Moves will be exaggerated – Don’t stress

  • Stronger eco data cause the algo’s to go into sell mode.

  • Bearish comments from Davey Tepper only add to the angst.

  • Winter storm hits the nation…Oil trades higher.

  • Try the Cheesecake – It is so good.

I am taking a couple of days off next week – so expect the next letter on Friday morning….  Enjoy the long weekend with friends and family as we all celebrate the holiday season.  

Stocks fell under the weight of better eco data…..which is really funny, since the data reported yesterday was mixed at best – BUT in order to support the FED’s narrative of higher rates for longer – the conversation focused on the strong data…..3rd qtr. GDP was revised UP to 3.2% from 2.9%, Personal Consumption was also stronger at 2.3% vs. the expected 1.7% and Initial Jobless Claims rose less than the estimate underscoring the ongoing strength in the labor market.

And then don’t forget – there was the Micron Tech ‘issue’ – the weaker forecast, the semi- conductor chip ‘glut’, job cuts, less capital spending and cloudy skies at least until the second half of 2023….and that took MU down 3.4% to end the day at $49.44 and it took the semiconductor space – SOXX down 4% – fan favorite NVDA lost 7%….AMD – 5.6%, INTC -3.2% and QCOM gave up 3.4%.

And to add insult to injury – famed hedge fund manager – Davey Tepper told us that he is ‘leaning short’ on US equities in the new year – saying that global tightening will add to the ‘risk off’ sentiment.

On the other side – we had a weaker Kansas City Fed survey and a weaker leading economic indicator from the conference board.  But no one wanted to focus on that….it was about the negatives and so stocks collapsed as the algo’s kept sending wave after wave of sell orders – causing the buyers to step back and let prices fall….I mean why pay $40 when you can buy the same stock at $38 and in fact, because the price is cheaper – you can buy MORE stock – which also means that the sellers have to sell more stock as prices decline to raise the amount of money they need.  So you see, it’s all very orchestrated.

In the end – the fact that some of the recent data remains strong only complicates what the FED might do next… see – a strong economy will keep inflation high and that will force the FED to continue to raise rates…and now we are hearing more analysts suggest that a March pause is not ‘guaranteed’.  Priya Misra – Head of Global Rates at TD Ameritrade said it clearly enough on Bloomberg TV. 

“US inflation is going to be sticky on the way down because the labor market has remained resilient so far and that’s going to keep the FED firmly on its path of rate hikes.  So, we may actually see that the FED is going to be hiking all the way up until May – taking rates to 5.5% and then be very reluctant to ease policy”.

The Dow ended up closing lower by 350 pts  or 1%, after being down as much as 800 pts, the S&P lost 56 pts or 1.5%, the Nasdaq closed down 233 pts or 2.3%, the Russell lost 22 pts or 1.3% and the Transports gave up 143 pts or 1%.

It is also the end of the year and remember what I said last week – moves can be and will be exaggerated in either direction as so many portfolio managers, investors and traders are away for the holidays…..….and yesterday was just another example of that. 

Once again – Tech – XLK and Consumer Discretionary – XLY took it the hardest….falling 2.5% leaving both of those sectors down 28% and 37% respectively. Tech is now suffering its worst performance since the dot com crash of 1999/2000. Energy – XLE also got whacked – falling 2.6% as investors took money out of this very strong sector leaving it up 52% ytd.

Disruptive Tech – ARKK fell 3.4% leaving that group down 66% ytd….all while Cathie Woods keeps telling us ‘not to worry’ – at some point – when the FED stops hiking rates -her portfolio will surge higher…Yeah, thanks Cathie for that eye opening analysis…The whole market will surge higher once the FED stops hiking.

And while all of the 11 S&P sectors closed lower on the day – the contra trades did well…the DOG (short the Dow) + 0.7%, the SH (short the S&P) + 1.2% and the PSQ (short the Nasdaq) + 2.1%.  The fear trade – VIXY rose 5.3% as the fear index – VIX surged by 9.5% taking it right to trendline resistance at 24.05 before backing off a bit.

Treasury yields rose, Oil held steady and this morning is up $1.60 at $79/barrel as severe winter weather blows across the nation sending temperatures plunging while (heating) oil demand surges…..Gold has had trouble holding onto the trendline at $1812 and is trying to recover after yesterday’s action saw investors take $25 out of it….leaving it just south of $1800.  This morning – gold is up $10 at $1805/oz.

European markets are all higher today as the week ends.

This morning – we have US futures churning higher…..The Dow up 125 pts, the S&P up 16, the Nasdaq up 50 and the Russell adding 9 pts.  Eco data today includes the FED’s favorite inflation gauge – the PCE and that is expected to be slightly lower and that would be a positive…..(see futures)….and if it comes in even better than expected +0.1% m/m and +4.6% y/y then expect the algo’s to go into ‘buy’ mode and take stocks right back up.  Remember – moves will be exaggerated this week….so don’t go making investment decisions  based on this week or next.

The S&P closed the day at 3822….down 56 pts…..leaving us rangebound as we move into yearend….I still expect Santa to take us to S&P 4000 ish…by year end and then the fun starts again with the new year.

Remember – have a plan and stick to your goals, take advantage of DCA (Dollar Cost Averaging) in your long term account over time.

Creamy cheesecake

Here is another favorite, easy to make dessert for the holidays. This recipe once again reminds me of my grandmother – It will bring a smile to your face will quickly become a staple on your desert table along with the Italian pastries – cannoli’s, Profiteroles, sfogliatella, parigini, pasticiotto.

Preheat oven to 375 degrees.

Crust – 1 1/4 cup flour, 1 1/4 tsp of baking powder, 1/4 c 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 c sugar, 1 tblspn flour, 1 1/4 c 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 mins…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. 

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