Stocks Continue to Surge…

Stocks continue to surge, as if there will “never be a down day” again. News that China is cutting tariffs caught everyone a bit off guard, leaving more room for the algos to take the market higher. Now, is it me or does it appear to be a coincidence that China announced the cuts on the day after Trump was acquitted of any wrongdoing, suggesting that just maybe Xi Xi is thinking: “hmmmm, there’s a shot this guy gets re-elected and I don’t want to drag this out. So better to honor the commitment and announce the cuts sooner rather than later.” It just feels a bit coincidental. I mean, he could have announced those cuts last week, or the week before, or he could have announced those cuts when they signed the deal. Is there a reason he waited until after the verdict? I’m just sayin’.

Economic data continues to impress and earnings data does as well and all that plus continued low rates are all helping to fuel the rally. Remember, next week Fed Chair Jay Powell makes his bi-annual presentation to congress, known as the Humphrey Hawkins testimony. It is a two-day event that takes place on “the hill” and addresses the future outlook for the US economy and that means that we will get both congressman and senators to ask questions of the Fed Chair that will include his forecast for a range of things but clearly will include his insight into where he thinks interest rates are going.

Hike or Cut?

The market not only believes that rates are NOT going up, but it believes (and is pricing in according to the latest data) two more CUTS in 2020 (making sense of the recent surge). But, I do not believe it. My gut tells me that the FED doesn’t want to do anything this year for fear of being seen as partisan. But we’ve seen this. We’ve seen what happens when the market “expects” a rate cut and then doesn’t get it. The algos and trader types throw a hissy fit and stamp their feet, which usually means the market sells off. Then we hear all about how the FED is out of touch with reality, how Powell doesn’t “get it,” etc. Either way, that event happens next Tuesday/Wednesday and you can bet that investors/traders and algos will be paying attention.

Overnight, we saw Asian markets sell off a bit after the three-day rally it experienced after the beating it took on Monday. That does make some sense. News that the coronavirus continues to spread, the death of the doctor that attempted to warn the nation, and the coming weekend all causing some profit taking. Chinese January trade data, that was supposed to be released on Friday morning, has been postponed and will be combined with the February trade data (and some took this as a negative). S&P revised Chinese GDP for 2020, cutting the estimate from 5.7% to 5%, citing the impact of the coronavirus as the reason. Again, this isn’t really a surprise because it has been the talk for two weeks. Next up, expect the IMF to follow suit and cut the global GDP growth rate as a result of the virus. Now that may not come for a couple of more weeks as we all see how this plays out, but the expectation is that it will come. By the end of the day we saw:

Japan -0.19%, Hong Kong -0.33%, China flat and ASX -0.30%.

European markets are lower as well, not dramatically, but just off the highs. Again this makes sense after the surge this week. Part of it is profit taking ahead of the weekend, part of it is continued angst over the virus, part of it is a reaction to the China downgrade by S&P, and part of it is concern over the latest EU macro data. German industrial production (November) plummeting by 3.5% versus the expected 0.1%, while French industrial production also fell more than expected coming in at -2.8% vs. the expectation of -0.4%.

At 5:30 am, we see FTSE -0.60%, CAC 40 -0.23%, DAX -0.46%, EUROSTOXX -0.29%, SPAIN -0.39% and ITALY -0.20%.

US futures are also following suit, suggesting a lower opening ahead of today’s NFP (Non-Farm Payroll) report. In early trading, Dow futures are off 120 pts, S&Ps down 14 pts, the Nasdaq -47 pts and the Russell losing 8 pts. (Again the weakness can be attributed to all of the headlines noted above). Remember, US markets have surged incredibly this week, regaining all losses suffered last Friday and then some. But it is the weekend and a lot can happen, profit taking today should not be seen as anything super negative. It is just traders settling the score ahead of the weekend. NFPs are expected to show +150k new jobs created but after Wednesday’s ADP surprise. Many now expect today’s number to be north of 200k new jobs. Either way, anything above today’s estimate would be considered a big win. But, too strong of a number MIGHT cause some to start talking about a rate HIKE. But, let’s just wait and see.

The S&P is at new HIGHS, closing at 3345. Any weakness today could see this index back off just a bit. Actually, you want it to. This untethered surge is a bit overdone, but a trend line drawn from July 2019 highs does suggest we won’t hit resistance until 3390-ish. But, today at least it feels a bit tired.

Oil, which is in the $50/$55 range, initially surged overnight as Russia has agreed with OPEC to cut production by an additional 600k barrels a day, but is now lower as the concerns over slowing Chinese demand steals the headlines.

On a side note, a Royal Caribbean cruise ship is about to dock a boat in NJ. There are sick passengers on board who have been isolated. Expect them to be tested for the coronavirus.

Take good care.

Have a great weekend.

Kp


buccatini

Buccatini in a Sweet Orange Pepper Sauce

1 lb. of Buccatini, Vibrant Orange bell peppers – washed and sliced thin, diced onion, garlic, olive oil, s&p, fresh basil, hot red pepper (optional) and plenty of Pecorino Romano Cheese.

This is simple

Bring a pot of salted water to a rolling boil.

In a large sauté pan – heat up the olive oil, sauté the sliced garlic, now add in the diced onions and sauté until translucent. Now add in the thinly sliced orange peppers and sauté until soft. Season with s&p.  When done – run 3/4 of it thru the food processor to blend. Return to sauté pan and set aside.

Cook the pasta al dente – maybe 8 mins… strain and reserve a mugful of water. Toss the pasta into the sauté pan and turn heat to med – mix well – adding in half of the reserved mug of water.

Now add the fresh basil – some hot red pepper (opt) and plenty of cheese. Toss and serve.

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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