Things you need to know.
– S&P pierces 5100 only 17 days after piercing 5000.
– AI and NVDA continue to show us the way.
– Bonds rally, yields decline,
– Oil retreats just a bit, while gold advances.
– Futures this morning suggest consolidation.
– Lots of FED speak this week – expect more confusion.
– Try the Creamy Chicken Piccata
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2024 Investment outlook and Policy Webinar.
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So, I was away at the end of last week – so let’s just say it for what it was….by now you know that “NVDA BLEW IT UP!!! But who is really surprised? They beat every number – and it was clear from the moment CEO Jensen Huang stepped on the stage that this was ‘gonna be good’ – in the end – what he revealed is that AI and the AI infrastructure is growing exponentially and we are still very much in the infancy stages of what is to come….….And even with that – traders initially hit the sell button taking it down about 3% in the afterhours session in the moments after the report (this after they took it down 6% (profit taking) in the days leading up to the report….)– testing $667 – a level that had some support in early February…..and when it was clear that the sellers had been exhausted – the buyers took advantage of the discount and took the stock up 156 pts – taking its market capitalization to more than $1.9 trillion. The stock pierced $800/sh before settling the week at $788.17 sh. This now leaves that stock up 60% ytd….and that action helped to buoy the broader market into the end of the week.
By Friday at 4 pm – the Dow gained 62 pts leaving it up 1.4% on the week, the S&P up 2 pts or 2% on the week, the Nasdaq lost 44 pts but still gained 1.4% for the week, the Russell added 3 pts but lost 1.1% on the week, the Transports added 100 pts or 0.8% on the week, while the Equal Weight S&P added 15 pts or 1% on the week.
As of Friday evening – we have the S&P and the Nasdaq fighting for 1st place…the S&P up 6.69% ytd while the Nasdaq is up 6.56% ytd….Dow Industrials + 3.8%, Dow Transports up 0.1%, S&P Equal Weight up 2.5% while the Russell – small and mid-caps are down 0.5%.
My good friend – Quincy Krosby – Chief Global Strategist for LPL Financial put it this way.
“The major catalyst for markets, absent rate cuts throughout the year, would by necessity be earnings…….” And those earnings this season have not been so bad…..83% of companies reported a beat and offered up robust guidance all while investors/traders and algo’s continue to handicap the odds of at least 1 rate cut this year….and I say 1 because there were some that were expecting 4, 5 or 6 cuts….something that is NOT happening….and while I continue to think – the FED should do nothing (because the data remains strong and nothing suggests weakness) – I’m not sure that they have the stamina to sit tight – I suspect they will get pressured and it happens in June (well inside the 6 month window of the Presidential election – which is a ‘No, No’) ….. In the end – I think JJ will cave and cut rates once by 25 bps….which still leaves us in the 5% – 5.25% range….a range that is historically normal so it isn’t really that dramatic….But it does risk stimulating the economy and that risks raising inflation – which we found out last week – is already happening – which is exactly why the FED should sit tight and do nothing…
And a rate cut will also stimulate demand for stocks – but remember- the tech rally that we saw last year and this year has taken valuations for both the Nasdaq and S&P to ‘lofty valuations’ and it is exactly that issue that could ‘curb your enthusiasm’ causing investors to question how much more they are willing to pay for some stocks right now…..I mean there has to be some consolidation otherwise it will be a bigger consolidation later on….. And while I am not throwing cold water on this spectacular rally – I am growing more cautious as we move into the end of the quarter…….suggesting that older investors make sure that they have a well-diversified portfolio – Look – if you’re 30 or 40 yrs. old – time is on your side….so you can be further out on the risk scale – but if you’re 50 + you want to be and should be more diversified.
Look – we are heading into the final week of February on an NVDA (and AI) high…. the Dow, S&P, S&P Equal Weight and the Nasdaq all making new all-time highs… and that is very exciting…. but it screams ‘buyer beware’ and all that means is don’t make an emotional, FOMO (Fear of Missing Out) decision….
Now- on Friday the best performing S&P sector was – nothing sexy at all…. unless Utilities give you a tingle…. the XLU gained 0.7% – but remember they are down 2% ytd…. This was followed by Industrials – XLI and Financials – XLF & Basic Materials & Healthcare – XLV all up between 0.5% and 0.6%. Consumer Staples – XLP +0.3% and Real Estate – XLRE up 0.1%. Energy led the way lower – down 0.7%, Consumer Discretionary – XLY -0.5%, with Communications – XLC and Tech XLK both down 0.25%.
Homebuilders – XHB were up 1% – this on the back of a stronger Existing Home Sales number vs. last month…..+3.1% vs. -0.8% – which suggests that today’s New Home Sales number will also be stronger – the expectation is for a 3% increase m/m (my gut says it will be stronger)…and that is good for the homebuilders – think – TOL, KBH, TPH, PHM & LEN –. It is good for home products companies – think WSM, WHR, FND, LOW & HD and it’s good for building equipment & suppliers – think TT, MAS, AWI, NVR – all names that were higher on Friday and could be higher today if the New Homes Sales number is strong….because all that means is demand for housing and anything housing related will be strong. I mean you can’t build a house and NOT put a roof on it, or flooring in it, or heating, AC systems, bathtubs, toilets, sinks, windows, doors, appliances, roofing, siding, foundations…. Capisce? So New Homes Sales is a key indicator of broader demand.
