Things you need to know.
– Tech comes to the rescue!
– Taiwan Semi – ignites a rally.
– Treasuries slightly weaker – yields up a bit.
– Dollar weaker, Oil up, Gold up
– The FED has NOT committed to 3 cuts – It’s all speculation.
– Try the Chicken Soup
Technology wakes up and leads the way higher! Recall what Taiwan Semi did yesterday….They ignited a rally in the chip stocks when they said they expected ‘solid growth’ this quarter…..and that sent the algo’s into a buying frenzy across the tech sector resulting in a $165 billion ‘chip rally’ – NVDA +1.9%, AMD + 1.6%, INTC +15%, AVGO +3.6%, QCOM +4.5%, SOXX + 3.3%, CIBR + 1.2%, BOTZ + 1.1% and then we got an UPGRADE of Apple by BankAmerica’s Wamsi Mohan – who stated that the combination of AI and Vision Pro would prove a ‘valuable upside driver’ for Apple…..while also noting that it would ‘likely mean’ a boost to iPhone sales and that opens the door to gains in Apple’s services division – he also raised his target from $208 to $225/sh…….and BOOM – investors loved it and went in and scooped up Apple shares sending the stock up 3.3% or $6/sh to end the day at $188.75…..
And that change in tone – washed over the whole market…..causing bargain hunters to go on a shopping spree – scooping up names in the sectors that have been the weakest performing so far this year….….and that sent the indexes all higher – but when you look at the broad 11 sectors within the S&P – only 6 of the 11 ended the day up which means that the other 5 ended lower and that just suggests some shifting around – So for instance, money moved out of Utilities, Real Estate and moved into Technology, Industrials and Communications. At the end of the day the Dow added 200 pts or 0.5%, the S&P’s up 40 pts or 0.9%, the Equal Weight S&P gained 33 pts or 0.5%, the Nasdaq surged by 200 pts or 1.35%, the Russell added 10 pts or 0.6% and the Transports gained 258 pts or 1.7%.
The bond market continued to come under pressure – the TLT – 20 yr. bond ETF fell by 0.9% and the TLH – the 10/20 yr. bond ETF fell by 0.65%….
The 2 yr. treasury yielding 4.35%, the 10 yr. yielding 4.13%. Conventional mortgages are now in the mid 6’s and 5/1 ARMS can be had in the high 5’s. And that helps to explain the surge in Mortgage Apps – which was up 10.4% on Wednesday. Yesterday’s Housing Starts were down ‘less than expected’ falling only by 4.3% rather than the decline of 8.7% that was expected (which is bullish). Building permits were also much stronger than expected (homebuilders to benefit)– rising by 1.9% rather than the expected 0.7% and that sent the ITB – Home Construction ETF (Blackrock product) to surge by 1.26% or $1.20/sh and it sent the XHB – which is the S&P Homebuilders ETF – up by 1.4% or $1.30/sh.
These ETF’s includes all aspects of home construction…..so when building permits surge – you have to believe or expect – all of the component parts to do better….I mean think of all the concrete, roofing, flooring, AC, heating systems, water heaters, sinks, toilets, faucets, tubs, tile, wall board, compound, paints, windows -you get the picture no? Think WHR, SHW, HD, LOW, OC, IBP, TREX etc.….
If you were really bullish on those reports, you may have ventured into the Direxion Daily Homebuilders and Supplies ETF – NAIL is the symbol – it is one of those 3 x’s levered ETFs (that are NOT for everyone) and it surged by 3.6% yesterday or $3.70.
Now all of this happened even though Initial Jobless Claims FELL -which is not what JJ wants to see – it suggests a strong labor market – and that is just one more reason that there is NO reason for the FED to consider any rate cuts anytime soon….I mean a stronger labor market coupled with historic low unemployment at 3.7%, 9 million jobs available, a strong consumer, strong Industrial Production, Strong Capacity Utilization, a falling PPI (allowing them to ignore the rising CPI) None of that screams – HELP! Remember – a cut in rates is stimulative and risks igniting inflation yet again….so tell me – do you want JJ to stimulate you?
And speaking of rate cuts – I keep hearing the media say that the ‘market is pricing in 6 cuts while the FED is pricing in 3 cuts. Let’s be clear here – the FED is not pricing in anything…they never committed to any specific number of cuts, in fact they never committed to any cuts – it is the markets interpretation of the FOMC mins and the accompanying DOT plot that suggests that narrative….but let’s be clear – there is NO plan on any specific rate cut or rate cut schedule that has been announced (remember when they were raising rates they told you well in advance that rates were rising…there was no ambiguity – they were all on the same side of the fence)….but today it is about speculation and innuendo – but speculation and innuendo are not commitment – Capisce? The other thing that adds confusion to the conversation is all of the conflicting ‘opinions’ by different FED officials and market analysts….but in my mind – I am in the higher for longer stage and I do not see any reason for a rate cut any time soon and if they don’t do it by May – it becomes ‘optically’ impossible for them to do it, because we will be within the 6 month window of the presidential election. (Think politically motivated).
