Tech rally defies odds as Oil surges past $80 and Fed officials take the stage

• And the rally continues…Tech just won’t stop.

• 5 more FED heads today…will they support or challenge?

• Evercore and Goldman trip over each other to raise year end targets.

• RBC and Goldman see oil demand surging – WTI pierces $80.

• Try the Veal Cacciatore.

Stocks zoomed ahead….defying all the odds that a recession may be looming or that the economy may be weakening or that rates could stay higher for longer if the data in the days ahead surprises….….As I noted yesterday – they (The FED) sent Minneapolis Fed President Neely Kashkari out on Sunday to sit down with Margaret Brennan at Face the Nation – to ‘change his tune’….remember – Neely is one of the more hawkish FED members – although he is NOT a voting FOMC member  - and he was the one that kept trying to talk back the traders from the ledge….every time they (traders) raised the number of times the FED would cut – he would be the one to say “Slow down boyz..”.  The data does not suggest one rate cut never mind multiple rate cuts, in fact – only one month ago he said that ‘everything was back on the table, including rate hikes, unless we see some measurable decline in inflation….

And then last week – we started to see some measurables…. PPI – came in as a negative number!  CPI came in softer than expected – job creation remains strong, but pressure on wages is still an issue, the JOLTS reports suggesting a bit of weakness in the labor market. All while other data points are suggesting ongoing strength…. (think stronger PMI’s – both manufacturing and services, Factory Orders and Durable Goods orders). JJ in his presser – post the FOMC meeting intimated that the Dot Plot suggested one cut – Trader types then quickly turned into two cuts – Never really happy with what the FED chair says as they try to drive the bus.  

Well, ok – so after his appearance on Sunday – markets got a chance to digest his comments on Monday and they liked what they heard….You see – the market just wants clarity – good or bad – it can price risk appropriately and more efficiently if it has a sense of clarity…..….and here is my appearance yesterday with Liz Claman on the Claman Countdown – on Fox Business – where we discuss this very point.

In the end – what the ‘smart logic algo’s’ took from these headlines was that there does appear to be a ‘time frame’ (December) – a real time frame from someone within the Iron Curtain.  And what did they do – they took stocks higher -across the board – a Bloomberg article questioned the idea of the rally -saying that the rally doesn’t make sense – that the FED ‘pared back expectations for rate cuts’ –  to be clear….the FED (JJ) never called for multiple cuts – it was always the street that did that -so I guess you could say that the FED pared back STREET expectations of rate cuts.- which were irrational to begin with and then pacified the street by acknowledging that one cut is the most likely scenario – You see – in the end - one cut is better than none and THAT’s the reason for this ongoing rally…. – and while stocks closed higher – they did not close at the intra-day highs…. – the Dow up 190 pts or 0.5%, the S&P’s up 42 pts or 0.8%, the Nasdaq up 170 pts or 0.95%, the Russell up 16 pts or 0.8%, the Transports up 125 pts or 0.85% while the Equal Weight S&P rose 45 pts or 0.7%. 

What will they say?

Today we are going to get 5 more talking FED heads – something that I am beginning to believe should not happen…. - Dallas President – Lorie Logan, Richmond President Tommy Barkin, Chicago President Austan Goolsbee, St Louis President Berty Musalem and FED Governor Adriana Kugler.  Why?  because it’s too chaotic…. If they don’t support the newest narrative, they just cause more chaos in the markets (benefitting their own trading accounts – which is a whole other story). If any of them come out and challenges what Neely said or say that they don’t see rates moving lower or that the data does not support a rate cut at this time – then watch out…because it will flip yesterday’s story.

(Overnight – Philly Fed President Patty Harker – who is not expected to speak today -did say that he also sees one rate cut this year based on ‘his’ forecast).

My guess is that it will be split decision…. They can’t all come out and say the same thing – because there is still some lingering, underlying concerns – think sticky inflation on food, utilities, insurances that continue to weigh on the consumer.   It is NOT as if the data is collapsing…. 5.25% rates are historically well within the normal range - or am I missing something?

And to add to the excitement – Evercore ISI – who had one of the lowest year end S&P targets – 4750  woke up and suddenly decided that they wanted to get some air time….so they raised their year-end target to the highest on the street – as of now – they are calling for S&P 6000 – saying that

“High multiples are supported by companies proven record of managing costs and maintaining/growing margins”.  (right – think raising prices to keep margins strong).  And 6000 is 9% higher than here and the S&P is already up 14.75% ytd.

Goldman – feeling left out - followed suit – raising their year-end target to 5600 citing.

“Strong earnings growth by 5 mega-cap US Tech stocks and a higher fair value P/E ratio multiple. MSFT, NVDA, GOOG, AMZN & META – have collectively surged by 45% and now comprise 25% of the S&P 500 equity capitalization…”   

So, Goldman is raising their estimates for the whole market based on 5 stocks…which just means you need to own these 5 names if you want to be in the race.

Just to put it in perspective – JPM in fact has the lowest and they are calling for S&P 4200 by December 31st which implies a decline of 23% from where we are…. So, I ask – will they soon raise their estimates as well to fall in line?

Does this scream the TOP!  I mean think about it for one minute, they are all tripping over each other to raise year end targets at a time when they all also worry about a coming recession in late 2024/early 2025.  What am I missing?  This is exactly when you realize that you need the plan.  You can’t’ be making irrational, FOMO (Fear of Missing Out) daily decisions and you wouldn’t have to if you had the plan.

