Good morning and Happy New Year! Stocks managed to end the day and the year higher. As the final bell of 2019 rang, the indexes ended the day up, with the Dow adding 76 points, the S&P tacking on 9 points, the Nasdaq up 26 and the Russell up 4 points. And the year? Outstanding, the Dow +23%, the S&P surged by 30%, the Nasdaq rose by 37% and the Russell was up 24%. But this is old news now, it is a new year and a new decade. The board is wiped clean and we start from zero yet again. Life is not only more efficient, it is more complicated than ever and don’t expect that to change.
Issues that concerned the markets in the last decade will continue to be the topic du jour in this new decade. Technology is once again sure to be a winner, as the world turns and continues to be disrupted. Online privacy issues will surely take on a new level of importance as California is the first state in the union to impose a new law, not perfect, but attempting to tackle some of the issues. Take note, the CCPA (California Consumer Privacy Act) went into force on Jan. 1. It will affect businesses around the globe and require that those businesses provide California residents with detailed privacy notices when collecting personal data, how they will use it, and who they will share it with.
Companies that have been collecting our data for years now and selling it to various “buyers” and making millions on our backs. They are now being corralled in (a bit). Or that is the intention. Let’s just wait and see how this plays out, but do not disregard this. Privacy and controlling your “data” is important and will take on an even more important role in the decade ahead. Look, everyone is collecting our data and selling it for their benefit, NOT yours. And this should change, how fast? Not sure but the ball has begun rolling.
Trade issues, now in its third year are front and center. Expectations for the signing of the Phase One trade deal are building and news out of the WH tells us that a “signing ceremony” is due to happen on Jan. 15. Who will be there is still unclear. The announcement makes it vague by saying “High Level” Chinese Officials. Hmmmmm – sounds like Xi Xi is sitting this one out, because if he wasn’t why wouldn’t you take complete advantage of this “historic” moment? Just food for thought. I guess it could all change in the next 12 days or so let’s just see what happens. After that, Trump informed us that he will travel to Beijing to begin the start of Phase Two negotiations, although he did not indicate any formal date. So continue to expect more trade talk to drive the conversation in the months ahead.
Geo-Political tensions over the holiday. North Korea’s Chubby (Kim Jung Un) announced that he was no longer bound by any agreement to halt missile tests. The US embassy in Iraq was under attack and while that situation has now come under control, it just raises the temperature around the world. Do not expect any of this to go away anytime soon.
US Politics! Oh boy, it is an election year (and a leap year, February has 29 days this year). Caucuses and primaries are about to begin. By super Tuesday, Mar. 3, we should have more clarity on who is really rising to the top and then what sectors of the economy will be most impacted by the coming platform.
Did you see the CNBC article yesterday? Mayor Petey is on a tear raising $24.7 million in the fourth quarter of this year bringing his total take to $76 million so far. Donors include the “average Joe” as well as some big money donors. Bernie raised $34 mil in the quarter but was a bit more vague on who is contributing. The story tells us that Bernie donors are most often listed as “teachers” as well as employees of AMZN, SBUX, & WMT, three companies that Bernie has targeted as taking advantage of their employees. We have not heard from Lizzy or Joey yet, and wait anxiously to see how they have fared. Lizzy is furious at any of the candidates that take money from the “big guys.” So let’s see what she has to say when (if) she reveals what her take was in the fourth quarter and who contributed.
(On a side note the Trump campaign raised $46 million in the quarter)
The FED – Do not expect much from the central bank this year. Rates remain at historic lows, inflation remains subdued, GDP is running at a healthy 2%+ rate, unemployment is at historic lows, wage growth is healthy, and improving and talk of Recession is nothing but a distant memory. The idea that 2020 would see at least one more rate cut are now fading, while talk of rate hikes remain “off limits.” It is an election year so the FED has to be careful, otherwise they will be accused of “throwing the election.” So unless the US economy begins to stall (possible but unlikely), or begins to overheat (possible and more likely) don’t expect Jay Powell to do much. He has made it clear that we are in a good place and that the FED is comfortable. Individual members will continue to voice their opinions with some more hawkish while others remain dovish and that will contribute to the expected volatility as we move through the year.
