(WILL TRUMP’S POLICIES BE THE BEGINNING OF REAL MARKET ANGST OR WILL THE AI ENVIRONMENT DETERIORATE? – OR WILL IT BE BOTH?)

February 3, 2025

Hello everyone

WEEK AHEAD CALENDAR

MONDAY FEB. 3

5:00 a.m. Euro Area Inflation Rate

Previous: 2.4%

Forecast: 2.5%

9:45 a.m. S&P PMI Manufacturing final (January)

10:00 a.m. Construction Spending (December)

10:00 a.m. ISM Manufacturing (January)

Earnings: Tyson Foods, Palantir Technologies, NXP Semiconductors NV, Clorox.

TUESDAY FEB. 4

10:00 a.m. Durable Orders (December)

10:00 a.m. Factory Orders (December)

10:00 a.m. U.S. Job Openings

Previous: 8.1M

Forecast: 7.8M

Earnings: Apollo Global Management, KKR & Co, PayPal, PepsiCo, Merck & Co, Regeneron Pharmaceuticals, Marathon Petroleum, The Estee Lauder Companies, Pfizer, Advanced Micro Devices, Alphabet, Match Group, Prudential Financial, Simon Property Group, Electronic Arts, Enphase Energy, Mondelez

WEDNESDAY FEB. 5

8:30 a.m. Trade Balance (December)

9:45 a.m. PMI Composite final (January)

9:45 a.m. S&P PMI Services final (January)

10:00 a.m. U.S. Services PMI (January)

Previous: 54.1

Forecast: 54.3

Earnings:  Walt Disney Co., Emerson Electric, Stanley Black & Decker, Boston Scientific, Uber Technologies, Yum! Brands, T. Row Price Group, MetLife, Align Technology, Qualcomm, Ford Motor, Allstate, O’Reilly Automotive.

THURSDAY FEB. 6

7:00 a.m. UK Rate Decision

Previous: 4.75%

Forecast: 4.50%

8:30 a.m. Continuing Jobless Claims (01/25)

8:30 a.m. Initial Claims (02/01)

8:30 a.m. Unit Labor Costs preliminary (Q4)

8:30 a.m. Productivity preliminary (Q4)

Earnings: Hilton Worldwide, Air Products & Chemicals, Honeywell International, Eli Lilly & Co, Tapestry, ConocoPhillips, Fastenal, Hershey, Ralph Lauren, Microchip Technology, Take-Two Interactive Software, Amazon.com, Expedia Group, Monolithic Power Systems, Fortinet.

FRIDAY FEB. 7

8:30 a.m. Hourly Earnings preliminary (January)

8:30 a.m. Average Workweek preliminary (January)

8:30 a.m. Manufacturing Payrolls (January)

8:30 a.m. U.S. Nonfarm Payrolls

Previous: 256k

Forecast: 170k

10:00 a.m. Michigan Sentiment (February)

10:00 a.m. Wholesale Inventories (December)

3:00 p.m. Consumer Credit (December)

Another busy week is upon us.  More than 120 S&P 500 companies are scheduled to report. Some of them include Amazon, Alphabet, Walt Disney and PepsiCo.

So far, the reporting season has been good.  Most companies have beaten expectations, according to FactSet data.  What investors will be paying close attention to in the earnings this week is the future guidance of each business. 

Policy will be market-moving this week.  President Trump tapped the green light with tariffs in Canada, Mexico, and China.  The impact of these tariffs could be far-reaching and could even trigger retaliatory tariffs from the targeted countries.  A high level of uncertainty will be felt in the market.

Nonfarm payrolls are due out on Friday.  It is expected that the economy added 165,000 jobs last month, down from 223,000 new hires the prior month.  The unemployment rate is forecast to have remained unchanged at 4.1%

Another perspective on AI

Last week, Deep Seek - even with everything we don’t know about it, - stopped investors in their tracks and caused discomfort and disquiet, to say the least.  So much so, that seeds of doubt over everything investors thought they knew about artificial intelligence has become the new narrative.

Everything is being questioned, including the stock market valuations on AI stocks.

Investors are rethinking their Nvidia investment.  Are Nvidia’s chips worth the price?  This question caused the shares of the AI leader to plunge 17% last Monday, stripping around$600 billion in market value from the stock.

