Things you need to know.
– The selling continues.
– BA – gets whacked again as a door plug blows off inflight.
– Oil down as the Saudi’s cut prices and supply rises.
– Gold testing support
– Try the Roasted Cherry Tomatoes and Ricotta over Thin Spaghetti
So, the winning streak came to an end….and while 5 of the 6 indexes – did end Friday a bit higher –the first week of the new year – was a bit more difficult as we saw a pullback in ‘big’ tech – with Apple getting a couple of downgrades to kick off the new year….which as you know I find interesting…..because – both these guys knew they were writing a negative story on Apple in December, but chose not to publish in December – because no one would have paid attention….so what do they do? They wait until the first and second day of the new year to publish – making all kinds of headlines for themselves…..….and they said NOTHING new at all – the information contained in those downgrades was information that we already had, BUT because we were well overextended – both in Apple and the broader markets and it was a new year – those downgrades lit the fuse and gave people a reason hit the ‘sell’ button and lock in some profits in big tech and put off paying any of the taxes for 16 months….…..and so – at the end of the first week – Apple gave up 6%…while the Nasdaq gave up 3.25%. (Just a note – Apple is down 9% from the Dec 2023 high). The other indexes got hit as well – with the Russell leading the way – down 3.75%, the Transports giving up 2.45%, the S&P losing 1.52%, the Equal Weight S&P down 1.3% while the Industrials have lost 0.6%….
At the end of the first week – we find last year’s underperformers leading the way higher – Healthcare up 2.5%, Utilities + 1.9%, Energy +1% and Consumer Staples flat…. The other 8 S&P sectors are all lower. Tech and Consumer Discretionary the 1st and 2nd place winners in 2023 – are now down 4.4% and 3.5% respectively. Further down the line – We have Disruptive Tech down 6.6%, Semi’s down 5%, Cybersecurity down 4.5% and AI off 5%. (again – do you see the pattern?) Those AAPL downgrades infecting the whole tech sector…giving a reason to take profits and sending Tech and the broader market lower.…Growth which outperformed value last year has also been flipped on its head – Value (SPYV) is up 0.2% while Growth (SPYG) is down 2.9%……But we discussed this in December….This action should surprise no one.
On the contra side (the trades that get you short) are up – SH up 1.7%, the DOG + 0.75% and the PSQ +3.3%. The VIX which was at historic lows for months is beginning to lift its head ….up 7.3% in the first 4 days…..and that speaks to the building underlying fear of more of a correction coming and we could see that beginning this week….as the start of earnings season kicks off on Friday, January 12th with all of the big banks – think JPM, C, MS, WFC, MS, BAC etc.….…..Now yes – pay attention to sales and trading, investment banking, net margin interest – all the usual components, but also pay even closer attention to ‘loan loss reserve accounts’. Why?
The loan loss reserve account is an account that the bank holds to provide money to ‘cover’ loan losses – think defaults….Over the last 3 or 4 quarters -we have seen them ‘fund’ those accounts aggressively…..and that speaks directly to what they expect is going to happen in the months ahead – Capisce? An ongoing increase in that account suggests that they expect tougher times ahead – think credit card and auto loan defaults – which are already at 10 yr. highs according to Equifax…..with low and middle income Americans being hit the worst as they choose to pay the rent or pay for food rather than pay the cc or auto loan as inflation continues to take its toll.
Now remember – earnings estimates have been revised lower as we came to the end of the quarter – so expect to hear how all of these companies ‘beat the number on both the top and bottom lines’ – hoping to send a positive message – but you don’t buy stocks based on how they performed in the last quarter – you buy them because of what the future looks like….Remember what they did in December to FDX, GIS and NKE when the issued cautious guidance in the months ahead.
Now my friend Tommy Lee – of Fundstrat fame – makes note that the ‘downbeat tone of the holiday week signals rough waters ahead for equites in the first half….’ He goes onto to tell clients that.
“The first four trading days of 2024 have been a terrible start for equities. The year tends to play out in January, Meaning, this turmoil in the first week of trading is telling us to brace for a challenging year.”
And while the tone has not been robust – it’s still very early in the game…. but it does go to the point that Tommy Lee is making…. ‘Brace yourself for an interesting 2024’.
Bonds also came under a bit of pressure on Friday …. the TLT lost 1% with the TLH gave up 0.9%…. the 10 yr. bond shot up and through 4% and is now yielding 4.045%…. The 2 yr. is yielding 4.38%, while the 30 yr. is yielding 4.20%. The shorter duration 3- and 6-month bills are yielding 5.215% and 5.03%. 12-month CDs are still paying 5.3% and your gov’t money market account is hovering around 5%. The move up and threw 4% on the 10 yr. will be a headwind for stocks…. especially if the expectation is for yields to rise…. The January FOMC meeting in on January 31st – and right now – the expectation is for no change…. but once again – it will be about the guidance….and the expectation.
