Things you need to know.
– We are walking on Sunshine….
– GDP Stronger, Personal Consumption Stronger
– Stocks and bonds march higher….
– Oil surges on larger drawdowns, Xi Xi tells Iran to settle down.
– AMEX allocates MORE money to Loan Loss Reserves…Oh boy!
– Try the Roasted Sea Bass w/Bacon, Leeks Bathed in White Wine
Stocks continue to march higher…. reminds me of Katrina and the Waves – Walking on Sunshine (1983 – I was graduating from Boston University) … “I feel alive, I feel the love, I feel the love that’s really real…. I’m on sunshine baby, oh, oh yeah……”
Between better-than-expected earnings reports, exciting news across the tech space and stronger economic data that is defying forecasts of a recession …giving new life to corporate America – investors, traders and algo’s just can’t get enough…. At the end of the day the Dow registered another 245 pt or 0.65% gain, the S&P up 25 pts or 0.5%, the Equal Weight S&P up 62 pts or 1%, the Nasdaq up 30 pts or 0.2% the Russell up 14 pts or 0.7% and the Transports up 200 pts or 1.25%….
Now just a note – the S&P is up 2.6% ytd but the Equal Weight S&P is flat….which tells you that – once again, it’s the big boys (think mostly tech) that are moving the market (Nasdaq up 3.3% ytd)….Once you take out the weighting benefit – you see the broader market is churning…and the SMID’s (Russell small and mid-caps) are struggling…down 2.5% ytd….
Of the 11 S&P sectors only 4 are up on the year so far – Tech – XLK and Communications- XLC are both up 6+%, Financials – XLF + 2.4%, Healthcare – XLV up 1.5%, the other 8 sectors are flat to lower…..with Consumer Discretionary down the most at -4.4%, Utilities – XLU – 3.6%, Basic Materials – XLB and Real Estate – XLRE are both down 3.5%, leaving Industrials, Energy and Consumer Staples flat on the year…(*up or down less than 0.3%).
Further down the line – we find Disruptive Tech – ARKK down 12%, Semi’s up 10%, Metals and Miners -5%, Coal Stocks +9+%, Aerospace and Defense -4%, Cybersecurity – CIBR + 4.5%, Expanded Tech – IGV which includes software, interactive home entertainment, interactive media, communications and some consumer discretionary is up 4.5%…..so you see a trend here once again…Anything ‘tech’ is where we are finding the love that Katrina is singing about. The Growth trade – SPYG (again think tech) is up 4.7% while the Value trade – SPYV is just scraping by at +0.4%.
Now all of the economic good news would imply (or convince) us that the FED should be in NO rush to cut rates…. with inflation moving (slowly) towards the 2% target – and the economy NOT circling the drain – I ask again – Why does anyone think that the FED needs to cut rates?
Eco data yesterday revealed that the 1st take at 4th qtr. GDP came in at 3.3% – a full 1.3% better than the expectation (more about this below)….Personal Consumption +2.8% – again better than the expectation, Durable Goods of 0% – below the expectation of 1.5% while New Home Sales surged by 8% – this vs. the -12% read last month…..and while it was below the expected 10% – a 20% move (-12 to +8) is nothing to sneeze at…and that’s with 30 yr. rates averaging 7.25%. But remember what we discussed – home builders do have an advantage – they can entice buyers with ‘free upgrades’ and they can buy down the rate a bit – since they own the mortgage companies that finance these new homes….because we did not see the same excitement in Existing Home Sales…..besides – when you see a new home with all the gadgets – you want that one vs. the older one…Come on – who is kidding who?
Bonds rallied sending yields just a bit lower…both the TLT and TLH gained 0.6% and that sent the 2 yr. yield down to 4.29% and the 10 yr. to 4.12%. Swaps traders continue to price in a definite rate cut in MAY – (not March) and they still expect rates to go down by 1.4% during the year…. (The March rate cut bets are now about 40%). Remember – we are in the blackout period for the FED – the FOMC meeting begins on Tuesday with the results on Wednesday January 31st – so don’t expect any more FED commentary until Wednesday…… (although we might here from FED disguised as Goldman – wink wink!) …….
We did though, hear from ECB President Christine Lagarde yesterday who implied that the ECB may begin lowering rates in Mid-2024 – but this is in contrast to comments by other members who said ‘not so fast’….and so – what do the trader types do? They are now betting that she is really saying that rate cuts will begin sooner….and if rate cuts happen in the Eurozone – then they MUST be about to happen in the United States. Of course, that is the takeaway…. How could it not be?
