….58% of them (99k) were Education and Health Services jobs, 24% (40k) were Leisure and Hospitality jobs, 16% (28k) were Manufacturing – we lost 20% or 35k jobs in Trade, Transports and Utilities and the balance was divided between financials, information and ‘other’. The Unemployment rate – which was rumored to be going higher – FELL to 3.7% – NOT what JJ had been betting on and that suggests that the labor market may NOT come into balance with what the FED had projected in September as 4.1%. So, if the labor market continues to remain in the 3.7% range while inflation is running at 3+% – then the FED will continue to remind everyone that their target is 2% which means that a rate cut in March is unlikely.
M/m average hourly earnings were a bit higher at +0.4% while y/y numbers were in line at +4% and what they will tell you is that wages are rising faster than the rate of inflation – so it’s all good….Inflation isn’t an issue any longer – Yeah….not so fast…..Compare you income now to what it was in 2021 – then calculate the change….Is it up, flat or down? If that number is not at least 16% higher then you lose….It doesn’t get any more difficult than that….and that’s before we take into account the rise in tax rates….never mind add ’l fees that some companies have added just because they could……So, not so fast.
Now, will any of this change the minds of the FED this week when they meet for the final FOMC meeting of the year? Unlikely…. They are expected to keep rates where they are – JJ has repeatedly pushed back on those rate cuts that traders are betting are coming in March…. actually, saying that not only will they move cautiously, but he is retaining the option to RAISE rates again… In the end, I think the FED will seize the day and emphasize the need for patience and higher for longer.
Look – there are a lot of people (companies) that are about to get hit with a repricing of debt – as loans and bonds with ultra-low rates expire and new replacement loans have much higher interest rates (costs) – so that is the group that is calling for those cuts in rates – the sooner the better….because the longer it takes the FED to cut rates, the bigger the hit to those companies and households will be…Capisce? And if that happens, then we can expect a faster slowdown in the economy as money is diverted away from spending to pay for those increased costs….
In the end – investors and algo’s celebrated this report because they will tell you that the FED has delivered a ‘Goldilocks’ economy- one that sees lower inflation without a recession…..and so we saw stocks rally…the Dow gaining 130 pts or 0.4%, the S&P up 19 pts or 0.4%, the Nasdaq rose 64 pts or 0.5%, the Russell up 13 pts or 0.7% while the Transports lost 88 pts or 0.6%. Note that the Dow, S&P and Nasdaq made new closing highs for the year….
So, what happens next? Well – this week – we are going to get some more key economic data…. tomorrow brings us the November CPI report and that is expected to show CPI m/m to be flat, Ex food and energy m/m to be +0.3%. CPI y/y is expected to be up 3.1% while Ex food and energy y/y is up 4%. Tuesday is also day 1 of the FOMC meeting, so do not expect to hear anything from any of the FED members and then on Wednesday – we will get the November PPI and m/m is expected to be flat, while Ex food and energy is expected to be up 0.2%. PPI – y/y is expected to be up 1.1% and Ex food and energy is expected to be up 2.2%. And then at 2 pm on Wednesday – we will hear from the FED – and it won’t be about what they did to the rate (nothing), it will be about the press conference and what they suggest is about to happen in the new year. Will they suggest that rate cuts are coming in March or not? My bet is NOT, but everyone hears what they want to hear.
US futures are marching in place…Dow futures +9, S&P’s flat, Nasdaq -30 and the Russell is down 7 pts. And this makes sense considering that there will be a lot to digest in the next 3 days….because in addition to the inflation and FED data – Wednesday will also bring us Retail Sales m/m of -0.1%, Ex autos and gas of +0.2% and then Friday we will get Industrial Production, Capacity Utilization and Manufacturing and Services PMI’s. And then it’s a marked slowdown as we move into the end of the year….
Once we get into 2024 – it’s just a matter of weeks before we get the start to earnings season…and 4th qtr. earnings are expected to grow by 3.6% – and while positive – they have been adjusted lower over the qtr. – as analysts account for a slowing economy and some cautious comments from the C- suite. Remember – every time they cut the estimates, they lower the bar for the companies to jump over….so, I suspect that in end 4th qtr. earnings will again be ‘better than expected’.
For 2024 – you know that the expectations are for earnings for the S&P to be up 11% to $245/sh…and that is what the market is pricing in….remember – the market is not trading on what is happening now, it is trading on what is supposed to happen (or expected to happen) 4 – 6 months out…And like we’ve said – it is priced to perfection…..and that is the concern.
The VIX – Fear Index – remains near historic lows at $13.07…. Well below all 3 trendlines….and until something causes this move up – then at the very least – we can expect stocks to churn in here with a bias higher….
