Monday Takeaways: A Warning for December

Shah Gilani|December 4, 2023

The trend is our friend, folks.

The personal consumption expenditures price index – that’s the Fed’s favorite inflation metric – came in at 3.5% for November… down from 3.7% in October.

The trend is down… which is sending stocks higher.

That’s why I think we’ll see some profit taking in December.

The markets may get a bit bumpy… but that spells opportunity.

In today’s video, I tell you just how to play the markets this month…

And why gold and Bitcoin are hitting new highs.

It’s all in my Monday Takeaways video.

Click on the image below to watch it.

Transcript

Morning, everybody. Shah Gilani here with your Monday Takeaways.

That strange blue orb behind me is the Sphere in Las Vegas and it’s quite amazing. It’s bigger than you imagine. I was there the other night for a concert, U2. Absolutely incredible outside and even more incredible inside. If you see it changing color, that’s what it is.

So starting off today, I want to talk about inflation. Why? Because that’s what we should be talking about. Last week, we saw core PCE – the Fed’s favorite – and especially core mega inflation down at 3.5%. That’s down from 3.7% the previous month. So that’s all good.

The takeaway there is the trend is your friend. The trend in inflation is down, and I think that’s something that you cannot disregard as maybe it might take a bump because the trend is down. Until the trend turns, you got to go with it, people.

So that should inform you as to a lot of things, including what the Fed is going to do. Next week is the Fed’s last meeting of the year. Now, right after the 3.5% PCE print, Chairman Powell spoke and he talked about PCE but not the recent print. He talked about over the previous six months to October, core PCE had averaged 2.5%. 2.5%, that’s down from 5.57% and that’s awfully close to the Fed’s 2% target.

The takeaway from that is the Fed is starting to talk about the trend in inflation being lower.

And guess what? Next week we’re going to find out if they change their year-end forecast because their year-end forecast was for 3.7%. We’re already at 3.5% and trending down. If they lower their year-end forecast below 3.5% from 3.7% next week, that’s confirmation that the Fed is done.

The takeaway from there, again, is the trend is your friend. The Fed has been talking higher for longer. It’s now significantly changed. Is it a trend? No, not yet. It’s a bump in the road as far as Fed policy, but I think if we continue to hear more narratives out of Fed officials about rates – doesn’t have to be cuts, might just be absolutely no more hikes – then let the lag effect happen, then we know that the trend will start to be down in terms of policy, I would say prescriptions for the future.

Looking good on that front too, but we’ll get more next week. The takeaway really there is, let’s see what the Fed is going to say, but right now as far as inflation goes and their expectations for inflation, they’re looking a lot better.

Rates, Fed funds are at 5.25%, to 5.5%. Fed funds are always in a target range. Now the Fed can lower rates and they would still be technically restrictive. So that’s where they might go next. As far as this upcoming meeting, they might talk about being restrictive, not necessarily at 5.5% on the high end of funds, but restrictive certainly even at 5%. Yes, rates would still be restrictive at 5%. So the trend is different. If the Fed is starting to talk about cutting rates, if the Fed is talking about cutting rates and they’re not yet, then the takeaway there is that trend will mean lower rates.

Lower rates, people, mean higher equity values.

Now, where we are this morning is futures are down. The only problem I’m having with this extended rally, both the bond market rally and the stock market rally, is at some point there’s going to be some profit taking. At some point there’s going to be some interruption in this monumental move higher for both bonds and for stocks.

Will it be December? Will investors have pretty much shot all their ammunition in November being such a tremendous up month? I think the best November since 1980 or something. Maybe. So the future’s a little wonky this morning, but then again, we’re in a new month. This is the last month of the year. And if investors, especially institutions, have loaded up on what they want to load up at through year-end, so it shows on their year-end reports on their quarterlies, what they’ve done, then maybe they’re done.

So we’ve got a little bit of bumpiness ahead I think both for stocks and bonds, that just makes a good trading environment because if the trend is lower for rates every time we get a bump higher, you probably want to put on a position to make a bet on lower rates in the future. Same thing with stocks. If we get dips in the stock market here, I think you want to position yourself people for further gains. Maybe not in December. It doesn’t bother me. We don’t see any more gains in December. We’ve had a great year already in the equity markets, period.

But going into January, if we ended up December even flat, investors are going to pour money in the new year. They’re going to pour money in because they know cuts are likely coming.

So your takeaway there is buy the dips, people, in both bonds and stocks. I think that’s the key for this week.

What else we got going on gold? Gold.

Gold is making new highs. Bitcoin popping big time. Why? Well it started out as safe haven with Hamas attacking Israel. Gold popped on a safe haven bet, so did Bitcoin. Now that narrative has moved toward a weaker dollar. As the dollar weakens with the Fed looking like it’s going to cut in 2024, the dollar will likely weaken further. And so that’s the reason for the gold rally. And the reason that Bitcoins rally.

Another reason Bitcoin is rallying is there’s a potential ETF coming somewhere somehow down the line. And guess what? If that does happen, I think of both, I don’t think gold’s going to do anything on an ETF for a Bitcoin, but Bitcoin I think will do well. I think all the cryptos will have a nice move. A lot of them have been doing pretty good in terms of percolating higher. Bitcoin has been doing great, has a great year and has more to go.

So if we get an ETF, that means the SEC has looked past its disdain for Bitcoin and maybe forced to look past and if it approves an ETF, cryptos are probably headed a lot higher, makes them more legitimate in the eyes of domestic U.S. investors as a place to play. And I do mean play. They’re going to start to look like meme stocks. They’re going to be the meme stocks of next year if we get a Bitcoin ETF, because that means there may be other ETFs, they might incorporate other cryptocurrencies.

So the takeaway there is cryptocurrencies, great speculative instruments, could be even greater in 2024. So let’s keep an eye out for an ETF coming.

Last but not least, we got payrolls coming up this week. The expectation is for a gain of about 180,000 versus I think it was 150,000 in October. Why the bump in payrolls?

Well, because auto workers are going back to work, hence the bump in payrolls there. So is that going to interrupt anything? No …I think investors probably have read into that and are expecting something around the 180 number, that’s a consensus estimate. If we see a lot higher than that, like 250, something like that, there might be a little pullback both in the bond market and the stock market. Again, that’s probably a good dip buying opportunity.

And that’s about it for today for your takeaways. Go out there and go get some. Cheers everybody. Catch you next week.