Tech triumphs again: NVDA leads, S&P masks market unease, and rising yields stir warnings

• TECH does it again but leaves many behind.

• S&P vs. Equal Weight S&P tell 2 different stories.

• Bond prices decline yields rise – 30 yr yield pierces the April ‘23 high.

• Oil and Gold steady.

• Try the ‘Cestini di Parmegiana.

Tech just continues to take the indexes higher….which is different from taking ‘stocks’ higher…..NVDA once again at the head of the class as investors waited anxiously for Jensen’s (NVDA CEO) presentation at the Consumer Electronics Show (CES) in nowhere else other than ‘VEGAS’ where he did not disappoint at all. And you will hear all about this all day today and the days to come….

Investors, traders and algo’s took NVDA up another 3.5% to end the day at $149.50 but not before it kissed $152.15 at 11:30 am…. leaving NVDA up 11.3% in 2025…. (that’s 4 trading days…).

Now I say that tech takes the indexes higher and not stocks higher….…You see, 6 of the 11 S&P sectors ended the day lower – that’s 54% yet the S&P ended the day higher…up 33 pts or 0.6%. And that’s because the S&P is a market capitalization index…..it tracks the performance of the 500 largest companies in the United States, and is considered a benchmark for the stock market, and it gets skewed by stocks with larger market caps (think all the mega-cap tech names in that index)……they ‘influence’ the index due to their size. NVDA has a mkt cap of $3.66 trillion, AAPL is $3.7 trillion, AMZN is $2.4 trillion, MSFT is $3.18 trillion, GOOG is $2.4 trillion while Zucky’s META comes in at last place at ‘only’ $1.6 trillion.

Now compare that with the Equal Weighted S&P that eliminates that very issue – it gives every stock in the index an ‘equal weight’ and that index ended the day lower by 4 pts….and while you say ‘4 pts is not dramatic’ I would argue that the Equal-weight index which helps reduce concentration risk, does provide greater diversification and insight into what is going on under the sheets.

To sum it up – it was a mixed picture - the Dow ended the day down 25 pts, the S&P up 33 pts, the Nasdaq gained 243 pts (think TECH), the Russell lost 2 pts, the Transports up 28 pts, while the Equal Weighted S&P lost 4 pts.

Again it was all about TECH, Semi’s, Disruptive Tech and Quantum Tech names in the lead, - The XLK + 1.3%, The Semi’s – SOXX gaining 2.9%, NVDA + 3.5%, AMD +3.3%, QCOM + 1.2%, AVGO + 1.7%, Disruptive Tech - ARKK +2.2%, QTUM (Quantum Tech ETF) +2.25% with individual names like IONQ gaining 6.7%. QUBT + 3.4%, RGTI + 2.6%. And every stock in the Mag 7 ended the day higher…. AAPL +0.7%, AMZN + 1.5%, GOOG +2.5%, META +4.3%, TSLA + 0.2%, MSFT +1% and of course NVDA.

Where was the weakness? Utilities lost 1.1%, Industrials lost 0.25%, Financials down 0.3%, Consumer Staples – 1%, Energy down 0.5%, and Real Estate down 1.4%. Home Builders down 0.1%, Aerospace & Defense – 0.8%, Biotech – 0.25%, Big Pharma – PPH -0.1%, Exploration and Production – XOP -0.25% and the list goes on.

And some of the eco data was weaker too. Factory orders were down 0.4% (vs. the expectation of -0.3%), Durable Goods Orders were down 1.2% (vs. the expectation of -0.5% and S&P Services PMI came in at 56.8 - which is good, but below the expected 58.5.

Today’s eco data is all about the JOLTS report – Job Opening & Labor Turnover Survey and it is expected to show 7.74 million openings….and the ISM Services PMI which is expected to show a reading of 53.5 – still strong and expansionary territory and above last month’s read of 52.1.

Bonds were also weaker again…the TLT lost 0.5% while the TLH gave up 0.35%. 2 yr yields are at 4.27% while the 10 yr is now yielding 4.64%. I discussed this at length in yesterday’s note – how Janet Yellen was ‘playing the system’ by financing our debt with short term debt rather than longer term debt and that is going to be an issue for the new treasury secretary and the new administration as that short term debt comes due and will be financed with more expensive debt. Yesterday 30 yr bond yields hit 4.87%, surpassing the April 2024 high of 4.84% and a look at all the charts (2’s, 10’s & 30’s) suggests that higher yields are coming.