And what about AI data centre operators - Amazon, Microsoft, and Alphabet?  Will they be able to justify the fees and spending if Deep Seek is so cheap?

Furthermore, Deep Seek has also called into question the projections about electricity demand related to more AI usage.  Are they vastly exaggerated?  Power producers took it on the nose last Monday with stocks like Constellation Energy, Vistra, and Talen Energy among others, being smacked lower.

Last Monday, certainty was challenged.  Valuation multiples will need to find a new level. 

President Trump introduces tariffs.

We are now beyond talk, as the first steps of implementation of Trump’s tariffs to match Trump’s promised policy agenda took place on the weekend.  On Friday, Trump said he would implement a 25% tariff on Canada and Mexico and a 10% on China on Saturday.  No exemptions are known yet.

Until the market becomes familiar with the details, uncertainty will influence the market environment. Jitters could become very evident in sectors that could be hit hard by a trade battle with America’s closest trading partners, such as autos, industrials, food and beverage companies. 

If the administration builds on existing steel and aluminum tariffs with Mexico and Canada, that could create volatility given Trump’s plans to build new power infrastructure and re-energize the manufacturing sector.

How will Canada and Mexico respond?  Will they issue their own tariffs?  Canada could slap tariffs on critical minerals, natural gas, and electricity.  Furthermore, the country could also ban U.S. dairy, cattle, and fresh meat.  And some provinces could choose to ban the purchase of U.S. alcohol, which would certainly cause ripples amongst some stocks.

Mexico, too, could implement an offensive approach by targeting U.S. corn or soybean exports, before expanding its retaliation into other areas.

One thing is for sure, the market could be very turbulent.

MARKET UPDATE

S&P500

The index will be choppy, particularly with the introduction of tariffs on several countries.  This will create uncertainty in various markets/sectors.  The ranging action of the index shows a bigger picture topping action.

Support = ~ $5955/65.  The base of the rising wedge since October 2023 lies around $5750/75.  Any break/close below here argues a major top has formed and the market is rolling over (9-12 months or more).  I strongly recommend everyone take some profits now and enter a limit order for a put option or bear put spread to come into play on the SPY on any break and close below $5770.  Also, buy SDS as protection.  If you are short-term focused, you should take profits on stocks.   I am expecting a strong bear move in the market either this month or next month.

GOLD

Gold reached a new all-time high.  The metal will continue to range and could continue to nudge to the upside for now. 

Resistance = ~$2817/25

Support = ~$2785/90 and $2737/40

BITCOIN

Topping movement continues to play out here. I would expect any upside to be limited.  Resistance remains at ~$109.30/$109.80k.  Support is seen at around~ $91/$92, and below there at ~ $85,000k.

QI CORNER

HISTORY CORNER

On February 3^rd

SOMETHING TO THINK ABOUT

Cheers

Jacquie

(OPTION STRIKES: WHY WE CHOOSE A PARTICULAR STRIKE)

January 29, 2025

Hello everyone

What strikes do I choose and why

Strike prices refer to the specific price you can buy or sell an underlying stock when exercising an option contract.   In other words, it’s the fixed price defined within an option that determines whether you can profit based on the current market price of the underlying asset, categorized as “in the money”, “at the money”, or “out of the money” depending on its relation to the current market price.

“In the Money”

If the current market price is higher than the strike price, the option is considered “in the money”.  When putting your strikes “in the money” you are being more conservative.

“At the Money”

If the current market price is equal to the strike price.  This is also a conservative stance.

“Out of the Money”

If the current market price is below the strike price, the option is considered “out of the money” and has no intrinsic value.  When putting your strikes “out of the money” you tend to be more aggressive in your approach and taking on a bit more risk.

What is intrinsic value?

In options trading, “intrinsic value” refers to the immediate profit an option holder would gain if they exercised the option today, which is calculated by subtracting the strike price from the current market price of the underlying asset.

So, for example, if a stock is trading at $100, and a call option has a strike price of $90, the intrinsic value of that call option would be $10 ($100-$90).

Only options that are currently “in the money” have intrinsic value.

The total price of an option (premium) is made up of intrinsic value and time value (extrinsic).

Implied Volatility

IV is the level of volatility embedded in the option price.  Generally speaking, the bigger the stock movements, the higher the level of implied volatility.  Most stocks have different levels of implied volatility for different strike prices.  John often uses this volatility in his option trading decisions.  He often trades Tesla because of the high volatility and sends out “in the money” trade alerts. 

