Monday Takeaways: Powell Gets His Closeup… and the Markets Get Frothy

Shah Gilani|February 5, 2024

The Fed sure has its work cut out for it. Soon after Fed Chair Jay Powell announced there would not be a rate cut in March… the fed funds futures priced in MORE rate cuts… not fewer.

Confused? I explain what’s going on in today’s Takeaways video.

And as the tech sector continues to push the markets higher… we’re seeing some frothiness in prices and valuations. But I have my eye on two bellwether tech stocks that tell us what’s really going on.

Find out what they are in today’s video.

Click on the image below to watch it.

 

Transcript

Hey, everybody. Shah Gilani here with your Monday Takeaways, and I’m going to start with Sunday, yesterday. Why? Because 60 Minutes featured Chairman Jerome Powell.

Takeaway there? He’s putting a damper on expectations for rate cuts in March in particular. And that’s important because the expectations for a rate cut in March have been driving equities higher and bond prices higher, yields lower.

Guess what? He’s saying and said it again that they need greater conviction. Greater conviction’s going to come from the data.

So your takeaway there is don’t count on a March cut.

Now the takeaway from there is, are equities getting a little fluffy in here if there aren’t cuts coming? And now, who knows when the next cut is going to be, or the first cut is going to be? And will the first cut not coming be the deepest problem for the markets? In other words, have they priced in too much perfection? I think they’re getting there for sure.

When you see Meta, a trillion dollar cap company, close to, up 20% on, what, a dividend? That’s 0.4% yield. What? Yeah, sure, buybacks are important and they’ll put a floor under, but that’s how fluffy things have gotten. So there you go.

Next up, I want to give you a takeaway on Fed funds futures. They’ve been wrong, people. So before Chairman Powell had the statement where basically there was no cut, there was no hike, it was stay the course as far as interest rates, as far as Fed funds, the Fed fund futures, as he basically pushed back on a cut, increased the probability, the odds of there being cuts.

So the takeaway there is yes, listen to what people say, what the media says, what financial outlets say, about what I say even about Fed fund futures, but I’m going to tinge mine with take it with a grain of salt because these are traders making bets and we’re talking them talking their book.

So when you’re watching what the results of Fed fund futures trading is, it’s telling you the odds of a cut are, take it with a grain of salt. These are bets, people. This is not hard data on whether or not we are going to see cuts because they’ve been wrong a lot and the futures move a lot and they change a lot and they get it wrong a lot.

So your takeaway on Fed fund futures is, nah, it’s a trading instrument, people. Don’t count on it. It is what it is. It’s just some momentary flashing indicator and it’s usually not right. So there, that should be good for you.

And last but not least, I want to talk about tech. Tech is moving every which way higher. Now, Apple not so much. Tesla not so much. We’re starting to see some separation in the mega caps and we’re starting to see, I think, in my opinion, some bubbleliciousness going on here.

So your takeaway there is watch tech. If we see the market falter, there’s going to be some profit taking in big tech. The takeaway there, buy the dips, because the really solid names will get knocked down on profit taking, but that doesn’t matter. Those are your buying opportunities.

We’re still in a bull market. Tech is the place to be. And yes, there’s going to be profit taking at some point. And it could get scared because there are a lot of profits on the table. A lot of folks would like to take a lot of those profits and not see the market collapse because there’s a lot of fear out there. There’s this underlying fear that a recession is going to end up overturning this bull market. I don’t think it’s going to happen. I think it’s a buy the dip opportunity.

So there’s your takeaway. Keep an eye on tech. They are the bellwethers. Big tech, the bellwether, of course. Right now, is it Meta? No, to me it’s still Microsoft, people. Microsoft is the bellwether. Keep an eye on Microsoft. Any hard, fast, long dip in Microsoft is a buying opportunity in Mister Softee and in the other big names that have done well. Don’t go chasing Tesla down here.

And last, I already said that, but I’m going to go last, last, last but not least, keep an eye on Apple. Vision Pro. Is that going to be a make or break for the stock for the next couple of quarters? Very possibly. Let’s keep an eye on sales.

Takeaway there is Apple goes as Vision Pro goes for the next couple of quarters. If it’s a failed product, if it’s too pricey, if there’s not much take up on it, then Apple’s going to have to turn around and do something back with its standard list of products, number one being the phone and number two being the watch.

So that’s it for today. I’ll catch you guys next week. Cheers.