Trump Quantum tease: Stocks bounce back, rare earths rally as CPI looms

Stocks continue to march in place…. Wednesday they sold off and Thursday they rally them back. So, what really happened? Nothing, the negativity on Wednesday went ‘poof’. On Tuesday night the S&P closed at 6735 – last night it closed at 6738…..it is what happened on Wednesday that created the issue….

Headlines on software restrictions to China, upped sanctions on Russian oil, causing a sudden spike in oil prices (up 10% in 3 days) after Trump imposed harsh sanctions to try and force Vlad into a corner, stocks fell, Gold Fell, Crypto’s fell, TXN had a tepid outlook, NFLX disappointed and TSLA missed estimates…..and then the algo’s wondered what would the CPI tell us about inflation?

Just more of the same really – nothing new…other than headlines that cause disruptions. And again, yesterday as if none of those negative headlines on Wednesday made a difference, stocks ended the day higher…. taking back what they lost on Wednesday…. So, again I ask – what did we really do?

The Dow ended the day up 144 pts, the S&P up 40, the Nasdaq up 200, the Russell up 31, the Transports lost 300, the Equal Weight added 37 pts while the Mag 7 rallied back 287 pts.

Yesterday tech rallied (again) – on the bet that the administration is considering getting into (investing in) the quantum space in its effort to stay ahead of China. And as you can imagine – the quantum names surged…. RGTI +3.5%, IONQ +3.5%, QUBT+1.1% and QBTS +3.8% and the quantum ETF – QTUM added 3%. Along with the quantum names – rare earth stocks surged as well…the REMX etf rose 2.2%.

In addition, Trade tensions cooled (something that never ceases to amaze me – I mean how many times are we gonna fall for this headline? Hot/Cold/Hot/Cold? I mean it sounds like menopause! Even higher oil prices did nothing to stop the bulls…..because Kuwait said that OPEC nations stand ready to hike output if called upon!

The VIX lost 7% as the temperature in the room dropped. Bonds fell, causing yields to rise just a bit and mortgage rates continue to decline - current rates are now 6.17% for a fico score of better than 740. Do the math – that means mortgage rates are down 23% since they ticked at 8% on October 19th, 2023, under the Biden/Harris administration.

Today brings us the long-awaited September CPI report and it is expected to be a bit sticky….at +0.4% m/m and 3.1% y/y – both slightly higher. Yet the market appears to be looking right thru that – partly because it’s not a surprise…. Everyone has been hammering it home – the surprise will be what happens if it is ‘HOTTER’ than the expectation? Well, I guess that depends on how much hotter, because right now the FED has made it clear that they are about to announce a second rate cut this year – pointing to a ‘fragile’ labor market!

Now fragile can mean physically weak or mentally unstable - But that’s not how they define it at the FED – to them - a “fragile” unemployment rate is one that appears deceptively low or stable but is highly vulnerable to sudden spikes due to underlying economic weaknesses, policy shocks, or external events. It’s not just about the number — it’s about how easily it can break.

OK - current Unemployment is 4.3% - which is considered full employment…. but what the FED is trying to tell us is that they suspect that 4.3% is deceptive – which is curious because unemployment has been in the low 4’s for more than a year…Whatever! I continue to believe that cutting rates is going to cause inflation to raise its ugly head – but maybe the FED is ‘OK’ with that because the only way to get out of this mess is to ‘inflate our way out’.

Another thing to consider – maybe they have quietly accepted 3% as the new 2% - something we discussed more than a year ago. In any event – the market is pricing in 98% chance of a 25-bps cut next week and a 90% chance of a cut in December.

Bonds fell - the TLT lost 0.7% and the TLH lost 0.6%. The 10-yr yield is sitting right on 4% while the 30-yr yield is now 4.59%.

Oil as noted rose more than 10% in 3 days…and this morning is trading at $61.70 – just above the trendline. OPEC has made it clear that they are ready to help keep oil supplies stable on the back of the new Russian sanctions.

Gold is down $70 at $4,075 as it tries to find stability just above the $4,000 mark. Many view the recent pullback as an opportunity to add more gold to your portfolio or begin to add it if you haven’t already.. If we think that the FED is willing to accept higher inflation then the gold trade will remain alive and well – as a hedge against it. Let’s see what today’s CPI reveals. My gut says that if it comes in as expected then gold will continue to consolidate, and if it comes in hotter, then gold will resume it rise.

US futures are up – Dow up 50, S&P’s up 20, Nasdaq up 125 and the Russell is up 9. INTC is up 9% in pre-mkt trading – after they reported strong 3rd qtr. results. TGT announces that they are cutting 8% of their workforce – just weeks ahead of Christmas.

The S&P closed at 6,738 up 39 points. Futures are pointing higher. We will hear from PG, HCA, GD, BAH this morning. Next week brings more big tech and the FED announcement.

Penne rigate with butternut squash

Start with cubed butternut squash - place in pot of 3/4 chicken stock, 1/4 water some crushed garlic and pepper - careful not to add salt as the stock will be salty enough. - just enough to almost cover the squash (as this becomes the sauce for the pasta). You want the squash bathing in the liquid. Boil until the squash is soft - when done - use a masher to mash SOME of the squash while keeping other chunks of the squash intact. This creates a hearty sauce for the pasta.

In a separate pot - bring a pot of salted water to a rolling boil...add Penne Rigati (Penne with the lines) and bring to a boil for 8 /10 mins or until aldente. Strain pasta - return to pot and mix with the butternut squash - garnish with grated Parmegiana and serve immediately - always supplying additional cheese for your guests if they so desire.