Things you need to know.
– Happy New Year
– Geo-Political Tensions Not Going Away
– Global Elections will be one of THE topics this year.
– Is the FED really going to cut rates 7 times?
– Oil up, Gold up and Bitcoin up…. Vix down
– RSI teases ‘overbought.’
– Try the Pot Roast
Wow! What an ending to a year…. Who could have seen that coming? Stocks and markets have been invincible….you can thank the newest narrative about 5 – 7 rate cuts coming in 2024….and that caused a ‘melt up’ in stocks ….In less than 2 months – we witnessed the S&P surge by 16%, the Nasdaq raced ahead by 20%, the Russell – (smids – Small and Mid-Caps) gained a whopping 24%, Bonds were not going to be left out either as we saw the TLT and TLH surge by 20% and 17% respectively sending yields plunging to end the year yielding 4.25% on the 2 yr., 3.87% on the 10 yr., 4.02% on the 30 yr., 5.18% on the 3 month and 5.03 on the 6 month. (Down significantly from the rates we witnessed in early November). Which leaves me to ask – Is there any strength left in this rally?
Relative Strength – RSI – what is it?
The RSI is the Relative Strength Index – is a momentum oscillator and it measures the speed and change of price movements….it oscillates between 0 and 100. 70 is the level that suggests the start of ‘overbought’ while 30 is the level the suggests the start of ‘oversold’. The more it advances beyond 70 the more ‘overbought’ we become and the more it declines past 30 the more ‘oversold’ we become.
As of this morning…. the Dow’ RSI is 76.4741, the S&P is 70.169, the Nasdaq is 68.363, the Russell is at 65.9646 while the equal weight S&P is 69.9211. You can also have RSIs on individual stocks….so for example – AAPL is 51.0618, NVDA is 58.305 and Cathie Woods’s ARKK (disruptive tech) is 61.5114. It is important to note that the RSI changes daily…. Now while you should never buy stocks based on their RSI alone – it is just another tool in the toolbox to help you understand the complexion of the market and of individual names. You should (must) pay close attention to either of the extreme readings – because it helps us gauge how easy it is for the market to surprise us and turn in the opposite direction vs. what investors are expecting.
So, for example – On 12/19 the RSI on the S&P ended the day at 82.1844 (well above the 70 mark) and the S&P closed at 4768…on 12/20 – the S&P lost 70 pts to end the day at 4698 and the RSI fell to 66.125. And if you look at the S&P on August 18th, October 4th or October 30th….the RSI was sitting right on the 30 line…’suggesting oversold’ and BANG – what happened in the days following……the S&P rose….and the rise off the October 30th low was dramatic……16% dramatic! Coincidence? Maybe or maybe not…. but it does fit the narrative….and it gives you some insight into market ‘technical’.
Even when it hits 70, it can keep going and many times it does…. and in fact we saw that as the year ended….and as the markets rallied – investor sentiment got even more bullish – you could feel the FOMO mindset taking over… – no matter that EPS estimates (for the upcoming earnings season) were being cut – I guess you have to say ‘trimmed’ as cut sound sooooo dramatic. Which raises the question – what’s next?
Let me remind you……reality can escape us and the market can remain irrational longer than you can imagine…..reminding investors – ‘don’t’ go betting the ranch on any one day’…..….when markets hit extremes of bullishness – investors often lose their ability to consider what could cause markets to reverse course…… The same would be true for when the markets experience extreme bearishness. Which is why I always emphasize the need to remain focused, create and stick to the plan….
At the end of the day on Friday – stocks did end just a bit lower but finished the year well into positive territory – by now you know the great year 2023 turned out to be for the markets. Inflation came down, unemployment remains at historic lows, the FED (it appears) has managed to navigate a ‘softer landing’, and now we are being primed to expect 5 – 7 rate cuts in 2024 (something I adamantly oppose – just because it makes NO sense based on the current environment) – but this narrative has the ability to keep a floor under stocks….unless of course – the reason for the cuts is because the economy goes off the rails….(but that’s another story) this, even as the geo-political unrest hit levels not seen in years….and 2024 promises even more unrest – we still have the Ukraine/Russia thing going on, Israel/Hamas has no end in sight (yet), and now we have the Hootie’s (Iran) causing all kinds of trouble in the Red Sea, never mind Xi Xi making all kinds of noise about ‘taking Taiwan back’.
