Will the PPI change the narrative? Not so much

CPI came in mostly as expected – other than one data point.  The top line CPI m/m number that was expected to come in flat – came in UP 0.1%....not a huge deal, but not what they wanted….the other reads for CPI came in just as expected,  Now on the wage front – we got Average Hourly Earnings m/m up 0.8% (in line with last month’s read) but the y/y number came in UP 0.5% (vs. last months read of 0.0%) which also suggests ongoing upward pressures on wages – so, while I’m not ringing the alarm bell, I’m just making it clear that ‘it ain’t over til the fat lady sings’ and she isn’t singing just yet.

The 30 yr. bond auction went off without a hitch, and as expected though, buyers were wiling to buy them, but they demanded higher yields which meant slightly lower prices – so while the 30 yr. in the market was yielding 4.29%, the auction demanded rates as high as 4.344% - Again, not a disaster but a sign of caution.

In any event – traders and algos’ continued to take stocks higher as they want to ‘believe’ that the FED will do what they want and that is to cut rates…. – leaving the Dow, S&P and Nasdaq to end the day at another new closing 2023 high…..…As the 4 pm bell rang, the Dow was up 174 pts or 0.5%, the S&P up 21 pts or 0.5%, the Nasdaq gained 100 pts or 0.7%, the Russell lost 2 pts, the Transports added 20 pts and the SPW (equal weight) gained 11 pts.

Now- recall that this recent push higher (+15% for the S&P since October 30th) was because of the idea that at today’s FOMC press conference – JJ will lean ‘dovish’, that he was prepared to announce cuts as soon as March 2024 – that’s 3 months from now. (illogical).   And it is headlines like this – from Business Insider (which is supposed to make you think that they have ‘inside information’) that helps create it and feed the beast.

“The Federal Reserve Will Cut Interest Rates 6 Times in 2024 as the Economy Shows Clear Signs of Cooling Down – ING says”.

First thing:   ING is a Dutch financial services firm that is trying to create a buzz – I mean is anyone really paying attention to ING? When you want inside info – is ING your broker of choice? And then 6 times?  Really?  And where do they get that ‘insider info’?  From a survey  – and NOT a survey of FED members – it was a survey of economists and others – people that have no skin in the game….….Let’s be clear – No one at the Fed ever said such a thing, nor would they be that specific….but it is a headline that creates drama…Why?  Because the ‘smart logic algo’s’ that do nothing but scrape headlines – looking for that ‘edge’ react……When the headline sounds bullish – they create buy orders and spray the market and when the headline sounds bearish they create sell orders and spray the market… but it’s headlines like this that create FOMO (Fear of Missing Out) and by the way – it works in both directions…just go back to early October – do you remember all the negative headlines that sent stocks tumbling? Those headlines create a different Fear -The Fear of Being Left Behind Holding the Bag (FOBLBHTB).  Yeah, how’d that work out for you as a long-term investor that tries to pick tops and bottoms? Which is why I say –– you need to eliminate the noise (as a long-term investor) and focus on the goal.

Now- today at 8:30 we are going to get the latest PPI report and that is expected to also show an ongoing slowing of inflation (that’s good) but prices are still rising – that is the key takeaway….which then leads to the FOMC rate decision at 2 pm…..and by now – you should know that they are leaving rates on hold…not raising nor lowering….and as I have been saying – I expect that JJ will push back on the expectation of any rate cut in March….I mean – he – as FED chair – has made it very clear – you just need to listen to what he says…. “It’s too early to speculate on when the Central Bank will start reducing rates.”  Just to be clear – that is not unclear, is it? As my friend Lindasy Piegza – Chief Economist at Stifel Nicholas said – “The goal of the messaging will be:  We’re not going to prematurely ease. They have seen head fakes on inflation and while the FED has made progress, there’s more progress to be made.”  Bingo….so the dramatic headline put out by Business Insider is just that – dramatic! – But it’s all about the clickbait….and that’s another story.

