The Fed makes it clear, there is no timetable

• OK – now the minutes are out!  And they appear to be quite clear.

• Some traders stamp their feet – I say – ‘stop the whining’: 5 – 7 cuts were always an unreasonable narrative – 1 or 2 maybe, maybe.

• 2023 underperformers are leading the way higher in 2024!  And the 2023 outperformers are leading the way lower in 2024. (I know it’s early…relax – I’m just having fun!)

• Oil UP – rising tensions in the region are starting to boil.

• The VIX is up 15% in 2 days…. Capisce?

• Try the Spaghetti Arrabiatta.

Oh WOW!!!  Would you look at that!  The FOMC mins came out (as expected) at 2 pm yesterday and guess what happened?  Just guess what they said…Go on…. make a guess….

“Officials reaffirmed that it would be appropriate for policy to REMAIN AT A RESTRICTIVE STANCE FOR SOME TIME UNTIL INFLATION WAS CLEARLY MOVING DOWN SUSTAINABLY*.  The committee expressed a willingness to cut the benchmark lending rate in 2024 should that trend continue, though they gave NO INDICATION easing could begin as soon as March, as futures traders expect.” 

(*Capitals are for emphasis – I’m not yelling! LOL)

 And if that is not enough – It went onto say that.

“Almost all participants indicated that reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by THE END of 2024.”

Let me repeat – they gave NO INDICATION of a rate cut in March…zero…nada…. and a lower rate would be appropriate by the END of 2024…not late winter, not spring, not summer……they said the END of 2024 – so that means late fall/early winter…. So, I have to ask – is it any clearer now?  Is the whole 5 – 7 rate cut narrative DEAD now?  Can we stop with the ridiculousness?  I mean it’s amazing that what people hear vs. what is being said…. 

Now – what the did confirm is that the FED ‘thinks’ that they are done raising rates – ok – great, we knew that…that should not really surprise anyone….IF inflation continues to trend lower…but remember – IF it starts to trend higher – then all bets are off – but – I’m fairly confident that if they hold them higher for longer then we will see inflation continue to trend lower…but not get anywhere near the 2% target until sometime in 2025….

Ok – so with that – we had more ‘adjusting’ taking place….stocks continued to ‘re-price’….and by that I mean trade lower…..as the closing bell rang – the Dow shed 285 pts or 0.8%, the S&P’s lost 38 or 0.8%, the Nasdaq gave up 174 pts or 1.2%, the Russell lost 54 pts or 2.6%, the Transports gave back 270 pts or 1.7% while the Equal Weighted S&P ended the day FLAT….and this suggests that while money is moving out of some of the ‘sexy’ names – it is being put back into the broader market….the two gainers yesterday?  Utilities – XLU + 0.4% and Energy – XLE up 1.6%….and as the year gets started look who is in the lead….

Energy – XLE is up 2.7%, Utilities – XLU are up 1.8%, Healthcare – XLV is up 1.6%, and Consumer Staples – XLP are up 0.35%…. – all sectors that were the UNDERPERFORMERS in 2023…. Last year’s darlings – Tech – XLK is down 3.6%, Consumer Discretionary – XLY is down 3%, Communications – XLC is off by 1%.  And further down the totem pole – you find Semi’s – SOXX – 5.6% this year, Cybersecurity down 4%, Disruptive Tech – ARKK down 7.4% – are you seeing a pattern here???  Does ‘technology’ ring a bell at all?  And rightly so, the end of year narrative – (think 5-7 rate cuts) is being poo – pooed – so the ‘amazing’ rally that saw the indexes surge is now being questioned…and that means – that some investors are ‘shooting first and asking questions later’…..while other investors take advantage of the angst… Remember – for every trade there is both a buyer and a seller….it’s just that when the angst rises (see the VIX below) buyers are happy to let the sellers panic a little as they bid lower…..and the opposite is true when the sentiment changes and that was front and center during the final 8 weeks of the year….that saw buyers tripping over each other to ‘get in’.

And speaking of angst – have you seen the VIX?  Remember how complacent it was?  Well – it has surged by 15% in 2 days…and the VIXY is up 5%.  And just like the RSI – that we discussed on Tuesday – investors need to pay attention to ‘extreme readings’ and the VIX has been in an extreme range for weeks now…so it was just a matter of time – (we discussed this) before something was going to surprise the markets causing a turn in the trend.  Now – how long that turn lasts will depend on a range of economic data points, the start of the earnings season and the ongoing Ying & Yang from the FED that is causing all kinds of speculation on when, how many and at what pace will the FED decide to change the higher for longer narrative.  Let’s be honest – there is a WIDE range of opinions about expectations and as we witnessed – those opinions can become the narrative – and the narrative can be incorrect and when it becomes clear then the markets will correct.  This is NOT rocketing science – but it does require you to understand who you are, where you stand on the risk scale and where are you in the life cycle.  It requires a plan, and it requires commitment to that plan….and trying to pick tops and bottoms in a long-term investment account is NOT the plan…. You can do that with your ‘mad money’ account – Call me to discuss.  

