Oh, GE! I Have a Trade Plan
Let's chart GE Aerospace's breakout; Also, the Donald at Davos gets lots of 'interest.'
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It wasn't obvious right away. I think we all knew that President Trump's virtual address to the World Economic Forum at Davos, Switzerland had the potential to be the market-moving event of the day on Thursday. For a little while, it looked like financial markets were not going to react, and, maybe, go into "profit taking" mode to take advantage of this week's post-Inauguration Day run for risk assets.
The president spoke from the Oval Office, and he was confident. He usually is confident, but he seems different this time around, as if he knows this term is his last go-round, his last chance to make a lasting difference, and his last shot at creating or re-making his legacy. President Trump announced that he would pressure OPEC to perhaps increase production and reduce market crude prices. Along those lines, he mentioned the news that Saudi Arabian Crown Prince Mohammed Bin Salman would expand his investment in the U.S. by $600 billion over the next four years and spoke of trying to push for that investment to grow to as much as $1 trillion.
The president spoke of unfair treatment of U.S. tech companies in the European Union and left manufacturers in that region with a choice. They can manufacture their goods meant for the mighty U.S. consumer in the U.S. or they can face penalties in the form of increased tariffs trying to access this market. President Trump's exact words were, “If you don't make your product in America, which is your prerogative, then, very simply, you will have to pay a tariff, differing amounts, but a tariff which will direct hundreds of billions of dollars, and even trillions of dollars into our treasury.”
Perhaps the real gem of the speech, in terms of how keyword-reading trading algorithms reacted -- and not realistically within what powers a president actually has -- was Trump's comment on the sloppy fiscal policies of his predecessor's administration and the crippling budgetary impact of servicing that debt. The president said, "I'll demand that interest rates drop immediately." He then quickly added, "Likewise, they should be dropping all over the world. Interest rates should follow us all over."
On That Note...
Fed Funds futures markets trading in Chicago are now pricing a near 100% probability that the Federal Open Market Committee sits on their collective hands next week and leaves short-term rates where they currently are. At the moment, any next quarter-point-basis cut to be made to the target for the Fed Funds Rate is not priced in until June 18th (69% probability).
Very interestingly, if one goes way out on the spectrum, there is no second rate cut of a quarter-point priced in until December ... of 2026. Of course, none of us know what will happen and how the central bank will react that far out. The members of the FOMC have a hard enough time making three-month projections that don't embarrass them. I doubt very many of our central bankers can think almost two years out with any clarity.
There is no futures market whatsoever for a rate hike at the moment until the spring of 2026. Does consumer level inflation take a break at some point this year? The consumer price index has been in reacceleration mode since bottoming in September. That would be why the president is so intently trying to jawbone energy markets.
Third Term Presidencies?
Interestingly, a resolution that in all likelihood would have very low odds of being passed, has been introduced in the House of Representatives to amend the Constitution to allow a U.S. President to serve a third term if that president's first two terms were not consecutive.
Why is passage of this resolution such a low probability event? Well, in order to amend the Constitution in this way, which is obviously tailor-made for this president, a two-thirds majority would be required in both the House and the Senate and then three quarters (38) of the states would also have to ratify the change.
Obviously, even if every single Republican legislator got behind the idea, which I don't see, they would still not have the votes. Now, if eligibility for a third, non-consecutive term was expanded to include former presidents that had already served eight years, I think there could be some open debate. The U.S. currently has three former presidents that would fit that category, two Democrats and one Republican.
Marketplace
The president's speech did manage to pressure the U.S. dollar vs. its reserve currency peers. The overnight rate hike made by the Bank of Japan added fuel to that fire. That said, Treasury markets did not really react to the president. The yield for the U.S. Ten Year Note increased by three basis points to 4.64% on Thursday and has more or less clung to that level through the zero-dark hours. Gold and silver are trading higher in response to the weaker dollar as Bitcoin is also higher, not just because of lower dollar valuations but also due to the president's overt support.
As for equities, after waffling ahead of and through the president's address, upward momentum developed through the afternoon. Equities closed at their highs of the session with the S&P 500 up 0.53% and at another new record high. The Nasdaq Composite closed up 0.22%. Broadening our glance, the Dow Transports, and Russell 2000 ended the day up 0.51% and 0.47% respectively, while the Philly Semiconductors gave back 0.45%.
The rally from the depths of the early morning was rather broad, with the exception of those semis. All eleven S&P sector SPDR exchange-traded funds closed out the regular Thursday session in the green, led by Health Care XLV and the Industrials XLI. Even the funds representing the growth sectors, Communication Services XLC and Technology XLK, despite finishing the day in tenth and eleventh place on the daily performance tables, showed gains.
Breadth was solid. Winners beat losers by a 4 to 3 margin at the NYSE and by about 7 to 5 at the Nasdaq. Advancing volume took a 67.2% share of composite NYSE-listed trade and a 57.6% share of composite Nasdaq-listed activity. In support of the upward change of trend that we both identified and confirmed for readers last week, aggregate trading volume increased by 2.5% day over day for NYSE-domiciled names but contracted for Nasdaq-domiciled names by 5.3%.
Oh, GE, a Break Out!
I did not get a chance to cover a Sarge name that appeared to break out on Thursday, as my early focus was on Palantir Technologies PLTR, but we do need to discuss GE Aerospace GE. The Larry Culp-led company crushed expectations for Q4 top and bottom-line performance, while operating and free cash flow exploded higher. The firm's guidance also projected full year 2025 free cash flow of $6.3 billion to $6.8 billion vs. Wall Street's consensus view for about $5.25 billion. Yowza.
Additionally, GE announced a 30% increase to its dividend payout, still subject to board approval, while said board has already approved a share repurchase authorization of $7 billion. The stock on Thursday traded at 24-year highs. As if Jeff Immelt's disastrous 16-year stint as CEO of GE never happened. Poof.
A 27-month uptrend in place. Larry Culp certainly has done a heck of a job, in cutting loose underperforming parts of the firm and underperforming individuals, while breaking the firm into three surviving parts.
I still haven't decided if what I see before me is a basing period of consolidation that began last summer, or a cup pattern that began in early October. Either way, the pivot was that October high, and the stock, with a gap up session on Thursday, has broken out. Relative strength is beyond strong, the 21-day exponential moving average has crossed above the 50-day simple moving average and the daily Moving Average Convergence Divergence indicator is postured for more gains.
GE Aerospace Strategy:
Target Price: $224
Pivot: $195
Add: down to 50-day SMA ($176)
Panic: Loss of the December low ($160)
Economics (All Times Eastern)
09:45 - S&P Global Manufacturing PMI (Jan-Flash): Expecting 49.6, Last 49.4.
09:45 - S&P Global Services PMI (Jan-Flash): Expecting 56.6, Last 56.8
10:00 - Existing Home Sales (Dec): Expecting 4.18M, Last 4.15M SAAR.
10:00 - U of M Consumer Sentiment (March-F): Flashed 73.2.
10:00 - U of M One Year Inflation Expectations (March-F): Flashed 3.3%.
10:00 - U of M Five Year Inflation Expectations (March-F): Flashed 3.3%.
10:00 - Kansas City Fed Manufacturing Index (Jan): Expecting -9, Last -5.
1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 580.
1:00 - Baker Hughes Oil Rig Count (Weekly): Last 478.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: AXP (3.06), ERIC (2.32), HCA (6.16), VZ (1.09)
At the time of publication, Guilfoyle was long PLTR, GE equity.