We have major elections going on around the world – more than 60 countries (4 billion people) holding elections at all levels…. regional, legislative and Presidential and these elections will create change in the status quo and most certainly ramp up geo-political tensions…….so prepare yourself for incumbent losses and turbulent public protests that could destabilize larger regions…In Europe – countries there bracing for a surge from the far right, in Asia – the Taiwan election has the ability to escalate tensions in the Region – dragging the US and other allies into a chaotic confrontation with China – as Taipei and Beijing continue to claw at each other.
And in North America – we have the US Presidential election – with both parties still ‘not really sure’ who will be at the top of the ticket. The left trying very hard to ‘eliminate’ the top GOP candidate (DJT) any way they can, which is already causing ‘protests’ across America……On the other hand – they (DEMS) also have to figure out what they are going to do with Joey & Kammy as the polls suggest plunging satisfaction across all measures (even among their own party)…trailing the GOP in every national poll….leaving both the DNC and GOP scrambling for an alternative…..Across the ‘closed’ Southern Border – we have Mexico holding a vote that will most likely impact trade and border (IN)security.
Expect AI and other new tech to create all kinds of misinformation around the elections, expect conspiracy theorists to push misinformation, expect new levels of misinformation from China, Russia, Iran, Hamas and the Hootie’s as they try to affect US elections pushing it all out on the social media outlets – think TikTok, Facebook, IG and X. – and this will demand even stronger cybersecurity efforts and fact checking creating new exciting investment opportunities in space.
And for the markets? Well – can we see a repeat of 2023? We could, but most likely will not…. Estimates for the S&P range from 4200 to 5400 by year end 2024 – but that is a futile effort – and 2023 is a perfect example of that….…. a more normal 10% gain would get us to 5300 ish…. Tech will continue to be hot…and not just the Mag 7…. Stretch you mind – think outside the box – TECH is more than 7 names…. In fact – you’ll get tech and AI in almost any stock you buy…. I also expect to see a rebound in Consumer Staples, Utilities and Healthcare…. Aerospace and Defense is sure to remain a ‘hot’ sector as global tensions ‘heat up’. Oil Exploration & Services along with Energy as a whole are also sectors to put some money…. (IMO).
Overnight US futures were mostly flat but began to lift their head as trading moved from Asia to Europe…..continuing the rally left over from 2023…..this morning at 4 am – Dow futures were up 95 or 0.3%, S&P’s +7 or 0.1%, the Nasdaq +3 (flat) and the Russell is in the lead up 12 pt or 0.6%. (Now this could all change by 9:30 – but I will be on Mornings with Maria at 7 am – so I am up early getting this done).
Recall what I said last week…. I expect to see some selling in early January….as investors who want to lock in some of those outsized gains waited until the new year – this way any gains realized – won’t pay taxes until April of 2025! I am also urging caution as we move closer to the start of earnings season….that begins on January 12th…..Estimates have been coming down, the bar has been lowered, I expect that we are gonna get the usual 75% or so ‘beating the estimates’ but listen to what the C-suite says about forward guidance – because that is what investors are paying for….the future not the past….and early indications are for weaker guidance… The story here – it appears that companies are expecting a slowdown and that means they will start to lose their pricing power…which is a positive for the consumer but a negative for the company……We are about to hear from 498 more S&P companies…. So – brace yourself….
Eco data today includes US manufacturing PMI and that is expected to be 48.2 (contractionary) and Construction Spending of +0.5%. Tomorrow will bring the November JOLTS (Job Openings & Labor Turnover Survey) report along with the latest FOMC mins……Just wait for that…. Just wait to see how the latest meeting gets ‘re-interpreted’ by the markets…. Will the 5 – 7 cuts now expected be even bigger than the expected 25 bps pace? Oh boy…… Later in the week – we will get the ADP report and that is expected to show 115k new jobs created while Friday’s NFP report will be the one to watch…..That report is expected to show 170k new jobs, with Avg Hourly Earnings nm/m + 0.3% and y/y of +3.9%… Unemployment is expected to tick at 3.8% – still at historic lows….Which again only confirms that there is NO need to cut rates at all but even less so for 5 – 7 times….But hey, I’m not on the committee – so take that with a grain of salt!
