The music just doesn’t stop

The music just doesn’t stop. As earnings continue to “blow the roof off the house,” MS, the most recent bank to report, stunned everyone with a beats on both the top AND bottom, with contributions coming from all four verticals. Investment Banking, Trading, Wealth Management and Asset Management (add in lower taxes) and BANG, the market loved it. Investors/traders and algos took the stock up 6.5%, leaving a huge gap between Wednesday nights close at $52.94 and Thursday’s opening at $56.05. CEO Jimmy Gorman was smiling all the way to the bank!

Add in continued robust economic data and it’s a huge win for Philly. As the Philly Fed reported that business outlook came in at +17 when the expectation was for +3. Advanced Retail Sales Ex Autos at +0.7% vs. the expectation of +0.5% (showing you that the consumer is doing just fine), Initial Jobless Claims of 204k vs. the expected 218k and the list goes on and on. The US/China Phase One trade deal is signed, sealed and delivered. A US/Mexico/Canada trade deal is now on Donny’s desk. A US government that will begin issuing 20 year bonds that are expected to yield better than 2%. All to help fund the ballooning deficit. Surging technology shares that now saw Google become the fourth trillion-dollar company joining the ranks with Apple, Amazon, and Microsoft. All this and we have the Democrats focused on impeaching the President while investors don’t seem to care. By the end of the day, the Dow added 268 points (new record), the S&P blew through 3300 surging by 27 points ending the day at 3316 (new record), the Nasdaq added 98 points (new record) while the Russell tacked on 23 points, just 35 points shy of breaking its August 2018 high.

The gains in stocks was broad based, with all 11 sectors in the S&P rising, including Utilities which is usually a contra-play, as Technology led the way up (again). The XLK (Tech ETF) +1.3%, Financials (XLF) +0.88%, Industrials (XLI) +1%, Healthcare (XLV) up 9.5%, Consumer Staples (XLP) +0.32%, Consumer Discretionary (XLY) +0.89%, Communications (XLC) + 0.77%, Utilities(XLU) +0.6%, Basic Materials (XLB) +0.59%, Real Estate (RWX) +0.64% and Energy (XLE) +0.17%.

While many street analysts/strategists had been concerned about the ongoing trade war and what it would to do to the global economy, none of it came to fruition. None of it… The fears of a fallout over trade tariffs proved to be nothing but noise. Now that “Trade 1.0” is complete, the sense among the paparazzi is that GDP in 2020 will remain strong, business leaders will increase business investment, job growth will be robust, unemployment will remain at historic lows, inflation to remain under control and interest rates to remain “accommodative,” creating that trickle down wealth effect for the nation.

Issues that will potentially upend all of this: Well, China could reneg (unlikely), inflation could spike (more likely), causing the FED to raise interest rates, earnings could begin to disappoint causing surging valuations to adjust and the robust eco data we are seeing could begin to weaken… But until all of that happens, enjoy the ride.

Overnight, we got even more good news. China reported that its economy GREW at 6.1% for 2019, meeting expectations. This was happening all while we were arguing over trade and what it would do to their economy. While the markets continue to celebrate, you always have someone that throws water on the fire. Tom Rafferty, lead Economist for China at the Economist Intelligence Unit, had this to say:

“While businesses and investors can afford to breath a sign of relief, after a difficult 2019, we still see risks to the China outlook as mainly weighted to the downside, given the fragile nature of the trade truce and the risks that still stalk China’s financial markets.”

Dude! Really? A difficult 2019? What planet are you living on? Have you seen equity returns for 2019?  New highs around the world as investors went all in and RISKS to the trade truce? Fragile? Really, we went through 2019 with NO trade agreement and lots of yelling and screaming and still the markets marched higher. Last night China reports a GDP number that did not disappoint but rather suggests that they are stabilizing and you go and throw water on the fire? (Are you talking your book? Are you guys playing it from the short side?) Enjoy the moment, bask in the sunlight…

By the end of the day on Friday – Japan was +0.45%, Hong Kong +0.60%, China +0.14% and ASX +0.32%.

