JJ repeats the narrative and Joey launches his '24 campaign

• JJ says nothing new (remains Hawkish), yet investors heard Dovish.

• Stocks surge and BIG Tech gets an even bigger boost from Artificial Intel.

• Biden launches his 2024 campaign – targeting anything BIG.

• OIL – surges higher…. Oh boy…

• Treasury yields rise – short duration continues to be interesting.

• It’s time for the Champagne Chicken.

OK – so JJ took to the podium….and for some reason – some investors appeared to be confused?  Was he Dovish or was he Hawkish? Is the FED pausing or not?  And what about the pivot that supposed to be coming… Hello?  Maybe you haven’t been listening to the conversation……or maybe you are listening to the wrong conversation……….The only ones that have said the pause and pivot are coming are trader types and some bond guru’s….No one at the FED nor anyone on the FOMC committee has indicated any such thing, in fact, I would argue that they have gone out of their way to make sure the message was clear…..The FED has said that the strong labor market continues to present a problem for them…..and that the current thinking on how high rates need to be might need to be reconsidered – to the UPSIDE!  

Yesterday the message was very much the same…JJ alluded to the fact that ‘disinflation’ has begun but repeated the fact that further rate hikes (plural not singular) will likely be needed if the jobs market does NOT cool off - that he may have to do MORE than what the markets/investors/algo’s/or any of the artificial intelligence assume.  Now I believe that 2 more hikes are baked in already, but I am not sure that 3 more are and that is now the question – does the FED move in March & May or will we also see a move in June before they pause…?

The reaction in the markets was curious…. first, they rallied when they thought he was turning dovish, but then they plunged when they realized he was more hawkish then they rallied to unchanged as they decided to listen to the whole presentation before trying to handicap how the markets would react. By the end of the day stocks ended higher and why do you think?  Because the market remains convinced that he’s wrong and the markets hear what they WANT to hear vs. what they should hear – many in the media now pointing to the fact that JJ passed up the opportunity to slow the enthusiasm for stocks, bonds, and other assets by not being more specific….………..leaving some out there to say “See, I told you so…..”  By the end of the day – the Dow gained 265 pts or 0.8%, the S&P added 65 pts or 1.6%, the Nasdaq tacked on 226 pts or 1.9%, the Russell added 18 pts or 0.9%, and the Transports gained 125 pts or 0.8%.

Now remember – I pointed out in yesterday’s note that not only did Atlanta Fed President Raffi Bostic say the same thing on Monday, but then Minneapolis’s  Neely Kashkari reiterated it at 6:45 am yesterday (3 hrs. before JJ)…making sure that he got some ‘air time’ to help secure his credibility…….and let the markets know that he is to be taken seriously….While Raffi called for rates to go to 5.1%, Neely is calling for rates to go to 5.4%....which would mean 3 more 25 bp hikes at the least to get us to that range… Recall, Raffi said he would not be surprised to see the FED go 50 bps at the next move….and so it is…..

Don’t forget – the key driver since the October lows was the idea that the FED would NOT do what they said they would do…. Just like they said that when the CPI pierced 2% they would stop the presses and begin to normalize….ok – that was April 2022 and what did they do?  They didn’t stop the presses, they continued to stimulate, they continued their bond buying program and helped to push inflation to 40 yr. highs…..I was 22 the last time this happened and it wasn’t pretty then either!  In fact – for those of you that don’t have a memory of that time, it was ugly…the FED pushed the economy and the country into a 2 yr. ‘recession’…. Interest rates peaked out at 21%, inflation peaked at 13% and the unemployment rate peaked out at 10% and the Dow Jones bottomed out at 792…..yes, 792 – that was not a typo. 

