Markets shrug off trade wars, AI frenzy – Earnings still rule the game

Deep Seek? AI spend? Trade Wars? Inflation? ‘Gaz-a-Lago’? – Who cares? Investors, traders and algo’s didn’t focus on any of it yesterday…They did though return to what is important for investors and that is earnings, revenues, guidance, margins and overall eco data…The 4 FED officials that spoke yesterday all focused on the unknown impacts of the Trump Tariffs and whether or not the expected higher inflation would be ignited by the tariffs or by a stronger, overheating economy. All of them saying that we need more time to assess, (which is the smartest thing I’ve heard from them in a long time.)

Tommy Barkin putting it this way.

“It’s very hard to know what’s happening with growth and employment, what’s happening with inflation, until you get a little more clarity on all these uncertainties.”

Austan Goolsbee adding “That distinction will be critical for deciding when or even if the FED should act.” And that must have killed him to say that, considering all he ever wants to do is cut, cut, cut….

All of this was interesting to me – finally the message coming from all of them was ‘we need to move slowly and deliberately’ rather than cut rates because ‘some of them’ think they are too restrictive. You know me – I am not in the camp that they are restrictive at all and in fact – in my view – lowering rates will further ignite the economy causing it to go into ‘burn mode’ and that will be the issue….but alas, I am but one lone voice.

At the end of the day – the Dow gained 318 pts or 0.7%, the S&P’s up 24 pts or 0.4%, the Nasdaq added 38 pts or 0.2% (think the weakness in AMD, AAPL, GOOG and the Mag 7 down 406 pts or 1.5% weighing on the index), The Russell gained 26 or 1.2%, the Transports up 32 pts or 0.2% while the Equal Weighted S&P added 35 pts or 0.5%.

Just FYI – so far this year – It is the Dow Industrials in the lead up 5.5% while the Nasdaq is the underperformer only up 2%. Yesterday – Craig Johnson – of Piper Sandler coined a new phrase for the Mag 7 names. While appearing on Yahoo Finance – he suggested that the Mag 7 could become the ‘Lag 7’ in 2025….to which no one should be surprised – their massive outperformance over the past 2 yrs might just suggest they take a back seat this year, which doesn’t mean you throw them out, it just means you need to look at other parts of the economy to create alpha. YTD – the Mag 7 index is DOWN 0.9%....

Yesterday we saw money move into Utilities +1%. Tech +1.4% (doesn’t just mean the Mag 7 – there are other names in the tech space), Financials +1%, Healthcare + 1%, and Real Estate + 1.6%, Home Builders +1.1%, Disruptive Tech + 1.1% (again NOT the Mag 7), Metals & Miners +0.9%, Cybersecurity + 1.6%, Semi’s +2%, Aerospace & Defense +1%, Big Pharma +1.8%, Quantum Computing + 0.9%. We saw investors scoop up BONDS – the TLT + 1.6% and the TLH + 1.3%. And GOLD? Oh boy, is it shining bright – already up 9% ytd coming into yesterday morning – Gold investors took it up again pushing it further into the new century…at one point up $30 kissing $2905/oz before settling up $9 at $2884/oz/, leaving it up 9.5% ytd.

Eco data revealed that Mortgage apps rose by 2.2%, ADP employment was ‘better than expected’ at +183k new jobs vs. the expected 150k, Services PMI’s remain in expansionary territory, although some pointing out that ISM services PMI trended a bit lower than expected but remaining expansive. Eco data today is the usual Thursday data points – Initial Jobless Claims and Continuing Claims, but the real focus will be on tomorrow’s NFP report….and what that tells us about the state of the labor and job market. The expectation is for the report to be better than the expected +170k jobs…. So, strap in…. The clock is ticking.

Now BONDS had a great day, as investors look for value in other places (recall, bonds got smashed last year, the TLT down 11.7% while the TLH lost 8.5%)….the 10 yr bond yield fell 9 bps to end the day yielding 4.41% and I think this goes to exactly what we heard from Treasury Sec Scotty Bessent….He reminded us that while Donny wants to see lower rates, he has no intention of asking JJ to do anything. He thinks that the 10-yr declined because bond investors realize that the gov’t is serious about slashing spending.

