Things you need to know.

–        I’m ranting a bit here….

–        Happy New Year – Barclays’ Cuts Apple! (Comical)

–        Apple declines 3.5% – And?

–        Stocks decline as investor lock in those profits/gains.

–        Bonds decline/yields rise.

–        Gold down, Oil down, VIX rises by 6.2%

–        Try the Frittata

“Tech Bulls Lose Their Grip as Stocks Rally Pauses” – BB 1/3/24.

Ok – I have a so many thoughts here…..Markets come under pressure on January 2, 2024…..Ok – yes, the Dow gained 25 pts (but that is just an index of 30 names) but the S&P 500 lost 27 pts or 0.6%, (500 names) the Nasdaq 100 got slapped (finally) falling 245 pts or 1.6%, (100 names), the Russell 2000 lost 14 pts or 0.7% (2000 names),  the Transports (20 names) gave up 125 pts or 0.8% and the Equal Weight S&P 500 gave up 2 pts (500 names).    

First it is a new year…remember that the slate was wiped clean…everyone starts out at zero….and also remember that I said and have been saying that investors that wanted to lock in those significant gains from 2023 were going to wait until the new year…. Why? Because they captured the gains, locked in some profits AND just put off paying taxes for 16 more months….….

And then you got this analyst (Timmy Long) at Barclays (of all places) – who was all giddy over the weekend – as he prepared to put out his ‘downgrade’ on Apple!  Take a look at Tim Long’s LinkedIn profile….It’s bare, there’s nothing there – his work experience says he has worked at one company during his professional career – which apparently began in May 2019….Which in itself is not a bad thing, it’s just curious – there is no history, there are no posts, there is nothing that tells you who Timmy is?  So, I ask – Who is Timmy?  But let’s be clear – Barclay’s?   Are you telling me that Apple lost 3.5% because some analyst that no one ever heard of – was the first one in the new year to put out a ‘downgrade’ on the world’s biggest company?  Do you think this ‘downgrade’ just came to Timmy as the ball was dropping in Times Square or do you think he has been planning on putting this out for weeks now?  Remember – he was already negative on the name…. since his price target was $161 when it was trading at $195.  Come on…. Think about it….

 The headline saying.

“Apple Shares fall 4% after Barclay’s Downgrade”!

“Barclay’s analyst Timmy Long tagged Apple with an UNDERWEIGHT rating due to weak iPhone 15 demand” 

Which is also curious – underweight is not a SELL, it’s underweight – which says don’t go chasing it, don’t add to it, put your money in other places…. Or is underweight ‘code’ for SELL?  In fact – Google tells us that Apple has a consensus rating of Strong Buy – which is based on 24 Buy ratings, 8 Hold ratings and 0 Sell ratings (notice 0 sell ratings) – the Avg price target of 32 street analysts over the next 12 months is $203.16 (don’t ask me about the pennies – its ridiculous).  So, this guy comes out on January 1^st and says – ‘I’m taking my price target down by $1’ and suddenly global asset managers hit the sell button?  OMG…. Give me a break…. Would this report have received the same attention if he published it on December 15^th, 2023?  Absolutely, not! 

The story went onto to say that – the weak iPhone 15 demand must mean that the iPhone 16 sales would be weak as well…. He then added some concern about Apple’s hardware sales – he MOVED his price target from $161 to $160!  Can you believe that!  Amazing….  So here is my take on this…. None of this was new – Many street analysts have been talking about this since early Fall – after the Chinese gov’t issued ‘informal guidance’ that forbids Chinese state employees from using an iPhone (Although Beijing denied and continues to deny that story). 

