Things you need to know 

• Stocks surged;  NY now reveals 5 cases bringing a total of 5 states with reported cases…the other 45 surely lining up.
• NY Governor Houchell says – “This is NOTHING to panic about” – Whew!
• Mixed data on the need for a new vaccines.  Will the current version be enough protection?
• Oil spikes higher yesterday and is higher again today…
• 3 more FED Governors joining in to explain WHY taper needs to happen faster and why rates NEED to rise.
• NFP today – but PPI and CPI next wee are MORE important
• Feast of the 7 Fishes – #3 Filet of Sole

Stocks finish higher and Omicron is in NY – so ‘Start Spreadin’ the News, I’m leavin today…. I want to be a part of it, NY, NY’….…in fact, it has been here longer than they thought…. NYC has 5 reported cases and surely there are many more…. NY Governor Houchell taking to the airwaves last night saying
“This is no reason to panic…’  (Imagine that!)

Well – THAT’S good….in fact the new variant has now been detected in 5 states… (NY, CA, MN, CO, and HI – note FL is NOT in the mix – yet)). with symptoms being just what the Dr. from South Africa said – Cases are mild – Period.

Stocks jumped completely ignoring the latest details surrounding the virus….and that does make sense…Why?  Because – it is what it is…..we can’t stop it, so we learn to live with it, We have vaccines, boosters, and other therapeutics and will continue to tweak all of those to deal with the different mutations that are sure to come, because they are coming….it’s just science….And btw – just to be clear – we are hearing about more and more people that ARE vaccinated getting hit again….they are not getting as sick as the unvaxxed, but they are getting hit again…and while that is a health concern, the markets – in the end – do not appear to be that concerned.  Even the WHO (World Health Organization) tried to calm the global ‘panic’ saying that current vaccines are likely to still offer protection.

The Dow ended the day up 620 pts or 1.8%, the S&P 500 +65 pts or 1.4%, the Nasdaq up 128 pts o r0.8%, the Russell up 60 pts or 2.7% and the Transports added 455 pts or nearly 3%!

Oil rose adding 2.8% or $1.80 to end the day at $67.40 AFTER initially falling to a low of $62.40 when the news hit the tape that OPEC said they would stick to their plans to increase supply  – more supply means potentially lower prices but then said that they will ‘review the supply additions in January….if the variant hits demand’ – so the take away there was that they would cut back on supply if Omicron proved to be more of an issue than most of us think it is.   Prices rose strongly and are up again this morning by another 2.5% or $1.60 on the idea that demand will continue to be strong, and Omicron will NOT be the disaster the msm is making it out to be.

10 Yr. Treasuries fell in price sending yields up to 1.43% after trading as low as 1.414%…. We’ve got 4 weeks for yields to spike to my year end target of 1.8% – 2% – will we get there?  A move that swift will certainly cause stocks to pull back fast….and you can be sure that the administration and the Fed do not want that to happen….so my guess now is that those rates will come in the New Year – I don’t think there is any support to see rates go to nearly 2% in the final 4 weeks of this year.

Ok – so then what drove the markets higher yesterday?  Well, 3 FED governors hijacked the conversation…. Randy Quarles, Raffi Bostic, and Mary Daly all tried to rationalize the need for a faster taper and potentially faster rate increases after yesterday’s strong eco data – echoing what FED Chair Jay Powell told us last week….….

Jobless claims coming in lower than expected yesterday (bullish) is suggesting progress in the job market ahead of today’s all important Non-Farm Payroll report…which is also expected to be bullish….New jobs created expected to be +550k, (but the whisper number suggests better than 600k)  Unemployment expected to fall to 4.5%, Underemployment to fall below 8%, Wages expected to be up…so it is expected to be a strong report….but I would argue that it is really next week’s PPI and CPI reports that will be more impactful for investors and markets. PPI is expected to be up 8% y/y and CPI up 6.7% y/y.  Recall that these two reports speak directly to the pace and rate of inflation and THAT is what will drive the conversation and is what will drive the FED’s next move. So, while today’s NFP report is important – it is expected to be a strong report (no one is expecting it to disappoint at all) …the risk next week is that both the PPI and CPI reports are stronger than the expectation…. a weaker report will take some of the pressure off the conversation, while a stronger report will only put more pressure on the FED to do something….

Look Jay has conceded.  The FED has conceded as evidenced by all the hawkish voices now….and they are doing everything they can to ‘jawbone’ bond yields to rise so that the markets and investors start getting used to it…. Notice the chorus of voices have mostly all moved into the ‘need to taper faster camp’…. it’s almost comical how quick the narrative changed ONCE Jay was re-appointed.  In any event – the sense is that the FED is behind the 8 ball – what was 2 expected increases is now 3 or 4 (by some).  A full taper to be completed by March vs. the original schedule of June leaving the door open to a possible April or May increase ahead of what was a July increase.  Add in the massive gov’t spending plan and that is giving the FOMC (Federal Open Market Committee) reason to get this going…. No time to waste….