Gold ended the day down $15 to $2333 on the back of slightly higher bond yields (see below) – as the gold bugs await new confirmation that not only is a rate cut coming, but that it’s coming as expected now in December.  Again – Gold remains in the $2300/$2400 trading range and will most likely do so until we start to get next month’s economic data. 

Oil – explodes higher!   Recall what I have been saying…. It is NOT a demand issue…...and we were sitting right in between the long term and short term trendlines…. $77.50/$79.50 – so the next move will define it.  We either break out or break down… Well, here we go sports fans……Yesterday oil exploded higher – rising by 2.8% to end the day at $80.62 – breaking out and up thru the trendline. And why do you ask?  Because street analysts – led by RBC’s Helima Croft and Goldman’s Yulia Grigsby are now calling for oil supplies to get tighter through the summer as summer driving, summer boating & summer flying demand GROWS – drawing down inventories. 

Another reason cited was a huge short covering rally – so guys that bet that oil was going to collapse (and there were a lot of them) – trying to profit from the decline in price – suddenly realized that ‘the gig was over’  and ran to cover…only fueling the advance as they tripped over each other to limit their losses. Oh, it is a tangled web we weave….

Bonds which have rallied nicely in the past week on the idea that a rate cut was coming sooner rather than later  (think July vs. December)  – gave a bit back yesterday and the sent bond yields up – just a tiny bit…the 2 yr. yield ended the day yielding 4.76% while the 10 yr. yield was 4.28%. The TLT, TLH and AGG all gave a bit of their recent rally back – falling 1%, 0.9% and 0.4% respectively.  All this as bond buyers do the dance as they try to confirm that a December rate cut is in the cards.

In any event – at this point it isn’t about the rate cut per se – it’s about what a rate cut says about the trend.  Now, one move does not make a trend at all, but a move down is NOT a move up and that is what the KEY here is….down vs. up…let’s just hope that a rate cut in December is not premature the way it was in 1981 – when they thought they killed the monster only to find out that the monster (inflation) was very much alive…and for those of us who lived it – we can confirm it was NOT pretty.

 This morning – US futures are churning – digesting yesterday’s rally…. At 4 am – (which is a long way away from 9:30 am – can’t sleep) the Dow is down 40 pts, the S&P’s down 2, Nasdaq +25 and the Russell is down 6. 

Eco data today includes Retail Sales m/m, Ex Autos and Gas expected to be up 0.3% and 0.4% respectively (stronger than the prior month), Industrial Production +0.3% (stronger), Capacity Utilization 78.6% (a bit stronger) – which doesn’t really support the urgent need to cut rates….apparently 5.25% are not impacting these data points….  But you have to ask – is the FED feeling pressure to cut rates to get in line with other central banks that have already begun the process?

More global central banks to meet this week – the BoE on Thursday – no cut is expected now, but the idea (yet confirmed) is that the BoE will lay out a schedule to begin the process at the next meeting.  We will also hear from Norway and Australia – who also appear to be in NO rush to cut rates.

European markets are up - slightly….in what is a direct reaction to that rally in US tech companies that caused new closing highs for the S&P and Nasdaq.  The concerns from last week – think French politics is now a distant memory…. Italy out in the lead at +0.8% while France is still licking her wounds – leaving that market unchanged.  

The S&P closed at 5473- up 42 pts….is there anything else to say?  I mean, I am invested, my clients are invested – we are enjoying this ride, I am not complaining at all…I am now just hoping that the recent push higher slows and even corrects a bit….I mean look at the chart – it’s hyperbolic….JoJo better hope that JJ can keep the ball rolling into the election….

Veal cacciatore

Literally means Veal prepared hunter style (cacciatore). In Italian – the cacciatore is the hunter and the hunter prepared his meals with braised chicken or rabbit, garlic, tomatoes, onions, bell peppers, mushrooms, peas seasoned with oregano, basil, wine and S&P.  In today's recipe I have substituted the chicken with veal – top round cut into 1-inch cubes.

Start by sautéing crushed garlic in olive oil...add the seasoned veal pieces (s&p) – Just brown the veal – no need to cook all the way through as it will cook in the sauce.

Once you have browned the meat - remove and place on a platter.  Next add sliced onions, and bell peppers - use 2 lg onions and 1 green and 1 red bell pepper - if you like the orange/yellow ones then feel free to use that also. Sauté the onion and peppers and until soft - about 10 mins... season with s&p.   Remove from the pot - now add two cans of kitchen ready crushed tomatoes - not puree - just crushed tomatoes.  Then add one can of water (and 1 cup of red wine - optional).

Season with s&p, oregano, and fresh basil...bring to a boil and then turn heat down to simmer.  Add back the veal, onions & peppers.

(Now (optional) add one can of sliced mushrooms (draining the water first) and one bag of frozen peas).  Let simmer for 45 mins - stirring occasionally.  At this point it is done - but like I said - the longer it simmers the better it is and if you let it cool and refrigerate until the next day - it is like you died and went to heaven.

When ready - bring a pot of salted water to a rolling boil and add the pasta – something substantial like bucatini or fusilli… cook for 8 - 10 mins or until aldente.  Drain - reserving a mugful of pasta water – and return to pot adding back about 1/4 of a cup of the pasta water to moisten... let it sit for a min and absorb the water...now add 3 or 4 ladles of sauce and toss.  Add two handfuls of grated cheese - Locatelli Romano works great - toss again and serve.  You can serve with the veal, or you can serve the veal on a separate platter in the center of the table.

This meal works well with a nice Chianti - remember this is a meal prepared by the hunter - he is a simple man so the wine should reflect his simplicity.  Does it get any better?