JJ said 'X' and the Algo's heard 'Y', stocks surge

• JJ says ‘more hikes to come’ but the Algo’s say ‘No, Cuts to come.’

• Stocks go from significantly negative to significantly positive.

• Lots of eco data today – does it support JJ’s thesis?

• Oil holding steady at $76.50…. Gold surges higher.

• Try the Potato Leek Soup.

Markets were lower all day – and into the 2 pm FED announcement – then the news hit the tape…stocks got weaker, then stronger, then weaker again…the journalists – as I suggested yesterday – all asked many of the same questions in many different ways – trying hard to get JJ to answer it differently…..and then stocks started to move up…..cautiously and then like gang busters….they rocketed higher into the bell….with the Dow up 7 pts (remember it was lower by 500 pts), the S&P up 42 pts, the Nasdaq surged by 232 pts the Russel added 27 pts while the Transports were once again the star of the show…..rocketing higher by 550 pts or 3.75% - taking that index up 14% ytd.  

JJ Powell said it this way

“The central bank has made progress in its battle against inflation, the disinflation process has started…”  Ok, great, we’ve seen that in the some of the data – but then went onto warn everyone that ‘additional rate hikes are likely warranted..’ in fact he said.

“We’re talking about a COUPLE OF MORE RATE HIKES to get to the level we think is APPROPRIATELY RESTRICTIVE”.   (To me that remains hawkish – but to others it was a dovish statement).

First – define ‘couple’ – the Merriman Dictionary defines it as two – but then goes onto say that a couple is used to refer to two things BUT is also often used for a small number greater than two. (So, you see JJ left the door open to MORE than 2).

Seems clear to me that if they raised rates on yesterday and he says that they are talking about a couple more – that that means at least a 25 bp hike in March and a 25 bp hike in May….Bang! 

And then it happened – Brendan Pedersen – the guy from ‘Punchbowl News’ (not making that up – I’m really not…. google it!) asked JJ whether or not the FED is even discussing a pivot/rate cut -  he said that ‘everything was on the table…’ and that the members are considering all options …….and BOOOOOMMMMM!  That’s all the algo’s needed to hear…. You could feel the algo’s shift from SELL to BUY,  initiating buy programs (think demand) while at the same time cancelling the sell programs (think supply) and then you have this demand / supply imbalance - causing stocks to rise….vs. the supply / demand imbalance -causing stocks to fall. It’s like the oil markets – one day it’s the China re-opening that fuels demand or it’s the Saudi production cuts that limits supply – that causes oil to rise, or it’s a slower than expected China re-opening or building crude inventories of oil and gas – due to the global recession – that causes oil to fall.  I mean you can’t make this up – It’s econ 101 – the Supply/Demand Chapter.   

Everything except energy was up yesterday because the energy markets were responding to a build in crude inventories (think more supply).   Tech – XLK, Consumer Discretionary - XLY and Communications – XLC led the way up – just as they led the way down in 2022 – rallying by 2.3% 1.9% and 1.2% respectively.  All of the other 10 sectors in the broad S&P  rallied but not significantly…..Industrials, Staples, Basic Materials, Healthcare & Real Estate all rallied between 0.4% and 0.7%. 

It was the stuff away from the 11 major sectors that had gotten really beaten-up last year (during the rate increases) that offer significant upside if and when the FED cuts rates – that saw strength……Home Builders – XHB +2%, Disruptive Tech – ARKK +4.5%, Semi’s!  SOXX +5.2%, Artificial Intel – BOTZ +3.3%, Cyber Security – CIBR + 2.75%, Metals and Miners – XME + 1.8%, Mid-Cap Value – IJJ and Small Cap Growth also continued to push up…. Gold and Silver ended higher up 1.1% and 1.3% respectively…. And Bitcoin and Ethereum – rose by 3.5% and 4% - taking those two assets up 44% and 37% ytd. 

Simply amazing…. just simply amazing….Now, don’t get me wrong, I love the fact that stocks move up – My portfolio – like yours – had a great day….but what I am saying is that once again I think it was just a bit pre-mature that’s all, but if they want to take ‘em higher – then great!  And while I was a buyer in the morning on weakness, I was NOT a buyer when the mood changed…. I remained a passenger just going for the ride.

And what is also comical is the idea that there are some analysts out there saying that it now appears as if the FED is approaching a point at which it can consider pausing…….WAIT!  Is it me?  Did this guy just wake up?  The majority of the street has been talking about pausing for weeks now…. It was never a matter of the pause – it’s all about the pivot…..and the idea that JJ told the clown from Punchbowl News that everything is on the table is all they needed to hear….that MUST mean that rate cuts are just around the corner….. In the end – the dramatic move up suggests that no matter what JJ says – the markets/investors/traders and algo’s are confident that we will see not 1 but 2 rate CUTS before the ‘bell tolls’ on December 31st – something I still don’t see – especially since JJ told us last month that the earliest we could expect to see a rate cut would be sometime in 2024….and sometime can be any of the 12 months.

On the other hand

I suppose that if the NBER (National Bureau of Economic Research) calls the recession sometime this spring/summer – then the FED could use that as an excuse to change the narrative…because – right now – we are NOT in any kind of recession (according to them) so how can you justify cutting rates if the economy is still strong?  You can’t but you could if suddenly they declare a recession and then discuss how they are going to ‘fix it’. Hint:  they fix it by cutting rates…So, I guess the real question is - When will the NBER declare it and then will JJ and ‘the band’ start singing a different song?