Now again, rising yields are not necessarily an issue for stocks unless of course the economy starts to fail, then all bets are off. But, rising yields will be an issue if inflation rears its ugly head and the FED changes course and has to raise rates in 2025 vs. cutting rates in 2025…..Yesterday, Fed Governor Lisa Cook made that very clear…saying that the FED needs to be cautious with any further rate cuts – saying

" Since the Fed began cutting its benchmark policy rate in September, the labor market has been somewhat more resilient, while inflation has been stickier than I assumed at that time.”

She also tossed into her conversation how she felt about stocks…saying basically that they are priced to perfection and the risk of a downturn is building…. again, nothing new, but it is confirmation that prices are stretched. Which translates to ‘don’t be so quick to price in multiple rates cuts this year’! – Something I have been very clear about; my fear is and has been that the FED will surprise us and either leave rates unchanged or be forced to raise them.

Now on the other side – we had our friends at Goldman Sachs come out and say that they are seeing a short term ‘tactical’ bullish set up for US stocks driven by institutional money and a lack of selling…which is comical – Why? Because there isn’t a lack of selling – every trade has both a buyer and a seller. What did Goldman say when the markets gave back more than $1 trillion dollars during the last two weeks of December? Was that a lack of ‘selling’? No, it’s just the tone of the day…. will the tone cause the buyers to be more aggressive – thus causing prices to rise or will the tone be a bit more negative causing sellers to be more aggressive and prices to fall. This isn’t rocket science – it’s just Econ 101.

And the ‘guys’ at JPM are saying that ‘while risks to the fierce rally are mounting, a bearish downturn remains ‘extremely unlikely’ amid strong economic growth’. The key phrase there is ‘extremely unlikely’. Watch what happens next!

And here is where I will tell you to keep your eyes on the VIX – the fear index. Currently it is trading slightly higher than ‘complacent’, but it feels a bit ‘anxious’ to me…. The trendlines are all converging between 16.15 and 17.25. This morning the VIX is up 0.20 at 16.26…. a push up and through 17.25 will see the VIX spike and stocks retreat. The size of the move lower will depend upon the headline that causes the spikes to be higher.

Oil is holding onto $74/barrel and Gold is trading at $2658.

US Futures are mixed…. Dow futures up 43 pts, S&P’s up 4 pts, Nasdaq is down 10, while Russell is up 4 pts.

Fed President Tommy Barkin due to speak today and Fed Governor Chrissy Waller speaks tomorrow. Thursday (markets closed due to Carter funeral) will see Fed’s Patty Harker, Tommy Barkin, Jeff Schmid and Mishy Bowman all speaking as well – so there will be a lot to unpack after we hear what each has to say.

European markets are higher. The eurozone CPI came in up 1.8% y/y vs. the +1.9 that was expected while German inflation was stronger than expected at +2.9% vs. 2.6%.

The S&P ended the day at 5975 up 32 pts after testing a high of 6,021. Like I said, once we broke resistance at 5944 the momo algo’s and the day trader types will jump on board, forcing prices higher. My gut says that 6000 will present an issue for the markets – ok it was 6020 that proved to be the issue….so let’s see what happens next. 5944 which was resistance is now support – or not…. hold onto your hats…. Let’s go.

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.

Cestini di parmegiana (Parmegiana baskets)

These are a great way to impress your guests when you have a dinner party and are so simple to make.

You need fresh grated parmegiana cheese, parchment paper, and a bottom rounded glass.

In a frying pan – place a piece of parchment paper and then spread out some fresh grated cheese… Turn the heat up to high and melt the cheese on the parchment paper….when its all melted, take it off the heat and count to 10 and then fold the parchment paper over the bottom of a rounded glass to mold it to the shape of the glass. As it cools, it will take that shape. Remove the parchment paper and then remove the ‘basket’.

Now you can use the basket as a salad cup. Make the salad of your choice and then fill each cup with the salad, top with sliced cherry tomatoes and presents at your dinner table.