Futures are UP – Santa is on his way

• It’s gonna get quiet but moves could still be exaggerated.

• Futures are up – Is Santa coming?

• OIL higher – China imports rise (really?)  OPEC remains ‘proactive’

• NKE and FDX BEAT on earnings…and suggest the bottom is NOT falling out.

• Try the Escarole and Beans (Shka-rola and beans).

Housing starts decline by 0.5% better than the expected -1.8%, while Building permits plummeted – falling a whopping 11.2% vs. the expected -2%....an indication that current FED policy is beginning to work….but it was not enough to cause anyone to think that the one data point was going to change the narrative at all….and as you know – rising rates will continue to hammer stocks and other risk assets until they don’t.

Adding depth to this narrative was the surprise move by the BoJ (Bank of Japan) to raise rates or adjust their YCC (Yield Curve Control) that has been in place for years now…and this initially sent stocks lower in the pre-mkt as analysts suggest that this move marks ‘the end’ to decades of easy money everywhere you looked.  The move would allow 10 yr. bond yields to rise by 25 bps – leaving the upper limit at 0.5%.  The initial reaction in the markets was negative, as it was a surprise – but in the end – investors appeared to have shrugged it off.

Matt Brill – Head of North American Fixed Income (investment grade) at Invesco worries that ‘rising overseas yields might steer foreign bond investors elsewhere’ saying that the “concern is always, what will happen if local yields become more competitive with US yields?”  To which I would say – that could become an issue if local yields really become competitive – but with Japanese 10 yr. yields at 0.5% and US 10 yr. yields at 3.57% - I’m not sure that there is anything to worry about just yet.

In the end – stocks managed to close slightly higher – with the exception of the transports that continued to get hammered as the recession story suggests that a slowing economy is going to hurt the rails, truckers, shipping and air freight.  The Dow gained 92 pts, the S&P up 4, the Nasdaq gained 1 pt., the Russell added 9 while the Transports lost 180!

Talk of both NKE and FDX earnings were the buzz in the afternoon…both reported post the close and speculation was running rampant about what they would report….What would their results say about the consumer, the economy, the supply chain?  Would they meet, beat or miss the revised lowered estimates on both the top and bottom lines….. What would their guidance suggest about the next 6 months….?  Well, as you might expect or maybe not – both of them reported ‘better than expected’ numbers…on the bottom line while FDX missed slightly on the top line, While NKE handily beat the estimate.

FDX was expecting to report $2.80/sh and they reported $3.18/sh – a 13% beat while total revenues came in at $22.8 bill vs. the expected $23.7 billion.  In their statement they cited weakness in their FEDEX express and said that they would cut an additional $1 billion out of the budget – bringing their total cost reduction to $3.7 billion. Year end earnings now between $13 and $14 vs. the expected $14.14/sh…the stock is quoted UP $6 this morning (after being down $4 yesterday…and being down 38% ytd.

NKE reported 85 cts/sh vs. 64 cts/sh, Revenue of $13.3 billion vs. $12.5 billion and they raised their yearend estimate as they celebrated their success at ‘clearing’ out their inventory…Global sales rose by 17% and the C-suite said that the year-end performance was ‘strong’!  NKE is down 38% ytd so traders saw this as an opportunity to scoop some up and they took it up 10% in the after-hours trading session.  This morning the stock is quoted up $13 at $116/$116.30.

So, in any case were they a disaster?  Hardly…..so let’s see how the rest of the season goes once it officially begins on January 13th – when the banks kick it off.  Remember – analysts are busy cutting (revising) estimates, so I expect that we will still see the 75% of reports BEAT – but again it will be all about what they say about the coming 6 months.

Remember – Mikey Wilson of MS fame – thinks that 2023 S&P earnings of $230/sh are much to high…and he is looking for them to be revised lower – 22% lower – which takes us to $180/sh….thus his revised lower target on the S&P. 

This morning – US futures are up…..Maybe that means that Santa is coming….Dow futures are up 270 pts, S&P’s up 25, the Nasdaq ahead by 65 and the Russell is adding 12.  The feel good mood being fueled by the NKE and FDX numbers…and the fact that there appears to be a tremendous amount of resiliency…in the face of what many expect to be a difficult time for the markets in the first half of 2023.  Eco data today includes the latest read on Mortgage Apps and Existing Home Sales which are expected to be down 5.2%.

As discussed – we are in the final days of 2022….and investors are paying less and less attention to the eco data….much of it is expected to be weak, so unless it’s considerably weaker than expected I don’t see how it changes anyone’s mind at this point.  We still could get that Santa rally in the next week…but don’t expect much more than S&P 4000 – which would represent a 4% rally from last nights close.

In the end – even if we get any kind of Santa rally into year-end – don’t expect it to last in the new year…as I have also been saying – I expect the first qtr. (at least) of 2023 to continue to be volatile as we digest the coming macro data (which is expected to remain weak) and we assess the damage that the recent rate hikes have created…..If Santa does come - S&P 4000 is 4.5% higher from here.

Oil is on the move….WTI up 70 cts at $77/barrel….China imports from Russia and Iraq both rose – which tells you what???? Hello???/ Can you say demand?  In addition the boyz at OPEC continue to rattle the cages suggesting that they remain proactive and will adjust production based on what they perceive supply and demand to be.  Which just means – they stand ready to cut production if the price of oil approaches $70…remember - $80 is their base case…$90 is better, but $70 doesn’t work for them.

GOLD – rocketed higher yesterday….breeching the resistance level that we spoke about days ago.  It ended the day at $1825/oz – up $30 or 1.7%.  this now sets it up to challenge what I have been saying all along….$1900 before we hit any significant resistance.

European markets are all higher….up almost 1%  in early trading…. No reason really….just a bounce from what appears to be a short term oversold position.        

The S&P closed the day at 3821….and this morning with futures higher – we can expect a bit of a bounce…Maybe Santa is coming after all.

Remember – have a plan and stick to your goals, take advantage of DCA (Dollar Cost Averaging) in your long term account over time.

Orecchiette with escarole & beans

If you grew up in a southern Italian household – this was pronounced as (Shka-Rola & Beans). It is a great, simple dish to make and eat. Have plenty of fresh grated Parmegiana cheese on hand.

Now depending on where you are from – Southern Italy, Sicily, Mediterranean side or the Adriatic side will determine how you make this dish…but for me (Neapolitan & Sicilian) – simple is always better.

So, you will need: 1 lb. of Orecchiette pasta, garlic, olive oil, diced Vidalia onion, escarole, chicken broth (homemade is always better), cannellini beans, s&p and plenty of fresh grated parmigiana.

Bring a pot of salted water to a rolling boil.

Begin by sautéing crushed garlic in some olive oil, now add in the diced onion and sauté until nice and soft – do not burn the onion – so keep the heat at medium and stir often. Sauté for about 15 minutes to get them perfect.

Next add the “shka-rola” to the pan and sauté quickly. Season with s&p. Now add in the chicken broth – remember you’re NOT making soup – so don’t overdo it with the broth. Drop in the cannellini beans right from the can – using the “juice” in the can as well. (Yummy!).

Simmer for 15 minutes to make sure the beans are all warmed up. Turn off the heat and add a handful of cheese and mix well.

Now add the pasta to the pot and cook for 8 minutes – just aldente. Strain – always reserving a mugful of pasta water. Add back to the pan and now add in the Escarole and beans. Mix well. The hot pasta will suck up the juice – so be prepared to add back a bit of water to re-moisten.

Now serve in warmed bowls and have extra cheese on the table for your family. It’s the perfect winter meal and so simple to make. Enjoy.