Bulls will be bulls

Stocks rallied again yesterday as traders, still elated from the Fed’s softer message, pressed their hands. A stronger-than-expected retail sales figure shows that consumers are far from defeated when it comes to their propensity to purchase.

That is no bull. This is a true story, and it is Friday… AND the holiday season, so the only picture I am going to share with you today is a highly redacted screenshot of my cell phone from yesterday. I was on a train heading into NYC from the provinces, and suddenly the train stopped abruptly. Check out this pic and keep reading.

That is a text messaging conversation I had with my family as I learned that a BULL was on the tracks, stopping all train traffic. I also texted with a coworker to let him know that I was going to be late for a meeting. He called “BS!” But it’s true and you can probably find videos of it all over the internet this morning.

Once the comedy of the situation wore off in my mind, as I sat patiently on the stopped train, my brain stewed. I was not happy about being late, for sure, but mostly I was hoping to turn the experience into something of a learning opportunity. So, I am sitting on a stopped train, there is a bull on the tracks and the Dow Jones is at a record high… at the end of a year which included unexpected bank failures, an epic jump in bond yields, mortgage rates at multi-decade highs, Fed Funds Rate at levels not seen since 2001, the EU is slipping toward recession… oh, and some baseball player just signed a $700 million 10 year contract. I thought, “wow, life is good, what could possibly go wrong?”

Inflation was out of control, which I am sure, I don’t have to get into details about. Fed policy makers stepped in BECAUSE IT’S THEIR JOB. They raised rates aggressively destroying a good amount of wealth last year. It was painful, but we knew that it was necessary, and I begged you not to panic and stay focused on your long-term investment plan. You listened to me and we, collectively, took our medicine because we knew that inflation is bad for long-term growth. Now inflation has slowed considerably, and the Fed thinks that, possibly next year, it can let up on the brakes a bit. It said as much in Wednesday’s Dot Plot release. That is being heralded as a dovish pivot; something the bulls were waiting for.

It is true that the Fed did show its softer side in Wednesday's release, and the markets certainly got the message. But it is now more important than ever to remain vigilant. Let me explain. Foremost, though it may appear that way, the Fed did not make this latest overture in order to give markets a holiday bonus. It is based on all the data it collected (and they probably have some that you and I don’t have access to). That data is likely to show that the economy is starting to show signs of weakness below the surface. But there is good news, inflation is indeed trending lower… for now. Everyone is hoping that the economy is headed for a so-called soft landing, and the probability of that has indeed improved… but it is not guaranteed, as the data is still inconclusive. In complete contrast, consumer happiness can pick up so aggressively as to cause inflation to spike back up, as it did in the 1980s. I won’t remind you of how the Volcker Fed dealt with that.

Ok, enough of these doomsday scenarios. If you stuck with it through painful 2022 and bumpy 2023, you are good; stay focused. If you panicked by jumping out at every new low and you are sitting in cash, waiting for salvation, or if you just got your bonus and would like to invest it… STOP, slow down, and take a breath. Indeed, the market is showing some positive signs, but it is important, as you invest, to remember that the rules of the market still hold. You must do your homework! Diversification is still critical to minimize what we Wall Street types call idiosyncratic risk. Further many great stocks have had some fantastic runs, and while they still all may have upside, you MUST be careful. Have you gotten the message? Though some dynamics certainly changed over the past few weeks, the rules of investing have not.

As for that bull on the tracks. It is likely that he escaped enroute to a local slaughterhouse. According to this morning’s news that bull has been given clemency and has now been adopted by a safe haven somewhere in rural New Jersey. He defied all the odds.

WHATS RUNNING THIS MORNING

Costco Wholesale Corp (COST) shares are higher by +1.78% in the premarket after it announced that it beat EPS and Sales targets last quarter. The company also announced a special $15/share cash dividend. Investors like that. Dividend yield: 0.62%. Potential average analyst target upside: +1.3%.

General Electric Co (GE) shares are higher by +2.10% after Wells Fargo upgraded the stock’s rating to OVERWEIGHT. GE has the highest forward PE multiple (45.71x) of its peers (18.47x median). Dividend yield: 0.26%. Potential average analyst target upside: +10.8%.

YESTERDAY’S MARKETS

NEXT UP

• Industrial Production (Nov) is expected to have grown at 0.3% after falling by -0.6% in the prior month.
• S&P Global Flash Manufacturing PMI (Dec) may have inched higher to 49.5 from 49.4, still below 50.
• S&P Global Flash Services PMI (Dec) may have slipped to 50.7 from 50.8.
• Next week, we will get housing numbers, Consumer Confidence, GDP, Personal Consumption, Personal Income, PCE Deflator, Durable Goods Orders, and Leading Economic Index. Check back in on Monday for calendars and details.