Things you need to know.
– CPI does not boil over!
– Bank earnings stun the street – banks making money hand over fist.
– Stocks surge as investors and algo’s jump back in.
– Street still betting on a July rate cut!
– Mixed messages from 3 FED heads.
– Try the Sicilian Style T-Bone.
“What a day for a daydream, What a day for a daydreamin’ boy, And I’m lost in a daydream, Dreamin’ ’bout my bundle of joy….”
And that ‘bundle of joy’ was all about the CPI, the big bank earnings and what that did to the bond market! And what a bundle of joy it was! Stocks surged…as the buy algo’s went into overdrive, causing the sell algo’s to do what? Exactly – the sell algo’s withdrew their in line offers leaving a void in supply, causing the buyers to do what? Pay UP! But for some reason, when it happens on the way up – everyone celebrates vs. when it happens on the way down – they panic….it is a tangled web weave!
The Dow gained 705 pts or 1.6%, the S&P up 107 pts or 1.8%, the Nasdaq (the clear winner) added 467 pts or 2.45%, the Russell up 44 pts or 2%, the Transports surged by 162 pts or 1% while the Equal Weighted S&P trailed the group – only gaining 0.95%! The indexes which were all in negative territory after the start of the year have now managed to right that ship – and are all up ytd. (I know its early, but it still feels good for so many investors!).
The news? Well it started with the December CPI report…which was mixed at best, but it wasn’t any HOTTER (vs Tuesday’s PPI which was) …. which the algo’s took as ‘win’. At the end of the day – CPI m/m came in at +0.4% up 0.1% vs. last month, while CPI Ex food & energy came in at +0.2% down 0.1% vs. last month. Y/y figures had top line CPI at +2.9% up from +2.7% while Ex food and energy – it came in at +3.2% vs. 3.3%. So as you can see. In the end – the market took the report as a win and sent futures substantially higher in the pre-mkt.
And then it was the banks…. Earnings from JPM, WFC, C & GS – and what the results revealed was that these guys have benefitted from higher rates and apparently a strong consumer. The ‘Loan Loss Reserve Accounts’ – something that I was keying in on, did not surprise to the upside – in fact the banks allocated LESS money to these accounts suggesting that they do NOT expect any significant increases in loan defaults – think mortgages and credit cards. (Just fyi – that’s a plus). JPM’ s net income soared by 50% to $14+ bill in the 4th qtr. as profits and revenues easily beat any of the estimates that street analysts had provided. Earnings rose to $4.81 vs. $3.04 y/y (street estimates were $4.09) while revenues were up 10% at $43.7 billion while the street expected $41.9 billion. For the year, they posted $54 billion in record profits. JPM gained 1.95%.
And then it was WFC – that also topped profit expectations…. with net income jumping 50% to $5.1 billion or $1.43/sh. Vs. 0.86 cts/sh last year. Revenues of $20.4 bill – which was just under street estimates. WFC gained 6.6%.
Then Citibank and our friends at Goldman took the stage and as expected – both beat all street estimates while Davey Solomon (GS CEO) claimed the title (gave it to himself, no one voted) of ‘global leader in M&A’. In the end – it was a good day, and investors celebrated.
The Bond market? Oh yeah, that surged, causing yields to collapse…the 2 yr fell 10 bps to end the day yielding 4.26%, the 10 yr also fell 13 bps to end the day yielding 4.65%, the 30 yr came back from the brink of piercing 5% to end the day at 4.87%. The TLT (20 yr Treasury bond ETF) gained 1.75% while the TLH (10-20 yr Treasury bond ETF) 1.5% – leaving both of these assets just below the unchanged line.
And the VIX (fear index) did exactly as you would expect. It FELL 14%…. bullish sentiment sending fear to the sideline. Yesterday’s decline took us back from the ‘anxious’ zone leaving us just about into the ‘complacent’ zone. It ended the day sitting atop the long term trendline at 15.97 – if we breach it, then we will be back completely into complacency…. Overnight – the VIX did break below to trade at 15.84. but this morning it is trading at 16…. I suspect if we get more good bank earnings from BAC, PNC, MS & MTB – then we will see the VIX trade lower. Just fyi – They ALL beat…. No one should be surprised. BAC +1.4%, MS +1.9%, MTB +3%, PNC is down 1.2% because while they beat on eps, they missed on revenues.
Eco data today includes another key data point – Retal Sales…and they are expected to be UP (think top line m/m & Ex autos & gas m/m) …..I am sure we are going to be hearing a lot about the holiday shopping season and how successful it was.
Tomorrow brings us Housing Starts which are expected to be up 3% and Building Permits which while expected to be down 2.2% – were very strong last month at +5.2% marking the sharpest increase since February 2023- so it’s more like a balancing act as it finds the trendline.
