Monday Takeaways: Higher, Higher, Higher!

Shah Gilani|December 11, 2023

We’re back again with your Monday Takeaways. The big trend from last week continues…

Higher, higher, higher!

On Friday, we got a great jobs report. GDP grew more than 5% last quarter. And all of that good news has had an overwhelmingly positive impact on stocks.

But there is one important thing investors should be looking for…

It has to do with the Federal Open Market Committee meeting this Wednesday. No doubt, Wall Street will be watching to see if Jay Powell remains hawkish.

I’ve got my own prediction… plus thoughts on what to expect in the upcoming CPI release.

It’s all in my Monday Takeaways video.

Click on the image below to watch it.

Transcript

Hey, everybody. Shah Gilani here with your Monday Takeaways. Coming off of last week, it’s just one easy takeaway. Higher, higher, higher – for everything. On Friday, we got a great jobs report number. Yes, the economy’s still cooking along. The unemployment rate fell two percentage points… excuse me, 0.2 points… to 3.7% from 3.9%. 3.7% unemployment rate. I mean, it just boggles the mind. And in an economy that continues to grow – north of 5% GDP print for last quarter – the takeaway there? You just go with the flow, people. The trend is your friend. So as long as the economy’s cooking, as long as the labor market remains strong, you bet the companies continue to make profits.

Okay. How long’s it going to last? That’s part of the next takeaway because the Fed meets this week. We got a Wednesday discussion from the Fed about what they have to decide at this week’s FOMC meeting. They’re going to be somewhat hawkish, so don’t expect them to massage the rate cut talk. Because right now, fed fund futures have a 46% expectation for a Fed rate cut in March. 46%. Now, fed fund futures betting on whether the fed funds will be cut or hiked by the Federal Reserve have been pretty off the mark for most of 2022 and a good part of 2023. Because it’s going to be heading north, probably by the end of this month, and certainly probably by the first of the year, into the north of 50% likelihood of a cut in March. At least, that’s what the futures are going to be pricing in. I don’t see it. And I think this week, the Fed is going to have to take a – I’m going to say it – somewhat hawkish stance.

They can’t admit that, yeah, the battle has been won, inflation has been trending down – which it has. They’ve done a great job. We got CPI coming up on Tuesday. But guess what? The battle isn’t over until it’s over. And the battle is for core PCE, really, at 2%. We’re not there. We’re at 3.2% on core PCE. Now, CPI on Tuesday… that’s been trending down. If we get a really, really deep cut in the CPI number, which would be the November number on Tuesday, then yeah, we can be bullish more. Higher for longer, for the markets, not for rates. Because CPI is coming down, PCE is coming down, but we’re not near the Fed’s targets. But the markets don’t care. Investors are buying up everything.

The takeaway from the Wednesday meeting is probably going to be something of a nonevent as far as the markets go. If the Fed is hawkish and the markets rally, guess what? Then we have a lot higher to go. So your takeaway there is, what is the market going to react to? Is it going to react to a rather nothing burger from the Fed? Or is the Fed going to be hawkish, and then is the market going to rally on hawkish talk from the Fed? If it does, then you know we have higher to go. That’s your takeaway there. Keep an eye on the “reaction function,” the market’s reaction function to what the Fed says its intentions are. It’s going to be keeping an eye on inflation. It’s going to be keeping an eye on interest rates. And they’re not going to be talking about higher for longer, I don’t expect. But they’re certainly going to talk about being vigilant on the case of knocking inflation down. So far, so good for their soft landing.

Look, the S&P is up 12% since the end of October. That’s actually staggering. Gold made a new high in 2023. So it’s made a yearly high. Bonds… the 10-year Treasury, people, has come down from 5.021% this morning to 4.27%. That’s a 14.5% drop since October 23. So that’s a huge rally for bonds. We’ve got the “everything rally” going on, people. The takeaway is, everybody wants to buy everything that they thought was left for dead. It’s not just the “Magnificent Seven” anymore. We’re seeing some broadening out, for sure. Property sector stocks have done really well. Financials have done really well. The KBW Regional Banking Index is up 22% since October. We’ve got everybody trying to pick up bargains, and that’s a good thing.

Are we getting a little bit overdone? Yeah, we’re starting to get into a little bit overbought territory. So the takeaway there is, enjoy the rally while it lasts. And it can continue to last, certainly through year-end, possibly even into January and possibly well into January. But the takeaway is, we’re getting a little pricey. Things are starting to look a little fluffy because people are grabbing stuff hand over fist. And some of the metrics, the valuations are getting a little fluffy. But the trend is your friend.

The takeaway today, people, really for all week, is the trend is your friend. Stay with the trend. And everything right now looks to be trending up, except for oil. That’s been trending down, and that’s a good thing. And we’ll probably see that reflected in the CPI number on Tuesday because gasoline, year over year, now is down 32% – wow – from its highs. Got to love that. That will reflect itself likely in the CPI numbers too. So I think better-than-expected CPI number. The rally continues. The takeaway is, the trend is your friend. Tallyho. I’ll catch you guys next week. Cheers.