Markets Ignored the DC Drama

So with all the pomp and circumstance of the House Impeachment on Wednesday evening, the market and investors (around the world) could care less. The reaction that Nancy Pelosi had hoped for, never happened and in fact, investors met her head on and took the market higher in celebration of what they view as continuing progress on trade and better economic data in the days ahead. And while yesterday’s data was a bit weaker, let’s not get crazy. It’s Dec. 20 and the market is not looking at yesterday’s data to price stocks going forward. Remember, the market is a discounting mechanism. It had already discounted yesterday’s data and is pricing itself on what the first and second quarters of 2020 will look like. Apparently they aren’t worried. By the end of the day, the Dow added 137 points or 0.49%, the S&P’s moved ahead by 14 points or 0.45%, the Nasdaq surged by 59 points or 0.67%, and the Russell gained 5 points or 0.32%.

Investors/traders and algos took all three indexes to new highs, yet again, helping to re-ignite the year-end rally. Technology (XLK), Consumer Staples (XLP), Communications (XLC), Healthcare (XLV) are all moving higher. Solid earnings from Conagra Brands (CAG) caused that stock to surge $4.60 or 15.8%, think consumer staples. Micron Technology (MU), think technology, chimed in with better earnings saying that they had “hit the bottom of a rough period” and that was enough to send both of those sectors higher. The rest of the market joined in as the expectation of the continuation of a strong economy is alive and well.

And like I pointed out yesterday, while the implications of the impeachment may have been a “somber day” in this country, and while analysts and strategists are “monitoring” the developments, unless something significantly changes, or unless it becomes clear that the Senate will turn on him, then this whole exercise is about the drama. It is about the Democrats trying to set it up ahead of the election cycle.

Remember, political events have the tendency to create short term moves, some good and some bad. They do not, in the end, price stocks at all. If anyone is making a purchase or sale decision based on Wednesday’s House impeachment, then they should re-think that decision. In fact, we learned late last night that Nancy (Pelosi) is delaying sending the articles of impeachment to the Senate, because she wants to create more drama. She said she is seeking “clarity on the rules” for a trial. WAIT, she launches an impeachment proceeding, she gets what she wants and NOW she is seeking “clarity” on the rules? Is it me? This move is sure to push any trial well into 2020 which coincidentally, will collide with the whole primary season and rise of the Democratic candidate. It’s noise and it’s deliberate and it is why they say politics is a “dirty game” and it is why so many Americans are disgusted with DC and have renewed calls for term limits. But that is another story…

Last night’s Democratic debate did have one of the greatest lines in it. Lizzy Warren, when asked to respond to criticism from economists who say her tax plans would “stifle growth and investment” had this to say:

“Oh – they’re just wrong.” Which prompted cheers from the crowd. Which has to cause you to not only worry but to ask: “What is going on?” What were the demographics of the audience? They’re wrong? Is THAT the answer? Where is the data to back it up, where are the projections that support her stance? The economists that are criticizing it, have produced the data to detail the mistaken assumptions that her campaign economists are making. Yet all she has to say is: “Oh, they’re wrong.” I guess what we have to consider is this: when (not if) her assumptions prove to be wrong, then she’ll have to come up with other taxes to make it right. What will those be? Who will then pay the price? Get ready for that answer, because it’s not going to be the answer you think…

Mark Zandi, Chief Economist at Moody’s, who has vouched for Lizzy’s health care plan, has expressed skepticism over her other plans. He has clearly stated that her wealth tax, a KEY part of her plan to solve everything, will NOT produce the revenue she expects. But does say that she would be able to find the revenue necessary to cover the cost of reform through “OTHER TAXES” on corporations and employers (and ultimately on the country).

The other thing that is happening now is that they are starting to slice each other up as they each try to rise to the top. Warren once again bitching and complaining that Petey is courting the wealthy. Hmmmm, the wealthy in this country, the last time I checked, have a right to vote and they have a right to their opinion just as much as the rest of the country. Her continued vilification of success will prove to be her undoing and her supporters should recognize that success helps to breed success.

OK, over in Asia, markets ended the week relatively unscathed. The PBoC (People’s Bank of China) left its prime rate unchanged as expected. In Japan, consumer inflation rose by 0.5% well below the 2% target. Autos in Japan took a hit on the back of the USMCA trade deal as the new deal requires that 75% of auto parts come from North America vs. the prior 62.5%.

In Europe, UK GDP third quarter GDP grew by 0.4% quarter/quarter and 1.1% year/year. An ugly BREXIT is due to hit the tape by Jan. 31 and a trade agreement with the EU has been extended through December 2020. In Germany, the DIW Economic Institute reported that the German economy most likely contracted by 0.1% in the fourth quarter. Oh well, none of this is causing market to sell off. Again this morning, European markets are higher.

FTSE + 0.05%, CAC 40 +0.51%, DAX +0.60%, EUROSTOXX +0.68%, SPAIN +0.17%, and ITALY +0.96%.

US futures are up. Dow futures +21 points, S&P’s +2 points, Nasdaq +4 points, and Russell +2 points.

Economic data today includes: third quarter final revision GDP – exp of +2.1%, Personal Income +0.3%, Personal Spending +0.4% and Personal Consumption of 2.9%.

The S&P succeeded in piercing and closing above 3200, the fourth new century mark this year. We keep talking about this. We are in unchartered territory and must use trend lines and economic data to draw conclusions. The trend line suggests that we are at the top for now, but the economic data suggests that we’ve got room to grow. It is also year-end and Santa is alive and well. Sit back and enjoy the ride. The tone could change in the new year as some investors wait to sell pieces of their winners this year recognizing any gains in 2020, pushing any taxes owed on those gains into April 2021. Either way, the broader tone continues to be solid. 2020 projections call for another good year for global companies and global markets…

Take good care. Have a great weekend.

Kp


cheesecake

Nana’s Cheesecake 

Nana’s Cheesecake – another holiday favorite… this is a desert you must have… Simple to make, creamy and delicious. This recipe will bring a smile to your face will quickly become a staple on your desert table along with the Italian pastries: cannolis, Profiteroles, sfogliatella, parigini, pasticiotto…

Preheat oven to 375 degrees.

Crust –
1 1/4 cup flour, 1 1/4 tsp of baking powder, 1/4 cup sugar, 1 stick of melted butter, 1 beaten egg, 1 tsp vanilla.

Put all ingredients into a deep-dish pie plate and mix directly with a fork. Once formed – using the back of a tablespoon – gently spread it out into the plate and up the edges.

Filling:

16 oz of cream cheese, 2 beaten eggs, 1 cup sugar, 1 tbsp. flour, 1 1/4 cup whole milk, 1 tsp vanilla

Combine all ingredients into a blender and mix well. Now pour the mixture directly into the crust – sprinkle with cinnamon and place in the middle rack in oven. Bake for 35 minutes… Remove – it will appear shaky…no need to worry… as it cools it becomes solid and creamy. Refrigerate and when ready serve just plain or with any fruit topping you like.

Buon Appetito.

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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