China's Dark Horse Chip Star, Tech Finds Support, Brace for Stale PCE Data

Today is the day. This morning is the morning. At least that's what we're told. Federal government agencies continue to play catch up as the Bureau of Economic Analysis, or BEA, releases its data for September personal consumption expenditure inflation ahead of the opening bell on Friday. The data will hit the tape at 08:30 ET, along with September personal income and outlays. How important this stale data is might be questionable though, unless something really comes out of left field.

I mean, sure, there will be some kind of algorithmic reaction, because the algorithms that replaced human traders at the point of sale have been designed to create price overshoot, to force inefficiency even when there is none. Call me jaded. I'm a human trader. Of course, I'm biased. Even if there is a knee-jerk reaction, will there be any response to the numbers more persistent than that? We already have consumer price index data for September.

On Oct. 24, the Bureau of Labor Statistics informed us that for that month, both headline and core inflation were up 3.0% year over year. On a month-over-month basis, September headline CPI showed a gain of 0.3%, while the core print sported growth of 0.2%. I know, PCE is the Fed's favorite measure of consumer-level inflation and when the Fed speaks of a 2% inflation target, it, as a collective, is speaking of year-over-year headline PCE. That said, the Fed speaks of core as if it were more important, because it actually is, and people on Main Street watch CPI inflation more closely that PCE inflation because they've heard of it.

What To Expect?

Not an October CPI report. The BLS was unable to collect the required data to create a release for October. November CPI is due on Dec. 18, though I do not know how the BLS will post month-over-month results without the October numbers. Maybe they'll use magic. Maybe they'll "guesstimate," as we all know how accurate BLS estimates are. They'd probably be better off using a dart board or playing "pin the tail on the donkey."

So, that leaves us with this quite dated September PCE report until the November CPI hits the tape, or does it? I mean there are high-quality professional estimates out there. Later this morning, though I don't think it matters as much as our friends in the financial media do, I look for a headline y/y PCE print of 2.8% and a core print of 2.8%. Those are my numbers. Consensus is for 2.9% growth at the core, so I'm one tick below the masses on that print.

Who do I really rely upon for hedge-fund quality macroeconomic analysis? This is not a paid advertisement. Quite the opposite, I pay Keith McCullough's gang over at Hedgeye for it estimates, because in my opinion, Hedgeye is that good and I would need a full staff to produce models in the quantity and close to the quality that the firm provides to me. As a manager running a business, outsourcing for my economic staffing needs makes a lot more sense than hiring live bodies.

I won't give away the store, as Hedgeye too is running a business, but it gave me a headline CPI print of 3.01% for September (3.0% BLS print) and a headline print of 2.96% for October well ahead of time (no BLS print, the Cleveland Fed's model landed at 2.96%). The crew at Hedgeye currently sees some mild acceleration in annual CPI for November followed by some disinflation in December.

I would not give you actual numbers for those months without asking Keith's permission. I know he, too, is at his desk as he, Dougie Kass, Jim Cramer and I are the only four Wall Streeters I know of that work these kinds of hours, but morning for us, is for most, just the middle of the night. The Cleveland Fed's model sees almost stagnant inflation for both months, 2.99% for November followed by 2.94% in December. Bottom line? At least inflation has stalled where it is.

Remember, there are always ways around the lack of reliability and often the inaccuracy in the data provided by government agencies for those readers who need to incorporate macroeconomic analysis into their input / output and policy-focused models and no longer have access to a staff of warm bodies to help with the research.

We understand that we face an obstacle. We identify potential solutions. We adapt to changing environments. We overcome. We carry on with the mission. Why? Because fear is but for the wicked, and the wicked will tremble before us. We are never helpless. Never.

Marketplace

The major U.S. equity indexes closed mixed on Thursday. While the S&P 500 tacked on 0.11% and the Nasdaq Composite gained 0.22% (for both an eighth green candle day in the past nine). Both the Dow Industrials (not a major in my opinion) and the Nasdaq 100 closed down small. Interestingly, again, the markets favored small caps, or did they? The Russell 2000 gained 0.76% on Thursday closing at a record high, yet the S&P SmallCap 600 gave up 0.2%. Make that make sense.

Bond traders sold U.S. Treasury debt securities. The U.S. Ten-Year Note paid 4.11% by day's end, up four basis points, while the yield on the U.S. Two-Year Note moved up three basis points to 3.53%. Those yields have steadied at those levels overnight even as U.S. equity index futures, at least on the Nasdaq side have found buyers.

