Whatever you do, don’t look down

Stocks hit fresh all-time highs on Friday as the bulls could not be forced back into the pen. Consumer sentiment is more positive than expected, according to the University of Michigan survey.

Above the treetops. I remember when I was quite young, say, younger than 10 but older than 7. My best friend from 2 doors down could climb like a monkey. It turns out he was quite the athlete and would go on to become an Olympic-class athlete, and still until this day, is in abnormally good physical condition. I, on the other hand… was not destined for Olympic greatness… maybe the math Olympics if there was such a thing. Anyway, I did my best to keep up with my friend as we did what boys did back then – hopping over fences, stomping in puddles, playing tag, kicking soccer balls, playing now-forgotten Cowboys and Indians, and… climbing trees. Don’t get me wrong, I was quite adept at some of those things, but next to my friend, I was always a step or 2 behind. In the far back part of my yard there was a series of tall pine trees. In fact, I was fortunate to have many trees in my yard, but the pine trees were particularly well suited for… climbing, their branches evenly laid out, almost like a ladder. As you might imagine by now, my friend would scale to the tops of those trees on the regular. I was happy with my feet on terra firma, choosing to throw an old tennis ball or my spaldeen at him with hopes of knocking him off. I knew at some point that I too would have to prove my metal and climb those trees as well, so I thought and thought… and thought about it, and all that thinking didn’t get me any further along.

Finally, one day, my friend goaded me into following him up the tallest of trees. It was early Spring, it was a bit chilly, and the wind pushed the tops of the pines back and forth. I was determined… it was now or never. It was the 1970s, we were boys, so we threw our jackets on the ground, put our pen knives in our pockets, and started our ascent, and with adrenaline serving as fuel, we quickly made it to the very top. I remember feeling a huge sense of pride as courage had won the day for me. And then suddenly, my friend had the urge to find a bathroom (true story so far). So, he scurried past me and glided down with ease through the boughs of the giant pine and ran off… to find another… um, suitable tree to do what boys did in that situation in the 1970s. On the top of the tree all by myself I suddenly got a reality check. That reality came as I found myself moving back and forth in the cool wind, no jacket, and more importantly… no knowledge of how the heck I was going to get down. I broke rule number 1 and looked down at the ground which seemed a mile away and I froze.

I was sure that my friend would be back soon and give me the step-by-step I needed, but apparently, he was picky about his trees, and I was stuck up in that pine for what felt like a lifetime. I realized that I was going to have to figure it out on my own. At a high level, there were 2 possible ways down. The easiest way was likely to land me in the hospital with a broken leg, and the other took a bit of thought… and maybe some strategy.

If you look back at my notes from last year, I often encouraged you to stay focused and stick to a long-term view. The Fed had not yet issued its soft-pivot and inflation was still too high to even consider a pivot. I was confident that the pivot would ultimately come and that many growth companies were wrongly punished in 2022 and early 2023. I knew that at some point those would emerge as catalysts for a broader rally, once the pivot came. I was just not exactly sure when the pivot would come or how long a rally would last. Well, we got our pivot, and we certainly got our rally, and here we find ourselves at new all-time highs. We got here so fast… on what feels like pure adrenaline. Earnings season will really kick into overdrive this week and investors don’t seem like they will be issuing passes too easily based on last week’s earnings. This kind-of feels like we are on the top of a tree swaying in the wind.

I reminded myself that I watched my friend scale up and down that tree a hundred times before that day, so obviously there was a way down which did not include a body cast. I was shivering and I scanned the area looking for my friend but only found a random dog, unleashed and frolicking about… as dogs did in the 1970s. I was on my own. I grabbed tight and repeated to myself “foot, foot, hand, hand.” That was the opposite of the hand, hand, foot, foot, that got me to the top. The exact strategy was not as important as the fact that I had a strategy, which ultimately got me back down to the ground. From that time forward, I was considered a bit of an expert tree climber, but don’t get me wrong, that first one was tough. When I finally got on the ground and picked up my coat, I was sweating and in need of finding another tree myself 😉.

These next few weeks are going to be challenging as traders will be forced to justify these high multiples that were achieved quickly. As investors, we will have to navigate through this methodically, thoughtfully, and with purpose, but most importantly, strategically. Just keep repeating foot, foot, hand, hand. And don’t worry, I will be here to cheer you on. 🌲🌲🌲

WHAT’S SWAYING IN THE WIND IN THE PREMARKET

Archer-Daniels-Midland Co (ADM) shares are lower by -12.69% in the premarket after the company cut its earnings forecast and put its CFO on administrative leave in response to an SEC inquiry into ADM’s accounting practices in its nutrition division. The company is due to announce earnings later this week. Dividend yield: 2.64%. Potential average analyst target upside: +21.5%.

PayPal Holdings Inc (PYPL) shares are higher by +3.98% in the premarket after the CEO said in a CNBC interview that the company spent too much on acquisitions in the past few years and will be focusing on profitability going forward. Investors like profitability 😉. The company is expected to announce earnings on 2/7. Potential average analyst target upside: +21.5%.

LAST FRIDAY’S MARKETS

NEXT UP

• Leading Economic Index (Dec) is expected to have slipped by -0.3% after declining by -0.5% in November.
• Lots of earnings in the week ahead along with regional Fed reports, more housing numbers, Q4 GDP, flash PMIs, Durable Goods Orders, and PCE Deflator. Download the attached economic and earnings calendars for details.