If the stock has very low implied volatility, you should avoid going for “out of the money” option strikes.

PORTFOLIO UPDATE

Nvidia lost around $600b in value in one day this week.  That’s a pretty hefty number.  And it was all because of one headline that completely freaked investors out.

I would be looking to take some profits on this stock, as I don’t think it has found a bottom yet and could have further to fall. 

We have done well on this stock, so it is wise to lock in some profits now.

Recommendation:  Take at least 50% of profits on Nvidia stock.

MY AIRBNB EXPERIENCE IN THE U.S.

Last week I gave an insight into some of my experiences with Uber drivers in the U.S. and what their outlook was. 

Today, I’m going to talk about Airbnb and my experience with this company, and the hosts I have encountered throughout the U.S. 

Airbnb is not everyone’s cup of tea.  Particularly if you are staying in a room in someone’s home.  A myriad of rules are put before you as though you were staying in some sort of compound.  For anything you break or ruin, there is always a dollar penalty.  Loud noise or parties are out of the question.  Not that I was indulging in any of that frivolity.    But, at times it can seem a bit constricting and somewhat unsettling.  Furthermore, at a couple of places I was not able to use the kitchen, so had to resort to prepared food, which was not always enticing. 

My experience sharing the home with one family was quite interesting.  This lady had a couple of her adult children living with her at home as well as one grandchild. Her adult children did not seem to work, and I didn’t ask why.  She smoked and had a smoker’s cough.  I noticed she had a tin of air freshener on a side table in the family room and often used it to attempt to hide the smell of smoke. At other times I witnessed her waving the smoke away with her arm.  None of these worked. 

She appeared quite disgruntled with the world and would talk to me for what seemed like a long time about the state of the U.S.  She almost religiously listened to all sorts of political podcasts and watched programs focused on the possibility of extra-terrestrial beings.  She was a staunch Democrat and had expressed her alignment by putting up large photos of the Democrat candidate – Kamala Harris - at the front of her home.  This was a trend I saw throughout the neighbourhood.  So, it became obvious which candidate each home supported as larger-than-life photos were erected in the front yard or just near their front door.    (In Australia, we have photos of candidates erected in strategic locations on footpaths before an election, but I have never seen households expressing their support for one or the other candidate by putting up large photos in their front yard.  We don’t hero-worship our leaders like the U.S. does.  We are more concerned with the environment than putting a leader on a pedestal.  To Australians, the Prime Minister has a job to do, so he should just get on with it and do it.  No fanfare needed).

Anyway, at this home I was usually always the first person up in the morning.  I emptied the dishwasher and washed up a pile of plates that sat in the sink.  Then I made my morning cup of tea and went to work.   

On occasion, I also cooked them some homemade treats, such as biscuits, and slices.  They were all demolished in a very quick time, almost as though they had never tasted a home-cooked treat.   I must say it was great to be able to use a kitchen to make my meals. 

One conversation we had focused on the bookings she was getting for her Airbnb room.  She said that bookings had begun to slow, and she didn’t know why.   She almost answered her own question by arguing that the U.S. now had a variety of accommodations for visitors, that were not necessarily hotels, so this may impact Airbnb long-term. 

At another Airbnb, where I had a room in a family home, the host was a Chinese lady.  She had three bedrooms upstairs, and two were left for Airbnb visitors.  Another room was for storage.  This lady – let’s call her Kathy - chose to sleep on a mattress on the floor in a corner of her living area, which was sectioned off with a sheet or some cloth that was hanging from a partition. Her husband had died a few years ago, and this provided a good income for her.  She owned a home back in China but said she was not likely to return.  Her son had been educated at a private university in the U.S. and worked as an interpreter and commentator on U.S./China international affairs.  He highlighted events happening in China, that many people were not aware of, and drew attention to human rights abuses that were commonplace throughout China.  I met him once.  He was very well-spoken and said he would never go back to China. 

Kathy had a Green Card, but she didn’t hold a U.S. passport.  She seemed anxious about life in general; she had a car but never used it, she said she didn’t ever travel.  She had her groceries; fruit & vegetables delivered and never ate any fast food.   At one sitting I saw her eat a bowl of mixed green leaves.  No dressing.  She drank water – no tea or coffee.  She knew I liked tea, so she would boil the kettle when she heard me get up in the morning and would place a nice cup and saucer & teabag on the dining table for me to use. 

