Things you need to know ~
- Lizzy is out…. Who is next?
- Earnings reports losing momentum – Today we get AXP, VZ and HCA
- SNAP collapses on its disastrous report – stock down 25% dragging the group lower.
- Oil down on the ‘economic slowdown’ story again….
- Mid-terms heating up….18 days to go…
- Try the Breaded Pork Cutlets Bathed in White Wine and Butta!
UK Prime Minister Liz Truss makes history! She got thrown out after only 44 days on the job…I mean – she didn’t even finish getting her clothes arranged in the closet…so the UK gov’t is once again in turmoil and searching for a new PM….rumor has it that the conservative party is going to resurrect an old favorite – Boris Johnson – although there are about 6 other names being bandied about. European markets yesterday ended the day lower and markets across Europe today are lower again…. losing about 1.5% across the board. More to follow –
69% of the reports yesterday beat the estimates…. that is a bit lower than the recent statistic…and that helped to cast a pall over the tone of the markets.
10 yr. treasuries continued to push higher and are now yielding 4.27% (rates not seen since 2007) while 2 yr. treasuries are yielding 4.63%. Didn’t I tell you yesterday to be patient – and that 10 yr. yields would push higher than the 4.13% on Wednesday? Just wait – because they are going higher still with some analysts suggesting that we could see the 10 yr. yielding closer to 5.3% before this stops…. …. although that would push stock prices lower – so you have to weigh how much more pain you are willing to accept.
In addition, the Philly Fed Index fell by 8 pts (vs. the expectation of -5), Existing Home Sales fell by 1.5% continuing that trend of weakness in the housing industry. 30 yr. mortgage rates are now ‘averaging’ 7.4% and that is up from 2.9% in January – a 155% increase in rates sending the cost of owning a home surging….10 yr. ‘adjustable’ rates are now becoming the norm and average about 6% …they now represent 14% of all new mortgages up from 3% in January – and feature lower entry level interest rates. Remember – those adjustable-rate loans ‘lock’ in a fixed payment for only 10 yrs. – although it has a 30 yr. amortization table. At the end of the 10th yr. – the rate then adjusts to reflect ‘current’ interest rates – which could cut both ways…If rates are lower – then the payment goes down, if rates are higher then the payment goes up….but 10 yrs. is 10 yrs.….and that is what makes this possible….To be clear – it is not necessarily a bet on rates rather it is just an opportunity for homebuyers to cut the cost of owning that home (now) allowing them to get in at a lower monthly cost.
FED officials kept up the heat on the hawkish comments….in fact – one really honest spot was when Chicago’s Charlie Evans came clean…saying that the surge in gov’t spending is absolutely ‘one’ of the causes of runaway inflation while also saying that moving rates too high ‘could have a non-linear impact on the economy’ – causing some businesses to become even more pessimistic resulting in a situation where there is not a direct relationship between an independent variable (interest rates) and a dependent variable (the business or the economy). Suggesting that even slowing the pace of rate hikes may not prevent how a company responds nor will it slow the depth or length of the recession (that isn’t here yet!) His comments in contrast to St Louis Jimmy B – who is in the ‘higher is necessary’ camp. Current expectations are for the Fed Funds rate to be somewhere in the 4.75% – 5% by end of March 2023.
Larry Summers – former Treasury Secretary says that he see’s or rather that unemployment would need to pierce 6% before we can expect any significant reduction in inflation while Philly’s Patrick Harker doesn’t see it moving past 4.7%. The current unemployment rate is 3.5%…so both represent a significant move up – one just a bit more and that would cause an even deeper economic downturn.
In any event – stocks kept teasing, attempting to move up only to get punched in the gut sending stocks lower….by the end of the day – the Dow fell by 90 pts, the S&P down 30 pts, the Nasdaq down 66 pts, the Russell lost 22 pts and the Transports gave back a whopping 325 pts or 2.55% – losing significantly more than the broader market (S&P) which was off by 0.8%.
The VIX (volatility index) has come in a bit – 13%. and that has helped soften the intraday swings but has not stopped the push lower in prices.
