Things you need to know
- Stocks continued to struggle as they LOOK for direction
- Today is all about the FED – Will Jay take back control of the conversation?
- Lots of earnings, TSLA after the bell
- Lots of eco data – will new home sales take a hit? (Higher rates)
- Treasury’s holding steady at 1.77%, Oil trades up, VIX trades down
- Russian crisis now moved to page 6
- Try the Drunken Spaghetti
Stocks continued to get pushed around closing lower on the day even after a ‘good ol college try’ to take them higher. All of the indexes – ending the day in the RED…. the Dow fell by 67 pts or 0.2%, the S&P’s down by 54 pts or 1.2%, the Nasdaq lost 315 more points or 2.3%, the Russell fell 30 pts or 1.45% and the Transports lost 255 pts or 1.6%. The 10 yr. treasury ended the day yielding 1.76% and is right there this morning. Oil added 2.25% or $1.86 to end the day at $85.61and this morning is up another 40 cts at $86.05. The VIX continued to surge – rising 20% to 35.80 by 11 am- before ending the day up 4% at 31.16. This morning the VIX is down 2 pts at 28.73.
Financials and Energy the only 2 sectors in the green – adding 0.5% and 3.8% respectively…. (Again, think VALUE). And this leaves the energy ETF up 17.6% ytd…. the only sector that is positive. Tech – XLK and Communications – XLC leading the markets lower down 2.3% (12% ytd) and 2% (9% ytd) respectively. Disruptive tech – ARKK off 25% ytd while the Disruptive tech short trade is up 25%. (See how this works?). The value trade – SPYV down 3.3% ytd while the growth trade- SPYG is down 13.15% ytd. The contra-play etf’s (going short the market vs. being long) are all up. Dow short is +5.6%, S&P short is up 9% and Nasdaq short is up 14.6% ytd…. completely mirroring the losses on those indexes.
It is all about the FED….
The action continuing to highlight the level of anxiety that investors are dealing with as we all await today’s FED announcement. There is lots of speculation about what ‘might’ happen and lots of speculation about what ‘should’ happen from all corners of the markets but for markets to settle down – Jay must TAKE back control of the conversation if he wants any of this to stop…. He needs to counter all the ridiculous comments – talking about 5 – 7 hikes, taper and balance sheet reduction ALL happening at the same time. I mean, if he does not – then watch out below – as the bottom falls out…because if the FOMC (Fed Open Market Committee) thinks that that is the way it needs to happen, then they might as well stand up and say that
“While we told you we had it under control, the truth is we completely missed the boat, none of us saw this coming and we are way behind the 8 ball – so the only way to stop/slow this is by attacking from all sides.”
Now, I do not expect that to happen at all…but I do expect him to say that the situation continues to be challenging and that inflation pressures are not yet subsiding so – ‘we are ending the taper by March (vs. April), and that rate hikes will begin in March as well. Now, they need to hit the markets with a 50-bps rate hike right out of the gate and then back off with 2 more 25 bps hikes in July and September…. that still gets us to an increase of 1% for the year, a level that is consensus for any of the levelheaded economists out there. Talk of 5 or 6 hikes should be eliminated (unless of course they have not been telling us the truth all along.) and talk of the balance sheet reduction happening in March as well, should be put to bed. The consensus seems to be that that will start happening in July – so that combined with 2 more 25 bps increases should be enough to begin to attack the inflationary pressures that are building. But remember – we have a $9 trillion balance sheet, we are in a place that we have never been before – so yes, it is going to be a bumpy ride, so get ready.
In the end – if he remains ‘unsure’ or even ‘flinches’ – then expect the algo’s to go into sell mode once again…. if he delivers a message that is confident and deliberate and does not allow for misinterpretation then I think the markets will settle down. He needs to make it crystal clear and correct any journalist that is trying to twist his words. But in the end – people hear what they want to hear…. The market just wants to know the plan – good or bad- that is ok, it can deal with that, what it cannot deal with and what has been very clear is the uncertainty of it, and the range of opinions being offered by everyone BUT the FED.
(Here is my appearance on TheStreet.com yesterday. https://www.thestreet.com/video/time-jerome-powell-shake-up-market-former-nyse-trader-says)
I just laugh at all of this, because there was a time (think the last century) when the FED chair and the committee said nothing until they made a decision, they told the markets what the decision was and then the markets had to figure it out….they didn’t hold everyone’s hand, they didn’t ask you to come and lie down on the couch and tell them ‘how you feel’, they didn’t ask if it as OK to do anything… – they were the ones in control – there was none of this ‘let me hold your hand so you don’t get scared’ stuff. But I am dating myself….