Financials – XLF, Industrials – XLI and Energy – XLE all rising 3% as that value, cyclical trade is giving people a place to hide in what might be that coming storm….in the new year…. In fact, to further prove this point the Value Trade – SPYV rose 2.2% vs. the Growth Trade – SPYG that rose only 0.9%.  Now to be clear – Growth is outpacing Value this year…+ 27% vs. + 16% but THAT I think will change in 2022….And who you are will dictate how you play it….a 60 yr. old will be more value oriented, a 30 yr. old should be more growth oriented….it a timing thing….think about being on the front 9 vs. the back 9 – Capisce?

Basic Materials – XLB rose 2%, Communications – XLC and Consumer Discretionary both up 1.5%, Utilities – XLU rose 1.3%, Consumer Staples – XLP +1% – The worst performer?  Healthcare – XLV up a mere 0.5%.

This morning…US futures are a touch weaker…Dow futures down 43, S&P’s down 7, the Nasdaq down 26 and the Russell down 5 pts – All as we await today’s report…. Expect more chatter though, about the variant now being in NY and what that might mean for the city that never sleeps.

European markets are slightly higher….as they continue to monitor the virus and as they also await US jobs data.  Eurozone final PMI came in at 55.4 up from Octobers read of 54.2 but just a hair below the expectation.  Comments from Markit IHS are warning that the recent growth will most likely be short lived if the variant is worse than what we now think.  Eurozone inflation data did hit a record high of 4.9%, Producer Prices surged by 5.4% leaving those prices up 22% y/y!  At 7 am – markets across the region are up about 0.1% – 0.3%.

In the end – the turbulence that I and many others have been talking about is also here to stay for a while and in my opinion will get worse in January….…. we are in the final stretch of the year….4 weeks left for investors to do their year end tax planning and positioning for the new year.  I think the market churns…..it’s hard for me to think we could test new highs in the next 4 weeks when we have all of this drama and uncertainty…because in the end – the market does not like uncertainty….it can deal with bad news, it can deal with the facts, what causes the angst is the uncertainty and speculation about the what ‘if’s’  Which is exactly why we have these daily big swings….it is all about the ‘if’s’.

The S&P closed at 4577 taking it up and thru the trendline once again…. The other indexes which have all broken down as well…. are trying to claw their way back…. Will they be able to hold on or will investors sell into any strong rally that results?  We are about to find out…. This is not the time to fall asleep.
I am still in the camp that this new variant will NOT prove to be the disaster that they want you to think it is…. nor do I think the next variant will be either…. I am operating under the assumption that this too shall pass….and now that the FED has shown its true colors – you need to be ready for more volatility in the weeks ahead…. I think it comes more in January than December…. but it’s coming…

Remember you can text the word INVEST to 21000 on your cell phone to get my digital business card. Feel free to download it and send me off an email or text. Happy to engage and talk markets, planning, thoughts, concerns, and ideas.

You can follow me on Twitter and TikTok @kennypolcari and on IG @kennyp1961.

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Take Good Care

Chief Market Strategist, Consultant
kpolcari@slatestone.com

Feast of the 7 Fishes – #3 Filet of Sole

This is also simple to make and is a personal favorite…. For this you need:  Filet of Sole, Eggs, Italian Style Breadcrumbs * (recipe below – these are also the breadcrumbs you use for stuffing the calamari), flour, Olive Oil, and tartar sauce.

Beat 6 eggs in a large bowl to make an egg wash.

Place Flour on a separate plate, place Italian breadcrumbs on a separate plate. – Now make a production line.   Flour – eggs – breadcrumbs.

Next – dredge in flour – shake off excess then introduce into the egg wash – remove from the egg wash and place on the plate with the breadcrumbs. Using a fork make sure that you cover the filet in breadcrumbs.  Place on a clean plate.  Repeat until you have breaded all the fish.

Next turn the oven to broil and pour olive oil in a pan – maybe like 1/8 inch in pan.   Heat the oil under the broiler…. now be careful and watch – as the oil gets hot you need to make sure that you are ready to broil the filet.  Take a pinch of breadcrumbs and toss in the pan…do they sizzle right away?  If so – then you are ready.

Now place the filets in the hot oil and flip to the other side…now let them broil to a nice golden brown…. Open oven door and with a spatula – carefully flip the filets over to brown the other side…. Once browned – remove and place in a serving platter.   Serve this with tartar sauce and any leftovers make great “fish filet sandwiches the next day!” (Make sure you use toasted Italian bread, melt some provolone cheese – add a bit of tartar sauce).

**Homemade Italian style breadcrumbs –

In a food processor – blend a bag of hamburger rolls (or hot dog rolls) and transfer to a bowl.  Add pepper, onion powder, garlic powder and some parsley for color.  The key ingredient is 3 or 4 handfuls of grated pecorino Romano cheese. Do not add salt…the cheese will make up for any salt you think you need.   Mix well and set aside.

Buon Appetito.