And then after JJ got finished the conversation turned to Joey and what he would say at the SOTU……how he would massage the facts to create the story of health and strength for both the economy and the country…..talking about how the massive spending packages they passed is doing a fine job of killing inflation- never mind that the cost of all this debt (new and old) will send interest payments on the debt to more than $1 trillion/yr.…..He talked about how bad the economy was and how inflation had already begun when he took office… Just a fact check – GDP was better than 4% when Joey took over (it is running at 3% now) and inflation was 1.6% when Joey moved into the white house in 2021 only to go to 9.4% by the summer of 2022…a full 16 months AFTER he took the reins…so tell me, How exactly was the prior administration responsible for soaring prices?  That’s a rhetorical question – no need to answer.   

He then told us to expect us to use oil for another decade (10 years) before we convert to everything alternative and then went onto to reprimand the oil companies for not investing more money into oil infrastructure….Well, here’s a quick fact – why would oil companies make capital investments that amortize over 30 years if we only need oil for another 10?  It’s illogical – so the oil companies plow their profits back to shareholders via dividends and stock buybacks – so if you own oil stocks – you appreciate the insight that these companies have and if you have a retirement plan (company sponsored or an individual IRA etc.) and you own the S&P total return index or the oil sector specifically – then guess what?  You too like the fact that the oil companies (and other companies) are returning profits to shareholders via those two methods…. because YOU are benefitting.

He then launched his 2024 candidacy when he told the nation that Republicans want to ‘sunset’ social security and Medicare – which – is a complete ‘untruth’ and which was met with anger by the GOP – as it should – it is irresponsible for the President of the US to say that and not expect to be called out….In addition he is taking aim at anything BIG – Big Tech, Big Pharma, Big Business, Big Oil and Big Earners (think Billionaires).  So, get ready for the Biden/???  (someone) Ticket in 2024…. And let’s keep our eyes on those sectors today to see how investors are reacting to that shot….

He spent zero time on China – one sentence and never even mentioned ‘the incident’.  He did not mention the threat that China poses for Taiwan and then what he (we) would do.  He did mention the fact that big tech is moving manufacturing production of semis to the US so that we never run into a supply chain problem for chips again…. the first plant to be online by mid-2025…. Let’s hope that China holds off taking Taiwan until we are ready to go!

The rebuttal was delivered by Arkansas Governor Sarah Huckabee Sanders and she held nothing back….Nothing….calling out his ‘misinformation’ (fact checking) on nearly everything he said…so expect all kinds of chatter and discussion about both the speech and the rebuttal.

So, as you can see – earnings and eco data yesterday meant nothing…. absolutely nothing….Only 3 sectors ended lower – Consumer Staples and Real Estate…both down 0.4% while Utilities lost less than 0.1%.  Energy which has been an underperformer this year – rallied hard – rising 3.25%, Tech rose by 2.5%, Artificial Intelligence – BOTZ rose by 2% (think the mania over ChatGPT, BARD and Ernie) and that sent MSFT up 4.2% and GOOG up 4.4%. Cybersecurity names – CIBR was up 2%, Disruptive Tech – ARKK gained 1.7%, Oil Services stocks – OIH gained more than 2.3% and is up 40+% ytd (think HAL, SLB, BKR to name just a few)  - all up more than 25% ytd….SLB is up 40%) and Semi-Conductors – SOXX gained 3% leaving that group up 25% ytd.   The Growth Trade – SPYG outperformed the Value Trade – SPYV by a good 70 bps….and that makes sense – just look at what all the different TECH sectors did…And if you were betting on a decline and went long the contra trades – you were sorry you did because they all moved lower all while the small cap (IJT) and mid-caps (IJJ)  held their own. The dividend aristocrats – NOBL and REGL also gained – adding about 0.3%....  It was a very interesting day….