This morning US futures are celebrating what it is assuming is going to happen…and that is what I said above that Jay will take back control and discount much of the latest chatter coming from some of the big investment banks. Dow futures are up 275 pts, the S&P’s up forty-seven, the Nasdaq up 250 pts and the Russell up 21 pts. Yesterday we heard from JNJ. 3M, AXP, VZ, ADM, LMT and a range of others and they all beat on the top and bottom lines….and many of these are considered ‘value’….and found buyers….after the close MSFT also reported a beat and offered up encouraging forward guidance – that stock rose 2% in the after hours session and is quoted up $8 this morning….or nearly 3%. Let me remind you, the recent angst has taken 21% out of the name…. a move I would say is a bit ridiculous (is it a buying opportunity?) It is Microsoft not Peloton!
Lots of earnings out today….GD, ABT, ANTM, ADP, BA, FCX, APH, GLW, T, NDAQ – all before the bell, while after the bell we will hear from AMP, LVS, RJF, INTC and TSLA – to name just a few…. Expect to hear all kinds of chatter around TSLA…just because it is Lonnie….
Apple is due out tomorrow and GOOG not until the 1st of February.
Eco data includes Mort Apps, Wholesale Inventories of +1.2%, Retail Inventories of +1.5%, New Home Sales of +2.2% and this will be a key stat to watch – especially since 30 yr. mortgage rates have surged to nearly 4%. Which at some point will stop the insanity of continued rising prices? But none of these will trump the 2 pm release and the 2:30 pm press conference by the FED….so sit tight….
European markets are all up across the board…rising better than two%…. It is all about earnings and the FED…. recent comments out of the ECB suggest that the European inflation outlook is no reason for the ECB to change course – a comment he will be sure to regret. On the other hand – he is warning Europe that they are at major economic risk if Russia invades Ukraine….
Crypto’s continue to thrash around. Bitcoin is trading at $37,800 and Ethereum at $2,500 – Expect continued volatility
The S&P closed at 4356 – after trading as low as 4,287……I still expect that we will test Monday’s low of 4,222 again before this is over…. Just to be clear – there has been a lot of technical internal damage done to the markets, so it will thrash around until it gets clarity. The FED holds the key right now, what they say will matter, but it will be what investors HEAR that is more important. Note – we did not even talk about Russia today – and that is because in the end, it will not price stocks….
Take Good Care
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Drunken Spaghetti
Glass of wine anyone?
You cook it in water and red wine – a nice Chianti or “vino di tavola” (table wine). No need to use an expensive red – go out and buy a chianti. The trick is that you add equal parts of water and wine – bring to a boil and add the pasta – cook for 7 mins and then strain – reserving a mugful of water/wine. You then finish it off by sautéing in a pan with butter, garlic, pancetta and & more wine… read on…
You need – a nice chianti, garlic, butter, spaghetti (you can use fusilli, linguine, bucatini, capellini but it should be a long pasta – not penne or mostaccioli, ravioli etc.), olive oil, chopped parsley, pancetta, red pepper flakes (optional) and plenty of fresh grated cheese.
Add equal parts water and red wine to pot and bring to a boil. Add salt. Add pasta. Cook until al dente – like 7 mins or so.
In the meantime, peel the garlic and slice it. – chop some pancetta. Place the butter and olive oil in a sauté pan large enough to fit the pasta and place it over low heat to slowly melt the butter. Now add the pancetta and cook just until almost crispy… now add in the chopped garlic. Sauté. (Here is where you will add the red pepper flakes if you choose)
When the garlic gets toasty add the additional half cup of red wine and about quarter cup of pasta water… turn up the heat until the liquid simmers. Strain the pasta – reserving a mugful of water… toss the pasta into the sauté pan with the garlic & wine. Mix well, tossing and stirring over med-hi heat until the liquid is absorbed. Do not let it “dry out” you can always add a bit more of the water if it does. Taste. Good? Now add a handful of fresh grated parmigiana (or pecorino Romano) cheese – toss again and serve immediately in warmed bowls… be sure to have more cheese on the table…
Buon Appetito.
