A week ago, it was all sunshine and roses. Inflation was defeated, rate cuts were coming, gasoline was cheap, strategist-types were calling for new record highs – celebrating 2024 seemed like a pretty good idea…
Then the calendar flipped, and so did the bulls.
Tesla (NASDAQ: TSLA) reported record deliveries for 2023 – stock tanks
Boeing (NYSE: BA) delivers its first planes to China since 2019 – stock tanks
Apple (NASDAQ: AAPL) has its price target cut by $1 (from $161 to $160) – stock tanks
Carnival Cruise Lines (NYSE: CCL) forecasts record year in 2024 – stock tanks
No news at all from Micron (NYSE: MU) and AMD (NYSE: AMD) – stocks tank anyway
I guess the Wall Street smartypants didn’t get humbled enough for their 2023 predictions – two of the biggest (and wrongest?) forecasts are back for an encore for 2024: recession and Chinese stocks.
Recession, yeah, the U.S. economy will have a recession again, at some point. Call for one every year and I guess they’ll get it right at some point.
But you know, the specific condition that has to be achieved to get a recession is a lot more rare than Wall Street seems to think. To get a recession, the U.S. consumer has to cut spending dramatically. And the only thing that makes Americans stop spending money is getting fired from their (our) jobs. We’re just not getting to see negative GDP growth without a spike in unemployment…
If the conditions were ever going to be ripe for a spike in unemployment, 2023 was about as good a candidate as there could be. Last year saw the biggest spike in inflation the U.S. has seen in 50 years, and the biggest rate hikes the U.S. has ever seen…
I’m sure books will be written, lectures will be given and fistfights will break out amongst academics about why, exactly, unemployment never spiked. In fact, workers were able to go on strike and get higher wages! Pretty much the opposite of getting fired!
Two things stand out to me: one, much of the price hikes we endured at the grocery store and other retailers was because companies used the specter of inflation to hike selling prices far more than their input prices rose. I very cleverly called this trend AI, or, Artificial Inflation. And the big takeaway is that Artificial Inflation meant that companies weren’t losing money because of inflation. In fact, even as sales volumes fell a little, margins and profits rose, so, no need to fire a bunch of people.
And two, what I call the Second American Industrialization. Just as the American industrial base kicked into overdrive to engage with the world at the start of World War II, the American industrial base is kicking into overdrive now to disengage from the world.
But as American companies turn their back on globalization, move out of countries with elevated geopolitical risk (like China) and bring supply chains and manufacturing operations back to the U.S. and North America, we are at the start of a new era of American prosperity.
New factories are already breaking ground. The next generation of high-performance semiconductors will be Made in the U.S.A. Manufacturing centers abandoned by globalization will rebound. Millions of jobs will be created…
I can’t tell you whether there will be a recession [in 2023]. But I can tell you that nothing in the economic outlook for the next 6 months will stop the supply chains from coming home, the new factories being constructed and a couple million jobs being created.
100% correct. And it’s not over, not by a longshot…
If you were JP Morgan (NYSE: JPM) or Morgan Stanley (NYSE: MS) or Goldman Sachs (NYSE: GS) and owned between $743 million and $879 million worth of Alibaba stock would you: A) tell people that Chinese stocks are vulnerable to the policy whims of Chinese president Xi Xinpeng or B) tell people that 2024 is the year for Chinese stocks, you should buy them…
I don’t wanna suggest that the good people at Goldman Sachs would mislead investors for their own benefit, but…of course they would.
I’m not trying to tell you that there’s no value with Chinese stocks. Of course there is. But when Xi can make CEOs (and even generals) disappear for months for “re-training” and can hand down weird new rules for how companies can do business anytime he wants, it’s hard to nail down exactly what that value is, and it’s equally hard to be confident that value will remain constant.
I could be wrong. Chinese stocks could have a great year. U.S.-centric stocks will do just as good, probably better, and without the political risk.
But if the U.S. does go into recession, it will be bad for Chinese stocks. Exports from China to the U.S. have already slowed dramatically. China’s factory output has been in decline for 6 straight months. Choke off U.S. demand with a recession, China’s struggling economy gets even worse.
As Goes January…
If the old adage “as goes January, so goes the year” holds true, well, we’re not off to a very good start. It’s only been two days, but why wait? Let’s panic!
The talking heads on CNBC sound like it’s already over…as if an 8-week rally can be undone by a day and a half of selling…
But rather than me just talk about it, let’s get a visual: the 6-month chart for the S&P 500…
As always, here’s a quick description of all the lines and stuff. Horizontal red lines: support/resistance points.
Rising purple line: the 50-day moving average, used to define the medium-term trend
Rising black line: 200-day moving average, used to describe long-term trend
Purple Oval: that’s the gap created after the last Fed meeting
Purple arrow: today
So, that top horizontal support line in red. I wouldn’t call this support line critical, but it describes the action from the last three weeks pretty nicely. Note the one big red glyph from December 20…You may remember that big down day we got right before Christmas which seemed to come out of nowhere. The most important thing about that day is that the selling stopped right where it should – at support at 4,700.
So far today, the low for the S&P 500 is 4,704, and we’ve gotten a little bounce. And that makes sense: the trading algos that account for the vast majority of daily trading on the NYSE tend to at least pause at important support points. Buyers tend to step in at support points too.
What happens next? Good question. It’s a good time to pick a couple canaries in the coalmine to gauge buying interest. Micron (NYSE: MU) is a good one right now. It’s got as good a fundamental story as there is in techland. As of this morning, it was down 10% from its 12/27 high. However, Micron is showing relative strength today.
Bank of America (NYSE: BAC) is always a good canary in the coalmine. And it was putting in a nice rally yesterday, even as the overall market was weak. It succumbed to the selling, but has some support at $33.25. BofA kicks off earnings on January 12.
The Russell 2000 Small Cap Index (IWM) is down 4% over the last 5 days after the best December in history of that index.
And finally, there’s the CBOE Volatility Index, the VIX. We’d expect to see the VIX spike if traders were really concerned about a serious sell off. Now, the VIX has jumped ~10% in 2024 – from $12.50 or so to $14.20. But those are still very low levels, the VIX has already backed off its highs from earlier today. The VIX is definitely not showing the kind of panic levels that the “rally is over” crowd wants to see.
Ok that’s what I got for you today, take care and I’ll talk to you on Friday…