Rally stalls as investors brace for key economic data and Fed's next move

• Are investors getting antsy? Not yet!

• Kugler, Daly and Goolsbee all opine on the next move.

• JJ took the stage today.

• Bonds sold off, yields up, Oil pierces $70 and gold flat.

• France on the verge of a gov’t crisis – No Confidence vote today.

• Try Linguine & Clams for Christmas Eve.

The stock market's recent rally to all-time highs appears to be losing momentum, with investors who remain cautious ahead of key economic data – today’s ADP and Friday’s NFP reports and more Federal Reserve commentary….

The Dow lost 75 pts, the S&P added 3 pts the Nasdaq gained 77 pts, the Russell lost 18 pts, the Transports got crushed – falling 355 pts or 2% while the equal weighted W&P gave back 32 pts. Investors continued pouring money into equities, adding $800 million in net inflows last week benefiting small-cap stocks, like Russell 2000, (SMID’s) up 20% ytd with analysts telling us that this sector shows promising strength resulting in future gains.

Today it’s all about FED Chair JJ’s remarks – yesterday it was Fed Governor Adriana Kugler, San Fran’s Mary Daly and Chicago Fed President Austan Goolsbee. Kugler kept is just as I suggested – she too is sitting on the fence – but my sense is that she is ‘leaning’ right (hawkish) saying that while ‘inflation appears to be on a sustainable path, policy is NOT on a preset course’. At the same time – she also said that she views the recent elevated inflation readings as ‘partly stemming from seasonal and one-off factors that are not full accounted for in the data’ and that ‘leans’ a bit left (dovish) – so where is she? Sitting on the fence – just another fed member that refuses to say it like it is, like the way that you and I see it!

Then we heard from San Fran’s Mary Daly on Fox Business – Eddie Lawrence interviewed here in LA – she also went onto say that inflation is moving down and prices are lower (clearly a mis-statement – while inflation is ‘down’ it is still rising by 3% y/y on top of the 20+% price increases that we saw during the Biden’s time in the WH…..) I emphasized this very point and called Daly out on Coast to Coast with Neil Cavuto on Fox Business yesterday – here is the clip.

And then we got Austan…. LOL…he did just as I suggested…. he sees rates ‘coming down a fair amount’ – of course he does – slash and burn! He went onto say that if WE REALLY wanted prices to come down – then the FED would have to keep rates here or raise them and cause the economy to go into a recession (as his voice began to crack) – something he clearly does not want. His idea is to slash and burn rates – stimulate the economy, which will ‘stimulate’ inflation but it will (in his mind) also stimulate wage growth – that will rise faster than inflation…and to that I would say – ‘How’d that work out in 1979 – when the FED ran with ‘your’ idea and prematurely cut rates thinking wages would outpace any increase in inflation? (Go ahead, ask any BABY BOOMER – I dare you?)

Now I don’t expect him to really know because he was TEN – just barely in 5th grade (born on August 18th, 1969)….But here we go Austy – Econ 101….inflation surged to 12.5%, while unemployment hit 10.8%, and that FORCED Pauly Volker (then FED Chair) to jam interest rates to 21% - to stop the stupidity. (only because they should have never cut rates when they did) And yes, the country went into a 2-yr deep recession, but guess what else happened? – Prices actually came down!

And then on August 17th, 1982 – Pauly announced a 10% cut in rates (2% age pts) – going from 21% to 19% and that ignited the greatest bull market the world has ever seen, I was on the floor of the NYSE on that day (I was 19) and I can still feel the sweat running down my back when I think of it – the Dow surged by 4.5% which was 38 pts! Today that would be 2,011 pts on the Dow, while trading volume quadrupled to 138 million share – again today that would be about 36 billion shares - and then rates came down to the 4%-6% range over the next 2 yrs and BOOM! The country and the world enjoyed a 25-yr era of prosperity and wealth generation…. Note what I said – rates came down to 4 – 6%....and where are we today? 4.5% - 4.75% - so rates are NOT usurious or restrictive when you look at history….8+% rates would be restrictive while 10% rates would become usurious. So stop whining!

Now economic indicators like the JOLTS report suggested that labor demand is rising, (not what the FED wanted to see) which is critical as the Fed evaluates its next moves on interest rates. Today will bring us the latest ADP Employment report – expectation is for 150k new jobs…. along with the Services PMI’s both from S&P and the ISM and both are expected to be well into expansionary territory. In addition, we will get Factory Orders and Durable Goods Orders….

Fridays bring us the latest NFP report – expectation of 200k new jobs, with unemployment to remain steady at 4.1%…so sit tight - Because that will be catalyst for the next move by the FED.

Bonds got sold – the TLT and TLH down 0.9% and 0.7% respectively and that sent 2 yr yields up to 4.18% and the 10 yr back to 4.25%. Remember what I said yesterday – we are gonna see 4.5% before we see 4%.