Tech found some support after Meta Platforms  (META)  CEO Mark Zuckerberg finally woke up from his years long stupor and decided to sharply reduce corporate expenses related to the company's Metaverse projects. Good was bad, however, which was the opposite of what traders experienced on Wednesday as weekly initial filings for state-level jobless claims (admittedly for a holiday week) printed well below expectations. Challenger, Gray & Christmas also announced that U.S. employers had announced "just" 71,320 layoffs in November, down significantly from the 153,070 layoffs announced in October.

Breadth

Six of the 11 S&P sector SPDR ETFs closed out the Thursday regular session in the red. Losers were led to the downside by Health Care  (XLV) , as Communication Services  (XLC)  led the winners. Among the 11, not one fund strayed more than 0.76% from where that fund had gone out the day prior, so activity was subdued. Defensive funds underperformed both cyclical and growth funds, which is generally seen as a positive for economic activity.

Losers beat winners by just a smidgen at the NYSE as winners beat losers by a 7-to-5 margin at the Nasdaq. Advancing volume took a 61.9% share of composite NYSE-listed trade and a 58.9% share of composite Nasdaq-listed activity. Meaningful? I mean your prices stand, but not technically. Aggregate trading volume was up 2.9% on a day-over-day basis across NYSE-listings, but was down 6.4% across Nasdaq-listings. Trading volume in general remains well below pre-holiday levels.

U.S. to Invest in ... 

Bloomberg News broke a story on Thursday claiming that the Trump administration could be planning to take more equity positions in critical minerals and perhaps (in my opinion) specialized energy production companies. Jarrod Agen, executive director of the National Energy Dominance Council, in a public appearance, said: "We're literally buying equity, getting equity in companies to give the backing of the U.S., because that's the only way we're going to catch up with China on these things."

The Trump administration has already spent more than a cool $1 billion taking stakes in MP Materials  (MP)  and Sargefolio name Lithium Americas  (LAC) . On Thursday, USA Rare Earth  (USAR)  ran 24.7% after announcing a supply deal with Compass Diversified, while former Sarge holding Oklo  (OKLO)  ran 15.6%. That stock, which I will reinvest in at some point, is down more than 6% overnight after disclosing an equity distribution agreement that would dilute the equity. Ramaco Resources (METC), where I still have a small, long position, was up 7.8%.

Xi and Nvidia...

Now we know why Pres. Xi of China has been so slow to allow Nvidia  (NVDA) and Advanced Micro Devices  (AMD)  to restart selling AI-capable general processing units in the mainland. Beijing-based AI-capable chip designer Moore Threads raised the equivalent of roughly $1.13 billion in its Shanghai STAR Market initial public offering as shares traded as much as 500% higher on the stock's first day of trade.

Moore Threads was founded by Zhang Jianzhong in 2020. If Zhang Jianzhong's name seems somewhat familiar, that's because he is a former Nvidia executive and the company is already being touted as "China's Nvidia." Moore Threads is projecting sales growth for full year 2025 of more than 240%, obviously having taken advantage of both U.S. curbs on high-tech exports and on China's drive to become self-sufficient when it comes to chip design.

Let the Games ...

A big slate of conference championship games are set for the weekend. That said, we all know that the most important football game of the year will be played next Saturday. That game makes the Super Bowl look like kids' stuff in comparison.

Economics 

(All Times Eastern)

10:00 - Personal Income (Sep): Expecting 0.4% m/m, Last 0.4% m/m.

10:00 - Consumer Spending (Sep): Expecting 0.4% m/m, Last 0.6% m/m.

10:00 - PCE Price Index (Sep): Expecting 0.3% m/m, Last 0.3% m/m.

10:00 - Core PCE Price Index (Sep): Expecting 0.2% m/m, Last 0.2% m/m.

10:00 - PCE Price Index (Sep): Expecting 2.8% y/y, Last 2.7% y/y.

10:00 - Core PCE Price Index (Sep): Expecting 2.8% y/y, Last 2.9% y/y.

10:00 - U of M Consumer Sentiment (Dec-adv): Expecting 52.0, Last 51.0.

10:00 - U of M One-Year Inflation Expectations (Dec-adv): Expecting 4.4%, Last 4.5%.

10:00 - U of M Five-Year Inflation Expectations (Dec-adv): Expecting 3.3%, Last 3.4%.

13:00 - Baker Hughes Total Rig Count (Weekly): Last 544.

13:00 - Baker Hughes Oil Rig Count (Weekly): Last 407.

15:00 - Consumer Credit (Oct): Last $13.09B.

The Fed

(All Times Eastern)

Fed Blackout Period.

Today's Earnings Highlights 

(Consensus EPS Expectations)

Before the Open:  (VSCO)  (-.59)

At the time of publication, Guilfoyle was long LAC, METC, NVDA, AMD equity.