As expected, the Fed kept interest rates unchanged and it appears it will stay at these levels in 2020.  Fed Chairman Powell also did a great job in his comment session.  He stayed the course with his messaging of keeping rates as is absent any major changes to inflation.  His comments were rather dovish, and for investors, it was as close to an assurance as you can get.  I am really surprised at the market’s reaction, and that we didn’t close higher. 

U.S. Treasury prices, which were already up, extended their gains after the Fed’s announcement.  The 2 year is now 1.61% and the 10-year is 1.79%.  Gold also surged and is now over $1477 an ounce.

Materials and Technology were leaders yesterday.  All 30 components of the Philadelphia Semiconductor were higher, and the index was up 2.2%.  Photronics (PLAB), which was up 20% on its earnings and guidance, helped fuel the sector. 

With that behind us, the focus heats up on trade and the December 15 tariffs.  According to the latest news cycle, President Trump may decide today on whether the next round of tariffs, to the tune of $160 billion on mostly consumer goods, including cell phones, clothes,  laptops, and toys, will go into effect.  This news is adding pressure to Retail and Technology.

President Trump is expected to meet with USTR Robert Lighthizer, Treasury Secretary Steven Mnuchin, Director of the National Economic Council Larry Kudlow, and Director of Trade and Manufacturing Policy Peter Navarro.  The group is divided on whether he should implement the new tariffs.  Lighthizer, Mnuchin and Kudlow will be in the wait camp, while Navarro will likely push for them to go into effect on the 15^th.  Stay tuned.

Portfolio Approach

Yesterday, we closed one Consumer Discretionary position.

Today’s Session

In economic news, Initial claims soared last week, up 49,000 to 252,000, the highest level since September 30, 2017 when it was257,00.  The timing of Thanksgiving likely had more to do with the results than a decline in the job market.  A better gauge, the 4-week moving average, increased 6,250 to 224,000. 

Also out, Producer Prices (PPI) were flat in November, while core declined 0.2%.  Year over year, PPI is up 1.1%, while core is up 1.6%. 

Apple (AAPL) is down over 1% this morning as Credit Suisse is out with concerns over iPhone shipments to China.  The firm cited:

• "iPhone shipments in China dropped 35.4% y/y in November (per MIIT "non-Android" data), significantly lagging the 0.2% y/y increase in the broader Chinese Smartphone market."
• "While early indicators of demand on the iPhone 11 cycle were consistently better-than expected... sustained softness in China (~20% of Apple's revenue and op. profit) is an incremental concern, particularly given the increasingly easy y/y compares."
• "In addition, the looming Dec 15th deadline for 15% tariffs imposed on the vast majority of Apple's portfolio (including iPhone, iPad, and Mac) remains a potential overhang."

After the bell, Lululemon athletica (LULU) reported earnings that beat on the top and bottom line, and raised its FY20 guidance.  The stock is getting hit this morning anyway.  We believe this is an overreaction, as it was a great quarter.  There were 6 days less in this holiday quarter.  

Starbucks (SBUX), General Electric (SBUX), and Home Depot (HD) all received upgrades and will be stocks to watch.