From holiday dip to market flip: Algos, rates, and Janet’s fiscal time bomb fuel Wall Street’s

• Stocks rallied; Bond declined.

• Oil surging renewed China demand and new Biden bans.

• Gold contemplating JJ’s next move.

• Lots of Eco Data this week, Earnings start on the 15th.

• Try the Chicken Provencal

Stocks rallied on Friday, charging higher – leaving 9 of the 11 S&P sectors in the green while 2 – Consumer Staples and Basic Materials ended the day lower. This move leaving investors to wonder if the recent weakness is now behind us….the algo’s jumping back in to ‘buy the dip’ that THEY created…..shaving off more than $1 trillion in market value over the prior 7 days….Volumes were still subdued – causing exaggerated moves - as many asset managers and retail investors were making their way back home post the holidays. But that all changes today!

The gains – did manage to soften the blow suffered at year end….as the algo’s took almost everything higher…..the Dow ended the day up 340 pts or 0.8%, the S&P up 74 pts or 1.3%, the Nasdaq gained 340 pts or 1.8%, the Russell added 36 pts or 1.6%, the Transports up 184 pts or 1.2% while the Equal Weighted S&P gained 65 pts or 0.9%.

AI, Tech, Disruptive Tech and Quantum Tech names in the lead, - reminding us that you have to be ‘in it to win it’. The Semi’s – SOXX gaining 2.6%, NVDA + 4.5%, AMD +3.9%, QCOM + 2.7%, ARKK +5.15%, QTUM + 1.4%, with IONQ gaining a whopping 10.8%.

Eco data revealed that ISM Manufacturing came in better than expected at 49.3 leaving it just below the neutral line of 50. The surprise was the ISM Prices Paid – that came in at 52.5 – well above last month’s 50.3 and above the estimate of 51.8. Higher prices paid is fuel for reigniting inflation – just fyi.

The House vote on Friday puts Speaker Mike Johnson back in the driver’s seat and that helped to push stocks higher after Mikey assured us that the party can ‘coalesce behind the president elect’s business friendly, deregulatory agenda’.

And while all this was happening – bonds got weaker sending yields higher…. TLT was down 0.3% while TLH lost 0.25%. 2 yr yields are now 4.27% while the 10 yr yields 4.61% after testing 4.63%.

Why do you ask? Well, I think it’s a handful of things – First we had the higher prices paid in the ISM report (think inflationary) forcing JJ to reconsider his ongoing narrative about lower rates, next we had Richmond Fed President Tommy Barkin hint of keeping rates restrictive for longer – restrictive here means no more cuts, but you know how I feel, I do not think current rates are restrictive. Then it was the idea that the business-friendly agenda that Mikey is talking about will produce a stronger economy that could support a bit higher rate. BUT then there is this lingering concern that Janet (Treasury Secretary) left us in a ‘mess’.

Look – Charlie Gasparino wrote about this weeks ago – you can find his article here: https://nypost.com/2024/11/23/business/janet-yellen-exiting-office-leaving-mess-behind-for-trump-team/

But essentially this is what it says -

Yellen financed the federal deficit (now $1.8 trillion annually, with $36 trillion in total debt) by shifting from long-term debt (10- and 30-year bonds) to short-term debt (2-year and shorter Treasury bills).

Critics argue this was politically motivated to keep interest rates low, avoiding market panic and supporting stock prices during Biden's administration.

This short-term approach creates risks as these debts need to be refinanced at higher interest rates, raising the government's interest expenses and increasing economic uncertainty.

By not locking in low interest rates with long-term debt – when rates were artificially low, Yellen left the government (and us) vulnerable to rising rates, which have already impacted consumers through higher mortgage and credit costs.

In the end, economists and other critics fear this could lead to more stock market volatility or a deeper financial crises as short-term debt becomes costlier, and deficits remain high.

And this is all happening as Janet and Joey leave DC and Trump and Scott Bessent take the reins. Leaving Scotty and the new Trump Administration in a vulnerable position…. Surging rates will be blamed on the GOP because they will happen in the coming months long after Janet and Jo Jo are gone. So, sit tight – let’s see how this plays out.

Gold continues to try and find its way…trading as high as $2681 and as low as $2650 – before ending the day at $2654 down $16. Leaving it just below trendline support. This morning gold is trading flat – but feels like it wants to test $2600 again – a level that it has tested 4 times in the last month. And if yields continue to tick higher – then gold will test lower. Our friends at Goldman now changing their tune about $3000 gold by year end…because they are now expecting JJ to make ‘fewer’ rate cuts than previously imagined. Do you think???

