Things you need to know:
- It’s raining again… and there is NO deal on the table (yet)
- Iran joins China & Russia in an attempt to disrupt US elections
- VIX up 26% in 1 week – Uncertainty will drive it up and stocks down
- Try the Potato/Escarole Soup for Thanksgiving
Well the weatherman didn’t see the clouds I guess (it’s stormy again outside)… that’s right – While everyone thought that Nancy was being serious about passing a relief bill – it appears that it is not happening before the election (at least that is what we were told late yesterday)… while markets held out hope as the hours ticked by, investors, traders and algo’s grew a bit anxious… and buyers backed away… Late in the day, administration officials along with House Speaker Nancy Pelosi suggested that ‘maybe a deal would come AFTER the election (although they are still talking – just to drag it out some more)… and then BOOM! At 3:30 pm – the algos shifted into SELL mode once again reacting to headlines vs. the fundamental data – (think earnings). And so it goes… by the end of the day the Dow lost 98 pts or 0.35%, the S&P gave back 7 pts or 0.22%, the Nasdaq lost 32 pts or 0.28% and the Russell fell by 14 pts or 1.14% .
The market remains stuck at the intersection of election concerns (think validity now that Iran has joined Russia and China in an attempt to create chaos and destroy our democracy), lack of a stimulus plan, the surging pandemic and what a Democratic sweep really means for Americans. Big policy changes – (think Supreme Court, Health Insurance, Retirement Planning are just a few), rising taxes and that means more than just income & corporate taxes, more regulation on major industries, an attack on technology and the list goes on… but – It is what it is… which is why the market remains volatile – as the path forward – while not completely clear is becoming clearer or is it? The polls which had Joey ahead by double digits (11% was the largest lead, I think) are now suggesting that his lead is only low single digits (2%)… and that my friends is within the range of statistically insignificant. And like that say at the Opera – ‘It ain’t over ‘til the fat lady sings’…
In the end – it never makes sense to make big political bets one way or the other – recall the reaction in 2016… while many people expected stocks to tank on a Trump win – they surprised everyone and rocketed higher as it became clear that not only did he win, but there was a republican sweep that put the whole executive branch in control of one party for the next 2 years. Thoughts of sugarplums began dancing in their heads… as the reality of massive tax reforms, and industry deregulation became more of a reality.
The markets and investors – who had been under pressure in the months leading up to the election – now found clarity – like it or not – but there was clarity and the market is OK with that… because then it knows what to expect. And that is true this time around as well… the back and forth and the angst and anxiety created by the final days of the election season are coming to a close and (hopefully) by November 4th we will all know what’s next as markets search for clarity. Now that is an issue as well, because last week the markets were under the assumption that it knew the answer… and that there would not be a contested election… but guess what? With the polls now showing a statistical tie – the idea of a contested election becomes real once again… and that creates more angst and more uncertainty… Capisce?
VIX futures (fear index) continue to suggest volatility ahead… the index is UP 26% since October 9th… This morning it is at 29.44 – just about to kiss resistance at 30.66… and if it does and it breaks up and through then expect that 40 is within sight… that would be another 30% higher from here… all the while all 4 indexes are now down nearly 3.5% in that same time… and if the VIX shoots higher then expect the S&P, Dow, Nasdaq & Russell to correct. Could be 5 – 7 % maybe… bringing the total re-pricing to 8 – 11% and that is just on the back of a VIX move… now if there is a contested election the VIX could surge even higher which means that the markets could correct even more… so sit tight, talk to your advisor – maybe peel back a bit on some of the outperformers (as they will be the ones to get hit the hardest) and remain patient… this does not mean sell everything – not at all…all it means is define what your position is and then look for who benefits and if you are not sure… then create a balanced portfolio that will weather the storm. Because a storm is coming…
This morning it’s raining here in South Florida… the skies are once again overcast and dark with that occasional crack of thunder… US futures are under pressure… The Dow down 50 pts, the S&P off by 4 pts, the Nasdaq is down 16 pts and the Russell is off by up 2… (recall the Russel fell by 3X as much as the broader market yesterday). The uncertainty IS the story… rising infection rates across the country, lack of US stimulus, an election that is now appearing more compromised than before as Iran jumps into the fray – joining China and Russia in an attempt to sway the electorate… causing some in the media to begin to raise the question of ‘validity of the process’ – and that is a whole other issue… I mean – the left has been screaming about how Russia ‘chose’ the current President for 4 years now… imagine what they will do if he wins again!
