Things you need to know
- Investors prepare for a better CPI
- But don’t expect the Fed to change their narrative
- Goldman to lay off 100’s of employees starting today
- Oil up, dollar down and treasuries remain inverted
- Try the Fettucine w/Butter & Sweet Cherry Tomatoes
Stocks continue to extend the gains that have been building over the past couple of weeks……as the speculation builds that inflation has peaked…that it is starting to roll over and die……speculation that I think is way too optimistic…. but let’s get back to that a little later.
By the end of the day – the Dow added 230 pts or 0.7%, the S&P added 45 pts or 1%, the Nasdaq gained 155 pts or 1.3%, the Russell added 25 pts or 1.2% and the Transports gained 200 pts 1.4%
Every sector in the 11 major S&P sectors was once again in the green…Tech and Energy leading the way – both sectors up by 1.7%. Healthcare up 1.7%, Consumer Discretionary up 1.3%, Real Estate, Utilities and Basic Materials were next – up just under 1%, carrying up the rear were Industrials, Financials, Consumer Staples, and Communications all rising about 0.5%.
The contra trades – as expected have been under pressure as stocks surge. But before you go giving up on them…. beware… – these ETFs are not meant to be an ‘investment.’ You don’t buy the PSQ, DOG or SH to ‘own them’. You don’t buy the SPXS (triple levered S&P short) to own it…you use these ETF’s strategically…..you buy them to hedge yourself against coming weakness…(if you believe that weakness is coming)….and then you close out the position when you think it’s over……Unlike the way you buy – say – Apple. You keep buying Apple, you keep reinvesting the divy’s and then you buy more….that’s not strategic, that’s just smart investing….
Yesterday we also heard that Goldman Sachs is prepared to lay off ‘hundreds of workers’ starting as early as today…citing a slowing economic environment and tougher times ahead for big investment banks. Estimates suggest that GS will suffer a 40% decline in earnings this year…. Now the question is – will the others follow? I’m thinking you guys should get back to the office…. Not sure what you’re waiting for. Capisce?
Next up – today at 8:30 we’re about to get the latest read on US inflation – the August CPI read and as I have been telling you it is expected to be down! It is expected to come in at 8% y/y….down from 8.5% last month…..but what we should all take note of is that CPI EX food and energy y/y is expected to RISE to 6.1% – up from 5.8% – and that is the conundrum…..With inflation still at 8+% and interest rates at 3% – 3.25% (as of next Wednesday) – many are still asking how far does the FED have to take interest rates to make sure that they have killed the monster?
History tells us that the FED has to take interest rates ABOVE inflation rates….so if that’s the case – we got plenty of room to go…which causes me to ask – why does anyone think that the FED is prepared to pivot? It’s not like we’re in a recession!!!
Now unless we see inflation completely retreat by year end -I just don’t see how the FED can justify doing nothing in the new year….because we are still expecting – a 50 bps increase in November and a 25 bps hike in December…and that gets us to 3.75% – 4% by year end….still a good 3% – 4% points away from inflation – which means that we can expect continued increases in the new year….remember what Kansas City’s Ester George said on Friday…. there is ‘a clear-cut case’ for continuing to remove monetary support. Now to be fair – she didn’t define the time frame – she deliberately left it open- but that’s just a strategy play…. And don’t forget – the FED is supposed to be reducing the balance sheet by $90 billion /mo. starting this month – and no one really knows how the economy (and markets) will respond.
Next up – are the earnings…. I remain cautious about the coming earnings revisions. And then what happens when we actually get the earnings…. will they disappoint even the revised lower estimates? In any event – I would not be surprised to see us test lower again……before this stabilizes. Which only means – stay focused, keep putting money away. Hold it in cash if you are nervous- but get your shopping list ready – remember you will never pick the absolute bottom – but you can stay in the game and build for the future.
OIL – yes that also continued to rally…. up $1.27 to $88.06/barrel…. Now up 9% in the last 4 trading days……leaving it just shy of the trendline….at $89.42…. This morning we see oil trading at $88.73 up $1 as it prepares to challenge resistance.