We saw weakness in some tech ‘subsectors’ – Disruptive Tech – ARKK – 0.2%, Semi’s – SOXX – 1%, IGM – Expanded Tech – 0.2% while Cybersecurity names were a bit higher, but remember – those names got slapped on the back of that poor PANW report that took that name down 28% on Wednesday….causing the CIBR etf to lose 5.5%, Recall that the CEO of PANW warned us of ‘spending fatigue’ in cybersecurity – which makes absolutely NO SENSE to me….. I said that I could not see spending less on cybersecurity needs – in fact quite the opposite….and as a result I would be a buyer of those names….and the 28% hit that PANW took on Wednesday – presented an interesting opportunity for traders and long term investors……And so apparently – the market agreed with me…..CIBR etf gained 4.5% in two days and PANW gained by 8.8%.
Bonds gained a little -with the TLT and TLH both higher by 1.2% and 0.8% but still down on the year at – 5% and -4.25% respectively. The 2 yr. is now yielding 4.67% down from 4.72% and the 10 yr. is yielding 4.23% down from 4.34%. 30 yr. mortgage rates are still in the 7.25% range for a FICO score of 740+.
Oil is trading down 50 cts at $75.97…. after testing a high of $78.50 last week. Tensions in the mid-east remain elevated but haven’t gotten worse. Nothing new in terms of peace talks in Israel/Gaza or the RED Sea….so while the flames are simmering at the moment – they could turn higher on any negative headline. Oil remains in the $75/$80 trading range.
Gold which got slammed 2 weeks ago testing $2000/oz (after the stronger CPI report) has since regrouped and rallied back to the $2050 range…. – a level it had been trading at since January…And while inflation remains a concern – Gold action is telling you that it is not expected to get much hotter and so interest rates won’t go UP and that is giving some new life to the gold trade. I still think we remain in the $2030/$2050 trading range. $2050 is trendline resistance and we are going to get another inflation read this week – the PCE deflator and that is expected to show an UPTICK in inflation…. m/m of +0.3% and y/y of + 2.4%. Ex food and Energy of + 0.4% m/m and + 2.8% y/y. If that is the case – then I suspect that gold will churn – as that is what the market expects, but if it is stronger than that – then watch as Gold gets punched in the face again….as the dollar advances.
In addition to the all-important PCE report on Thursday – Eco data today is about New Home Sales, tomorrow brings us Durable Goods and they are expected to be down 5% – which is contradictory to stronger housing numbers….We will also get the Richmond Fed Survey, Conf Board Consumer Confidence of 115 (which is stronger than last months), 2nd revision to 4th qtr. annualized GDP of 3.3% unchanged over last month, Personal Income and Personal Spending of +0.4% and +0.2%.
US futures are lower overnight and this morning at 5 am…Dow futures are down 75, S&P’s down 6, Nasdaq down 20 and the Russell is lower by 9 pts. Investors are taking a breather after all the excitement last week and ahead of a busy week of eco data including JJ’s favorite inflation gauge – the PCE deflator. I suspect that we will see some more profit taking (in the mega cap tech space at least) ahead of the PCE report.
We will get a host of Fed heads taking the stage this week – what will they say NOW? On Wednesday we will hear from Atlanta’s Raffi Bostic, Boston’s Suzy Collins, and NY’s Johnny Williams. On Thursday – it will be Chicago’s Austan Goolsbee, Raffi (again) and Cleveland Fed President Loretta Mester. And on Friday we will hear from Raffi (again – does he get paid for these speeches?) and San Fran’s Mary Daly.
European markets are also lower this morning – consolidating after all the excitement. BoE Governor Andy Bailey to address the nation on Tuesday, Eurozone Eco activity and consumer confidence is due on Wednesday, France, Germany and Spain CPI’s due out on Thursday, Eurozone CPI due out on Friday. In addition, the G20 finance ministers and central bankers will meet on Wednesday.
The S&P closed at 5088 – up 2 pts on Friday – but this was after it tested a new century mark at 5111. And while it feels good to go higher – I continue to pick and choose my entry points cautiously as it still feels a bit toppy and tired. I am looking for some more churn and expect the broader market to back off a bit going into the end of quarter.
Markets never move in just one direction forever ––Valuations get stretched and then they, reprice…. the repricing (most times) depends on how stretched they were…. Other times, a repricing can happen because the story changes and as a long-term investor you have to be able to know the difference. Call me to discuss.
Just for your information. Short term trendline support is at 4848…. down 4% from where we are…. Intermediate term trendline support is at 4621 or 9% lower…. again – STILL in the normal range…. a bit more uncomfortable, but still normal…and the long term trendline is at 4500 – or 11% from here….
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Creamy Chicken Piccata
You need Thin sliced Chicken Cutlets, s&p, onion & garlic powder, Italian seasoning, butter, chicken broth, heavy cream, flour, shallots, white wine, fresh lemon juice, sun dried tomatoes and capers.
Rinse the cutlets and dry with a paper towel Season with s&p, and the seasonings.
Next – dredge the seasoned cutlets in flour.
In a large sauté pan – heat up a ¼ stick of butter and a splash of olive oil. Now brown the cutlets on both sides – remove and set aside.
In the same pan – add another ¼ stick of butter and add the diced shallots and sun-dried tomatoes, deglaze with white wine, now add the lemon juice and capers. Now add the heavy cream – maybe ½ cup – but you be the judge!
Stir to mix and then add back the chicken and let it simmer for 5 mins.
Serve this with a side of wild rice and a large mixed green salad – dressed in a simple lemon and olive oil dressing.
Buon Appetito
