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Stocks managed to hold onto the recent gains (barely, but they did), closing higher for the fifth consecutive session. Strength in retailers (Consumer Discretionary (XLY)) continues as the holiday shopping season approaches the end. Banks (XLF), Tech (XLK), Communications (XLC), and even Utilities (XLU) were not far behind. Selling was seen in energy, consumer staples, and healthcare.

The story remains the same: TRADE. But let’s not overthink this. We still do not know many of the details and the deal still hasn’t been signed, and is not expected to be signed until sometime in January.  Any talk of a delay in that signing will certainly cause the optimism to fade which would cause a reassessment of valuations. That will cause investors to hit the sell button, and while that might be true, let’s be honest, the global economy is not falling apart at the seams. US macro data remains robust and (if we believe it) the Chinese economy is holding its own. Eurozone data remains a bit weaker, but none of those countries are imploding and the trade war is now almost 24 months old! So while any delay may cause some selling pressure, I wouldn’t expect the bottom to fall out just yet.  

At 4 pm, the dust settled and the Dow added 32 points, the S&P eked out a 1-point gain, Nasdaq rose 9 points and the Russell added 7 points. As of today those same indexes are up 21%, 27%, 33%, and 23% respectively. While most analysts expect the markets to maintain these gains thru the end of the year, January may tell a bit of a different story, if nothing happens.  

The early action for 2020 is clearly going to be dependent on how Phase One and then Phase Two shake out and how the presidential election cycle appears to be unfolding. The race begins in earnest as Iowans go to the polls on Feb. 3, which then brings us to Super Tuesday one month later on Mar. 3. At this point, the field will get cut and the top three or four candidates will emerge, which will then begin to outline what the platform is really going to look like. That will then cause the markets to pay more attention to what sectors look to benefit and what sectors look to come under fire. It is already clear: healthcare, pharmaceuticals, banks, and tech are clear targets for the Democrats, higher taxes not far behind. It’s just who is gonna get hit and to what extent.  

On Monday we learned that Amazon has cut FEDEX out of the process, FEDEX responded by saying it was not big deal, and the stock lost a couple of points and then yesterday after the bell. FEDEX cut their 2019 estimates, for the fourth time, blaming a changing environment. Less being shipped around the world and more of the domestic stuff being delivered by other methods: Amazon Prime and other Amazon delivery systems. Expenses have been higher than normal and they are in the middle of a core shift in the business. Freddy Smith, FDX CEO, said:

“We continue to be in a period of challenges and changes” citing “a significant bow wave of expenses to handle volumes that will largely fall in the next quarter.”

The stock which closed at $163 on the NYSE got slammed in the after-hours session falling 7.5% or $12, breaking through two more trend line supports at $156.80 and $156.07 to end that session at $151.  Expect more pressure again today in the regular session as more investors participate in the move.  Depending on how the story is told, it will dictate the extent of the next move. Do not be surprised to see it test the October lows of $139/share before the dust settles.  

And the BA news about the decision to stop producing the 737 MAX is hitting more than just BA. As noted, many of the 600 + suppliers are going to feel the pain as well and GE is the latest big name to get drawn in. GE and French partner Safran SA make the engines that power the plane. So this halt is expected to amplify GE’s current cash flow losses. While we all knew that when BA cut monthly production from 52 to 42 planes, GE took a $400 million quarterly hit. The latest news that BA is cutting production to zero suggests that they will need to re-evaluate what that means to quarterly cash flow.  (Think even bigger losses)

And it is impeachment day on the Hill. The democrats in Congress are expected to hold a vote and the result will fall along party lines with no republicans supporting the move while all democrats are expected to support the move. And then it moves onto the Senate for the next test. And since the Senate is controlled by the Republicans, everyone expects it to die a natural death, but not before creating even more DRAMA.

Overnight there was nothing to really change the tone of the conversation so markets are just churning in place. US futures are moving in step with the other developed markets. Dow futures are up 14, S&Ps are flat, Nasdaq is up 3, and the Russell is up 1 point. Economic data today includes: Mortgage Apps – 5%. But no surprise, it is December. Do not read too much into it.  

Tomorrow’s data includes Philly Fed – exp of 8, Init Jobless Claims of 225k, Init jobless claims of 1.676 and existing home sales – expected to drop by 0.4%. Central bank news from the BoE and the BoJ is expected tomorrow, with no change expected. Chicago Fed Pres Charlie Evans is due to speak at 12:40 pm.    

The S&P closed at 3192 and will most likely try to pierce 3200 in the days ahead. If nothing changes, I think it fails. Barring any negative news, the range appears to be 3140/3200….

Oil holding its own at $60.50. Thanks to the trade deal and OPEC production cuts.

Gold continues to hover at $1480/ounce, just below resistance at $1487. Unless there is some fallout over trade, I suspect that gold will stay put. If the deal is what they say it is, then watch as gold backs off to test $1450/ounce.

Take good care


Butterscotch Clusters

Here is a personal favorite of mine – they are Butterscotch/Peanut clusters (all in 10 minutes) and are a Christmas favorite… My grandmother used to make these every year and every time I eat them, it brings me back to an earlier time… It is a tradition that I do with my girls – and it always brings them back to an earlier time.

For this you need – Nestle Butterscotch morsels, salted peanuts, and Chinese noodles… (you know the crunchy ones).

Begin by setting up a double boiler – when ready add in the butterscotch morsels… stir until melted… now add in the noodles and the peanuts… stir to coat really well. When ready, remove from the heat and with a tablespoon – take scoops of the mix and plop them onto wax paper… They will harden into clusters in about 10 minutes…

Buon Appetito