Oil traded higher last week – the ongoing tensions in the mid-east and the chaos that the Iranians are creating in the RED Sea being ‘blamed’ for the action – this morning it is trading down 90 cts at $72.88 after the Saudi’s cut their ‘official selling price’ due to the perceived persistent weakness and I say perceived because this is NOT a demand issue – it is a supply issue. Supply from non-OPEC members is expected to remain strong – and that is not going away – demand remains strong so don’t misinterpret the move in oil as a weakening demand story….it is NOT. This leaves oil in the $68/$75 trading range. Now if we see oil break $68 then expect it to go to $65 in short order – a level that has been tested 4 times since March 2023… a breach of $75 will be much harder to accomplish…. the trendlines suggest plenty of supply (sellers) at that level…. So, sit tight.
Gold remains in the $2030/$2100 trading range…. Rising over the past month on the expectation of those 5 – 6 rate cuts, but after the release of the FOMC Mins last week – that narrative has changed leaving many to ask – can we expect even 1 cut? And gold (like the market) has come under pressure…this morning it is down $14 at $2035 – the short term trendline is at $2028 – This is KEY. A failure to hold the trendline will see it challenge the next two trendlines at $2014 and then $1998…. The risk is to the downside – based on the new narrative.
US futures are down…. Dow futures -180 pts, S&P’s -11, the Nasdaq -40 and the Russell is -5. Boeing is down 8% (that’s a Dow and S&P name) on the news over the weekend of that Alaska Air Boeing 737 Max 9 ‘panel failure’….You know the one that saw a blocked door exit blow out during takeoff – when the plane was ascending and over 16k feet in the air….Now while they avoided tragedy – they will not avoid intense scrutiny….not exactly what Boeing needed! That ‘event’ has resulted in 170 Boeing 737 Max 9 planes worldwide (representing just 1% of the fleet) being grounded and this morning the stock is quoted down 8% or $20/sh at $228/$228.50 leaving it down 13% ytd. Alaska Air and United expected to be hit the hardest but I would expect weakness in the whole sector (at least today). Spirt AeroSystems (SPR) – the manufacturer of the door plug is also quoted lower – down 16% or $5 at $25.50/$26.
Recall what I have been saying since the end of year robust rally…..I expected to see some selling in early January just based off of that move…but I am also urging caution as we move closer to the start of earnings season….The story here is that companies are expecting a slowdown (weaker forward guidance) 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….
There is no eco data today but later in the week (Thursday) we will get the December CPI report – which is expected to be up 0.2% m/m and up 0.3% ex food and energy m/m. Y/y CPI is expected to be up 3.2% (all 3 slightly higher) while y/y ex food and energy is expected to come in at 3.8%, slightly lower. Friday will bring us the December PPI report which is also expected to be slightly higher…m/m and y/y. Which once again forces us to ask – 6 rate cuts in 2024? Really?
European markets are all a bit lower – down about 0.4% across the board with the exception of Germany – which is basically unchanged. British Oil Major – Shell – down 2% after they announced a 4th qtr. charge off of $900 million against earnings – which are due out on February 1st. You see, they get the negative info out ahead of the official call so that investors are not surprised – hoping to ‘lessen’ the fallout when they officially announce -which is usually the case since that news story is already priced in. It is when the company chooses to play “I’ve got a secret’ that they suffer even more…. but that’s another story.
The S&P closed at 4697, up 9 pts. Expect the narrative to remain ‘fluid’ – and do not be surprised to see us trade lower in the days ahead…..another 150 pts or 3% would take us to 4530/4550 ish level – where we should find support at the trendline…In any case – there is no reason to panic….even that move would leave us well within a normal trading range and represent a move of only 5% off the late December high…in fact a 9.9% move – that takes us to 4300 would be considered within the ‘normal’ trading range- and think of all the bargains then! So put it in perspective…which is why I always say – talk to your advisor, create a plan and then stick to it.
On a side note – AAPL is down 9% off the high at $181.18 and it’s RSI is now 28.7945 – well into ‘oversold’ territory (recall that 30 is that indicator)…which doesn’t mean it can’t go lower, it just means its becoming a bit overdone…..It is also sitting right on the long term trendline at $180.15 – a failure to hold that trendline will ignite the algo’s and send them into a selling frenzy due to a ‘technical break’ – possibly taking the stock to the $170 range as the buyers step aside allowing the sellers to take control.
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.
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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.
Thin Spaghetti in Roasted Cherry Tomato/Ricotta Sauce.
This is so simple to make….
You need 1 container of cherry tomatoes – sliced in half. 1 large bulb of garlic – sliced off the top, Fresh Ricotta Cheese, s&p, olive oil, butter and fresh grated Parmegiana.
Preheat your oven to 400 degrees.
Bring a pot of salted water to a rolling boil on the back burner…
Begin by slicing the tomatoes in half and placing them in a baking dish… place the bulb of garlic in the center. Season with s&p and drizzle (generously) with olive oil – making sure you give a bit extra to the garlic. Place in the oven and roast for about 35 – 40 mins.
Add the pasta to the pot of water – cook for 8 mins.
Remove and place ¾ of the tomatoes in a blender. Add in the roasted garlic – (push out all of the cloves) and 2 big scoops of the Ricotta Cheese. Blend – Add the blended tomatoes to the baking dish with the balance of the roasted tomatoes.
Strain the pasta – saving a mugful of the water – Add 3 or 4 slices of butter to the pot and then add back the hot pasta to coat with the butter. Now add in 2 ladles of the sauce. Mix – serve in warmed bowls with extra sauce on top. Have the grated cheese at the table for your guests.
Buon Appetito