US futures are – as you might expect – a bit mixed. Dow futures are -110 pts, S&P’s up 14, Nasdaq up 95 while the Russell is down 6. The day started strong again with the earnings. In addition to the banks – we heard from UNH – they beat on earnings but missed top line revenues by a hair and reported a higher-than-expected medical cost ratio of 85.5% – which is causing the algo’s to hit the sell button taking the stock down 3.5%.
In the end – yesterday’s data is causing swaps traders to retake the narrative and fully price in one 25 bps rate cut in July – something I still think might be a bit premature, but I am open to changing my mind over the next month or two. In any event – no one should expect the FED to change their minds next week – there is not rate cut coming, but we can expect a lot of discussion around the latest data points and how that may affect the thinking.
The blackout period for FOMC members doesn’t begin until next Tuesday……So expect to hear from some of them before then. In fact – yesterday we heard NY’s Johnny Williams and Chicago’s Austan Goolsbee who tell us that they are confident that inflation is receding and that suggests that they are in favor of cutting rates. Then Richmond’s Tommy Barkin said that while it appears that inflation is in decline – rates should remain ‘restrictive’ which means he favors no cut. And to be clear – I do to think current 4.25% – 4.5% rates are restrictive. But that’s me.
Oil – continues to push higher and pierced $80 yesterday….as it is reacting to the latest Biden move to impose even tougher sanctions on Russia last week – which removes about 700k barrels/day of supply off the market. Now, it’s interesting – Joey imposed these sanctions just days before he leaves office – clearly igniting the surge in oil – leaving higher oil prices for the new incoming administration to deal with. We are now teasing the highs seen in April and June of 2023 as well as June of 2022. The new administration promises to bring the price of oil lower by opening up the spigots…. let’s hope that’s true. This morning oil was down 90 cts at $79.20.
Gold which pierced $2700 last week – continues to push higher…this morning it is up $10 at $2728/oz. The argument is because yesterday’s CPI sent the message that lower rates may be coming and lower rates would support a move higher in gold as the opportunity cost of holding gold decreases with rate cuts. Rate cuts would also weaken the dollar and that is also good for gold and finally, rate cuts suggest that the FED is stimulating the economy raising the fear of raising future inflation and as you know – gold is an inflation hedge.
A look at the chart sees gold testing the highs of November and December – $2750 ish…. A move up and thru will see $2800 as the next stop.
European markets are higher as well. Yesterday’s better CPI and impressive earnings here in the US are helping the tone across the zone. The luxury sector getting a boost after Richemont reported better than expected 10% increase in 3rd qtr. sales…. Richemont is up 17% this morning….and that is taking the whole group higher…LVMH, Christina Dior up 8% while retailers are higher as well.
The S&P ended at 5949 – up 107 pts…. The tone is upbeat right now, and that is good…. We are now kissing the upper end of the 5822/5950 trading range. A move up and thru will take us back to 6000 relatively quickly. If we struggle, then I would expect it to back fill the gap (5870) created yesterday when the market rocketed higher…. In any event – the news has ignited a new sense of excitement for investors which only reiterates my point….
Stay focused, manage your risk, stick to the plan. History demonstrates that a well-planned, long-term focused and diversified financial plan can withstand virtually any market surprise and related bout of volatility.
Any questions? Give me a call. Click here https://slatestone.com/contact-us/ to contact me – Put KP in the message box and I will reach out to you to discuss your investment portfolio and any questions you may have.
Take good care.
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Sicilian Style T-Bone
Sicilian-style T-bone steaks draw from the rich culinary traditions of Sicily, blending simple, fresh, and bold Mediterranean flavors with a focus on high-quality ingredients. Sicilian immigrants brought their culinary traditions to cities like New York, Boston, and Chicago, where Italian American communities thrived, Sicilian-inspired T-bone steaks became a popular dish, combining Sicilian flavors with local ingredients.
For this you need: 1-inch T-bone, crushed garlic, olive oil, Fresh grated Parmegiana Cheese, Oregano, breadcrumbs, and s&p.
Set the oven to broil (high). Set the rack on the second level from the broiler. Begin by marinating the steak in garlic and olive oil, making sure to massage the steaks on both sides so that it is well coated. Do not drown the steaks in oil — just enough to massage them.
Next, on a separate plate combine the breadcrumbs, cheese, s&p, and oregano – mix well.
Now dip the T-Bones in the breadcrumbs on both sides and place them on a broiling pan. Place in the oven under the broiler. Depending on how you like it, you want to cook the steaks turning once halfway through — 8 mins for a med rare steak, 12 mins for a medium steak, and 15 mins for well done. Remember – these are only 1 in steaks…if you get thicker ones you need to cook a bit longer.
Remove and place it on each plate and serve with a large mixed green salad and either a baked potato or roasted potatoes. Enjoy a nice Chianti.
Buon Appetito
