Who’s counting, anyway

Stocks had a mixed close yesterday as traders rifled through news outlets searching for something, anything to trade on, and they came up empty. The National Association of Home Builders is not very optimistic about market conditions.

The final countdown. I realized this morning… BEFORE my first espresso, that there were only 45 days left in 2023! That is still plenty of time, but the number… 45 seems small enough to be noteworthy. That is almost 6 ½ weeks, which seems to be plenty of time, but when you ponder business days, there are only 30 of them left before… HAPPY NEW YEAR! In stark reality, the number is even smaller when you consider market holidays. Then there are the unmarked Wall Street Holidays, which start right after Thanksgiving, when market volume starts to decline making just about anything possible. Lower volume usually translates into bigger market swings… AKA volatility. My longtime, regular readers know that I often remind you that volatility works in both directions. It could be your best friend, or your worst enemy. We have had some rough holidays in the market. You turn your back for a quick walk past the windows at Saks Fifth Avenue or fight through the throngs of gawkers to see the iconic tree (or maybe just the top of it from a distance) in Rockefeller Plaza… or maybe you finally take a moment to email some holiday wishes to folks you neglected since last holiday season. You turn back and check your phone and… BAM, there it is, a massive rally… or a breathtaking dip. Ok, now that I got your heart racing, I will tell you that more times than not, this is a good time for the market. Though, the past is never a good indication of future performance… especially in the markets.

Let’s ponder a different countdown for a minute. How about the countdown to when the Fed starts to CUT interest rates. A few months ago, rate cuts were only a fantasy in the minds of dreamers and lottery players who would have better success of chance by playing BINGO at a local bingo hall. A few weeks ago, those long-shot chances shortened up a bit, and a few days ago, those chances appeared to improve even more. Can you even remember why we would like to see lower interest rates?

Well, if you own interest rate sensitive stocks like utilities or real estate, lower rates usually translate into gains, as they are considered bond proxies. If you own bonds or preferred stocks, you will also enjoy gains in a falling interest rate environment. But if you own lots of growth stocks, higher interest rates have become the bane of your existence. I won’t go on a rant about why it is absurd, because it is Friday, so let’s just agree that our favorite, AND QUITE HEALTHY, growth stocks had a rough 2022 and 2023 because of higher interest rates. Given all that, it should be clear that just about everyone who invests in stocks or bonds would be in a better place if rates were to begin to climb down the ladder. Of course, if you have been waiting to purchase something large using credit, you would also like to see rates come down. I am, of course, referring to home mortgages, auto loans, or any type of variable revolving credit. If you are the type that is concerned about economic health, you may want to see lower interest rates because they typically portend economic growth. So, have we established that mostly everyone would like to see rates come down?

That is why all eyes and ears are on the Federal Reserve right now. It is the keeper of the key to the vault that has the big dial marked “Federal Funds Rate.” So, when will the central bankers take up that key and head to the vault to turn that dial to the left? There are some measurable indicators like futures and overnight swaps. Those are both pointing to somewhere in late winter / early spring. If you have been paying attention, you would know that just a few days back, it was more like late spring / early summer. And not too long ago it was late summer / early fall. Moving away from the quantifiable indicators, we can sense growing chatter about rate cuts on the tape and in various news sources. That is all to be expected, but in reality, the Fed is not concerned with chatter or even what futures traders are speculating on. Theirs is a more complex calculous which includes, at the very minimum, the state of the economy and, I dare say, inflation. THOSE, my friends are, indeed, both moving in the direction of no more hikes and the possibility of cuts. However, right now, there is quite literally no incentive for the Fed to announce a halt to the hikes, and certainly not forward guidance for rate cuts. Trying to pin down a finite date for those is pure speculation. If you work out the probabilities, you have a better chance of getting BINGO after 24 calls with 50 cards, than the Fed lowering interest rates in May. If you buy only 10 BINGO cards, it may take around 30 calls. But who is counting?

WHAT’S GOING ON IN THE PREMARKET

Ross Stores Inc (ROST) shares are higher by +5.79% after it announced that it beat EPS and Revenue estimates by +8.45% and +1.45% respectively. The company increased its full-year guidance beyond analyst expectations. In the past 30 days the ratio of analysts raising price targets to lowering is 15:0. Dividend yield: 1.11%. Potential average analyst target upside: +10.8%.

Applied Materials Inc (AMAT) shares are lower by -7.11% after the company reported that it is the target of a criminal probe that alleges violations export restrictions to China. This, after it announced a strong earnings beat after yesterday's close. Dividend yield: 0.82%. Potential average analyst target upside: +4.1%.

YESTERDAY’S MARKETS

NEXT UP

• Housing Starts (Oct) is expected to have declined by -0.6% after gaining +7.0% in the prior month.
• Building Permits (Oct) may have pulled back by -1.4% after sliding by -4.5% in September.
• Next week: some more earnings yet, as well as Leading Economic Index, FOMC Meeting Minutes, Durable Goods Orders, University of Michigan Sentiment, and more housing numbers. Check back in on Monday for calendars and details.