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The S&P and Nasdaq do it again, managing to close at another record as the 4 pm bell rung at 11 Wall Street. The path of least resistance appears to continue to be UP. It is the usual suspects that continue to fuel the rally: easing trade and geo-political tensions, an accommodative FED (and other central banks), and an expectation that the start of earnings season will further reward investor’s appetites.  Word that the US is dropping any reference to China being a “currency manipulator,” just days ahead of the Phase One trade deal, only gave investors and algos more reason to hit the BUY button…

Comments by Stevey Mnuchin made this very clear that he wants to “play nice in the sandbox” and this does offer some other insight into how the US sweetened this deal to help get it done. You see, China resented the fact that the US had labeled it a “manipulator.” That sounds so negative, as anyone who is a manipulator knows how to twist words and play on emotions to manage a situation in a “sneaky” way. So it appears that Stevey and Bobby (Lighhizer) may have agreed to drop that moniker to help get this trade deal over the finish line.

“China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability.”

This statement comes at the same time of the treasury’s foreign exchange report, a report which identifies currency practices and macroeconomic policies of major US trading partners, of which China would be considered a major trading partner.

I guess we are going to find out what those enforceable commitments are in the days and months ahead. But in any event, that headline is seen and was seen as a positive. So it was just another reason to buy stocks. So by the end of the day, the Dow added 83 points, the S&P rose by 23 points, the Nasdaq surged by 95 points and the Russell gained 11 points.

I love when they say that “all of the issues that have concerned the market such as tensions between the US and China, and Iran is improving.” Really??? That’s so funny, because all of these “concerns” have done little to cause the market to go lower. Even the heightened tensions between the US and Iran in early January, a situation that gave everyone the opportunity to take money off the table, did very little to disrupt the surge higher. So while everyone wants to discuss the “concerns,” the market didn’t seem to care. It has rallied 33% in the last year alone and has rallied 22% since January 2018 when all of this “trade war” stuff began. Which only tells you that in the end, the geo-political “stuff” that creates so much noise does little to price stocks in the long run.

Stocks are much more sensitive to FED and other central bank policies, macro data points that reveal the health of the global economy, individual company reports that detail the health of a company, regulation. That has the ability to make or break a business plan with the stroke of a pen, tax structure along with improving technology that make all of these businesses “more efficient” to name just a few. All the talk of the how the trade war was going to bring down the global economy proved to be wrong… and the market told you that.

Now that being said, you also have to look at the fundamentals and realize that the pendulum can (and usually does) swing too far in either direction, which is what it feels like right now. Yes, while the macro data points suggest that the US and global economies are on solid footing, market action does feel a bit long in the tooth. It has gone up in a nearly straight line, which does not mean “sell everything.” No, not at all, all it means is that don’t be surprised to see the market consolidate and retreat a bit. Which would actually give everyone a pat on the back. Why? Because it would give the bears a chance to say “I told you so,” while it will give the bulls a chance to buy more stock at “sale prices” something long term investors love to do. So a pullback would be a “win/win” for everyone!

And while many of us have been saying that for a while now, what you realize is that it’s hard to beat the FED, the ECB (European Central Bank), BoE (Bank of England), BoJ (Bank of Japan) and even the PBoC (Peoples Bank of China) to name just a few. It’s hard to beat the central banks in general as they control interest rates and the cost of money around the world and right now. The cost of money is at historic lows, another topic that has gotten beaten to death.

As discussed in yesterday’s note, today marks the start of the “beauty pageant” look for JPM, C and WFC to walk the runway. Also expect to see that they “beat the numbers” and while you might find some parts of their businesses “under pressure.” In the end, they will have beaten the estimates. But that does not mean that they will continue to trade higher either (right now). Look, JPM is up 24% in the last quarter alone (and 40% in the last year)! All that in anticipation of better times ahead. C is up 24%, WFC is up 11% and the XLF (S&P financial ETF) is up 16% in the same time frame (27% in the last year). And that’s all good. But let’s be serious, at some point you have to take a breath. Will today be the start of that? These reports will also speak to the health of the consumer, a key part of the US economic story.