Speaking of that – 40,000 federal employees have opted IN for the ‘recent retirement plan’ offered by the WH with more expected – that alone is expected to save ‘tens of billions’ of dollars in spending….and then we have the whole USAID thing…..if they shut it down completely – you’re talking about $40 billion in savings….but let’s be honest – THAT is not happening, but what is happening is the wasteful spending at USAID and that represents ‘ millions of dollars’ and we haven’t even heard yet about the many different agencies that no one can identify what they do and what they cost….In the end, Americans voted for change and they voted for the end of wasteful spending of taxpayer dollars.

In any event – the sense is that the bond market is paying attention to what is going on – and if we are able to slash wasteful spending, pass new policy mandates, deregulate and cut red tape, ramp up energy production, bringing more supply to the markets then that will bring inflation down by driving prices down for everything that relies on the cost of energy…..think EVERTHING.

Oil – so far oil is down about 10% since Donny moved into the WH…..some of that is about the expectations that we are about to flood the markets with more supply….while others continue to tell us that weaker China demand is driving prices lower….Oh boy, Are they suggesting that China now drives the oil markets? That, however, China goes, so goes oil? Doesn’t that seem a bit outrageous to you?

I am not in that camp at all….and I don’t’ think energy demand is going lower either, I mean think about it….….Has anyone been paying attention to the AI demands and the data center demands on top of all the other demands for energy? Think about all the new housing we are building and the demand that that creates, think about the global demands for ‘reconstruction in war-torn countries, and all the energy that will demand. Think about energy demands for emerging markets – India comes to mind as one of the biggest Does anyone really think wind and solar is going to supply that energy? Doubtful….

Now all this doesn’t mean oil prices can’t decline, they can, we have seen that, but I think it is because of the expectation that more oil is on the way – supplied by the NON-OPEC producers….…. next, let’s see what OPEC+ does.

This morning oil is up 40 cts at $71.47 – leaving us between the trendlines - $70.40/$72.

Gold continues to shine…. rising as tariffs and trade wars drive demand for the ‘safety trade’. In addition – buying by global central banks is showing NO signs of slowing and that helping to keep a floor under gold. The move reflects a broader strategy of bolstering financial stability while hedging against global economic instability. Gold remains at record highs with the trendline continuing to suggest that $3000/oz is within reach. On the downside – trendline support is down at $2780 ish.

The VIX pulled back even more, and this make sense as stocks rise…. rising stocks suggest less fear by investors…. The VIX is now below all 3 trendlines putting it firmly back in the ‘complacent’ zone.

US futures are flat essentially…. Dow futures up 8, the S&P’s up 1, the Nasdaq is down 44 while the Russell is up 3. Again, it’s another big earnings day….and so far, most of the reports are all beats…. We will get lots more after the bell, but the one that everyone is waiting for is AMZN – what will their cloud business reveal? AMZN is up 7.6% ytd….and this morning it is quoted up $1.

European markets are all higher…. The BoE announced their rate decision and cut rates by 25 bps. In addition to that - the focus remains on earnings as well.

The S&P closed at 6061 up 23 pts…. A look at the chart reveals that the S&P has been consolidating and trading sideways since Mid-October – trading in the 5880/6110 band. QCOM reported last night and disappointed – the stock is down 4.5% or $8/share…F did as well and the conference call revealed how concerned they are about tariffs and EV’s, stock quoted down 5.5%…. while SWKS plummets – down $25 or 30%.

The S&P is just above the trendline…. leaving it to test the recent highs of 6110. If it does, will it bust through or retreat? We are about to find out.

All this means do not get fomo’ized, do not make emotional decisions and do not chase anything. Create a plan and then stick to it thru thick and thin…

Garlicky shrimp scampi

For this you need: Olive oil, butter, 5 cloves of garlic large, sliced, 1 lb. of large cleaned and deveined shrimp, s&p, dry white wine, red pepper flakes, optional, lemon juice, fresh parsley chopped.

Heat olive oil and 2 tablespoons of butter in a large pan or skillet. Add garlic and sauté until fragrant (about 30 seconds - 1 minute). Then add the shrimp, season with s&p to taste and sauté for 1-2 minutes on one side (until just beginning to turn pink), then flip.

Pour in wine, add red pepper flakes. Bring a simmer for 1-2 minutes or until wine reduces by about half and the shrimp is cooked through (don't overcook your shrimp).

Stir in the remaining butter, lemon juice and parsley and take off heat immediately.

Serve over spaghetti, always having hot toasted garlic bread on the table.