She often talked to me about China and how restrictive it was.  She commented that if you were heard to be making disparaging comments about China, the government, or the country’s policies in general, you were often called upon to visit a special government office and explain your comments to see if they could help you better understand your position, and how you should be thinking, in some way.  Seems like you can’t trust your neighbours in China.  And Kathy pointed out that fact.  She said the Chinese were very distrustful of each other but were more likely to trust a foreign visitor.   She said the freedoms in America were taken for granted. 

My Chinese Host

Anyway, I’ll end off here with a brief observation of and exchange with a hotel employee.  He brought my luggage up to my room.  I asked him about the hotel, and he described what was available at the hotel. I asked him how long he had been working at the hotel.  He said a few years.  He seemed very disillusioned with the world. His face looked drawn, and his non-verbal communication betrayed a brow-beaten experience.  He had worked in the corporate world and called it a dog-eat-dog environment, where you have no friends.  He was obviously well educated as he said he spoke a couple of languages. He was not in his later years, but he moved slowly and was looking forward to retirement on a ranch far away from suburbia. I gave him a tip and wished him luck. 

Cheers

Jacquie

(PRESIDENT TRUMP IS PRIORITIZING AI)

January 24, 2025

Hello everyone

President Trump is prioritizing the push forward of AI.

Which companies are likely to benefit?

Think of (ORCL) Oracle, (MSFT) Microsoft, and (ANET) Arista Networks

Earlier this week, a $500 billion joint venture was announced between OpenAI Oracle, and Softbank, which aims to strengthen artificial intelligence infrastructure in the U.S.

Shares of Oracle and Microsoft have rallied nearly 15% and 3%, respectively, since the start of the week.  Microsoft is an investor in OpenAI.

Solita Marcelli from UBS notes that the project requires more computing and electricity, which may point to greater investments in grid infrastructure and power transmission.

Kash Rangan, a Goldman Sachs analyst, believes Oracle and Microsoft are prime winners from the government’s prioritization of AI.

Rangan notes that Microsoft is in a prime position to benefit from this project as the company has a strong balance sheet and capital expenditure for 2025.  Oracle, however, may take longer to benefit, but the tailwind will certainly gather strength in the years to come.  Analysts are seeing the probability of more capital AI investments for Oracle, which could boost its cloud infrastructure revenues at a compounded annual growth rate exceeding 50% through 2027.

The Stargate venture also sees Arista Networks as a potential big winner too.  The company has exposure to Oracle, Microsoft, and OpenAI, as well as the strength of its ethernet switching portfolio.  Piper Sandler’s James Fish argues that “given switching represents >50% of networking spends, and Arista’s? 30% share of high-end datacentre switching, we see this as a +$6B [serviceable addressable market] over 5 years.”

Fish also points to (PSTG) Pure Storage, as an “underappreciated way” to invest behind Stargate to meet storage capacity, estimating a $10 billion total addressable market.

(I recommended Oracle, Microsoft, and Arista Networks on January 6, 2024.

Oracle was at $104, Microsoft was at $372, and Arista Networks was at $248.00. Arista Networks had a stock split on December 4, 2024, which took it back to $62.00. 

TRADE ALERT

(TPB) TURNING POINT BRANDS

Turning Point Brands manufactures, markets, and distributes branded consumer products.  The company operates through three segments: Zig-Zag Products, Stoker’s Products, and Creative Distribution Solutions.  Zig-Zag Products segment markets and distributes rolling papers, tubes, finished cigars, make-your-own cigar wraps, and related products as well as lighters and other accessories under the Zig-Zag brand.  The Stoker’s Products segment manufactures and markets moist snuff tobacco and loose-lead chewing tobacco products under the Stocker’s, Beech-Nut, Durango, Trophy, and Wind River brands.  Its Creative Distribution Solutions segment markets and distributes other products without tobacco and/or nicotine to individual consumers through the VaporFi B2C online platform, as well as non-traditional retail through Vapor Beast.  In addition, it markets and distributes cannabis accessories and tobacco products.  The company sells its products to wholesale distributors and retail merchandising, drug stores, and non-traditional retail channels.  The company was formerly known as North Atlantic Holding Company Inc. It changed its name to Turning Point Brands Inc in November 2015.  The company was founded in 1988 and is headquartered in Louisville, Kentucky.