He was already negative on the stock – as his original target was $161 and the stock was trading at $195…. How come no one listened to Timmy one week ago?  Or two weeks ago?  Why wasn’t Barclay’s pushing this narrative as the stock climbed to record highs?    Why suddenly did Timmy’s view on Apple cause all this ruckus?  This isn’t rocket science….All we needed was one person (male or female) to be the first one in the new year to make a splash……The markets have been aching for a reason to back off….I mean it rocketed higher, in a straight line for 8 weeks….no retreat, no breathing…just kept going and so did Apple – it rose 19% off the October 30^th low of $166.89….IT like the market was (is) ripe for some profit taking (recall yesterday’s RSI lesson) – it could have been anyone that worked at a ‘big’ global bank  – (or even a small local bank) that was the first hit the send button on his/her ‘downgrade’ of the world’s most visible company on January 1st at 12:01 am….(Officially the new year). 

In the end – asset managers/portfolio managers/retail investors/traders and Algo’s just needed a reason to sell the stock (and the market) …because nothing changed between last Friday – when the market priced it at $192 and yesterday – except the year.   The data he cites has been available for months now, his analysis isn’t bad, it just isn’t anything new. Clearly no one wanted to hear about it when the market was rallying at year end and Apple was one of the drivers behind it….

Ok – I’m done…there is nothing to see here….the weakness in Apple or the market should surprise no one…..In fact – so many investors have been waiting for the pullback to begin…and I think it has….I suspect that we could see the market back off 5 – 8% or so….and if earnings season (which begins next week) starts off with weak forward guidance then we could see an even bigger pullback….Remember – investors are buying stocks on what the future is – NOT on what the past was….because past performance does not guarantee future performance….Just sayin’….

And then guess what else happened.  You know that 100% expectation of a March rate cut and the expectation of 5 – 7 rate cuts in 2024?  Yeah, that changed too….the March expectation dropped to 84% (still high) but talk of 5 – 7 rate cuts is suddenly being quietly discounted….Of course it is, it was ridiculous to begin with….Why when the economy is humming along, inflation is in retreat, we are preparing for a soft landing, the Dot Plot showed 3 possible cuts (not 5 – 7), unemployment remains at historic lows, the bond market has rallied sending yields down making money less expensive – we’ve seen that in 30 yr. mortgages go from 8.25% to now 6.75%, we’ve seen auto loans pull back a bit, we’ve seen an explosion of buy now pay later businesses come to life….The economic data remains strong….and so tell me again why anyone thinks that 5 – 7 cuts is appropriate?  They tell us that defaults are rising and that the CRE market is about to break….but they have been saying that all of last year – yet the market marched higher….and in the end – the private sector will scoop up any or all of the distressed CRE properties that come to market (for pennies on the dollar) the way they did in the housing market when that collapsed….Come on – Larry Fink is licking his chops right now….Who is kidding who? 

Remember I told you don’t go betting the ranch on any one day…..Invest your money wisely….feather it in over time….do not get drawn into the FOMO mindset…..because when markets hit extremes of bullishness – investors often lose their ability to consider what could cause markets to reverse course……  Which is why I always emphasize the need to remain focused, create and stick to the plan….

Bonds also came under a bit of pressure yesterday…..the TLT and TLH both lost 0.5% or so….this after gaining 16% over the past 6 weeks – so put it in perspective….but lower bond prices do mean higher yields…and the 10 yr. went from 3.85% to 3.97% – a decent move….the 2 yr. went from 4.29% to 4.35% –  and this also makes sense – if the FED narrative changes….but let’s not set the place on fire….We are well below the 5% level that triggered so much angst….so let’s see what happens….on January 31^st – that is the date of the next FOMC announcement….and right now – the expectation is for no change….but once again – it will be about the guidance….and the expectation.

Oil which has rallied going into yesterday is lower today…. they are repeating the ‘ample supply story’ …. citing production from the non-OPEC nations as the reason for today’s weakness…. that in addition to the ongoing drama in the RED Sea caused by the Hootie’s (think Iranians).  The Saudi’s are now in a tougher spot…. can they continue to cut OPEC production and sufficiently eliminate the projected surplus? The market is betting NO…. What say you? For now, oil remains in the $68/$75 trading range….A break of $68 will take it to $65 in short order – a level that has been tested 4 times since March 2023… while a breach of $75 will be much harder to accomplish….the trendlines suggest plenty of supply (sellers) at that level….So sit tight.