Now back to the stronger GDP report……4th qtr. GDP came in at +3.3% and this was supposedly driven by ‘cooling inflation’ which is ‘fueling consumer spending’…..leaving many to argue that the economy is strong, the market is making new daily highs, we have avoided a recession and the consumer continues to spend like there is no tomorrow and the FED hasn’t cut rates – Why should the FED stimulate the economy by cutting rates? I mean I just don’t see it…. And remember – it is an election year – the FED needs to be very sensitive to monetary policy the closer we get to spring (for fear of being labeled as political) …. Or maybe they don’t – maybe the old rules no longer apply…. Maybe they will cut rates beginning in May going right thru year end….and if they do, then expect stocks to continue to surge – unabated…. In the end – the resilience suggests that investors are convinced that we have hit peak rates and that policy can only loosen from here…. which might be true because at some point – they will move lower- I just don’t see it now…. nor do I see it anytime soon.
Oil – yesterday it rallied strongly……up 2.6% or $2/barrel to end the day at $77.10…..you know the drill…..the whole China story, and the idea that there were bigger draw downs in US inventories, coupled with strong eco data and concerns over the ongoing conflict in the RED Sea…….this morning it is churning in line – down about 60 cts at $76.70 ish….this as we learn that Xi Xi has ‘asked’ Iran to ‘rein in the attacks on ships in the RED Sea or risk harming relations with Beijing’ – Remember Iran and the Hootie’s (and Hamas) are one in the same…. – they aren’t just backing them; they are them and so Xi Xi is saying ‘stop the BS’.
Yesterday’s action took Oil right up to the trendline at $77.80 before it found resistance….and this morning we find ourselves in the $75.40/$77.80 trading range.
And gold – Yeah, that is just churning in the trading range we identified…. $2,030/$2,100. This morning it is up $5 at $2,042. All while the Dollar index also remains hugging the trendline….at $103.51.
This morning US futures are DOWN! Oh, no, say it ain’t so……Dow futures – 50, S&P’s down 6, the Nasdaq down 90 while the Russell is up 14…. (And that makes sense, right? The Russell is down 2.3% while the S&P and Nasdaq are up 2.6% and 3.3% respectively. Remember that a lot of funds and people came into the new year with CASH – assuming that we were going to have some initial volatility….and when the year started off weak – they stayed back…but then when earnings season began and the sense was that guidance was going to be ‘ok’ they started to put that money to work, sending stocks and markets higher….causing the momentum guys to create that FOMO mindset…..
Which is why I continue to support the idea that as a long term investor you just need a plan, you don’t try to pick tops and bottoms – you create the plan, you talk to your advisor and you build it…..Look – there are only 4 trading days left in January…and the S&P closed at 4894 last night….and believe it or not – this is already above the ‘consensus estimate of 4867’ that a Bloomberg survey predicted at year end 2023……(Not sure I saw that survey – I was, and am, under the impression that the S&P will rally to the 5100/5200 level by year end 2024 – representing an 8% + return) …but hey, that’s what makes a market.
And while I think we are in a bit of the danger zone and due for a pullback– it is not changing my mindset as a long-term investor…. if you are invested, you’re good and if you have more money to put to work – be patient…It’s coming…
Eco data includes – the PCE Deflator and that will be the data point to watch…In any event – I do not think it is going to change the narrative…..yes, inflation is coming down, but that doesn’t mean the FED has to cut rates…They are mutually exclusive events……
European markets are all UP – LVMH +11% as 4th qtr. luxury sales did not disappoint….and the comments out of the ECB – while conflicting are forcing trader types to go with the rate cut story rather than the higher for longer story….and so stocks across the region are up between 0.6% and 2%.
The S&P closed at 4894 – up 25 pts…. As it tries to figure out what’s next…. My sense is that as we approach month end – the algo’s will try to keep it right here…because as January goes, so goes the year…. Next week – we have the FOMC meeting, and we have the Treasury announcement about funding needs…and they are big…. the concern there is – who will buy all of this debt and at what price? Recall, lower debt prices send yields up and higher yields will pressure stocks…. Capisce?
AMEX just announced and they disappointed…. they are allocating more money to what? Loan Loss Provisions…. They are telling us that they are expecting more people to ‘miss payments’ in 2024…. Just food for thought….
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Roasted Sea Bass w/Bacon & Leeks Bathed in White Wine
Delicious and simple to prepare – all done in one pan.
For this you need: diced bacon, garlic, leeks – whites only thinly sliced, s&p, sea bass filets, finely chopped fresh thyme, cherry tomatoes, dry white wine, butter, and lemons.
Preheat the oven to 375.
Put the diced bacon in a roasting pan and bake until it crisps up – 8-10 mins….now add the sliced garlic and cook for another 2 mins or so….add the leeks, season with s&p and let them bake for about 5 mins more….now stir this mixture to allow it blend.
Season the filets with s&p and the chopped thyme. Set the fish on top of the leeks and bacon and add in about 2 cups of the wine and the halved cherry tomatoes– return to the oven and let it cook for 10 mins or until the fish is flaky.
Now remove from the oven – place the fish on warmed plates. Stir ¼ stick of butter into the bacon/leek mixture – allowing it to melt and penetrate – then spoon over the fish. Serve with fresh lemon wedges.
Serve with your favorite chilled white wine.
Buon Appetito.