A shareholder return of 138% over the last 12 months is not too shabby for this company.  Most analysts rate it a strong buy or a buy and see it rising more than 20%.  Earnings are forecast to grow by 14.04% per year.  Earnings grew by 294.6% over the last year.

Recommendation:  Scale into the stock. And/or you could try a bull call spread like a 60/65 with an April 17 expiration, or a 60/65 with a July expiration.

So, your trade would look like this:

Buy 1 TPB 60 call

Sell 1 TPB 65 call

When I was looking at these trades the limit price for the April expiration was $1.48 and the limit price for the July expiration was $1.95.

Prices will be all over the place by the time you receive this, so purchase at best.

QI CORNER

SOMETHING TO THINK ABOUT

Cheers

Jacquie

(SUMMARY OF JOHN’S JANUARY 15, 2025, WEBINAR)

January 17, 2025

Hello everyone

TITLE:  Welcome to Dullsville

PERFORMANCE

December MTD: +3.26%

Since inception: 751.8%

Average annualized return: +51.62%

2024 final: +75.26%

PORTFOLIO REVIEW

Risk On:

(TSLA) 1/$330-$340 call spread – 10%

(TSLA) 1/$300-$310 call spread- 10%

No risk off positions.

METHOD TO MY MADNESS

John tells us that this could be the year of the 5% correction, and you need to buy everyone.

Expect an OK first half and a weak second half.

All interest rate plays remain pariahs, including gold, silver, homebuilders, bonds, and REITS.

Deregulation and end of antitrust plays will continue to be bought, including banks, brokers, money managers, nuclear, and Tesla.

US dollar rockets at higher rates for longer.

Technology stocks fade on threats to international business and slowing growth sales.

Energy reaches top of recent trading range on a strong economy.

John says to buy financial as the only sure thing this year.

THE GLOBAL ECONOMY – STRONG U.S.

December Nonfarm Payroll comes in hot at 256,000.

Headlines unemployment rate at 4.1%

CPI comes in at six -month low at 3.2% YOY.

JOLTS soars, coming in at 8.0 million, versus an expected 7.7 million.

US Online sales rose by 3% over the holidays.

Services PMI comes in hot at 54.1

Los Angeles fires to cost $230 billion, with only $30 billion covered by insurance.  Inflation will rise as the cost of construction, labour, and materials soar.

Tame PPI boosts stocks, with the Producer Price Index rising 3.3% on an annual basis in December 2024.

STOCKS – CORRECTION TIME

The Trump bump is gone – stock markets have given up all their post-election gains.

John says that bank stocks will be the leaders this year with the MAG7 catching up later.

Bonds are now the big market risk.  If we break a 10-year Treasury yield of 5.0% and take a run to 5.5%, the 5% stock correction turns into an 11% stock correction.

Technology was hit very hard.

Cleveland Cliffs Ramps up its bid for US Steel, bringing in Nucor as a partner.

$4 Trillion in Asset Management disrupted by Los Angeles fires.

Elon Musk sued by SEC for insider trading.  Stock is up $20.

(Financials are good stocks to buy this year – look at the banks).

John believes we will get a sideways range for around 6 months in tech and then an upside breakout.  Tech boom is just getting started.  John doubts whether we get more than a 10% correction.   John thinks that the first half of 2025 will be strong and the second half weak.

John’s advice:

Buy 5% dips on (JPM) JPMorgan and 10%-20% dips in (TSLA)Tesla.

Buy 90-day T-bills – 4.4%

Banks/financials: buy in the money LEAPS after a down move.   Buy call spreads.

(NFLX)Netflix: buy territory/call spread

(PANW)Palo Alto Networks:  buy stock/option

(BLK) BlackRock: Buy or option.

(CCI) Crown Castle International: LEAPS candidate – recovery possible.

2025 will offer a limited number of stocks to trade.  Think banks/financials, nuclear energy, and Tesla among a few others.

BONDS – THE BIG MARKET RISK

Bonds hit 14-month lows at a 4.80% yield, as fixed-income dumping continues across the board.

