Things you need to know
- Stocks hit a landmine and collapsed by more than 2%
- Speculation building about what JJ is going to say on Friday
- OPEC suggests that they are ready to defend the price of oil
- Europe gets hit with another oil disruption as Vlad prepares to shut down Nord Stream 1 (Nat gas pipeline).
- Try the Charred Sweet Corn Salad
Stocks got SMUSHED on Monday – Ouch! ……the Dow falling 645 pts or 2%, the S&P down 90 pts or 2.1%, the Nasdaq losing 325 pts or 2.6%, the Russell down 40 pts or 2.1% and the Transports giving back 235 pts or 1.5%.
The action taking back $236 billion of the $7 trillion dollars created over the last 6 weeks when we saw the market rally off the June lows – on the assumption that the FED would pivot….something I have been sounding the alarms over…..as investors reconsider the reality of continued rate hikes and balance sheet reduction ahead of the Jackson Hole ‘event’ this week…. JJ (Powell) due to take the stage on Friday morning…..and while we may want him to tell us what the September decision will be – don’t go betting the ranch on it…..JJ will NOT tell us what they will do in a month – other than to say that they ‘will respond to the upcoming macro data, they will continue to focus on inflation and that they plan on ramping up the balance sheet reduction as outlined months ago’…. Period…so figure it out…. either you panic and ‘sell everything’ or you take it all in stride…. positioning yourself for the coming ‘hurricane’ as JPM CEO Jamie Dimon told us 2 months ago…. –
Remember that? Actually – it was on June 1st – the beginning of the ‘Hurricane season’ here along the east coast of the United States – and what is really interesting is that here in Florida – we have not had so much as a rainstorm of any significance over the summer – but rather sunny weather that has allowed for lots of outdoor action and fun. Much the same way stocks have acted over the same period….nothing but up (sunny) after the lows seen on June 16th…..But now it is the end of August – a typically choppy time for the markets and a choppy time for the east coast and that makes me ask – Are we looking at storm clouds ahead in the markets the same way it is predicted that we are about to get hit by storm after storm (think hurricanes) in September and October along the east coast? Are you connecting those dots?
Look – the FED has launched a tightening phase – You can feel the turbulence building (after being ignored over the past 6 weeks) – much like you can feel a hurricane building…first it starts with the models on the weather stations, and then the prediction of the path of the storm and then the churning of the ocean and the dark clouds overhead and then BAMMMMM the storm hits, boats get blown over, some sink while others are pulled out of the marina or taken down to Ft Lauderdale to ride it out…..and so stocks will do the same….first it is the speculation about what will happen, then the predictions of the path of that model, then estimate revisions to earnings reports and cautious forward guidance – (all stuff that has happened over the past 4 weeks) and then weakening economic data all while inflation gets fed by massive gov’t spending causing the FED to ramp up the rate hikes and that causes all kinds of atmospheric reactions…and stocks sell off – some getting destroyed in the storm while others manage to stay afloat….(Is this all a bit dramatic? But you know me, I’m all about the drama…. makes it more fun….). In any event – it is what it is….and stocks sold off – leaving some wounded while others who were positioned for the move less so….
In any case – No one should be surprised if the tone for next year starts to change, because everyone expects rates to continue to rise thru year end….and while some of us continued to price in hikes in the new year……fed fund futures have been pricing in rate CUTS by the spring of 2023 because the thinking went that a recession would force the FED to cut rates as they attempted to navigate a soft landing….(something I do not think is achievable at the moment).
Think about that – rate cuts in 9 months? Is someone kidding…..inflation is running at 8.5% and likely to go higher before it goes MUCH lower – now it might go lower in September when we get the CPI report on the 13th….but then I think it turns up once again….as we move into late fall early winter….and that will prove to be the next challenge for the FED….and look – we now know that the UK expects inflation to peak out at 13% by the end of 2022 and then REMAIN elevated in 2023…..so while it might PEAK out at 13% – it ain’t going to 2% anytime soon….and that is true here in the states as well….while it might peak out at what I think will be closer to 10% – it ain’t going anywhere near 2% anytime soon – so strap in.
Everything got slammed except the contra trades and a couple of Chinese names after the PBoC cut interest rates….…The SPXS (Direxion 3x levered short trade) gained 6.3%, the PSQ (Nasdaq short) + 2.7%, SH (S&P short) +2.1% and DOG (Dow short) + 1.85%. Disruptive Tech Short – SARK +2.7%, while coal and Nat gas stocks also rose….4.5% and 5.7% respectively. No surprise there at all….as we move into fall……and just to add fuel to the fire – the Saudi’s led by Bin Salman tells us that they are prepared to DEFEND the price of oil – (recall I told you this on Friday…beware of what the Saudi’s and OPEC+ will do since oil has fallen 25% over the past 5 weeks….)….and defending it, means cutting production to keep the price up….Capisce?
