Things you need to know
* Algo’s staged a temper tantrum – sending stocks lower
* CPI came in HOTTER – crushing hopes of a more dovish FED
* PPI due out at 8:30
* Futures are struggling to find balance but are up this morning
* Oil holding steady, gold trading just a bit lower and treasuries are still inverted
* Try the Chicken Soup (and then the Chicken Salad)
Riders on the storm, riders on the storm, into this house we’re born, into this world, we’re thrown, Like a dog without a bone……. There’s a killer on the road…. Riders on the storm…. The Doors 1971 – L.A. Woman.
And the storm hit. Stocks suffered their worst day in more than 2 years – but let’s be clear – this was NOT historic by any stretch…it was a temper tantrum….Historic would be a repeat of 1987 – when we lost 22.5% in 6 hours…..THAT was historic and I was there on the NYSE the day it happened. So, just to be clear…yesterday was a temper tantrum. Period.
Now yesterday – the BLS (Bureau of Labor Statistics) published a HOTTER than expected August CPI report – leaving inflation at the highest rates seen in 40 years….….eliminating any hope at all that prices are cooling….(now, not that this is such a surprise – all you had to do is go to any grocery store to recognize that prices are not cooling) – and eliminating the idea that the FED has this under control dashing any hope of a moderation of rate hikes in the future.
The CPI – which we have been talking about ad nauseum for weeks – was supposed to come in with a 7 handle on it (7.9%) –that it was all good, energy had come down and the clouds were supposedly lifting…. Street analysts preparing us all for a ‘nicey nice’ surprise – telling many of us that ‘we had it wrong’ that ‘we didn’t understand’ that the FED is doing the right thing – in fact there were some that insisted that the FED would be making a mistake IF they raised rates at the next meeting, that the CPI would prove us all wrong! Yeah – How’d that work out?
The wound was inflicted at 8:30 am…. the headline core CPI y/y coming in at 8.3% – vs. the 7.9% expectation and y/y EX Food and Energy? Just wait – that report came in at 6.3% – higher than the expectation of 6.1% and higher than last months 5.9%! And the m/m numbers? They were higher as well, but they were expected to be higher – just NOT as high as they came in. Futures went from +200 to -600 in about 3 mins….an 800-point swing that never recovered….
In case you missed it – Here is my appearance yesterday at 9 am with Stuart Varney – Varney & Co on Fox Business.
https://video.foxbusiness.com/v/6312262543112#sp=show-clips <https://nam04.safelinks.protection.outlook.com/?url=https%3A%2F%2Flinkedin.us2.list-manage.com%2Ftrack%2Fclick%3Fu%3Da8ad452c6195a7b5e6d063d18%26id%3D66c363c3a6%26e%3D5c6ed50f6f&data=05%7C01%7Cdmoss%40slatestone.com%7Cd23163cfbdd449ed44b108da963dbdb2%7Ca1db731cee944f8bbc7c7a700799059a%7C1%7C0%7C637987489184762465%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=hMjM%2Bt1TGS59FOyFR0Wse8lFpABszvXqflZR804Duq0%3D&reserved=0>
In there I laid it out…. In the end – The FED waited WAY too long to tighten and the Biden’s spent way too much money….so – get ready and strap in….
And while they tried to put a tourniquet on it – the bleeding wouldn’t stop…. speculation that the FED needed to move by 100 or 125 bps next week was suddenly the rage and the algo’s couldn’t process it. In my appearance with Stuart – I suggested that this opened the door to an October ‘surprise’ – an inter-meeting rate hike – (otherwise known as a Volker move) and I guess they didn’t like that either! By the end of the day there was blood in the street…… – the Dow falling 1270 pts or 4%, the S&P lost 180 pts or 4.3%, the Nasdaq got crushed…. losing 635 pts or 5.1%, the Russell choked up 75 pts or 4% while the Transports lost 540 pts or 3.8%.