“Higher rates for longer” don’t fit in here anywhere.  But there may be a BUY setting up for (TLT) at 5.0%.

Bond yields have rocketed 130 basis points since September.

National debt tops record $36 trillion and could rise another $10 trillion.

TIPS are making a comeback.

FOREIGN CURRENCIES – U.S. dollar surges

Dollar hits two-year high, on rising U.S. interest rates, and higher highs beckon.

Ten-year U.S. Treasuries have risen from 3.55% to 4.80%, a 14-month high.

Higher for longer interest rates mean higher for longer US dollar.

Don’t sell the US dollar until the next recession is on the horizon.

Avoid (FXA), (FXE), (FXB), (FXC), and (FXY).

ENERGY & COMMODITIES – A RALLY AT LAST!

Oil finally rallies, but only to the top of the recent range with the Gaza peace deal back on the table.

China ratchets up the trade war, banning the export of crucial metals essential for all tech applications.

Strategic Petroleum Reserve at multi-year lows, but Biden has stepped in as a buyer.

Blame a weak China, lost OPEC discipline, and overproduction by Iraq.

Avoid the worst-performing asset class in the market.

IEA predicts price declines this year.

Unlimited new drilling and opening of federal lands will crash oil prices.

PRECIOUS METALS – STRUGGLING TO RECOVER

Gold has recovered half of its post-election losses on the central bank and Chinese flight to safety buying.

Interest rates higher for longer is a death knell for precious metals, with gold down 8.3% after November 5.

The opportunity cost of owning gold is about to rise sharply.

Gold has become the only way the average Chinese can save as they can no longer speculate in real estate or copper and don’t trust the Chinese Yuan, so there is support lower down.

Central banks in emerging market countries are continuing to buy gold - $5.3 billion this year.

Avoid (GLD), (SLV), (AGQ), and (WPM).

REAL ESTATE – POOR OUTLOOK

High rates could leave real estate dead in the water for all of 2025.

However, a strong economy is allowing commercial real estate to recover in New York and San Francisco.

LA fires are creating a massive housing shortage there, with 12,000 homes burned.  Higher housing prices and rents are a consequence.

Mortgage demand grinds to a halt on 7.17% rates for the 30-year fixed.

TRADE SHEET

STOCKS – buy the next big dip

BONDS- sell rallies

COMMODITIES- stand aside

CURRENCIES – stand aside

PRECIOUS METALS – stand aside

ENERGY – buy nuclear dips

VOLATILITY – sell over $30

REAL ESTATE – stand aside

NEXT STRATEGY WEBINAR

12:00 PM EST Wednesday, January 29, 2025, from Salt Lake City UT.

Cheers

Jacquie

(THE MARKETS IN 1973 AND 2025 – DRAWING COMPARISONS)

January 13, 2025

Hello everyone

WEEK AHEAD CALENDAR

MONDAY 01/13

2:00 p.m. Treasury Budget (December)

6:30 p.m. Australia Consumer Confidence

Previous: -2%

TUESDAY 01/14

6:00 a.m. NFIB Small Business Index (December)

8:30 a.m. Producer Price Index (December)

Previous: 0.4%

Forecast: 0.3%

WEDNESDAY 01/15

8:30 a.m. Consumer Price Index (December)

8:30 a.m. Empire State Index (January)

11:00 a.m. New York Federal Reserve Bank President and CEO John Williams speaks at CBIA Economic Summit and Outlook 2025

Earnings:  Citigroup, Goldman Sachs, Wells Fargo, JPMorgan Chase, BlackRock, Bank of New York Mellon

THURSDAY 01/16

2:00 a.m. UK GDP Growth

Previous: -0.1%

Forecast: 0.2%

8:30 a.m. Continuing Jobless Claims (1/4)

8:30 a.m. Export Price Index (December)

8:30 a.m. Import Price Index (December)

8:30 a.m. Initial Claims (1/11)

8:30 a.m. Philadelphia Fed Index (January)

8:30 a.m. Retail Sales (November)

10:00 a.m. Business Inventories (November)

10:00 a.m. NAHB Housing Market Index (January)

Earnings:  J.B. Hunt Transport Services, Morgan Stanley, U.S. Bancorp, Bank of America, PNC Financial Services Group, M & T Bank, United Health Group