As the market awaited the mins – we did see the 10 yr. bond pierce 4% at about 10:30 before backing off – challenging it again only to end the day lower – yielding 3.91%.  The 2 yr. is yielding 4.33%.  A move up and thru 4% in the 10 yr. will provide some ongoing headwinds for the broader market until we get more clarity on the earnings season, forward guidance and what Friday’s NFP report reveals.

Oil which has been all over the place – is higher today…. up 70 cts at $73.40/barrel…. One day it’s rising Chinese imports, the next day it’s all about the non-OPEC supply boom and a cut in price forecasts by MS.  Today it’s about – the ongoing crisis in the RED Sea caused by the Houthis, (think Iranians) disruptions in a Libyan oil field and heightened tensions in the ongoing Israel/Gaza conflict that could still morph into a wider conflict.

Shippers remain concerned and are opting to re-route container ships around the Cape of Good Hope (Africa) vs. going thru the RED Sea and out the Suez Canal.  Expect to see shipping cost rise (and they are surging) and then what that means to the ‘cost’ – think higher prices…. for shippers to Europe, and the East and West Coasts of the US.  And if shippers are paying more – then guess who ends up paying more in the end……come on…You know……this isn’t a trick question….

Gold – which has also been erratic – did test lower yesterday almost kissing the short term trendline at $2027 before finding support….this as it became a bit clearer that the FED is not prepared to slash and burn rates in 2024….this morning though, after some careful consideration – we do gold trading up $12 at $2055….leaving it in the $2027/$2100 range that we have been discussing.

This morning US futures are up – not surprising…., Dow futures are up 60 pts, the S&P up 5, the Nasdaq up 28 and the Russell is ahead by 10.  Now that we got the FOMC mins – the focus is now turning to Friday’s NFP report…. for any sign that would dispute the newest FED narrative…… You know the deal…. we are expected to create 170k new jobs, unemployment to tick at 3.8% – up from 3.7%, and Avg hourly earnings of +0.3% m/m and +3.9% y/y.  I do not think we will see anything significantly different that what we expect……and then the focus will turn to the start of earnings season on January 12th. 

European markets are up as well…. this after being under pressure at the start of the year……Markets across the region are all up between 0.3% & 0.7%.  French inflation came in at +3.7% y/y – up from 3.5% – energy and services were up – joining the ongoing increases in food prices. But somehow – traders there are also floating the ECB will cut rates idea sooner than expected.  Yeah – ok…go with that.

Now – just a follow up – some guy at Piper Sandler – Harsh Kumar joined the fun and CUT his rating on Apple – going from Overweight (Buy) to Neutral (Hold) lowering his price target from $235 to $205- which would still represent an 11% increase in price from last night’s close.  In his analysis – he cites “weakening macro environment in China” and slowing unit sales…. Well, at least this guy made a substantial cut in his target – lowered by $30 or 12% vs. Timmy Long at Barclay’s that took his price target from $161 to $160.   In any event – Apple is now down 4.5% ytd and this morning is quoted a bit lower again $183/$183.10 vs. last nights close of $184.25. Just a note…. Apple’s RSI is now sitting right on the 30 lines…. which suggests it is in an ‘oversold position’ – Capisce? (Refer to Tuesday’s note)

Here is my appearance yesterday on the Big Money Show with Taylor Riggs, Jackie DeAngelis and Brian Brenberg on Fox Business – where we discussed this very issue.

The S&P closed at 4704 down 38 pts….….it’s funny – we are at an area that offers NO real support and a look at the chart could suggest that if we don’t hold right here – then S&P 4600 would not be unreasonable…..and while that sounds negative – it represents a 2% move lower from here… or 3.5% from the most recent high….Still WELL within a normal trading range.  I for one – hope we go there…. just think of all the bargains…and think of all the people who will fall out of the trees when we shake the branches….   It’s a great business…. if you have a plan….

Spaghetti arrabiata

By now you know that Arrabiata – is the Italian word for angry…  this sauce is simple to make and gets it anger from the red chili pepper… You can serve this with any type of pasta you want – but spaghetti or linguine is best.

You will need: olive oil, onion, garlic, red wine, sugar, crushed red pepper (or chili peppers if you want hot, hot, hot), lemon juice, oregano, s&p, crushed tomatoes, tomato paste and chopped parsley…

Bring a pot of salted water to a rolling boil.

In a large pot (or deep sauté pan) on med-hi – heat up olive oil and garlic… sauté a bit – but do not burn – 3 mins or so… now add sliced onion and sauté until soft – like 5 mins more. Next – add 1/2 cup of red wine, 1/2 tbsp. of sugar, fresh squeezed lemon juice (about 1 tbsp.), oregano, bit of tomato paste and a 28 oz can of kitchen ready crushed tomatoes (not in puree – just crushed tomatoes), crushed red pepper (or crushed chili pepper if you prefer) – bring to a boil and then reduce to simmer and cook for 15/20 mins…

Add the spaghetti to the boiling water and cook for 8 mins or until aldente – strain – reserving a mugful of the pasta water. Return pasta to pot and add back about 1/4 cup of the pasta water to re-moisten.  Stir… Now add pasta directly into the sauté pan with the sauce – toss well – add a handful or two of grated parmegiana cheese and serve immediately in warmed bowls. Enjoy with a nice bottle of Brunello di Montalcino. Always have extra cheese on the table for your guests.