[Side note – yesterday the FBI revealed that Iran was responsible for a barrage of emails sent to Democratic voters in Florida and Pennsylvania (both swing states) intended to intimidate voters and incite civil unrest across the country ahead of the election. The intention was to make it seem as if they came from a ‘far right group’ but they did not… The FBI goes onto say that both Russia and Iran took ‘specific action in an attempt to influence public opinion…’ See the WSJ article this morning.]European markets are also lower – not big, but lower… Do I need to discuss? Isn’t it clear? Other than earnings, there isn’t much in the way of macro eco data across the continent so the focus is on the drama happening here and how the 3 musketeers (China Russia and Iran) are attempting to disrupt US elections and what that could mean for future European elections as well… and again- when the future is unclear – the path of least resistance is lower – it’s safe. At 6:30 – the FTSE -0.16%, CAC 40 – 0.15%, DAX – 0.05%, EUROSTOXX -0.15%, SPAIN +0.25% and ITALY -0.02%.
Earnings today include: DOW, ENTG, GTLS, DHR, ALK, TSCO, AB, PHM, KMB, ALL, FCX, EQT, SIRI, LUV, T POOL, DGX etc…
Eco data: Initial Jobless Claims of 870k, Cont. Claims of 9.6 million, Leading Economic Index – exp of +0.6%, Existing Home Sales of +5% and the Kansas City Fed – exp of 11.
The S&P closed at 3435 yesterday – down 7 pts… This morning they are down by another 5 pts at 6:45 am… (there were lower overnight and have rallied back a bit). Southwest Airlines just reports the largest LOSS ever… as Covid19 crushes demand… (not unexpected at all) – the stock is quoted down 50 cts… at $39.40. It has moved up and through all resistance trendlines over the past week and will most likely find support at $38.50.
It still feels a bit tired… and with no deal on the table (as of 7 am) there is no reason to run out and ‘take stocks higher’. Again – if it appears that this is all a big game and today they announce ‘a deal’ expect the market to briefly spike higher – but then once again begin to focus on the other issues which now seem more relevant to where the market will go in the short term. Again – we remain in the 3400/3550 range. Expect volatility ahead… So sit tight.
Take good care –
Kenneth Polcari
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Thanksgiving Potato & Escarole Soup
So here is another soup recipe in case you are still undecided about what to serve first for Thanksgiving dinner. This one is a pureed potato/escarole soup – thick and rich – it makes for a perfect starter dish.
This soup is topped with fresh mozzarella, toasted pine nuts and sweet raisins… Come on now… how good does this sound?
For this you need: fresh mozzarella cut into chunks, pine nuts, olive oil, chopped onion, Yukon gold potatoes, peeled and coarsely grated, water (or veggie stock), fresh escarole roughly chopped, s&p, golden raisins, soaked in hot water for 5 minutes then drained.
In a large pot – heat oil over medium-high heat. Add onion, reduce heat to med and cook, uncovered, stirring occasionally for about 10 mins… Next add potatoes and cook, stirring occasionally, about 5 minutes more. Now add in the escarole and season with s&p.
Continue cooking, covered, stirring occasionally, until leaves are wilted and tender, about 10 minutes more; add 1 ½ cups water (or veggie stock) and bring to a simmer. Transfer contents of pan to a blender or food processor and purée until smooth; season with salt to taste.
When serving – add chunks of the fresh mozzarella, some toasted pine nuts and sweet raisins… you can drizzle a bit more of the olive oil if you prefer…
Buon Appetito.
