We are returning to the 1970s.
— Kevin Hassett, Former Council of Economic Advisers
Just two weeks ago the investing world was agog for tech stocks, especially anything to do with Artificial Intelligence (AI). The enthusiasm evaporated Thursday. Even though Meta and Microsoft reported earnings above expectations, the two stocks fell 6 and 4.1%. All the tech Magnificent Seven seemed out of favor. The changes discussed here for months are occurring now. Analysts expected Intel to report a $1.1B loss. The real number is $16B and the stock dropped 9%.
Volkswagen is laying off 100,000 auto workers. For the first time in its 87 years, it will close three plants. This is the result of politicians telling car makers to build vehicles buyers don’t want. Ford is closing the plant making its Ford EV F 150 (remember Biden behind the wheel?) from Mid-November till Jan 6. GM delays a battery plant and a Buick EV. Stellantis cuts prices to drain inventories. TGI Fridays is the latest restaurant to take Chapter 11 Bankruptcy. Estee Lauder cuts its dividend in half, lowers financial forecasts amid a 21% stock decline.
As tech shares tumbled, crude oil jumped now trading up 2.27% from Thursday at $70.83. We have noted crude has been range bound and jumped in good fashion this week from the 67-68% level. My call on Transocean (RIG) was way early near $6. But RIG jumped 10% Thursday and is up another 3.5% Friday at $4.49. Given the success the Houthis have had interrupting shipping, a low oil price seems unreasonable.
The message is that the markets are moving from high tech to commodity markets. Inflation and higher interest rates are back. Today, Friday, the stock markets have recovered Thursday losses. But tech prices look toppy. For now, there is a tug of war between tech and the more basic commodity markets. My longer term bet is on the latter.
Post this column prominently so you do not forget where we are cycle wise. Interest rates made 39 year cycle low in March 2020. Rates have soared on the Ten Year Note from less than one percent to about 4.4% today. Once rates take off there is little looking back.
