Markets in flux: Powell holds steady, Vance talks AI, and CPI data looms

JJ tells congress – in his semi-annual Humphrey Hawkins Testimony - that the ‘economy is strong and that the labor market is broadly in balance’ while inflationary pressures are NOT significant…reiterating that he is NO rush to cut rates – Today is day 2 of that testimony so expect him to give a repeat performance in terms of what he expects in the months ahead.

Stocks fluctuated and continued to churn as they digested the news…. The Nasdaq and the Russell not really appreciating the testimony…. The Dow gained 125 pts, the S&P up 2 pts, the Nasdaq lost 70, the Russell gave up 12, the Transports added 64, the Equal Weighted S&P lost 2 while the Mag 7 Index lost 195 pts.

Across the pond -

Vice President JD Vance delivered a keynote address at the Artificial Intelligence Action Summit in Paris. In his speech, Vance cautioned against excessive regulation of artificial intelligence (AI), expressing concerns that stringent rules could hinder innovation and economic growth. He emphasized the transformative potential of AI across various sectors and advocated for a balanced approach that fosters technological advancement while addressing ethical considerations. He also assured us that the US will make the most sophisticated chips. This speech sent the US semi manufacturers higher – think INTC +6%, GFS +6.25% and ALGM + 4.85%.

Of the 11 S&P sectors we saw gains in 9 of the 11 sectors – weakness in healthcare and Consumer Discretionary.

Bonds fell – the TLT down 0.7%, the TLH lost 0.5% sending yields advancing with the 2 yr now yielding 4.29% and the 10 yr at 4.53%....Now, although JJ just said that he is in NO rush to cut rates the markets continue to price in just one cut this year – but that cut is now expected in September vs. July…and while I am still in the NO cut camp, I am willing to parse thru the data to see if it changes dramatically from here. Speaking of inflation -

The January CPI is due out today at 8:30 am….… CPI m/m is expected to be up 0.3% and y/y of + 2.9%.... while CPI Ex food and energy is expected to be up 0.3% m/m and +3.1% y/y. In essence – if they come in as expected – you can expect the narrative to be that inflation is ‘under control’ thus igniting the whole rate cut story all over again….even though JJ just said that he is in NO hurry to move on rates – partly because he is being cautious surrounding the new policies being introduced by the current administration….What effect will tariffs have on the economy? Will tariffs really be part of the equation – or are they just a negotiating tool that levels the playing field.

Today also brings Real Avg Hourly & Weekly Earnings y/y…. any pressure to the upside would suggest rising wages – which can be the kindling wood for the fire….

On Thursday – we will get the January PPI – which are prices at the producer level – and those have actually been going UP over the past two months – and what is important here is that rising prices at the producer level eventually make their way the consumer level – which is the CPI – so just sit tight…this game is not over yet. Why? Because Thursday’s PPI is expected to be higher than m/m. Top line PPI at +0.3% (vs. +0.2% last month) and PPI Ex food and energy of + 0.3% (vs. last month’s 0.0%). Now y/y numbers are not expected to surprise at all, coming in at +3.3% (unchanged) and +3.3% (down from +3.5%). So, all we can do is wait to see what the results are…. but I remain cautious.

Earnings today include several notable companies including:

Cisco - CSCO -Communications equipment +5.5% ytd - A leading technology conglomerate, Cisco's performance is often seen as ‘another’ bellwether for the tech industry. CSCO was up 18% in 2024.

CVS Health Corporation (CVS) +4% ytd: As a major player in healthcare and retail pharmacy, CVS's results will provide insights into the healthcare sector's dynamics. Recall – CVS was down 42% in 2024.

Vertiv Holdings (VRT) Electric Power Equipment +8.5% ytd: Specializing in digital infrastructure, Vertiv's report will shed light on trends in data center and communication networks. VRT was +166% in 2024.

Dominion Energy (D)+3% ytd and Exelon Corporation (EXC) +12.5% ytd: These utility companies' earnings will offer perspectives on the energy sector and utility markets – think future demands.

Oil which had pierced trendline resistance at $71.90 (now support) on Monday appeared to be ready to test $73/$74 – something I identified in Monday’s note. Yesterday – Oil tested $73.68 before backing off just a bit….to end the day at $73.30. This morning – it is down 50 cts at $72.76 as it digests the latest API report with showed a 9-million-barrel increase in stockpiles- something that suggests ‘waning demand’. Really? My gut says that if we test trendline support at $71.90 - that it holds.

Gold keeps pushing higher (think tariff threats and safe haven buying) …yesterday trading at high at $2968 – leaving it just $32 away from $3000 and up 11% ytd. This morning it is down $16 or 0.6% as it digests the bullish move…. a retracement to $2850 ish – would not be a surprise as it tries to consolidate the push higher. Yesterday’s comments and today’s comments (about rates) clearly drive the pullback.

This morning futures are flat – ahead of day 2 of JJ’s testimony and ahead of the January CPI report. …. Dow futures are down 17 pts, S&P’s down 2, Nasdaq is up 10 pts, and the Russell is up 1 pt.

European markets are all higher in early trade…. earnings driving that move…. But investors there are awaiting the latest inflation data out of the US and what that means for rates.

The S&P closed at 6068 up 125 pts…. again, leaving us smack in the middle of the trading channel - bounded by 5920 on the downside and 6275 on the upside. A trendline drawn from the Dec highs suggest that we are at a top at the moment…. that 6080 ish represents near term resistance…If we fail to break out then watch as we retest short-term S&P 6000 ish…. But in any event – the trend still feels solid; the economic data remains strong…but we are in a state of churn until we get more clarity on eco data and that begins today……

So, stick to the plan, do not overreact to any specific headline that will cause you to make a short-term erroneous decision. You are invested so you are participating…. use weakness as an opportunity in good names.

Classic bolognese

I am featuring this again – at a request of one of my readers – so here you go.

Classic Bolognese

This is a hearty Bolognese…it is NOT saucy per se. So do not expect it to be…but it is sooooo good.

You need Olive oil, butter, I cup each of diced onion, diced celery, diced carrot,

4 cloves of garlic, 1 lb. of ground beef*, 1 c of whole milk, ¼ tsp nutmeg, 1 c of white wine – not chardonnay – a pinot grigio works, 1 28 oz can have crushed kitchen ready tomatoes and 2 parmegiana cheese rinds. (*You can also mix – using both ground beef and ground pork)

Heat some olive oil in a large pot. add the olive oil and butter – once melted add the veggies, season with s&p. Sauté for about 10 mins.

Now add the garlic.

After a couple of mins – add the meat, breaking it up with a fork – season with s&p. When it’s all browned – add the cup of milk – turn heat to low and let it simmer – stir it often. You want the milk to be mostly absorbed and cooked out – should be about 15 mins or so. Add the nutmeg and the wine. – again, simmer until the wine is absorbed/evaporated.

Now add the tomatoes and the rinds. – turn the heat up to a slow boil and then immediately turn it down to simmer – leave it uncovered. Let it simmer for 3 hrs..... stirring every 10 mins or so. You can add a splash of water halfway through. Season with s&p. and then remove the rinds.

Serve this over a nice hearty Rigatoni…. Delish.