Things you need to know ~
- Stocks got smashed on the back of a strong NFP report and more hawkish commentary
- It’s big economic data week – PPI & CPI along with Retail Sales
- And – the earnings parade begins….so bring in the clowns
- Zelensky bombs a key bridge and Vlad bombs the capital city
- Saudi’s trying to ‘explain’ their way out of production cuts
- Try the Braised Short Ribs….
A jittery stock market prepares for a big week….top of mind and center stage will be both the PPI & CPI reports due out this week – The PPI (Producer Price Index) which speaks to inflation at the manufacturing level is due out on Wednesday and then the CPI (Consumer Price Index) which speaks to inflation at the consumer level is due out on Thursday – both are expected to remain elevated….at 40 yr. highs – which confirms and explains the hawkish commentary from anyone that receives a FED Reserve paycheck….in addition – on stage left we will get retail sales data on Thursday as well, and that will give insight into how the consumer is faring and then what that implies about the economy. Hint – we are starting to hear stories about ‘excess’ inventories at some retail outlets which is leading to talk of ‘holiday sales’ – capisce?
And on stage, right? Well, it is also the beginning of the 3rd qtr. beauty pageant…. leading the parade will be reports coming from the 4 biggest banks – JPM, C, WFC, and MS ……. but we will also hear from the likes of PEP, DAL and DPZ – to name a few more. So, now here we are….we’ve been talking about this for weeks now…30 % of.companies have guided lower (for a variety of reasons – demand destruction, stronger dollar, rising interest rates, inflation eating away at your income – you can pick your poison) causing analysts to slash and burn estimates – (hopefully) taking them down to levels that will make it appear as if 70+% of companies ‘beat the number’! Historically – that number is somewhere in the mid 70’s – but has been as high as 82%…..I expect that we will have a season that show about 73% of companies will beat…but again – remember – earnings are history – they are what they are – it is what the C-suite is saying about the next 6 months….and that includes metrics like operating margins, profit margins, supply chain issues, consumer behavior, business climate, monetary policy etc.…
To get just a taste of what that may look like – all you have to do is look at Friday’s AMD announcement – and if you didn’t see it or somehow forget – let me remind you….on Friday the company warned of a revenue ‘shortfall’ and lowered guidance on gross margins….the alert said that 3rd qtr. revenue is expected (now) to come in near $5.6 billion – down $1.1 billion from the prior guidance and that caused a host of analysts to CUT their estimates – Keybanc, Piper Sandler, Barclays, Morgan Stanley, RJ, Truist, Wells Fargo, Baird, Stifle and BofA – all lined up to slash the estimates and the outlook – and that caused investors/traders and algo’s to take 14% or $9.40 out of the stock before the 4 pm bell rang….In sympathy – they took NVDA down another 8% or $10.50 and INTC down 5.4% or $1.50….In addition – the news that the US is imposing stricter rules on US made chips for export to China did not help the sector….the SOXX – the iShares Semiconductor ETF lost 6% on Friday…and will most likely continue to struggle in the next couple of weeks.
In fact that headline, along with a stronger Non-Farm Payroll report and the drop in unemployment that confirms a tight labor market also confirms a continued aggressive FED – helped to take the broader market down as well…..by the end of the day – the Dow gave back 630 pts or 2.1%, the S&P gave back 105 pts or 2.8%, the Nasdaq off by a stunning 420 pts or 3.8%, The Russell down 50 pts or 2.8%, and the Transports down 360 pts or 2.8%. Yes, it was ugly and uncomfortable – but in the end – the markets did end the week higher – remember that explosion UP on Monday and Tuesday and the churn on Wednesday and Thursday…? Well, that helped save the week…. but does that really matter this week? NO, not really.
Futures opened lowered last night and remained lower all night – this morning at 5 am we find Dow futures down 135 pts, the S&P down 22, the Nasdaq lower by 80 pts and the Russell off by 10. But let’s visit that in a bit….
On the back of all the unease and talk of higher rates last Friday we saw the dollar index move up……adding 0.4% taking it to $112.74 and it is up again overnight/this morning….adding another 0.3% taking it to $113.18…..and while that is great for dollar investors, it is hurting other assets – think stocks, bonds and (some) commodities (lumber, copper, steel, platinum, silver and gold)…..but that should not be a surprise at all….….…. Food commodities though, have not come down and in fact are all higher – think corn, soybeans, lean hogs, cattle, sugar, coffee and wheat – Capisce?
OIL – a commodity- continues to move up….but that is a direct result of OPEC’s action last week – where they announced a 2 million bpd CUT in production (a direct attempt to control the price of oil and prevent it from going lower) – and that has sent oil on a tear once again…..Oil is now up 22% or $15/barrel since September 27th when rumors of a Saudi/OPEC production cut permeated the news wires (and the internet). Now to be clear – this rise in oil prices will NOT be reflected in this weeks PPI & CPI…so if we see a slight decline this week in those measures – it is ‘short lived’…. Because if oil continues to surge then next month’s PPI and CPI will reflect that increase….resulting in what I had feared all along…..A supposed ‘peak’ in inflation would be met by a slight decline before resuming its path higher again…and that is all but confirmed by the way all of those FED heads have been talking…..You can see that in my appearance with Stuart Varney on Friday
Click here to watch: https://video.foxbusiness.com/v/6313418718112#sp=show-clips
Gold as discussed was pushed lower on Friday….and is off again today….down $20 at $1688…..as investors digest the last jobs data that confirms higher rates are ahead of us….the selloff suggesting that the FED will be successful in controlling inflation- but the jury is still out….the psyche changes daily…so expect that to continue as we navigate our way thru this mess. If inflation does not respond, then I would expect investors to pile in on gold….
