Things you need to know.
– Stocks continue to ‘hang around’.
– Sammy is right – ‘Yeah, but……’
– Tariffs, inflation and dinner in the desert….
– Gold up, Oil up, Bonds down.
– Goolsbee and Musalem battle it out.
– Try the Childhood Favorite – Sunshine’s Fried Bologna Sandwich
And stocks continued to hang around near all-time highs as my good friend Sam Stovall told us that investors appear to be in that ‘Yeah, but mindset’ – meaning that despite the bad Retail Sales report on Friday – they have managed to convince themselves that any of those negatives will be ‘offset’ by a handful of positives – the positives here being a cut in rates. (Although they didn’t say that out loud…. they just thunk it….)
While stocks churned – investors continue to consider a range of issues…. tariffs, inflation and the unfolding geo-political drama taking place in Saudi Arabian desert between the US and the Russians….as they discuss bringing the Russia/Ukraine war to an end. Now, as we discussed – both the Europeans and the Ukrainians have been left out of ‘these’ conversations (not future conversations) – but maybe that is because someone needs to get Vlad at the table…..up til this point – the world has been locking him out – via sanctions etc.….all of which were fair at the time, but have proven to not really be helpful at all….
The current thinking is about trying a different approach to solve the problem….one that will not exclude anyone, but one that needs to get started – because as we all know – this has dragged on for much too long….and cost way too much in terms of lives lost, never mind the money that we have given to Ukraine, which btw, Zelensky can’t account for (I’d look at some of the Swiss banks – but that’s me…..). In any event – this needs to stop – so it is premature to suggest that these initial talks will fail….I’m in the camp that we need to let this play out….I mean it can’t be any worse than what played out over the last 3 yrs…..No? And I love the idea that Trump expects Zelensky to give up 50% of the revenues from critical minerals to the US in exchange for the billions of dollars that the Bidens’ gave away.
So, at the end of the day – The Dow added 10 pts, the S&P was up 14, the Nasdaq gained 15, the Russell added 10 pts, the Transports gained 197 pts, the Equal Weighted S&P gained 55 pts, while the Mag 7 Index lost 197 pts.
Gold rose $54 or 1.85% to end the day at $2854 and it is up another $13 this morning… oil rose $1.10 or 1.54% to end the day at $71.80 and this morning it is up another 60 cts at $72.40/barrel…..all while bonds retreated – the TLT falling 1.2% and the TLH down 0.9%……The VIX remains well below all 3 trendlines – confirming that investors remain complacent.
Of the 11 S&P sectors – Energy, Basic Materials, Utilities, Tech, all went up 1+% while Consumer Discretionary, Communications, & Healthcare saw declines. Further down the chain – we saw strength in Metals & Mining + 1.5%, Semis’ + 1.7%, Oil & Gas Exploration + 1.2%, Big Pharma +1.4%, Cybersecurity + 0.7%, Robotics and AI + 2%, The Value Trade gained 0.5%. On the downside – the Growth Trade was flat, Disruptive Tech down 0.8%, Homebuilders – 1.2%, Retail down 0.6%, while some of those Quantum names continue to get beaten up.
The move in bonds sent yields up just a bit – but leaving us in this 4.3% – 4.7% range…this morning – the 10 yr is yielding 4.55%…..which is ok for now….Look, we have discussed this – stocks can do well with 10 yr yields in this range and can even do well with a 5% yield IF the economy remains robust and the labor market remains strong and inflation remains under control. The issue will be – 5% 10 yr rates if the economy begins to stall and inflation spins out of control. Now, while I have suggested that I am worried about inflation being the issue in 2025 – I am not looking for it to spin out of control – my sense is that we could see inflation pick its head up to the 4% range (currently it’s at ~3%)….I mean – 3 month CPI and PPI is already running at a 4.5% annualized rate…..So, let’s not put our head in the sand and pretend it isn’t happening.
Overnight – Trump announces that he is ready to impose 25% tariffs on Auto’s, pharmaceuticals and chips…..which threatens to upend international trade agreements….but might cause these players to consider setting up factories in the US to avoid such tariffs…..it will be interesting to see how this plays out over the next few weeks and months. And if that happens, the tariffs go away…. it’s not any more complicated than that….it is about disrupting the status quo – that is what the country voted for – Change.