European markets are all starting the year in positive territory….energy names (think oil and gas) leading the way higher – think the RED Sea….….Eurozone PMI continues to be weak – suggesting that the region entered a recession in the 3rd qtr.….and this is causing some investors to bet that Christine Lagarde will change the narrative at the ECB – the same way JJ changed the narrative at the FED.
Oil begins the year on an uptick…. WTI is trading up $1.45 or 2% at $73.07. Why? Well, first of all, we still have the unrest in the RED Sea and that continues to cause angst – but overnight guess what China did? Bloomberg reports this headline.
“China Issues MASSIVE Crude Oil Import Quotas at the Start of the Year”
Saying that “China has front-loaded its oil import quotas for 2024, with an allocation to private refiners and traders that nearly matches all of the allowances granted for the whole of last year.”
They plan on importing 3.6 million bpd and it is expected that Beijing will issue additional quotas later in 2024…. – so, I ask – what happened to that ‘weak China story’? You know the one that they sold you in the final quarter of 2023? Weak Chinese demand would decimate oil prices…Yeah, how’s that working? Which doesn’t mean that global demand will outstrip global supply – since there is plenty of oil with the US now once again the swing producer – but it is not the story they told you last week.
Gold is also a bit higher…. up $12 at $2083/oz on continued hopes of FED rate cuts (plural). Bitcoin continues to march higher as well…currently trading at $45,700 up 7.5% so far this year. The VIX remains lower – continuing to suggest complacency – but don’t get too complacent…. remember – investing is dynamic not static….
The S&P closed at 4769…. …. a stunning 25% gain in 2023 – but that was then, this is now…. The slate has been wiped clean….and we get to start all over again…. Expect the narrative here in America to continue to be ‘fluid’ – remember – In November they weren’t even considering a rate cut and 6 weeks later we are supposedly cutting 5 – 7 times! Pay attention to tomorrow’s FOMC minds – that really what is being said between the lines?
It’s a new year…. make that plan, talk to your advisor or if you don’t have one consider getting one….
If you are invested – you’re good, if you have more money to put to work, be patient – don’t chase anything. Remember – it’s time IN the market not timing THE market.…. Call me to discuss. 212-381-6194.
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.
Simple Pot Roast
This is one of those simple ‘one pan’ meals that takes little time to prepare and cooks beautifully in the oven.
For this you need: 1 -31/2 lb. boneless chuck-eye roast, vegetable oil, 1 large white onion- chopped, 2 large carrots chopped, 2 celery ribs chopped, 3 lg cloves of garlic- put thru the garlic press, sugar, chicken and beef broth, fresh thyme, water and ¼ c of red wine. You also need a pot that can go from the stove into the oven with a lid.
Begin by turning your oven on to 300 degrees. Make room in the center rack.
Pat the roast dry with paper towels and season generously with s&p.
Heat the pot with the oil until it shimmers. Brown the roast on all sides. – 10 mins. Now transfer to a plate and set aside.
Reduce the heat to medium – add the chopped onion, celery and carrots. Sauté for about 10 mins. Now add the garlic and 2 tsp of sugar- stir to mix…. Now add in 1 c each of the chicken broth and the beef broth and the twig of thyme. Return the roast to the pot and any of the juice it produced. Now add enough water to come halfway up the sides of the roast.
Cover the pot with tin foil and then put the lid on top to secure it. Transfer to the oven. Turn the roast every 30 mins until fork tender – maybe 3 ½ – 4 hrs.
Now remove the roast and put on a plate and cover with tin foil. Skim the fat off the top and toss away the sprig of thyme. Bring to a boil to reduce by half. – Now add in ¼ c of red wine – boil again for about 2 mins to allow the alcohol to burn off. Season with s&p to taste. (If you prefer to not use the wine – use beef broth instead)
Pull the meat apart with two forks – transfer to a warm serving platter and pour ½ c of juice over it. Serve immediately.
Buon Appetito