Gold got a bit weaker on the back of the ‘new’ FED narrative….recall that gold rallied over the past 6 weeks on the idea that we were going to see 5 – 7 rate cuts in 2024….THAT narrative is changing….and so, Gold will re-adjust (lower) – not significantly – (unless of course rates go UP and not down).  For now, it appears that we are in the $2030/$2100 trading range. 

US futures are down…. (that is not a typo) …. Dow futures -75, S&P’s -11, the Nasdaq -60 and the Russell is -15.  It’s just more of the same…. a healthy pullback…but CNBC would make it seem like more – as they point out that the ‘Nasdaq registered its WORST day since October’…. What does that mean?  Nasdaq rallied 45% in 2023 – yesterday it gave up 1.6% – Did Nasdaq start a ‘Go Fund me page’?  It’s all very dramatic…. Again – as a long-term investor – you want to see a healthy pullback – healthy can be described as up to 9% – Others may debate that – but I for one wouldn’t mind if that happened….

Recall what I said last week…. I expect to see some selling in early January…. I am also urging caution as we move closer to the start of earnings season….that begins on January 12^th…..The story here is that companies are expecting a slowdown and that means they will start to lose their pricing power…which is a positive for the consumer (and inflation) but a negative for the company……. So – brace yourself…. 

Eco data today includes 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…. It already started happening yesterday…..and Bloomberg runs with the narrative that the mins will show a pushback against multiple rate cuts…So my question is that it always showed that, they didn’t change the mins between the meeting and today…they are what they are….JJ got sidelined last month and his comments got mis-interpreted….This should surprise no one.

Tomorrow – 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….

European markets are all a bit lower – No surprise there either…. France down 1.3% while the FTSE is off by 0.7%…everything else is in between. Maersk remains cautious with their ships and is extending their route around Africa via Cape Horn rather than go thru the RED Sea and out the Suez Canal…Why we are letting the Iranian’s dictate global trade is amazing to me – but I think Joey’s asleep at the wheel. But let’s not go there….

The S&P closed at 4742 down 27 pts….… Expect the narrative to remain ‘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 today’s FOMC mins – My gut says ‘not happening’…. but I’ve been saying that all along…. Let’s see.  

Take good care.

kpolcari@slatestone.com

Sources:  Bloomberg, CNBC, Reuters, Wall Street Journal

Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment.  The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kenny Polcari or SlateStone Wealth.

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.

Try the Frittata

A frittata is kind of like an egg omelet – but different.  You can use whatever you like to make it, meats, veggies, cheeses, whatever.  Today we are making a mushroom, Leek Frittata.  It is simple and delicious…. serve with toasted Italian bread and home fries.  This is a fluid dish – be creative.

For this you need:  12 eggs, leeks, sliced mushrooms, goat cheese (or shredded Gruyere or Fontina), heavy cream (or you can use sour cream), s&p, butter, olive oil.

Preheat your oven to 350 degrees.

On the stove – turn the heat to med and add a ¼ stick of butter and a splash of olive oil to an oven proof frying pan – add the leeks – white and pale green parts only – sliced thin.  Allow them to soften.  Now add the mushrooms – and cook them for about 10 mins more and let it all blend.  (Let the water it creates evaporate)

In a large bowl whisk the eggs and add in either ½ c of heavy cream or ½ c of sour cream (not both), add softened goat cheese (or the shredded cheese- your call), Season with s&p.

Turn the burner down to med low….  Now add the eggs to the frying pan and let it set – maybe 5 mins…. Now place the whole pan in the oven and bake for maybe 20 mins – or until it is firm and beginning to get golden brown on the top.

Remove and serve with hot coffee and your favorite juice.

Enjoy.