Now this week – we are also going to get a rather large amount of treasury refunding – 3 yr. & 10 years today and 30 yr. on Wednesday. (remember that $600 billion worth of December auctions?) – so let’s see what happens to bond yields…currently the 3 yr. is yielding 4.48%, the 10 yr. is at 4.25% while the 30 yr. is yielding 4.33%. A spike in yields just means that buyers are not willing to pay last sale….for these bonds…If you want to sell them – you have to offer a ‘sale’ and if they go on sale – then yields will rise…..….and speaking of sales – I did some research over the weekend and went around to a number of malls to see what is going on…and guess what I saw – SALES everywhere….….JCrew offering EVERYTHING 50% – 70% OFF, Brooks Brothers – 30% off, Fabletics – 80% off, Macy’s 40% off and it’s still 3 weeks before Christmas….what are they gonna offer on the 26th? 100% off?
Oil – remains at $70.50/barrel…. Jo Jo is buying oil to replenish the SPR so that is helping to support the current price – even as there are concerns about over supply and softer demand. The market knows that he is buying oil now, so it should offer some stability….Remember – OPEC + has called for 2.2 million bpd of production cuts in the 1st qtr. of 2024….but NON-OPEC producers are pumping more than those cuts – so the sense is that it will lead to excess supply and that will keep a lid on how high prices are going to go right now – especially if a global slowdown is expected. The chart shows support at about $65 while resistance is at the trendline at $76. Unless something dramatic happens – it’s hard to see $90 oil anytime soon. But never say never….
Gold – which had rallied strongly (+16%) on the idea that the FED was going to cut rates came under pressure on Friday – when the ‘hotter’ job report reduced hopes of a March rate cut….Gold fell by $32 on Friday – to test the trendline at $2007 before ending the day at $2014. This morning – it is down $4 at $2010 and will surely test the trendline as it looks for support. Any suggestion by the FED on Wednesday that there are no plans to cut rates anytime soon will only put more pressure on gold – which could see us test the November lows at $1955.
European markets are a bit lower…. They are moving into ‘holiday mode’ as they await this week’s US eco data….
The S&P closed at 4604 up 18 pts after bouncing between 4574 and 4609….…. All eyes will be focused on the eco data this week…. I had been saying that they wanted to test the 2023 intra-day high of 4608 and they did on Friday just to see if resistance is really there. I continue to tell you that it’s time in the market vs. timing the market and so the move up feels good as long as you are in…..and while the move up feels great – there has to be some consolidation – stocks are (short term) overbought and bond yields are (short term) over sold….do not be surprised to see this rebalance – which only means that as a long term investor you stay focused on the long term.
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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#6 Stuffed Calamari
This is outstanding…you have to like Calamari’s because this one is a bit of work…. but the result – to die for.
For this you need: Calamari bodies for stuffing – so you want the big ones… (You don’t need or use the tentacles so just specify “bodies for stuffing”), homemade Italian style breadcrumbs, wine, olive oil, toothpicks, homemade marina sauce (same as the lobster sauce w/out the lobster.) s&p.
So here is the deal – you order the calamari from the fish store – “cleaned”. This means that they trim the tentacles and take out the membrane from the inside…. but here is reality…. You still have to make sure that they are clean – so when you get home – you need to wash them and confirm that the membrane was in fact taken out. If not – you have to turn the calamari inside out – and then rinse well and then turn it back again – this is the trick…you have to be very careful as you do not want to rip the body otherwise you cannot stuff him. Capisce?
Now take a bowl of breadcrumbs – add enough olive oil to make them moist but not “wet”, now add a splash of your favorite white wine – not chardonnay. Mix well. Can you make a ball with the breadcrumbs? Do they hold in place? Perfect.
Now – carefully stuff the calamari using a teaspoon and your index finger…. careful not to overstuff as they will explode in the sauce when you cook them. You need stuff them just enough so that you can pin them closed with a toothpick… Repeat until you have stuffed all of the calamari’s …
Once you have stuffed them – drop them into the marinara sauce that you have prepared and turn the heat to simmer – DO NOT BOIL the calamari!
They will begin to plump up and turn white then take on the color of the sauce. They will cook in all of about 30 mins (max). Turn heats off and let rest.
Again – you should make this the day before and let it sit overnight. The next day – take it out of fridge and let warm up to room temp and then heat it up to simmer. When you are ready to eat them – serve them in a large bowl with plenty of tomato sauce. You can also make this and serve it over linguine if you prefer. The other option – if you make both the lobster and calamari sauce – then mix a couple of ladles of each and serve that over the linguine….
Buon Appetito