Now the other dramatic data point today – will be all about the DOT plot….that’s when each member (anonymously) takes their pencil and makes a DOT on a piece of graph paper (very sophisticated) which reveals what they expect interest rates to be in 2024 and 2025…..They keep it anonymous – so that no one knows who thinks what….and so that that person can change his/her mind if the data changes without being branded a ‘flipper’.  Bloomberg is reporting that they expect the median projection to show two rate cuts in 2024 and then five more in 2025 – but they qualify that statement by attaching this comment – ‘but there will be a high degree of uncertainty’.  Which again suggests the plan…. it’s all very exciting…. (I’m kidding….) In the end, I think the FED will seize the day and emphasize the need for patience and higher for longer. 

US futures are marching higher again this morning…. Dow futures +40, S&P’s +4, Nasdaq +22 and the Russell is down 1 pt. The CME FedWatch Tool has cooled a bit – those March cuts that they have been screaming about are now expected to begin in May – see how that works?  Now look – remember – when 10 yr. yields shot up to 5% - everyone kept saying that the FED didn’t have to do anything because the bond market was doing the work – think – higher yields/slowing economy….and so now that yields have fallen you have to use the same logic….Declining rates IS easing…..it’s also stimulative – which is NOT what the FED needs right now, unemployment is still at historic lows at 3.7% (suggesting strength)….which is why cutting rates is illogical. But hey, that’s me, you do you.

Remember – the market is priced to perfection….as if nothing can go wrong….it is pricing in rate cuts, double digit EPS growth in 2024, no recession, soft landing – “Days of wine and roses….’  This a reference to a song released in 1961 and recorded by a dozen artists including Frankie, Tony, Shirley, and Perry (us baby boomers know who they are, the rest of you should google it) – and for you listening pleasure – here it is:

Oil – well that’s not all wine and roses (at least for the Saudi’s and OPEC+) It continues to get hammered, falling 4% yesterday…. US and other Non-OPEC producers flooding the market – as supply overwhelms demand – estimates now call for supply to be about 1 million bpd more than demand and as long as that’s the case – expect oil to remain under pressure….….and all the jawboning by the Saudi’s did little to assuage the markets….Now – just to be clear – in my opinion – it’s not that demand is slowing, its just that supply is growing faster….and today – OPEC issues its monthly snapshot – and many are expecting the cartel to suggest even more drastic pressure that they hope changes the narrative……Look – it has broken down significantly….we are now testing the lows of late spring/early summer - $65 is the number to watch….currently we are trading at $68.70 – a failure at $65 will ignite the algo’s and then a swift move to $60 would not be out of the question….$60 takes us back to the summer of 2021 – let’s just hope that Jo Jo gets MORE aggressive as prices fall and refills the SPR….

Gold which has come off of its recent rally – tested short term trendline support at $1991 and held…. Currently it is trading at $1997 – up $4.  This as the dollar index hovers around $104 up 13 cts.

The VIX continues to trade lower…. suggesting ongoing complacency…. again – the VIXY is a cheap insurance policy for those that think they want some.

European markets are marching in place…. trading very tightly around the unchanged line…. Germany announces their 2024 budget while the UK economy shrank by 0.3% in October vs. the estimate of flat.  Tomorrow we will hear from the BoE about their monetary policy decisions after we hear from JJ about the US policy decision.

The S&P closed at 4643 up 21 pts as we await today’s data……. All eyes will be focused on JJ and what he has to say as well as what the DOT plot has to say….Then expect all kinds of interpretations by the different talking heads about what he said vs. what he really meant…..things like – ‘I know he said rates are not going down, but that’s not really what he meant…’  It’s comical…. but it is what it is….

If you are invested – you’re good, if you have more money to put to work, be patient – don’t chase anything, let it come to you…. and if you are just starting out – understand you risk profile, know where you are in the life cycle…. Call me to discuss.  212-381-6194.

Candied pecans

Here is a quick and easy holiday recipe that I got from my friend Scott.  It works well as a gift - you know put them in a mason jar and put a bow on it!  Just like they do in those Lexus commercials.   Or just to have it on your table.

You can use them on a range of dishes, breakfast cereals, salads, desserts.

For this you need - 3 large egg whites, 1 cup white sugar, 1 tsp cinnamon, 4 cups pecan halves.  1/2 cup melted butter.

Lightly whip the egg whites, add sugar, cinnamon, pecans, and blend.  Pour the melted butter on the baking sheet, spread the pecan mix on top and spread out.  Bake for about 30 minutes turning every 10 minutes at 350 degrees.

Remove and let cool.