Treasury yields continue to move up…. the 10 yr. ending the day at 3.88%…the 2 yr. is now yielding 4.3% while the 5 yr. is yielding 4.14%. – marking the 11th week of yield increases and the 17th week of curve inversion. – and if you are worried about capital preservation – you can take a chunk of money and buy 2 yr. treasuries – and earn 4.3% (guaranteed) that will give you income and some stability (if you hold it full term) in an unstable time. Now if you wait another day or two – you might see the yield go even higher…and that will put more pressure on stocks…Utilities would be expected to suffer as rates rise – because 2 yr. rates are now better than what most utilities are paying in a dividend yield…..so as discussed on Friday – that poses a real challenge for investors….Just sayin’
As noted above – US futures were down – but have recovered a little bit as it is now 6 am…the Dow has gone slightly positive while the other indices remain just south of the unchanged line……….……global markets are down….China – which finally opened after a week long holiday lost 2.3% while Hong Kong lost 3% and Australia down 1.6%…….Japan, Taiwan and South Korea were all closed. Chip stocks in Asia got smashed…. Shanghai Fundan Microelectronics – collapsed by 24% in early morning trading…and while most of you don’t know or own that stock – it speaks to what is going on in the sector… but it is also a Chinese stock – so take it with a grain of salt….Just fyi – I don’t play in China – no reason to….there are plenty of other places to invest your money that allow for clarity and transparency – something China has trouble with!
European stocks are also under pressure this morning…. not big, but enough….as they track global negativity… Tech taking it on the chin…. (Think what happened overnight in Asia). In the UK – the BoE (Bank of England) announced more liquidity measures to help assuage and calm the markets after the chaos created 2 weeks ago…The original plan was for the Bank to halt those ‘emergency’ purchases this Friday…this morning they have announced that they will ‘ensure an orderly end to this program by INCREASING the size of its daily auction to allow headroom for gilt purchases’….. Essentially – what that means is they are getting ready for more chaos in the gilt markets – so this announcement is trying to pre-empt any panic that could cause the LDI Funds (Liability Driven Investment) from imminent collapse.
On the geo-political front – we all saw what happened to the bridge linking Russia to Crimea – the Ukrainian’s blew it up causing Vlad to cry out telling the world that the Ukrainian’s are ‘terrorists’…. which is laughable…. That event dealt another blow to Vlad as it was a key supply route for his war on this country. So, overnight – Vlad bombarded the capital city of Kyiv causing untold loss of life and infrastructure damage…but remember – it’s the Ukrainian’s who are terrorists!
And not to be left out – the Saudi oil minister – Abdullaziz bin Salman tried to explain why the Saudi’s and OPEC felt it necessary to cut production….in the end – no matter what he said- let’s not kid ourselves – it all comes down to controlling the price of oil…. period. Note that oil is up 22% in 8 days….
The S&P closed at 3639 down 630 pts…taking us back to the lows seen in September 30the (3585). It is important that the S&P hold that low as we move into earnings season….If it does – that would be positive signal….if it fails to hold onto that low – then brace yourself for even lower low….Right now – S&P futures are down 9 pts….much better than an hour ago….there is NO eco data today -so the focus will be on China and the chip stocks, the coming inflation reports and the start of earnings season…….so this is not the time to go on vacation….sit tight….More to come.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
Braised Short Ribs
I made these yesterday and they were outstanding and I was asked to repost it….so here you go…. – see the picture on my twitter @kennypolcari
Begin with 6 / 8 beef short ribs. season with s&p and then brown in a frying pan with a bit of Olive oil. Make sure to brown all sides being careful not to burn the meat. After you have browned them – place them in a large/deep baking pan. Lining them up on their sides.
Next – large Chop – 2 lg White Spanish Onions, 1 bunch of celery stalk, 1 bag of carrots. Smash 4 /5 cloves of garlic and add to the meat – making sure you disperse the garlic all around. Next add the chopped veggies right on top.
In the frying pan that you used to brown the meat – add: 1 can beef broth, 1/2 can tomato paste, and 1/4 to 1/2 bottle of red wine. mix well and let the broth come to a boil for a couple of mins as you steam away some of the alcohol in the wine. Bathe the short ribs – do not drown them – in this mixture and cover tightly. Place the baking dish in the oven – preheated to 400 degrees for 30 mins and then reduce to 325 – Let cook for 4 hours – tightly covered.
The presentation: Remove the baking dish from the oven. Puree 1/2 the veggies in the food processor. On a warmed serving platter – pour the pureed veggies down the center of the platter. Arrange the short ribs on top of the pureed veggies and then place the balance of the cooked veggies around the meat.
I served this with roasted sweet potatoes, a large mixed salad dressed in Olive oil, lemon, s&p and oregano. I also made chicken cutlets and pasta & peas – why? Why not? LOL!