Now – the move in Gold can continue to be credited to the ‘safe haven’ play as well as central bank demand….it is also about the momentum trade…..and while I love the idea that gold continues to advance – let’s not be blind to the fact that it might be a bit stretched up here…..Gold is up 38% in the last 12 months….a massive move for an asset that pays you nothing to own it and does not report quarterly earnings etc….it is a safe haven play, gold is gold, but that does not mean it just goes up forever. So, while I like it, I am not buying it here…. What I own – is benefitting, so I am not missing out.
Oil – is now up and thru all 3 trendlines…. this morning – trading at $72.30/barrel……. News said that OPEC+ is considering delaying supply increases beginning in April being cited for the move. In addition – US tariffs are introducing a new level of uncertainty – which is having a short-term impact on the demand/supply equation. Again, while I think demand is strong and will remain strong, I also think that there is plenty of supply to meet the demand – so I am not in the camp that oil is going much higher. Now we might see a test of $74 – which is the early Feb high, but if it appears that Trump is successful at ending the war in Ukraine, we could see oil back off as the geo-political issues subside. And we haven’t even discussed raising production in the US. Now – some OPEC+ members will not be happy to see oil decline, but it is what it is…. Remember – it is the Saudi’s, the Iraqi’s and the Kuwait’s that need higher oil prices to pay for all of their spending.
And here we go again….US futures are lower this morning…. Dow down 70, the S&P’s down 8, the Nasdaq down 15, while the Russell is down 10.
Eco data today includes Mortgage apps and Housing Starts and Building Permits – both expected to be down. We will also get the latest FOMC mins…. where I do not expect to hear anything, we don’t already know…. the data is the data – the economy remains robust, and the labor market is not in decline and rates do not need to go lower. But it will be interesting to see how the street interprets the mins….as some look for a reason to call for rate cuts…. rather than hold rates steady.
European markets are all lower…. Spain down 0.8%, France down 0.7%, Germany and the Euro Stoxx down 0.6%, UK is off 0.4% while Italy is the winner – down less than 0.1%……. The UK did report their January inflation data – and it ROSE to 3% – above the expected +2.8% – Core inflation – excludes food, energy, alcohol and tobacco rose by 3.7% up from +3.2% in December…. Hmmm… I wonder if the BoE is having second thoughts on the multiple rate cuts, they authorized. ING’s Jimmy Smith says he does not think the BoE will be concerned about rising prices at all saying that ‘higher air fares, higher private school fees and higher food prices are NOT the focus for the BoE’. OK – school fees maybe, but higher food prices, I’d disagree but he thinks – ‘it’s just noise’. Oh boy…….
Fed Presidents Goolsbee (Chicago) and Musalem (St Louis) due to take the stage on Thursday…. just a reminder – Goolsbee is a dove while Musalem leans hawkish….so expect to hear both sides of the argument…. Why do we need to cut and why do we need to stay pat.
The S&P closed at 6129 up 14 pts…. actually, making a new closing high for the index…. the prior closing high was 6118 on January 24th…. This morning – futures are pointing lower…. I still think it feels a bit tired here….so I expect the churning to continue in the 6000/6150 trading range.
Reach out to discuss any questions or concerns you have. 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.
Take good care.
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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I think it is time for a Fried Bologna Sandwich…. I mean considering all the Baloney being tossed around- it feels appropriate….…. today I am going to give you a childhood favorite…. this one will knock your socks off….
Sunshine’s Fried Bologna Sandwich…. (Sunshine is my mother…don’t ask – it’s a long story….)
You need: Sandwich roll, butter, onion, 4 slices of bologna, Dijon mustard, mayo and Yellow American Cheese and a good cast iron pan……
Caramelize the thinly sliced onion in the pan….
Spread the mayo on the sliced roll and place cut side down on a griddle. Toast it until golden brown. Remove
In the same pan – take the bologna and give it a perfect sear……. get that edge nice and crispy…. – now stack 2 slices of bologna and top with 1 slice of the American cheese – 2 slices of bologna and 1 more slice of American cheese and let it melt. (so, you have two sets of bologna and cheese).
While this is happening – spread some mustard and mayo on the toasted roll. Now add a layer of caramelized onions and then the bologna with melted cheese. Add another layer of onion and top with the remaining stack of bologna and melted cheese.
Place the top of the bun on the sandwich. Yum….and it takes me back to the late 1960’s…. oh, what a time it was!
Buon Appetito