All of the indexes are well above their trend lines with excitement at year end pushing them all higher. History tells us that a return to the “trend line” is appropriate (at some point). My gut tells me that we are approaching that point. I suggested that the mo-mo guys want to see the S&P kiss 3300 before it stalls. We are just a hair shy of that. This morning we see that Hong Kong and China traded lower overnight while Japan and Australia continued to advance. No news, just a reduction of tensions and a sigh of relief.

In Europe this morning, we are seeing weakness across the board, again just a bit of weakness. All this as Chinese trade negotiator Liu He touched down in DC. There is no major economic data today in Europe so investors there are preparing for the “beauty pageant” that begins today along with any updates to the Phase One trade deal.

US futures are also suggesting that stocks take a breather, as the day awakens. Investors and algos await the release of the bank earnings which started today at 7 am. The S&P closed at 3288 last night, just 12 points shy of 3300. While Dow futures were down triple digits earlier this morning, at 5 am, Dow futures are now +21, S&Ps are up 2, Nasdaq is + 2 and the Russell is down 2. The market is on edge. Should it go up again today or will it consolidate (notice I didn’t say collapse)? My gut tells me that after the S&P hits 3300, resistance sets in and then any consolidation will take it right back to the lows tested last week 3200 level.

If earnings prove to be more negative then what we expect, then that move will be swift and again. The range in earnings growth year/year is from -1.6% to +3.2%, big enough to drive a Mack truck through. So let’s see what happens next. If earnings and guidance continue to be positive, then look for the S&P to try and continue to move higher, as yields remain low and money continues to be pushed into stocks. If strategists are calling for a return to normal returns in 2020 for stocks, then that means 10-12% all in (year-end target of around 3600). As of last night, the Nasdaq is already up 4% in the last two weeks, the Dow and S&P are up 1.2% and 1.8% respectively and the Russell is flat. That just might be the “canary in the coal mine.”

Economic data in the US today includes – CPI (Consumer Price Index) and the expectation is for +0.3% and ex food and energy of +0.2%. Do not expect this data point to drive the action today (unless it is so far off the mark), as the focus is on earnings.

DAL (Delta) is also due to report today. So let’s see what it has to say. Not sure about you, but if you’ve flown lately, you will not see one seat available on any of the major routes. They’ve managed to “fee you to death” (FYTD) in order to improve the bottom line. That is true for all of the majors. Last week I booked a ticket to DC (on another major carrier). After I paid for it, I was told now I have to “buy a seat” otherwise I can choose to sit in the third class section (it doesn’t identify it that way, but that is what it is!) that has zero leg room and doesn’t allow more than one bag on board (which has to go under the seat in front of you and not overhead). For that privilege I was charged another $90. So the $280 round trip fare became $411 after “fees and taxes.” By the way, the “extra legroom” was about three inches. But if you wanted a first class ticket that would cost you $1600 before any fee or tax. By the way, no seats there either…

So when they tell you that the economy is in decline or that a recession is coming, it’s all BS! Have you been to the mall lately? That’s another scene…

I am on my way to NY (JBLU #644) and will be on CNBC Power Lunch today with Tyler Matheson at 2 pm. Be sure to tune in…

Take good care.  


Scrambled Eggs

You got it – with all of the scrambled geo-political news, coming earnings and macro data, make it easy on yourself. Crack open some eggs… scramble with a fork, add in some half and half, s&p & grated parmegiana or any cheese of your choice (optional). Take out the frying pan, melt some butter, make the coffee and cook them up…

The trick here is to heat the pan and then turn the temp to med low before you add the eggs – remain at the stove and move them around so that they cook evenly… this way the eggs cook and remain that vibrant yellow – without scorching them and making them yellow and brown… always pleasing on the eye… and as you know – it’s as much about the presentation as it is about the taste. If your eyes like it then chances are your tongue will too!

Buon Appetito