FRIDAY 01/17

2:00 a.m. UK Retail Sales

Previous: 0.2%

Forecast: 0.4%

8:30 a.m. Building Permits preliminary (December)

8:30 a.m. Housing Starts (December)

9:15 a.m. Capacity Utilization (December)

9:15 a.m. Industrial Production (December)

9:15 a.m. Manufacturing Production (December)

Earnings: State Street, Schlumberger, Fastenal, Citizens Financial Group, Regions Financial, Truist Financial, Huntington Bancshares

We had a scorching hot jobs report last Friday, which puts in doubt the path of rate cuts by the Fed.  We know the probability of cuts was revised down from four to two this year, but there is now some head-scratching going on with many wondering if there will be any cuts at all. The notion of rate rises is also being tossed about.

So, with that in mind, the inflation reading this week will be of paramount importance to the market.  The CPI and PPI will be watched closely by investors – we may find that we have to deal with pricing pressures for quite a long time.  The December consumer price index is expected to rise 0.3% in the month and 2.8% in the year, according to consensus estimates from FactSet.  That’s compared to respective increases of 0.3% and 2.7% in the previous report.

Our market is already at historically stretched valuations as we start the year at 22 times forward earnings, which means investors will have to rely on earnings growth to power the market this year.  And this is where the real challenge lies – can companies negotiate through rising inflation, higher yields, a strong dollar, and deliver on expectations?

Big banks launch the earnings season this week.

Finally, we need to understand the consumer’s environment, and see if they are still spending, so retail sales data should be on your radar.

What has Donald Trump promised to do from Day One through to his first 100 days?

Lifting environmental restraints and expanding oil and gas exploration.

Cut in support for electric vehicles.

Close the border with Mexico.

Deport millions of undocumented migrants.

Wind back the Biden administration’s environmental programs.

Pardon peaceful rioters who stormed the Capitol in the 2021 insurrection.

End the war in Ukraine.

Suspend refugee admissions.

Ban “woke” inclusivity programs.

Cut back on government spending.

DRAWING PARALLELS BETWEEN 2025 AND THE EARLY SEVENTIES

Doug Kass has been a very successful fund manager over the long term.  Recently, he has been comparing the state of the current market and the Wall Street of 50 years ago.

He states: “With the 10-year Treasury yield reaching multi-month highs, my baseline expectation is that January 2025 could represent an important top in stocks – much like it did 53 years ago in 1972.”

Let’s revisit 1972 for a minute.

Richard Nixon was President. 

A gallon of gas costs 36 cents.

The median family income in the U.S. was $11,120.

The average individual income was just over $6000.

The highest-grossing film in 1972 was Francis Ford Coppola’s The Godfather.

Roberta Flack’s “The First Time Ever I Saw Your Face” was the top song.

Kass points out that the December 2024/January 2025 tops in the stock market could resemble the tops in the market in December 1972/January 1973.

In drawing the comparison between each period, Kass demonstrates that:

Both periods featured combative presidents – Richard Nixon in the past and incoming President-elect Donal Trump in the present.

In both periods, interest rates and inflation increased from the prior few decades, and public sector debt was climbing rapidly.

P/E [price to earnings ratio] was extremely elevated in both periods.

A top was completed in January 1973 – leading to a poor year for the S&P 500 Index.

Kass expects “an important market top, a down year for the averages…”

Let’s end on a positive note here as Kass explains that in 2025 he does like companies that will be helping to expand the utility grid and cloud computing. 

MARKET UPDATE

S&P500

A hot jobs report sank the market on Friday.  A close below the $5825/35 support area will be a bearish sign.  Support at the base of the rising wedge ($5675 ~) may again trigger a good-sized bounce.  Resistance = ~$5870/80

GOLD

Some movement in gold recently could continue to the upside, however, it is still believed that the topping process is not yet complete.  So, you might use the upside movement to sell more calls (if you wish).  Support is seen at around $2630/$2600.  Resistance is seen around the $2690/$2630 area.

BITCOIN

Topping formation for a few months is taking place.  After our $108,389 top, Bitcoin is ranging between support and resistance levels.  Support around $91,000 may hold temporarily, however, a break there could lead to the mid $85,000 zone and even lower.  Initial resistance is now around $97,500 and $102,000.

QI CORNER

HISTORY CORNER

On January 13

SOMETHING TO THINK ABOUT

Cheers

Jacquie