Things you need to know
- Dow theory continued to play out
- Global bond markets sell off sending yields higher
- Apple cuts iPhone Production – stock down 3.5% Oh boy…
- It’s Potatoes and Eggs – comfort food at its best.
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MWCB (Market Wide Circuit Breaker) levels (Again). Just for your information
Level 1 – the S&P loses 255.31 pts – 7% to halt trading for 15 mins
Level 2 – the S&P loses 474.14 pts – 13% to trigger the 2nd halt – 15 min.
Level 3 – the S&P loses 729.46 pts – 20% to trigger a trading halt for the balance of the day
***There wlll not be a note tomorrow…. Catch me on Making Money with Charles Payne on Fox Business at 2:30 pm***
And stocks continued to thrash around…the S&P breached the June low (3636) to create a new 2022 low of 3623.29 – before ‘rallying’ to end the day at 3647.29 – a loss of 8 pts….…..The Dow lost 125 pts, while the Nasdaq rose 26 pts, the Russell gained 7 and the Transports added 154 pts….while that maybe felt good, it is not really anything to write home about…..the action overnight and this morning points to more pain ahead….Dow futures are down 300 pts, S&P’s down 40 – leaving it on the cusp of breaking thru 3600, the Nasdaq is down 175 and the Russell is off by 20 pts.
Global markets are also down considerably…. Asian markets have Japan down 1.5%, Hong Kong -3.4%, China down 1.6%, Australia off by 0.5%, Taiwan down 2.6% and South Korea off by 2.5%. YTD performance has Japan down 9%, Hong Kong – 27%, China – 22%, Australia – 13%, Taiwan – 26% and South Korea – 27%
European markets are not better – UK down 2%, and -7% ytd, CAC 40 – 1.7% and 20% ytd, DAX – 2.2% and 25% ytd, Eurostoxx down 2% and 24% ytd, Spain down 2.3% and 16% ytd while Italy is off by 2.3% and 25% ytd.
As expected yesterday we heard from Chicago’s Charlie Evans and he tried to sound a bit more dovish than the rest of them and that sent stocks higher in early trading…but remember – Charlie is NOT a voting member of the FOMC committee – so while his thoughts are nice – they don’t really count and then we heard from St Louis Jimmy B – who is a voting member and he squashed any idea that the FED would pivot – so his message was more important….He was then joined by Minneapolis’s Neely Khashkari – a non-voting member – but who did reiterate what Jimmy said….and that just continues to stoke the fire of rising rates and economic difficulty. The dollar continues to soar and this after the WH made it clear that they would not try to weaken the currency – and the strong dollar puts another headwind on S&P earnings….which is NOT reflected yet in analysts’ estimates…..just like it is not reflected yet in many multinational corporate earnings yet….so these analysts and corp CFO’s should take off their dunce caps and start ‘adjusting’ estimates for the coming earnings season as well as the one after that – because if they don’t the market will…..(and is).
US bonds prices continued to get hammered sending yields to levels not seen since 2008…. The 10 yr. piercing 4% overnight on its’ way to 5% and then 6% and then……what? Can anyone say 1979/1982? When exactly did I start warning about a 70’s style repeat of history? (November 2021)!
The BoE (Bank of England) making an unexpected announcement at 6 am this morning saying that they would start buying gov’t bonds on ‘whatever scale is necessary’ to help calm the chaos in the growing UK economic storm. (That’s not good either.) The Pound continues to fall amid mounting criticism of PM Truss’s fiscal plan – the IMF (International Monetary Fund) calling her tax plan (cuts) ‘excessive and in need of revision’ as it will do long term damage to the nation’s debt rating…. (And that not good either) …. UK Chancellor of Exchequer Kwasi Kwarteng imploring traders to NOT bet against the pound (again feels a bit desperate and not good either). European banks all now predicting a difficult economic time across the region……that could last well into 2024…. Hmmmm? Well, that’s not good….
Today will see 6 more FED heads speaking….and they include Bullard, Bostic, George, Evans, Bowman and yes JJ……do not expect any of them to contradict each other…. Bullard, Powell and Bowman all voting members.
And while we got plenty of eco data – it is now irrelevant (for the moment) as the angst builds….No one cares that consumer confidence was much better than the estimate….it’s not gonna change the narrative….New Home Sales also surprised on the upside – rising by 28% m/m and that did little to soothe the mood….Eco data today includes Mortgage apps for the last week, and Pending Home Sales m/m which are expected to be down 1.5% while y/y sales expected to be down 24.5%. …. Now pending home sales suggests that both buyer and seller have a ‘deal’…but not necessarily a mortgage commitment yet….and with mortgage rates now kissing 7% – there is a risk that we see even softer pending numbers.