Recall that we discussed how August and then the early fall can be a unpredictable and nervous time for investors and the markets……..…..Jackson Hole only adding even more drama this year………as investors took stocks higher all summer on the belief that the FED would back off…… leaving the FED in a position to try and reign in the excitement……Mixed messages out of varying FED members all summer led to the move….and now we look towards JJ to set the record straight – which is funny since he (and the FED) is at least 70% responsible for why we are where we are……with inflation at 40 yr. highs…..and a recession just on the horizon (if not already here).
Treasury yields rose across the curve but remain inverted for 9 weeks now….so for anyone suggesting that we can avoid a recession…. you should rethink your thoughts…. History will prove you wrong…. but you keep telling yourself it’s all good. The administration along with all of the investment banking partners all trying to convince us that IF we get a recession, it won’t be until late 2023…. Come on – late 2023???
Oil – closed at $90.45/barrel and this morning is up $1.60 or 1.8% on the back of those Saudi comments about defending the price of oil…….…. Gold closed at $1748/oz last night and today it is up $5 – trading at $1753…. As the dollar index backed off just a bit….but this is most likely temporary……if the FED remains aggressive with interest rate hikes….then expect the dollar to rally and put pressure on gold….Until we get a bit more clarity (hopefully on Friday but maybe not) Gold will remain in the $1700/$1800 trading range.
US futures are bouncing a bit higher this morning after the beating they took yesterday – …Dow futures are up 50 pts, S&P’s up 8, Nasdaq + 25 and the Russell ahead by 5 pts. Look – global markets are being challenged by the FED, the ECB, The BoE, The BoJ and even the PBoC…..rising interest rates coupled with quantitative tightening (QT) are surely going to cause some angst in the months ahead…but you can’t tell me that this is a surprise at all…..What have we been discussing for all of 2022? Unless you’ve been under a rock for the last 8 months – none of this should be a surprise at all.
Eco data today include S&P US Manufacturing PMI of 51.8. Services PMI of 49.8 – both suggesting a weakening US economy….the Richmond FED Survey of -4 and New Home Sales – consensus expects a decline of 2.5%…..but the ‘horse whisperer’ warns that it could be worse…..In fact – home builders (think Toll, Lennar, KBHomes etc.) are all cutting prices while offering incentives – things like upgrades that would have cost you thousands of dollars last year are now being ‘thrown in’ to entice buyers to step up and buy the house…..In addition we are learning that 21% of current homes on the market for sale have seen price CUTS in July….and will likely see more cuts as mortgage rates rise.
In Europe – stocks are mixed…. nothing dramatic……the UK down 0.5% while Italy is up 0.8% – everything else is somewhere in between…. Investors in Europe now dealing with a damaged pipeline system running from Kazakhstan thru Russia and into Europe disrupted oil supply. Add the 13% spike in Nat gas prices after Vlad announced the unscheduled shutdown of Nord Stream 1 that begins next week….and you have an energy disaster brewing…..and then we learned that August flash PMI for the Eurozone revealed a contraction in business activity for the 2nd straight month……as rising inflation, economic slowdowns and the ongoing war in Ukraine weigh on investors appetites.
The S&P ended the day at 4137 – down 90 pts but off the lows of 4129………. As noted, – last week we kissed resistance and failed and the action yesterday took us within a chin hair of trendline support at 4100….and while I did say we are sure to test it, I also said I didn’t think it would happen yesterday! In any event – we came close and that just sets us up to want to test it even more to see if buyers are willing to defend it as we move into the Jackson Hole summit and then the turbulent September and October time frame. Right now, the trendlines (which change daily) show support at 4090 and resistance at 4318….
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Charred Sweet Corn & Quinoa Salad
I had this dish on Sunday night – at that dinner I went to. My dear friend Jamie D whipped it up…. It was simple to make and delish to eat…. use it as a side dish with any grilled meat…steak, pork or chicken.
For this you need: Quinoa – cook about 1 cup according to instructions. When done take it off the stove, let it rest and then fluff it up with a fork. Set aside.
You also need: Bell peppers, corn on the cob, avocado’s, s&p, olive oil, butter, Manchego cheese or Cotija cheese or even FETA cheese as well…but don’t mix – use one or the other, juice of two limes, honey, (the recipe also calls for cumin – I did not use it – I don’t like the taste – but you go for it)….and a bit of cilantro….don’t overdo it….cilantro can be strong….always better to go light and add – capisce?
Light the grill –
Husk the corn and then brush with butter and salt…. wrap in tin foil and then place on the grill. Grill on med heat for about 20 mins…. making sure to turn the corn to get even cooking. Remove and let it cool just a bit…unwrap and then carefully cut the kernels off the cob – set aside.
While the corn in cooking – dice up some green, yellow and orange bell peppers…. add to a sauté pan with some olive oil and sauté for 15 or 20 mins…. on med heat. Now add the grilled corn just to mix.
Remove from the heat….and add to the quinoa – couple with the cheese and the cilantro…. mix well.
Now for the marinade. You need: 1/3 c of olive oil, lime juice, 2 cloves of sliced garlic, 1 tsp of honey, s&p and if you are using the cumin – add it here…. about ¼ tspn, no more. Whisk together and then pour over the quinoa & corn. Mix well. Add the sliced avocado on top and then and serve – room temp or chilled – either way is fine.
Buon Appetito.
