Old Lang Syne? – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

As the new trading year kicked off Tuesday, to a shortened week, much of the same feeling emanated, echoing the last days of December, 2022. Stocks showed little optimism and slumped, ending the session with the S&P 500 ending off 0.40%. The Dow Jones Industrial Average finished the day down only 12.66 points, with a lackluster day. Of the three indices, the Nasdaq dropped the most, off 0.76%, as many techs continued to shed big losses. The energy sector of the S&P had a disappointing opening after the sector finished 2022 with skyrocketing gains. As natural gas prices deteriorate, with demand weaker due to warmer weather looming and supply stockpiling, stock prices are on the way down. All indexes finished 2022 with poor performances, the biggest drop since 2008, with the Dow Jones Industrial Average off 8.87. The S&P 500 lost 19.4% for the year while the tech laden Nasdaq Composite suffered severely, falling 33.1% for the year. Hopefully history will repeat itself, with movement up after a losing year. Interestingly the S&P 500 has turned dramatically ‘around’ after nearly every year when it lost over 1%. Greg Bassuk, CEO of AXA Investments in New York, a leading market market authority comments, “A recessionary environment in 2023 could hamper tech stock performance in the new year, as investors’ thirst would increase for value oriented companies and those with higher profit margins, more consistent cash flows, and robust dividend yields,” Mr. Bussuk commented.

Wednesday’s news, with the release of the Job Opening and Labor Turnover Survey (known as JOLTS) and the Fed’s policy meetings’ minutes will definitely influence the indices. Negative comments from the Fed Governors steered the market lower, recovering slightly at the close on Thursday. From the data published Thursday, the labor market gained 153,000 new jobs besting Wall Street’s estimate.

Shifting Gears… Shifting Alliances. China endured the Covid pandemic with massive shutdowns throughout the country. Severe shortages of all products to many nations has disrupted economies worldwide. The shutdowns have prompted many countries to look elsewhere for products. Many companies have looked to Mexico and their vast resources of manufacturing and labor. One of America’s premiere corporations, WALMART, has begun to look to Mexico for production and manufacturing. Several other companies have followed suit, making major investments in manufacturing facilities, happy to be ‘closer to home,’ and saving ‘big time’ on shipping, as trucking and rail are readily available. Financial investments, and capital expenditures are flowing into Mexico, as quality of workmanship and labor costs lure more and more companies southward. More investment flowed into Mexico than China in 2021. Michael Burns, managing partner at Murray Hill Group, an investment firm focused on the supply chain, says, “It’s not about deglobalization,” Mr. Burns said. “It’s the next stage of globalization that is focused on regional network.”

A monumental achievement was announced…the harnessing of fusion. Scientists were successful for the first time to engineer “a reaction that produced more power than was used to ignite it.” High powered lasers focused huge amounts of energy on a minute ‘capsule’ the size of a small ball bearing, to achieve success with a reaction at the Livermore National Laboratory in California. Fusion has timeless potential, as it is a ‘clean’ fuel, produced carbon-free, able to supply electricity without any warming effects. Daniel Kammen, a professor of energy at the University of California said, “nuclear fusion offers the possibility of ‘basically unlimited fuel’ if the technology can be made commercially viable. The elements needed are available in seawater.” That process produces no radioactive waste of nuclear fission, Kammen said.

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Joshua Shapiro, chief U.S. economist at MFR, Inc., WSJ “The Fed wants inflation at 2%. We are still a far cry from that. There is little doubt that we are seeing some cooling in inflation.” said Mr.Shapiro.

Hani Redha, portfolio manager at PineBridge Investments, WSJ “They’ve effectively raised the bar on the magnitude and pace by which inflation would have to fall to warrant…a true pivot where they would actually be cutting rates,” said Ms. Redha. “That’s really bearish.”

Michl Binderbauer, An American physicist, and CEO of TAE, a private company devoted to commercializing non-radioactive nuclear fusion power, Barron’s “I think as humans we shouldn’t question anyone whether we’re going to have fusion,” he says. “It’s a question of when, and when is measured not in decades. It’s measured in five possible years. Sometimes within a decade, I believe, the private sector will have its first proven plant running.”