Oil prices edged up amid U.S. sanctions and OPEC+ developments and this morning is up another 25 cts at $70.20/barrel – piercing trendline resistance at $69.86 and about to pierce intermediate term resistance at $70.77, while gold remained steady ahead of upcoming Fed decisions. This morning Gold is down 50 cts at $2667 – right where it was yesterday morning.

Investors are trying to balance their optimism about the robust economy and expected earnings growth in the new year against domestic policy decisions, geo-political risks and potential Fed policy shifts.

My guess is that the ongoing mixed economic signals, confused FOMC members, mixed market sentiment and all the re-positioning into year end and ahead of the coming new year are beginning to raise concerns for some investors about potential volatility….Which the VIX is not confirming just yet….it remains in the ‘no fear’ zone down at 13.10 – well below all 3 trendlines and well below the September, October and November highs of 24 ish. – which would be an 84% spike (in fear) if we went there. And IF we did – we could expect to see the market back off by anywhere from 5% – 10% - just sayin’.

US futures are up again – in what continues to be an amazing reaction to the data and the chatter…. …. Dow futures are up 200 pts, S&P’s up 16, Nasdaq up 138 pts while the Russell is +2. Everyone sitting on the edge of their seats as we await remarks by JJ hoping for clues on what’s next and hoping that he will actually take a stance and indicate that he supports a NO CUT decision. Which btw – I do not think would cause markets to implode…. I actually think that long term investors would prefer that the FED do nothing ahead of the passing of the torch on January 20th. The algo’s and trader types might throw a fit and stamp their feet, but so what? Who is driving this bus anyway, the inmates?

European markets are mostly higher…. The UK is the only one under a tiny bit of pressure down 0.3%. French markets are stable and higher – up 0.3% ahead of today’s ‘No Confidence’ vote that threatens to topple the Macron gov’t. Remember what I keep telling you – political instability causes short term chaos (and opportunity) but rarely prices stocks in the long term. Investors get it, now unless the whole thing completely implodes and turns into something we don’t know – I am not concerned about it from an investing perspective. I continue to have 15% of my portfolio invested across Europe. This vote is not causing me to shift that percentage.

The S&P closed at 6049 up 2 pts. Yesterday I said that if you draw a trendline – it suggests upper resistance to be 6080 and if futures remain elevated going into the opening bell, the S&P must prepare itself to kiss it. It looks like the momo guys just won’t give up. In addition – my sense is that the shorts are throwing in the towel and that only adds to the buying pressure…. which usually suggests a ‘blow off top’.

Put ‘KP’ in the message box and I will be happy to reach out to discuss creating a long-term wealth-building portfolio that will serve you and your family well in the years ahead. Remember – it’s a marathon, not a sprint.

Ok – so it’s December and Christmas are only 21 days away – so it is time for me to revisit the Feast of the 7 Fishes – an Italian tradition on Christmas eve. The Feast of the 7 Fishes is an Italian American Christmas Eve tradition rooted in Catholicism and Italian culinary heritage. Its origins are tied to La Vigilia, the Italian celebration of Christmas Eve, which involves a meatless meal in observance of the Catholic practice of abstinence from meat on holy days. The number seven has religious significance, symbolizing completion and perfection in the Bible. It could also relate to the seven sacraments or the seven days of creation. Either way, it is what it is…so here we go.

Linguine in Clam Sauce

Start with the clams – a couple of dozen or so should do nicely (in the shell) – wash thoroughly to remove any sand from the shell.

Drain. In a saucepan – heat olive oil next add sliced and crushed garlic – sauté around until it takes on a nice golden hue.

Next add a sliced onion and let it sauté with the garlic until it softens. Now add the clams, S&P, a splash or two of white wine, a bottle of clam juice and cover. Reduce heat to med…. continue to move the clams around to get them to open up. If you need a more juice – feel free to add another bottle of clam juice. At this time…. remove some of the clams from the shell – return the clam itself to the sauce and discard shell – While keeping some in their shell for the presentation to come.

Put the linguine in the pot of boiling salted water to cook for 8 / 10 mins…. or until aldente. Strain – always reserving a mugful of water…. return the pasta to the pot – add back 1/2 mug of water to re-moisten. Toss – wait a min or two and then add the clams and the clam sauce….re-toss and serve immediately in warmed bowls. You should have grated Romano cheese available on the table for your guests – although some Italians would cringe at the thought of putting cheese on a fish dish…. but I gotta tell you – it is delicious!

Enjoy this dish with Sliced Italian garlic bread –and a glass of white wine. Nothing fruity…. I always like Pinot Grigio with this dish as I find it complements the sweet taste of the clams. This dish should take you no more than 40 mins…start to finish.