And oil? It has found new life – surging up and thru trendline resistance at $72.60 – something we discussed – and as expected once it pierced it, the momo guys are taking it higher…. This morning, oil traded at $74.08 up 11.5% since the December low of $66.70. Now the story is that the oil traders are betting on a huge Chinese stimulus package to offset China’s economic ‘fragility’ to drive increased consumption which will drive demand in 2025.

Now, see what they do – the tell us that China is going off the edge from October to December, sending oil markets lower…reminding us daily that oil prices are dependent on Chinese demand – as if no one else counts ….and then when they get it to a bargain level ($66.70), then they tell us that China is going to stimulate their economy – sending prices higher….it’s all very orchestrated.

In the end – you know what I think… Demand is fine, it was and oversupply issue that drove prices down….Now don’t get me wrong – there is some global economic uncertainty that played a role, but I am not staying away from energy because they tell me that China demand is weakening. Is anyone paying attention to the demand created by AI and advancing technologies that are increasing at exponential rates that will continue to fuel demand for energy? And that is not just a US thing – that is a global thing.

In the end – oil is now in the $72.60/$75.25 trading range – where I think it stays for a while. This morning Joey is set to slap more sanctions on Russian oil and he set a ban to prevent new offshore drilling for both oil and gas across some 625 million acres of US coastal territory which will also help to fuel higher prices – only adding fodder to the inflation story.

US Futures are screaming higher…. Dow futures up 130 pts, S&P’s up 40 pts, Nasdaq up 205 pts while the Russell is up 14 pts. The Barkin comments on Friday are being interpreted as more bullish – suggesting that the US economy remains strong and can handle higher rates. We are also going to hear from Fed Governor Lisa Cook – who is speaking at a conference later today. Let’s see how she positions herself.

Eco data today includes S&P US Services PMI of 58.5 – well into expansionary territory. Factory orders -0.4%, Durable Goods Orders also down 0.4%. Later in the week we will get the latest JOLTS report, ISM Services PMI, ADP employment, the December FOMC minutes and the Friday blockbuster NFP report which is expected to show an increase of 160k jobs with Unemployment remaining at 4.2%. Avg Hourly earnings m/m of +0.3% and y/y of 4%.

Fed speakers this week include – Lisa Cook, Tommy Barkin & Chris Waller.

European markets are all higher…. France breaking away rising 2.1%, Euro Stoxx +1.9%, Italy +1.5%, Germany +1.3%, Spain + 0.8% and the UK + 0.1%.

The S&P ended the day at 5942 up 74 pts…. leaving it just below trendline resistance at 5944 – a level we are going to pierce in the opening seconds this morning if futures remain strong…and there is no reason they won’t. Once we break resistance you can expect all the momo algo’s and the day trader types to jump on board, forcing prices higher. My gut says that 6000 will present an issue for the markets…. if it does not – then I suspect that a test of 6050 is not far behind….

Remember – as a long-term investor you need to be focused on managing both risk and return potential. History demonstrates that a well-planned, long-term focused and diversified financial plan can withstand virtually any market surprise and related bout of volatility.

Earnings season begins on January 15th with the release of Big Bank earnings from JPM, C, BK, GS, WFC.

Chicken provencal

This is a great dish and one that you can use for a large gathering.

For this you need: Legs and thighs (on the bone), celery, carrots, onions, garlic, potatoes, olive oil, butter, s&p, crushed tomatoes & white wine.

Pre-heat oven to 325 degrees

Begin by heating up some olive oil and a qtr. stick of butter in a large frying pan. While that is happening – place the chopped celery, carrots, onions, and crushed garlic in the bottom of a deep baking dish. Add in the peeled and cubed potatoes – leave them a bit chunky so that they don’t melt away.

Now season the chicken pieces and fry them until they are golden brown all over. Now place it in the baking dish on top of the veggies. When you have fried all the chicken – add a dollop more of butter and deglaze the pan with white wine – I used Pinot Grigio. Pour over the chicken.

Next in the same pan – add the crushed tomatoes – season with s&p and heat up. Pour the tomatoes over the chicken pieces and cover tightly.

Place it in the oven at 350 degrees and let bake for 1 hr.....

Then remove the foil – turn the heat up to 375 degrees and let it continue to bake in the oven for another 20 mins…. Then turn the pieces of chicken over and cook for another 20 mins. You want the chicken pieces to brown up nicely.

When complete – remove and serve on a bit platter. Make sure to have a large green salad. – Delish.