Now oil – what happened there? It surged by 4.3% and pierced trendline resistance at $77.30.   Well let’s revisit – oil has been stuck in the $72/82 range since early December….when it gets into the 80’s they start talking about demand destruction and the global recession – calling for $60 oil and that sends oil lower…and then when it gets to the low 70’s they change the narrative and talk about how China’s re-opening is going to cause demand to surge oh, and btw – the Saudi’s are banging the drum - signaling production cuts are around the corner and suddenly oil is going to trade at +$100 and boom…up it goes…well folks, they did it again….Demand destruction on Thursday and Friday and then on Monday and Tuesday it was all about demand creation and how forecasted increases in demand in Asia (China) are causing the Saudi’s to raise prices for their flagship crude product into Asia because of the expected surge in demand……The Asians want more, so the Saudi’s are happy to give it to them at higher prices….which must mean that the China re-opening is REAL (until they decide that it isn’t) ….In addition we had some one offs – the earthquake in Turkey shut the terminal in Ceyhan, bad weather in Iraq prevented tankers from ‘berthing’ and the shutdown of the Johan Sverdrup oilfield in Norway also helped to boost prices – but those are short term events – but events just the same….….This morning oil is trading at $78 up another 1%.....

Treasuries sold off (as money moved into stocks) - sending yields up…the 3-month T-bill now yielding 4.54% (on an annualized basis), the 6 month is yielding 4.7% (again on an annualized basis), while the 2 yr. is yielding 4.43%...  Expect to see more and more investors pour money into fixed income on a short-term basis when the mood changes….

Eco data today is about Mortgage Apps and Wholesale Inventories – nothing that will drive the action.

The dollar index – DXY continues to bounce…. piercing trendline resistance at $103.59 yesterday …..having bounced off of the lows of $101 last week - a level that it tested in May/June and one that I suggested would hold.  We now have to see if this latest move up and thru resistance will hold…. If it fails – I would expect it to test the 101ish support zone again.  A push higher will see it test longer term resistance at $107.10.

Gold is kissing $1900 again after testing and holding support at $1868 earlier in the week.  A push here will see it test the $1930 level before we need to re-assess.

US futures are lower - Dow futures down 120 pts, the S&P off by 17 pts, the Nasdaq down 35 pts and the Russell down 12.  We’ve gotten 8 earnings announcements already and they have all beaten the estimates….UBER is quoted up 50 cts  while CVS is up quoted up $2.  The big one that everyone is talking about is DIS and that comes out after the bell.

The S&P closed the day at 4164 – up 53 pts…. And while I do expect some churn and consolidation – it just doesn’t feel like it is coming yet….  We are still holding well above the trendline at 4000, and if they want to take ‘em higher – I’m happy to go along for the ride and you should be too.  I am not chasing anything at all, but rather trying to identify where the next opportunity is (I am looking at Aerospace and Defense names – RTX, LMT, GD, NOC) they are flat to lower on the year – which doesn’t make sense to me considering the global mood….…. But that’s me….

Remember - build a strong foundation…. dollar cost average into it and keep reinvesting all the divvy’s is the plan…. Buy names on weakness (as long as the weakness is not a fundamental shift in the sector or the name). 

Chicken breasts in champagne cream

Apparently, it is a time to celebrate….so break out the champagne……This is a classic dish, easy to prepare, presents beautifully on the plate on a bed of sautéed spinach will leave your guests wondering - How you did it. 

Start with skinless pounded chicken breasts - dredge in seasoned flour - (S&P). After you have dusted all the breasts - set aside.

On medium heat melt 3/4 stick of butter and a splash of olive oil in a large sauté pan. When almost sizzling - yet not burning.... add the breasts and sauté for about 4 / 5 mins. At this point - turn the breasts over - add about 1 1/2 cups of champagne and sauté for about 10 mins more.

Next add 3/4 cup of heavy cream (or lite cream if you must), chopped Italian parsley and a bit of rosemary powder and continue cooking until it thickens up.

While this is cooking - sauté some fresh spinach in garlic and oil and then make a bed on each plate.  When the chicken is done - transfer the breasts to individual plates and top with the champagne cream sauce.

A nice mixed green salad garnished with cherry tomatoes; red onion & cucumber dressed with a champagne vinaigrette finishes off this meal.  Choose a lighter bodied red or even a chilled white to complete the presentation.