But what I think is fascinating is – What really changed from Monday to Tuesday? I mean – Was this a complete surprise? Remember August? I said that we were entering a seasonally difficult time on top of an anxious environment that had the FED caught between a rock and hard place? Now, in the end – what did we do? Essentially – all we did was go back to where we were 6 days ago – giving up the gains we made……. But – the question now is – where do we go from here?
Again, if you draw the trendline from the lows of June to the low last week – you see what happened? We sold off and landed right on that trendline…. we kissed it and then sat down on it….and this morning…futures are UP – again, not that surprising after the crushing move yesterday.
Now Tech, Consumer Discretionary and Communications all fell more than 5% across the board – which was more than the indexes – suggesting that higher rates and a slowing economy would take a toll on these sectors……..while Utilities and Energy – only fell 2.5% and Consumer Staples and Healthcare fell by 3.3% – which was less than the indexes – suggesting some shelter in the storm…..………Every other sector was somewhere in between…..
The value trade – SPYV lost 3% while the growth trade – SPYG lost 5.2%. Semiconductors gave back 6.2%, (NVDA losing 10%!) while coal and Nat gas stocks lost a fraction of that…. down 2.3% and 1.5% respectively (again think energy). Retail and Homebuilders falling by 5.5%…. (Think rising interest rates – mortgages and revolving credit on top of a slowing economy). Credit card companies – AXP. MA and V also got smashed – falling more than 3.5%. While fertilizer names – CF and MOS remained positive…
And the contra trades! They rang the bell…. surging by 4%, 4.5% and 5.5% respectively. The SPXS – the triple levered S&P short – that surged ahead by 12.5%! while the SPXL – the triple levered S&P Long – collapsed by 12.5%).
Cathie Woods’s Tech Disruptors – ARKK lost 6.8% while the contra ETF – the Tech Disruptor SHORT – SARK gained 6.6%.
As the day wore on – we heard from guys that I thought were dead……UPenn Professor Dr. Jeremy Siegel is just one that rose from the ashes…..after listening to him, I’m thinking he is still dead – I didn’t understand one thing he said – tell me if you do and if you do – can you please explain it to me? I mean listen to his interview….
https://www.cnbc.com/video/2022/09/13/weve-had-a-lot-more-inflation-over-last-18-months-than-recorded-says-jeremy-siegel.html?&qsearchterm=jeremy%20siegel <https://nam04.safelinks.protection.outlook.com/?url=https%3A%2F%2Flinkedin.us2.list-manage.com%2Ftrack%2Fclick%3Fu%3Da8ad452c6195a7b5e6d063d18%26id%3Dfb14cfd712%26e%3D5c6ed50f6f&data=05%7C01%7Cdmoss%40slatestone.com%7Cd23163cfbdd449ed44b108da963dbdb2%7Ca1db731cee944f8bbc7c7a700799059a%7C1%7C0%7C637987489184762465%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=sXBJSWcDDcxeh2K8p2uug38xNshMBO90seZ%2BH0daGLc%3D&reserved=0>
I’m shocked that Becky Quick didn’t have Warren (Buffet) and Chucky (Munger) on the set…. maybe today? In any event – it was a tough day for investors – yet the resident of 1600 Pennsylvania Avenue was taking a victory lap – reminding us that his administration was making progress on rising prices and that the ‘inflation reduction bill’ was working and that the stock market does NOT represent the economy.
In any event – it was all the hype that was created about this report that produced the ‘over reaction’. It was all about the expectations that the path of future rate hikes was limited – that 2022/2023 would NOT be a repeat of 1979/1982…. some street analysts telling us that this report ‘increases the possibility of a recession’ if the FED is forced to move MORE significantly. Let’s be clear here – it’s no longer about ‘the possibility of a recession’ – it’s coming (if not already begun), and the idea of a soft landing can finally be put to bed…because after yesterday’s ‘reveal’ it is getting more difficult for the FED to navigate anything soft.