European stocks are off to the races as well, on the back of the China GDP story and the surging US markets. Today, the Eurozone is expected to report December inflation data and November output figures while the UK will report on retail sales. We are only 13 days away from BREXIT, and no one is really talking about it very much. The BREXIT bill has passed thru the House of Commons and is now in the House of Lords, where it is expected to pass leaving January 31st as D-Day. Trade talks between the UK and the EU will begin and they have until December 31st 2020 to agree and ratify OR they complete the exit without a deal. This is a story that is ripe for 2020, so more to come.

FTSE 0.40%, CAC 40 +0.60%, DAX +0.70%, EUROSTOXX +0.66%, SPAIN +1% AND ITALY +0.68%.

US futures are HIGHER in early morning trading: Dow up 76 points, S&P up 7 points, Nasdaq ahead by 25 points and the Russell up over 4 points. China is the “feel good” story of the night and day. Economic data today includes: US housing starts exp of +1.1% month/month, while Building Permits are expected to show a decline of 1.5% month/month (which doesn’t make sense to me), Industrial Production of -0.2% and Capacity Utilization of 77 while the JOLTS reports is expected to show some 7.25 million jobs available. So if you want a job, go out and get one.

Earnings will continue. Look for results from KSU, SLB, STT, FAST, & JBHT to name a few. (STT being the only banking name in the group).

The S&P did it and kissed and pierced 3300, ending the day solidly in the new century at 3316. The sky is the limit as we are now (and have been) in unchartered territory. You can only make assumptions now as to where resistance is and that will depend upon who is making the call. But on the downside, trendline SUPPORT (in the event of a down day) is at the 3250 level while the 50 dma is down is even lower at 3170. And while many people keep saying that “the market is due for a correction.” Remember, that is subjective. Don’t plan on anything other than sticking to your plan. You gotta be in it to win it.

Oil is now trading back at $58.64/barrel after the spike created two weeks ago when Iran began causing trouble, causing oil to trade as high as $67/barrel. In the past few days, it has come in, tested short term support at $58.90 and failed only to test intermediate support at $58.17. Where it has stabilized, and remains in the $58/$60 range. Unless Iran or someone else in the Middle-East causes trouble, then do not expect oil to do much other than remain right here.

Gold is another one. After spiking to $1615/oz in early January on the back of geo-political tensions. It has come back to find stability at $1554/oz, a level that represents the August 2019 highs. And here again, if the political tone remains a bit elevated, then expect gold to remain in the $1550/$1600 range. If we get a bit more easing of political tension, then look for gold to test trend line support at $1500.

Take good care.

Kp

garganelli

Garganelli w/Spinach, Sun Dried Tomatoes & Mascarpone Cheese

This is a simple 20 min recipe. It uses mascarpone cheese…. a soft creamy cheese used in many Italian deserts. But I have to tell you – it is very versatile and can be used in a number of ways in pasta dishes… and here is one for you…

You will need: Garganelli pasta, Mascarpone cheese (room temp), zest & juice of a Lemon, s&p, olive oil, minced garlic, diced onion, chopped sun-dried tomatoes, 1 bag baby spinach, toasted bread crumbs and of course fresh grated Parmegiana Cheese.

Begin by combining the zest, lemon juice, mascarpone, and s&p in a bowl, whisk to combine.

Bring a pot of salted water to boil – add pasta.

While this is happening (you have like 8 mins) heat the oil in a large skillet, add the garlic and diced onion and cook until softened. Turn off heat and set aside.

Cook the pasta until al dente, like 8 mins….do not let it get soft and mushy. Strain reserving a mugful of the pasta water.

Return the pasta to the skillet with the garlic and onion – and set over medium heat. Now add the mascarpone and lemon mixture, sun-dried tomatoes, and spinach. Add back about one quarter cup of the pasta water and toss together until the spinach has wilted and everything is piping hot, adding a little additional pasta water if needed.

Serve immediately in warmed bowls topping each bowl with grated cheese and some toasted breadcrumbs

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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