US futures are up again this morning as we wait for the clock to tick at 8:30 am….…. – the Dow +116 pts, the S&P up 16, the Nasdaq up 45 pts and the Russell is +7. Traders and investors are betting that inflation has peaked…or is near peaking and that has ignited the debate about what’s next. A weakening CPI is causing many to suggest that the FED will pivot early in the new year…. while others say that until the FED sees more evidence of a sustained slowdown in inflation – it is all systems go…– as the FED keeps up the very hawkish commentary.
Tomorrow brings us the PPI report and we all know what that means…. Expectations call for the PPI to also decline – and that decline will be reflected in next month’s CPI – as it takes about 3 – 4 weeks for prices at the producer level to be reflected in the consumer level. Later this week – we will get Retail Sales of 0%, but ex autos and gas – they are expected to be up 0.5%. Look for Industrial Production of +0.1%, Capacity Utilization of 80.3% which is in line with last month…but remember – Capacity Utilization greater than 80 suggests that the inflationary pressure remain alive and well. And then on Friday we’ll get the U of Michigan Sentiment survey – exp of 60 which is an improvement over last month. 1 yr. inflation forecasts have inflation running at 4.6%…
European markets are all a bit higher…. markets across the region are up about 0.4%. UK unemployment fell to 3.6% – a level not seen in that country since 1974. Wage growth fell by 2.8% (not good) while BoE Governor Andrew Bailey is hoping that employers control wage growth so that they don’t add to the inflationary pressures – this though is sure to create broad discontent among workers causing strikes in the public square.
The S&P gapped up on the opening – to trade as high as 4119 and as low as 4083 (opening) to end the day at 4110 – up 45 pts…. We are now solidly in the 4027/4270 trading range – notice the numbers….4,0,2 & a 7 – just mixed up…..With futures higher this morning….we can expect that they want to test 4200 on the S&P and while that won’t happen today – if today’s CPI and tomorrow PPI reports are as expected – then I would guess that a test of 4200 is not far away…in fact – we could get there by Thursday….
While I am bullish on today’s report – I remain cautious about the coming earnings. Is the Goldman news just the beginning of a round of layoffs in the financial services sector? We know that many of the tech companies are slowing down or pulling back from hiring and as the year ends and 3rd qtr. earnings are about to begin – this is the time of year where we begin to see how companies are preparing for 2023.
In any event – I would not be surprised to see us test lower again……before this stabilizes. – Maybe the test will only be the early September lows of 3930 ish…. if earnings are not as weak as some expect. If by chance they are weaker – then a retest of the June lows 3650 ish would not be out of the question. Which only means – stay focused, keep putting money away. Hold it in cash if you are nervous- but get your shopping list ready
Remember – in an environment like this – Big, Boring names are 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
Fettuccine w/Butter, and Sweet Cherry Tomatoes
For this you need 6 things….1 stick of salted butter, 1 lb. of Fettuccine, 1 lg onion diced, 3 pints of cherry tomatoes, chopped parsley and chopped basil and of course you need the fresh grated parmegiana….
Bring a pot of salted water to a rolling boil – then turn to simmer until you need it.
Slice the tomatoes in half and dice the onion.
Now in a large sauté pan – that will accommodate all of the ingredients – – start by melting the butter in the pan (med hi) do not burn it. Add the diced onion and sauté until soft – 5 mins or so.
Next – add in the tomatoes – leave the heat on med hi and let them cook – for about 20 mins…. stay close – you need to stir so that they don’t’ burn. In about 15 mins, they will start to break down and become soft. Use the back of the spoon to smash some of them – while leaving the others intact.
Now – turn up the heat on the pot of water and add in the fettucine…. cook until al dente – 10 mins or so…. leave it just under done because it will continue to cook in the sauté pan…. Add one ladle of the pasta water to the tomatoes.
Using a set of tongs – remove the pasta from the pot and add to the sauté pan. Toss to coat – you will need to add 2 more ladles of pasta water (maybe a 3rd – you need to judge). You don’t want it to be soupy, just emulsified and moist….
Serve immediately on warmed plates – Have the cheese on the table for your guests.
That’s it…. does it get any easier?
Enjoy with your favorite chilled white wine…. Pinot Grigio Santa Margherita.
Buon Appetito.