Now this morning we are about to get hit again….at 8:30 am – we are due to get the PPI (Producer Price Index) and that too is expected to show that inflationary pressures are not subsiding (yet). M/m final demand is ‘expected’ to be -0.1% while m/m- Ex food and energy is expected to be +0.3%. Y/y reads are expected to be 8.8% and 7% respectively….and unless they are significantly different, I don’t expect to see a repeat of yesterday. The other data point that we will get is Mortgage Apps and if the pattern holds – we can expect continued weakness. This morning 30 fixed rates for someone with a 720+ FICO score is at 6.25% – up 119% since January….
The next bump in the road is earnings……and you know me – I remain cautious about the coming earnings season…..and am being patient…which doesn’t mean I am paralyzed – it just means I am putting money to work in a handful of names that I believe are at the core of a long term portfolio and btw are a bit cheaper this morning. In any event – while we might ricochet higher today, I would not be surprised to see us test lower as we move into October. Remember – days like yesterday do create opportunities…. Which only means – don’t get sidelined…. don’t take your eye off the ball…. stay focused, keep putting money away. Hold it in cash if you are nervous- but get ready – chaos does create opportunity – remember you will never pick the absolute bottom – but you can stay in the game and build for the future.
OIL is holding its own – up 20 cts at $87.50/barrel……while Gold remains under pressure in a ‘sell everything’ mentality…It is though, holding that all important $1700 line – trading at $1714/oz.
And do I need to remind you that the treasury market remains inverted? I didn’t think so….
US futures are up this morning as we wait for the PPI report. The Dow +125 pts, the S&P up 20, the Nasdaq up 65 pts and the Russell is +10. Traders and investors are no longer betting that inflation is in decline…. now they are just hoping that it is peaking, and current levels will be the worst levels…. and that has ignited the debate about what’s next. JJ has made it very clear – the FED needs to see more evidence of a sustained slowdown in inflation before they change their tune.
European markets are mixed…. not having anywhere near the reaction that the US suffered yesterday…. the UK down 0.7% while Italy is up 0.7%. Everything else is somewhere in the middle.
The S&P lost 180 pts or 4.3% yesterday…. taking it back to the prior century – ending the day at 3,932…. The lows of last week. I guess the idea that we would test 4200 by Thursday – is no longer the narrative…. Watch the PPI this morning and then watch how investors/traders and algo’s respond. I would not be chasing anything (if we have a ricochet response today). Remember – we are in a seasonally difficult time – September and October remain volatile….and a test lower is still very much a reality.
Big and Boring names have never been more Beautiful….and offer some shelter in the storm. If you own good, solid US mega cap names that are decent divvy payers then sit tight take advantage of weaker prices that will bring down your average cost. Sectors to be overweight in? Energy, Healthcare, Utilities & Consumer Staples all fit that bill. But you have to balance that with where you are in the life cycle…younger = more risk, older = lower risk.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Chicken Soup
Ok – considering the move – this is the perfect dish to calm your nerves.
For this you need – split breasts and thighs (skin on), 1 large onion, carrots, celery, s&p, chicken bouillon powder and water.
Start by placing all the chicken pieces in a pot – cover with water – Turn heat up to high. Chop the onions, carrots and celery – add to the pot. Add one envelope of chicken bouillon powder (Herb-Ox) and season with s&p. Bring to a boil and then turn heat to med low and let it simmer away for 2 hr. Now- you will have to add water to the pot as it simmers away…. bringing it back up to its original level.
After two hours – turn off the heat and let it sit until it cools down a bit. After an hour – remove the chicken parts. Separate the chicken from the bone – shred both the dark and white meat and add some back to the pot – saving the rest for making homemade Chicken Salad*.
Serve in warmed bowls. Have plenty of fresh grated cheese on the table for your guests. To make it more hearty – you can boil ½ box of elbow macaroni – leaving it a bit undercooked and then add to the soup. Remember – the macaroni sucks up the soup….so don’t add too much.
*Chicken salad – I use the shredded chicken, add in diced red onion, and shredded carrots and diced celery. Mix with a tsp. of Dijon mustard and 2 tbsp. of mayo. (Depending on how much chicken you have – you might need more or less).
Buon Appetito.