The next FOMC meeting in on January 30th/31st. So any member that wants to say something has to say it this week…because next week they go into hiding….(also called a blackout period) and members of the FOMC are precluded from saying anything…(that’s when you have to watch for Nicky T of the WSJ – he is the FED’s deep throat and when they can’t say anything – they leak it to him and he suddenly writes a story that reflects the thinking – allowing the FED to alert the markets without being accused themselves of talking – they can point to the fact that Nicky is a WSJ journalist and his stories are his opinions…Convenient how that works, no?
The VIX as you would imagine FELL as stocks surged higher…. We discussed this inverse relationship……FEAR rises when stocks fall (falling prices just makes some investors nervous) and FEAR falls when prices rise…. (Rising prices always make investors feel warm and cozy – like chicken soup). Yesterday it fell by 4.4% to end the day at $13.66. Leaving it just about to kiss trendline support at $ 13.20. If it breaches that level, then expect stocks to continue this move up….
The dollar index is teasing with the trendline at $103.46 – failing to pierce up and thru, as it trades at $103.32…and this ‘perceived’ weakness is helping the commodity space – think oil and gold.
Oil is trading at $74.10/barrel – holding within the trading range we identified….It is now on the north side of what was trendline resistance at $73.77 – do the next wall we hit will be $75.80 – and that will be tough to penetrate….While OPEC+ is predicting strong demand into 2026….the IEA disputes that and calls for demand to decline….which makes me laugh – Oil demand is not declining…all you have to do is look at what happened across the nation this week with weather….alternative energy sources failed miserably – who is kidding who? But that does not mean oil prices won’t go lower – they might…why? Because of the surge in NON-OPEC production…. which is sending the ‘Kingdom’ into a tailspin…. On the other side – we have the ongoing conflicts in the mid-east and that always creates uncertainty – both in supply and in price. An expansion of the conflict and a further decline in the dollar will change the current narrative….so sit tight.
Gold is up $12 at $2,033/oz and it too is now on the north side of trendline resistance ($2,030). I think two things are happening…. we tested long term trendline support at $2,012 and held, the dollar is pulling back. Gold remains in the $2012/$2100 trading range.
Futures are up again this morning….and that too makes some sense – as the tone appears to have changed. Dow futures + 152, S&P’s +24, the Nasdaq is up 130 and the Russell (smid’s) are up 7. While I think the market is backing off of the multi rate cut story – I am not convinced yet that the volatility (and a move a bit lower) is completed yet…. but that does NOT mean I think we are going into a significant decline…I do NOT. I am ok within the normal trading range – that spans up to a 9% decline…. (And I don’t’ think that is happening either – I’m just telling you how I am positioned).
Which is why the long-term investor needs to have a plan, identify what they need and then go for it….do not look at every tic up or down, it will make you nuts…. focus on the longer term…. If you want to trade – then keep a separate ‘mad money’ account and go for it…. but do not combine a trading acct with your long-term plan… Capisce?
Eco data includes – Existing Home Sales and they are expected to be up 0.3% – but don’t be surprised if it is even stronger.
European markets are all UP by about 0.4%…….
The S&P closed at 4780 – up 41 pts…. once again kissing all-time highs…. It doesn’t feel like we are going to test 4680 anytime soon…. but I am not sure that we can pierce the current high either…. Much will depend on the ongoing earnings season and the coming FED clarity… In the end – stick to your plan…. talk to your advisor….
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Classic Chicken Soup
So as your mother always says: “Have some chicken soup – it’s good for you”. It’s time to go to the kitchen….
For this you need; 2 breasts and 4 thighs, onions, carrots, celery, water, s&p, and one chicken bouillon and beans (optional) cannelloni or cecci.
Rinse the chicken place both in the pot and fill with water. Now add the chopped veggies and the bullion cube. Season with s&p and bring to a boil. Once it boils – turn the heat to med low and let it simmer for about 1 1/2 hrs. – adding water back as it evaporates. When done – Turn heat off – remove the meat and allow to cool. Add in a can of the beans of your choice.
When cool – remove the skin and debone the chicken. Slice into chunky pieces and return to the soup. Now – place the pot in the fridge and allow to cool overnight – the fat from the chicken will rise to the top and form a ‘skin’.
Remove from the fridge and take the fat off and discard. Re-heat and serve alone or with rice or with elbow macaroni. Have plenty of fresh grated Parmegiana cheese.
Buon Appetito.
