Higher For Longer Is Not Off The Table

Tech (QQQ) earnings turned out to produce some positive performances.

Dominant companies can produce dominant earnings even in troubled times.

So what is the problem?

The sales outlook underwhelmed as the American consumer and business keep getting stretched to the limit.

I believe that traders shouldn’t expect a quick turnaround of sales projections for 2024 unless there are some material structural improvements in the business and consumer environment.

No savior is coming for 2024.

All signs point to more uncertainty and not less and rightly so as high inflation has only been replaced by a decrease in the rate of inflation.

Things are still expensive and that means less opportunity for tech to build a growth story.

Apple, Alphabet, Meta, and Tesla all gave investors reason to rub smiles off faces.

From Apple’s unimpressive holiday outlook to Alphabet’s tepid cloud computing sales results, a recurring theme for the group was weakness.

Meta warned that the year ahead is looking less predictable, while Tesla raised concerns that demand for electric cars is starting to weaken.

Despite Tesla's missing earnings, the group is poised to surpass the 36% increase estimates called for before earnings season began.

The tech sector in the S&P 500 still carries a nearly 36% premium to the index on a forward price-to-earnings basis, per data compiled by Bloomberg Intelligence.

There’s a lot of AI hype, but not every company is market-ready.

Everything can change in a heartbeat if there is economic or geopolitical upheaval, which would directly impact stocks.

The market is still pricing in no spreading of military activity as it looks through it as a self-contained area.

Therefore, the pendulum has swung the completely opposite direction as the U.S. 10-year treasury yield has dropped from 5% to 4.6%.

The strength in treasuries could be short-lived, because several have told me that traders are jumping back into the short-term trade which would signal higher for longer.

The Fed Futures show that the first 25 basis rate is forecasted for May 2024 with 2 more consecutive .25% rate cuts following the first.

The American consumer just might have enough juice for one more splurge that would then push back rate cuts from May to somewhere closer to July or August.

Therefore, it’s easy for me to see how this 6.5% surge has a little longer follow through only to soon clash with a “higher for longer” narrative.

The true tailwind for tech stocks here is that much of the bad news has been priced in and any violent surge in treasury yields seems like a low probability for the last 7 weeks of the year, unless another global conflict breaks out.

Seasonal buying could mean that November is more positive than negative for tech stocks and any big draw down should be bought in a quality tech name. December could be a harder slog for tech.