Treasuries are expected to remain in line the 10 year is not expected to go much beyond 2.15% unless the treasury market begins to price in rate hikes, which as noted is unlikely.
Analysts and strategists are already calling for another good year, but define good. Does that mean another 25%+ rally? Probably not, but it does mean a return to normal and that should be in the 6% – 8% range and when you add in dividends. Total return would be in the 10% – 12% range which would take the S&P to 3550 – 3620. But so much will depend on the pace of earnings growth and the global economic outlook. Currently the market is trading at 21.6 times earnings. If you use that same metric against expected 2020 earnings ($174.32), you get an S&P of 3765, or a 16% rise from current levels. We’ve got 12 months to figure it out. Today is day one.
And markets around the world are higher and US futures are pointing to another strong opening. In Asia, Japan was closed, but in China, the Markit/Caixin Purchasing Managers Index came in at 51.5 vs. 51.8 in November. Either way, anything plus 50 is considered expansionary, and that is bullish. In addition, the PBoC (Peoples Bank of China) announced that they are cutting the reserve requirement ratio by 50 bps on Jan. 6. This caused the markets to surge.
Hong Kong +1.26%, China +1.36%, and ASX +0.10%.
In Europe, markets are beginning the new year in the plus category as the good news out of Asia along with the expected signing of the Phase One trade deal fuel the fire. Manufacturing PMIs for the Eurozone, Italy, France, Germany and the UK are all due out later this morning. Expectations are positive.
In late morning trading we see the FTSE +0.93%, CAC 40 +1.13%, DAX +0.76%, EUROSTOXX + 1.08%, SPAIN 1.34%, and ITAY +1.25%.
US Futures are also up, with the Dow continuing the surge higher +147 points the S&P is +17 points, the Nasdaq +58 points and the Russell is ahead by 11 points as the party rages on. Look, it is the first trading day of the year and it is still basically a vacation week. Volumes will remain low as so many asset managers, portfolio managers, etc are still away. You have to wait until Monday to get a better feel. The quarterly “beauty pageant” is about to begin. Jan. 14 is the official launch date when we will hear from the first DOW name: JPM. Then the next three and a half weeks will be full of data and commentary from nearly every listed company around the world. Once again, earnings this month are history. They are fourth quarter 2019 numbers, and there aren’t expected to be any surprises so look for the guidance to be the key. Watch for comments on trade, politics, taxes, and the global economy to drive the conversation. And I say politics, because the Democratic platform will define sectors to watch and identify what sectors are vulnerable to being broken up, which will create opportunity.
Economic data today includes Markit Manufacturing PMI – exp of 52.5 vs last month’s 52.5 – so all good.
Oil is holding its own at $61/barrel, improving trade we are being told is the driver. Tensions in the Middle-East are also contributing to the move but analysts are quick to say that they see no threat to Iraqi supply issues other than the already planned OPEC production cut agreements. But, increased tensions in the region will always create uncertain geo-political risk. We are now well above all trend line resistance points and target the April 2019 highs of $64/barrel as the next stop. Support appears to be at the $60 level.
Take good care.
Happy New Year – may all of your dreams come true – and may you and your family be blessed with good health and prosperity.
Grilled Pork Chops w/Sweet Vinegar Peppers
This is an easy dish and not one that you might think of readily…but make it easy on yourself… for this you will need only 4 things really. You need center cut bone-in thick pork chops, olive oil, sweet vinegar peppers (you can use hot if you prefer), s&p, and chopped scallions.
Preheat the grill.
Rub the chops with olive oil, salt and pepper – Place chops on grill and sear for about 3 mins then turn over and continue cooking for another 4 or so mins on reduced heat. Do not burn them.
While the chops are cooking – open the jar of sweet vinegar peppers, slice in half and sauté quickly with some of the juice in a sauté pan – really just to warm them up – you are not “cooking them.”
Now remove the chops from the grill – place on a warmed plate. Top with the sweet vinegar peppers. Serve a large salad – maybe mixed – romaine, some spinach, Boston bib, sliced red onions, and tomatoes. Dress with a simple balsamic vinaigrette.