Meanwhile, natural gas prices are surging across Europe……Vlad warning the Europeans that he could cut off supply (and that is not helpful) and then – suddenly there was an ‘explosion’ to two gas pipelines that deliver gas from Russia to Europe….so I ask – Guess who just cut off supply? The explosions now considered deliberate – but in any case, – it is what it is….and gas prices are up, and the Europeans are at risk. Quick question – where is Angi Merkel now? How does she feel about making Europe dependent on Russian energy now? Which speaks directly to why the US need to change our energy policy to make sure we are never dependent upon anyone for our energy needs…. I mean the writing is on the wall…. Does Joey see it?
Oil is trading up – now back to $80/barrel…. the Saudi’s and OPEC + making noise that they would intervene in oil markets if necessary to support prices – I pointed that out on Monday….and then yesterday UBS also floated the idea that OPEC + is considering the move – saying that Russia is pushing the idea. Surprise, surprise!
And this is what we get – after all of the global bankers ignored all the signs that they were looking for……I mean – remember – JJ said that when CPI rose above 2% THAT would be the signal to adjust monetary policy…Well, that happened in April of 2021….and what did JJ and the FED do? NOTHING…. they told us that while the data did change – it didn’t change ‘enough’…. meanwhile it jumped from 1.6% to 3.1% in one month and then rose to 9.1% in 7 more months…. but hey – it was nothing to worry about….it was transitory…. Think about that for one minute….
So now, we are where we are…and the markets are doing the hard work of pricing in all of the risk that the FED created as well as all the spending that the Bidens shoved down our throats…so strap in…. expect more downside……and ultimately capitulation……But when? Today – not likely…. but it could be during 3rd qtr. earnings season….in the middle of the month of October – which itself has a history of market instability……but let’s not go there yet….
The VIX (fear index) is up again this morning…and is now approaching the danger zone……of +35….it is currently trading at 33.64 – after trading at 34.88 overnight. As the angst builds the VIX will rise and the more it rises the more angst there is and the more angst there is the more stocks will suffer.
The BIG headline this morning is all about Apple! Down 3.5% in early trading…why? Because they are ditching the iPhone 14 production schedule…. why? Because apparently there isn’t enough demand…. The consumer slowdown is real…. expect the tech sector to get hammered on the back of this news……that will now take APPL down 22% ytd…. setting it up for a move lower that could see it trade back to the June lows of $130…
Companies that know that current earnings estimates are too damn high – need to get out in front of them and ‘adjust’….yes, they will take a hit, but not as big of a hit as they will if they choose to wait and make those announcements on the day they report…..because if they that then, investors will want to know why they waited, What they were doing? Were they asleep at the wheel? They will not be happy and that will be reflected in the broader markets.
Economic data due out today: Mortgage Apps – came in -3.8% and are now at a 22 yr. LOW as surging mortgage rates takes a toll…… Retail inventories due out at 8:30 and Pending Home Sales due out at 10 am.
Gold is trading at $1638/oz.
The S&P closed at 3647 down 7 pts…. It did make a new 2022 low yesterday and will likely make a new 2022 again today……Although – US futures have rallied back while I have been writing this note…. Dow futures are now -30, S&P’s down 10, Nasdaq down 80 and the Russell off 1. Jonathan Ferro on Bloomberg said it perfectly this morning…we are now in QC – ‘Quantitative Confusion’ and will remain so for the foreseeable…. because we are in ‘uncharted’ territory….
You know me – I remain cautious about the coming earnings season….and the month of October in general….
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Potato & Eggs
Time for a time-honored favorite – real comfort food. – You can never go wrong with Potatoes & Eggs.
This is one of those basic yet classic dishes that never goes out style… you can eat for breakfast, lunch or dinner – Enjoy.
For this you need: Eggs, potatoes, garlic, onion, s&p, butter, olive oil, fresh grated Parmegiana Cheese and if you prefer a pinch of Italian seasoning.
Preheat the broiler (oven) to high.
Peel a couple of russet potatoes and then slice – now toss into a pot of boiling water – bring the pot back to a boil and blanch for 3 – 5 mins… Remove – strain and set aside.
In a large bowl – crack 6 to 8 eggs – Beat well – add a splash of whole milk (or 1/2 & 1/2), season with s&p (and if you like a pinch of the Italian seasoning). Add a handful of grated cheese. Mix well – set aside.
In a large oven safe frying pan – melt a dab of butter, add a squirt of olive oil and heat. Now add in chopped garlic and sauté. Next add some sliced onions and sauté – until soft and golden… add back the potatoes and brown on both sides.
Next – pour the egg mixture into the pan and allow to set. Twirl the pan to allow the egg to spread and cook. Once the edges begin to pull away – place the pan into the oven under the broiler…Watch as it quickly cooks the top of the “frittata”. Remove and slide onto a large serving platter – cut like a pizza.
Have toasted slices of Italian bread on the table for your guests to make a sandwich. Serve with Ice Cold whole milk.
Buon Appetito.