The mid-term elections are now only 18 days away and the political heat is beginning to burn around the edges…. The most recent polls have the GOP taking the lead – all while Nancy dismisses the polls as ‘non-sense.’ Many of the democrats running for office now distancing themselves from the WH and suddenly changing position on a number of issues. The progressive left – has gone quiet while the majority of the party tries to come closer to just left of center…a place they should have been all along…but many fear may be too late…. On the other hand – the GOP needs to distance themselves from the far right and we are starting to see some of them distancing themselves from DJT as well. Leaving many to ask if he is losing his grip on the party……
This morning stocks are lower as investors try to price in the ongoing rate hikes while also assessing the resilience of the economy in light of all the headwinds. Dow futures are down 135, S&P’s down 25, the Nasdaq down 100 and the Russell down 9.
Tech – XLK, Communications – XLC and Energy – XLE all ended the day higher while the other 8 sectors of the broad S&P ended the day lower. The contra trades were up…Semi’s up, Gold up, Cybersecurity up. Airlines down, housing down, Disruptive Tech down, the value and growth trades were down….
The dollar continues to move higher – currently up 60 cts at $113.48 and now breaking out of the $113 resistance level I identified last week getting ready to challenge the September high of 114.20 – you can thank those rising rates and the hawkish commentary – and that is making that ‘non-linear’ response that Chucky Evans referred to more of a reality. It is also making it more difficult for companies to be confident in their future guidance as many now question – how high will the dollar go and what does that mean for int’l sales?
Oil is under a bit of pressure – falling 30 cts to trade at $84.20…this as the focus returned to that coming recession that is sure to destroy demand…. Whatever! Oil remains firmly in the $82/$90 range. Remember – the Saudi’s wanting to see $90 oil….
There is no eco data today – but there are some big earnings reports…. AXP, HCA and VZ to name just a few.
News that Lonnie Musk wants to lay off 75% of the TWTR workforce is sending that stock down 8% in the pre-mkt. SNAP is down 25% after a huge disappointing report yesterday and that is taking many in that space lower as well this morning…META – 5%, PINS – 7% GOOG – 2%
The S&P closed at 3665 down 30 pts…. As it continues to try and bottom out…. Don’t be surprised if we see weakness into the closing bell as the day end and the weekend begins. The tone just feels tired and the path of least resistance I think is lower. Like I said yesterday, while many are calling the bottom, I am not there yet…. A retest of the October low (3490) is not out of the question…and depending on what next week’s reports reveal – will help to determine where we go from here.
Challenges remain for investors…consensus estimates remain subject to revision (down not up) while inflationary trends, hawkish central banks and a slowing economy will keep investors on the edge of their seat thru year end and into 2023.
Sit tight as a long-term investor – stick to the plan…. take advantage of dollar cost averaging (DCA) and dividend reinvestment programs. Overweight the big boring names and buy the stuff that people need (STPN). Consumer Staples, Utilities, Healthcare, Energy…. while underweighting (not eliminating) Tech, Basic Materials, and Communications right now.
Take Good care
Chief Market Strategist
kpolcari@slatestone.com
Breaded Pork Cutlets Bathed in White Wine
This is also an easy dish to make and one that will become a family favorite. For this you need – boneless pork cutlets, eggs, seasoned breadcrumbs, flour, butter, white wine, and chicken stock. (You can delete the wine if you choose and only use Chicken stock)
Preheat your oven to 350 degrees.
Begin by rinsing and patting dry the pork cutlets. Set aside. In one bowl beat 5 eggs – set aside. In another large bowl – add the breadcrumbs – season with s&p, onion powder, garlic powder, and 2 handfuls of grated parmegiana cheese. Mix well. Now set up the production line.
First Cutlets, then the bowl of flour, then the eggs, and then the breadcrumbs. Dredge the cutlets in the flour, dip in the eggs and then in the breadcrumbs – set aside and repeat.
Next – melt ½ stick of butter and a splash of olive oil in a large nonstick frying pan. When hot – sear the cutlets on both sides until the breadcrumbs form a crust – maybe like 4 mins per side. Place in a Pyrex glass baking dish. Next – add some white wine to the pan and deglaze – Now add some chicken stock – enough that when you add to the baking dish – the cutlets are bathing – do not cover them in the liquid.
Now cover the dish with tin foil tightly and place in the oven for 30 mins or so.
Remove and serve with a side of sauteed spinach with garlic, and a large mixed green salad. Keep it simple, Dress it in a red wine vinaigrette. Simple, easy, and soon to be a family favorite.
Buon Appetito.