And that folks is why the markets rallied hard yesterday….they are looking through the next 2 – 3 months – expecting the NBER to call it in April – June which means the FED could pivot by the fall….IF the economy completely collapses….because if we just get a ‘mild’ recession – then the FED could just ride it out….leaving rates in ‘neutral’ – which sounds to me like 5 – 5.25%.

In any event – this is why I keep saying – build the plan and then stick to it….you can’t risk being in then out then in again if you want to really grow the money….Think Uncle Warren (Buffet) – do you think he was timing the markets?  No, he laid out a plan then executed it…. BAM!

Eco data today includes Challenger Job Cuts, Unit Labor Costs – which are expected to be lower (and that is good), Initial Jobless Claims, Cont Claims, Factory Orders +2.3% - a significant swing from the -1.8% last month, Durable Goods +5.6%, and Cap Goods Ordered and Cap Goods Shipped. 

Earnings due out and last night we heard from META – and on every revenue line they missed….y/y was all negative and in some cases they came in below the reduced estimates…BUT Marky is calling it the year of ‘efficiency’ – so that means more job losses and in the latest trick -  he pulled a CVX- he announced a $40 billion stock buyback program and the traders loved it….taking the stock up 18% in post trading….remember though, the stock was off 77% from the September 2021 high of $400 to the September low of $88 to last nights close at $153.  This morning the stock is quoted up $30 at $181/$182.

And then Shell – like XOM and CVX reports RECORD profits….so you know what that means….more talk of a ‘windfall profits tax’ from the administration…and the far left….think Bernie, Lizzy etc.

Look for some really big names to report today before and after the bell,…..APD, HOG, DGX, LLY, BMY, PH, ICE, COP, MRK, HON, HSY, BDX, SWK, ITW, then after the bell we will hear from QCOM, X,MCHP, GOOG, GILD, AMZN, SBUX, AAPL, F, CLX.

These stocks represent pharma, tech, auto, chips, biotech, retail, steel and Internet/Media – so a broad swath of the US economy.

Oil this morning is trading at $76.48/barrel….OPEC+ is doing nothing, not cutting nor increasing production, we saw crude inventories in the US rise and the ongoing talk of the coming recession/slowdown along with a ‘slump’ in Asian demand is all weighing on oil….ok…just wait – tomorrow the story will change…We are below the trendline at $77.64 – but not for long…I imagine that when they change the narrative- we will go right back to $80/barrel…because that’s what the Saudi’s demand.

Gold rallies strong….and this morning it is trading at $1968/oz…. this as the market is expecting JJ to slow and cut rates and that will cause the dollar index to fall – helping to support the whole commodity complex.  I like gold an expect to see it rally to somewhere between $2100/$2300 by year end which would mean a 14% to 25% move up…. It is already up 8% ytd.

Treasuries remain inverted but are little changed this morning as investors dissect and digest the latest FED announcement.

US futures are mixed this morning…. Dow futures are down 55 pts, while the others are attempting to push up…The S&P’s up 20, the Nasdaq ahead by 160 and the Russell is flat.  Now – the Nasdaq is up because of META – the stock is quoted up 20%....and today we are getting results from the 3 BIG A’s….   Apple, Amazon and Alphabet….so expect all kinds of chatter around what to expect after the bell….

European markets are all a bit higher this morning as they (we) await the latest policy decision out of the ECB and the BoE.  Recall that Eurozone inflation on the top line appeared to slow more than estimates BUT the core measure remains sticky and that stickiness in Europe is sure to heat up the debate at the ECB – where they are expected to raise rates by 50 bps.  The BoE is expected to follow suit.  On the stock front – we have Telecom Italia up 11% after we were told that KKR is preparing to make a non-binding bid for their fixed-line network.  On the other hand – Electrolux is down 8.5% on lower sales predictions caused by higher energy and labor costs.

The S&P closed the day at 4119 – up 42 pts…and holding well above the trendline…. we not only kissed but pierced the century mark at 4100 now challenging the December highs at 4120…. if we push up and thru that then the August high will be the next target at 4325. Yesterday, I pointed out that we are about to see a golden cross happen – that is when the short term trendline pierces up and thru the long term trendline….and it is happening right now……So, it suggests further upside ahead…. (technically).  Again, if you are invested, there is no reason to ‘chase’ stocks…. patience is always a virtue.      

Build it and stick to the plan…. trying to pick tops and bottoms is NOT what you do…. it’s about building that strong foundation…. dollar cost averaging into it and reinvesting all the divvy’s (unless of course you need the divvies as income…if not put them back to work).   Don’t’ be afraid to buy your names on weakness (as long as the weakness is not a fundamental shift in the sector or the name). 

Potato leek soup

Leeks are a great vegetable to cook with and add a new dimension of taste to many dishes - so today - try the soup - easy to make and good for the soul........and on this bitter cold, snowy weekend in the northeast - it makes perfect sense.

For this you will need: 1/2 stick of butter, garlic clove, 1 stalk of celery diced,  6 leeks, white parts only, cleaned and sliced crosswise, 4 lg potatoes, peeled and diced,   s&p (white pepper is preferable) ,  chicken broth (you can use veggie broth),   2 cups half-and-half,  1 cup heavy cream,  chopped fresh chives to garnish when serving.

To start - Melt butter in a large saucepan over medium heat. Add leeks and cook until soft about 10 minutes.  Now add potatoes, s&p, and the broth.  Turn heat to simmer and cook until potatoes are tender, about 30 minutes.

Next pour into the food processor and blend until smooth. Do not leave chunky.  Add half-and-half, heavy cream, season with pepper.

Return to stove and gently heat over medium heat until warmed through.  Serve immediately in warmed bowls - making sure to garnish with the chopped chives.