Rally fizzles out, mortgages pierce 7%, tech under pressure

• The explosive rally – had no follow thru. Tech once again under pressure.

• Apple now in correction territory as worry builds over China. (I am not concerned).

• Cleveland’s Hammack calls it like it is.

• Bonds rally, Gold and Oil hold steady.

• Next week brings a new administration and new policies.

• Try the Polpette di Nonna.

So that explosive rally that happened on Wednesday failed to follow thru on Thursday…. stocks came under pressure as bond prices rose. The Dow lost 68 pts, the S&P gave back 13 pts, the Nasdaq lost 173 pts, the Russell added 4 pts, the Transports gained 162 pts while the Equal Weight S&P added 58 pts.

Tech came under the most pressure – the BM7T is the Bloomberg Mag 7 Index and that fell by 1.9%.... while the broader XLK lost 0.8%. AAPL taking center stage as research firm Canalys reported that they think Apple shipments declined by 25% in the 4th qtr. alone…citing the competition from Chinese smartphone makers Huawei and Vivo. The headline meant to remind investors of the growing challenges for Apple considering that the ‘domestic brands’ are gaining popularity because of their AI-capable phones – something that Apple’s latest phones apparently do not have.

In addition, the Chinese smartphone market grew by 4% and that only highlights the pressure on Timmy Cook to ‘do something’. And while some try to tie Apple’s future to anything that happens in China, I am not in that camp. I don’t react to every Chinese headline that hits the tape.

Apple is now down 11% off the high – closing at $228.26 - putting it in official correction territory – The chart says that it could test and should test $220 to see if it holds…$220 was a level that provided plenty of support from July – November – a test would prove whether or not investors are concerned about this latest headline…$220 would represent a 15% move off the high and anywhere between here and there, I am a buyer. Apple is due to report on January 30 so expect all kinds of focus on the name from now til then. Just fyi – they are expected to report QUARTERLY revenues of $124.8 billion- up 4% y/y with EPS of $2.35 up 8% y/y. Just fyi - The Chinese story is not a surprise – street analysts have been saying this for months now, thus the weakness we have been seeing since December.

Did you note the diversion between the S&P and the Equal Weight S&P? The S&P lost while the Equal Weight gained…and you can point to the impact that the tech sector has on the market weight index vs. the equal weight index.

Three of the eleven sectors ended the day lower – while eight gained. As noted, – Tech lost the most, followed by Consumer Discretionary down 0.55% and Communications – down 0.6%. In the PLUS column – Utilities were the winner – up 2.5%, Real Estate rose 2.25%, Industrials + 1.2%, Basic Materials gained 0.8%, Consumer Staples and Energy both up 0.75%, Financials up 0.7%, with healthcare carrying up the rear gaining 0.4%.

Retail came under a bit of pressure – as retail sales were lighter than expected. The Value trade gained, while the Growth trade lost. The contra trades were higher – the DOG + 0.2%, the SH +0.2% and the PSQ + 0.7%. The VIX rose by 3% (weakness in tech driving that move) causing the VIXY to rise by 0.2%.

The Bond market rallied – the TLT up 0.3%, the TLH + 0.4% and the AGG gained 0.25%. The 2 yr yield now stands at 4.22% - down 4 bps, the 10 yr is 4.59% down 6 bps. 30 yr mortgages pierced 7% and this marks the fifth consecutive weekly rise, up from 6.93% the previous week. You can credit the upward trend in mortgage rates to rising yields on treasuries and persistent inflation concerns, leading to higher borrowing costs for prospective homebuyers.

Oil continues to tease the $80 level; demand is up as recent reports showed another decline in US stockpiles and cold weather bolstering heating fuel demand. In addition, the increased sanctions on Russia and the prospect of stricter sanctions on Iran are also being cited as a supply-disruption risk. Note there was nothing said about China….

Gold continues to trade in the $2725/$2750 range as investors and traders continue to bet on rate cuts later this year. So far – Gold is up 5% ytd…. this on top of a strong 2024. We are teasing the December high of $2760 – if we pierce that, then watch as the momo guys try to take it to $2800. Any pullback – takes it to trendline support at $2670.

In contrast to some recent FED head dovish comments – think Williams, Goolsbee and Waller – The FED’s newest member – Cleveland’s Beth Hammack makes no bones about how she feels….She was selected to be the Cleveland President last year and she has wasted NO time in making her opinion public. She opposed the rate cuts last year and continues to oppose them saying – that.

“Not only are prices much higher than they were a few years ago – we still have an inflation problem. We still have a rate of change problem that we need to address”.

During the December meeting her view was ‘Do we REALLY need to do it now’?

I think the answer to that question was NO, we did not, but we did, so now we must sit tight and see how this all plays out. We have a new administration taking over on Monday and with that comes all kinds of new policy stances and demands. The implications of which remain unknown….so why rush anymore? Now to be clear – no one is expecting a rate cut any time soon, but many are still betting on one in the spring/early summer…something I do not think needs to happen at all.

Eco data today is all about Housing Starts which are expected to be up 3% and Building Permits which are expected to be down 2.2%. In addition, we will get Industrial Production of +0.3% and Capacity Utilization of 77%.

Earnings continue to surprise to the upside…we had 8 yesterday and all 8 beat. Today brings us 5 more and TFC starts the day on a beat…we will hear from FAST, SLB, HBAN and STT. Next week – the reports ramp up….so get ready!

US futures are up - Dow futures +160 pts, S&P’s up 22, Nasdaq up 100 while the Russell is up 10. Today is the last day of trading under the Biden administration and Monday is a holiday – MLK day in addition to being the inauguration. It feels like we will continue to churn in the 5830/6000 range as we move thru earnings season.

The blackout period for FOMC members begins on Tuesday, but for the most part I am not expecting any surprises from Nicky T or Goldman Sachs. The FED has made it very clear – there is not a rate cut in the cards this month or for the next couple of months. And while I don’t’ think we will get a rate cut at all; many are still placing their bets on last spring/early summer…. Only time will tell.

European markets are higher as well. The FTSE hit a new intra-day high even as UK retail sales data disappointed. This, on top of the weaker UK growth figures for November, came in below estimates. The weaker data supporting an easier monetary policy…. At 7 am – we have the UK and Italy both up 1.2%, France and Germany up 1%, while Spain and the Euro Stoxx index are up 0.7%.

The S&P ended at 5937 – down 13 pts. While we did pierce the upper band yesterday at 5950 to trade up to 5964 – we failed to hold that, which makes me believe that 5950 ish will remain resistance for now with 5830 support.

Polpette, piselli and patate (meatballs, peas and potatoes)

This is a simple dish…. Not fancy, but so good. It makes you feel like you are in ‘Nonna’s house!’ in fact – it is also known as Polpette di Nonna.

For this you need 1 lb. of hamburger meat. Parmegiana cheese, plain breadcrumbs, 1 egg, s&p, onions, garlic, parsley, white wine, frozen peas, and small yellow potatoes – cut into bite size pieces.

In a bowl – make the meatballs – add the meat, season with s&p, add cheese, garlic, breadcrumbs and chopped parsley. Mix well and them make the meatballs – the size of a golf ball.

Now in a large skillet – heat up some olive oil – add the diced onion and sauté for 5 mins…Now add the meatballs, when they are browned all over – add in 1 cup of white wine, the frozen peas and the bitesize pieces of the yellow potato. Now add in a cup of water – bring to a boil and then turn heat down to low, cover and let cook for 15 mins.

When you are ready to serve – place the meatballs on the plate and dress with the peas/potatoes and the ‘sauce’.

Simple, yet delicious. It’s comfort food.