Things you need to know
- Traders and Algo’s take profits – stocks back off just a bit
- OPEC surprises Joey and cuts production by 2 mil bpd!
- Mary Daly makes it clear – the FED is not pivoting
- Shell just the latest to ‘warn’ about 3rd qtr numbers – stock down 4%
- Try the Pasta Carbonara
Stocks took a breather….after two torrid days of gains….traders and algo’s taking profits…..trying to create ‘alpha’ to help buffer the beating that they are taking…..Mortgage Apps were down 14% week over week, S&P services PMI came in at 49.3 while ISM services came in at 56.7…..reflecting the continued confusion over what’s happening in the economy…..one data point suggesting contraction while the other one suggests expansion…..At 4 pm the verdict was in and the Dow lost 42 pts, the S&P gave back 8 pts, the Nasdaq off by 30 pts, The Russell down 13pts, and the Transports down 64 pts.
Earlier in the day – we also found out what the Saudi’s and OPEC have decided to do to prop up the price of oil…..while the expectation was for them to cut production by 1 mil bpd, they surprised the markets and the WH and cut production by 2 mil bdp…….and that sent the oil markets higher and it sent Joey into a rage – left him wondering why his now infamous ‘fist bump’ with the Saudi’s wasn’t helping the conversation…..…….And the news caused press Secretary Karine Jean-Pierre to have a stroke….because she and they were not ready for that decision and so they weren’t ready with an appropriate response….and then Bernie (Sanders – you remember him, don’t you?) had this to say –
“We must end OPEC’s illegal price fixing cartel, eliminate military assistance to Saudi Arabia and move aggressively to renewable energy…”
Yeah – how’s that gonna work? Illegal? By who’s definition? They are a producer, they are in the driver’s seat, we gave it up……and left ourselves dependent upon them…. much like Angi Merkel left Germany and Europe dependent on Russia – How’s that working out? Eliminate military assistance to the Saudi’s and then what? Watch the middle east implode on top of themselves – as they threaten world peace? Move aggressively to renewable energy? I thought we were already doing that – as fast as we can….and it is not happening anytime soon – certainly not in ‘his’ lifetime and most likely not in mine either…. ….so, it seems to me – Bernie is completely out of touch with reality (which shouldn’t be a surprise). What I find most interesting is that he never once suggested that we pump our own oil – and return to being the ‘Swing Producer’ that we were under the prior administration – but let’s not go there right now…. It won’t help.
The WH – Joey – then announces another release of 10 mil barrels of oil next month from the SPR (and that’s draining quickly) while also begging the ‘thug’ who runs Venezuela, yes begging Nicolas Maduro to help out. And btw – what does the left woke crowd have to say about that? Apparently, nothing…. Not a chirp from any of them….
Do not be surprised if he suggests that we restart oil contract negotiations with Iran…. forgetting the nuclear threat, they represent…. oh, and how about Russian oil…. I’m sure Vlad’s got a few extra barrels hanging around……. I mean, it’s ludicrous.
So, energy had another great day…the XLE adding 2% to its most recent 8% gain over the last 3 days……Healthcare and Tech up 0.3% while every other sector went red….
Oil – which gained 1.8% yesterday ending the day at $88.03 – up 15% in the last 2 weeks is trading down 15 cts this morning at $87.62. OPEC defending their position – blaming it on the IEA (Int’l Energy Admin) that predicts a 2 million barrel/day supply surplus – so all they did was balance it out…by eliminating 2 mil bpd – they have now brought supply and demand into balance! MMM…ok – then we should see oil trade back to where it was – rather than trade 15% higher, no? In any event – calls for $100 barrel oil is now the default position…. That’s where the Saudi’s and OPEC would like it to be….and you can bet that that is NOT where Joey wants it to be just as we are approaching the mid-terms. And our friends
Treasury securities fell – sending yields up again…. the curve remains inverted – with the 2’s yielding 4.17%, the 5’s yielding 3.98% and the 10’s yielding 3.77%. And that inversion isn’t going to correct itself anytime soon.
The Dollar index – which traded down to 110.60 is up this morning…. trading at 111.35……leaving it in what seems like 110/115 range…. If it suddenly starts to weaken look for support at 109…. further upward pressure will be a headwind for stocks – as we move into earnings season.
And earnings season is only a week away and this morning – Shell PLC is the just the latest to announce ‘weaker’ 3rd qtr. performance guidance ahead of its report…..shares are down 4% this morning in pre-mkt trading…..Analysts now suggesting that this ‘weak’ guidance means that fiscal year consensus is ‘too ambitious’….did you get that? Too ambitious…..expect to hear more about ‘too ambitious’ estimates in the days ahead by companies that realize they better fess up sooner rather than later…this way analysts can adjust estimates that will then reflect a ‘beat’ on the day of the announcement…..You see – as usual, they lower the bar to make it easier to jump over….but it is the pace of growth that will matter more and the guidance that they give for the next 6 – 12 months.
Peloton – also announcing another cut in jobs….500 jobs or 12% of its current workforce – the stock is quoted down 20 cts or 2%…but remember it doesn’t have much more to go…it is down 95% since the March 2021 high! I mean why would anyone own this dog. TRowe owns 44 mil shares? Ballie Gifford 27 mil shares? Vanguard 26 mil shares? Blackrock – 15 mil shares? What are they thinking?
This morning – US futures are pointing lower – again………. Dow futures down 175 pts, the S&P – 30, the Nasdaq down 85 pts and the Russell is down 13 pts – and this does make sense – since the spike higher on Monday and Tuesday was a bit much….the idea that the FED was going to pivot drove the action….and what we have learned in the last 24 hrs. is that the FED has no intention of pivoting….San Fran’s Mary Daly summed it up saying
“It’s a high bar for slowing the 75-bps pace of hikes and that anticipation of cuts next year are MISPLACED.”
I think Cleveland’s Mester made the same comment…. saying that
“Even a US recession will NOT stop the central bank from raising rates…’
Hmmm – seems pretty clear to me…but my good friend Ron Insana challenged me by saying
“They can say all they want, but when push comes to shove, they’ll be forced to change course. Never seen it happen any other way….”
And while I agree with the ‘push and shove’ part – it may not come until they have broken the system…..I mean – they brought us here – when they clearly could have prevented it – so, don’t be surprised that they will have to break it to fix it…and that is when ‘push comes to shove’. In any event – it is what it is….Eco data today includes nothing that will drive the action….tomorrow is the big day….NFP day…and we are now expecting 260k jobs restored (not created), unemployment at 3.7% (but could be higher), Avg hourly earnings m/m of +0.3% and earnings y/y of +5%. Remember – a weaker number would be welcomed by the FED while a stronger number would be an issue…. either way – neither result will sway them from a 75-bps hike on November 2nd….
European stocks are lower across the board…. down between 0.6% – 1%. Markets there digesting all of the latest news….as they also prepare for the start of earnings season….
The S&P closed at 3783 down 8 pts… I suggested yesterday that we could have tried to close the gap (3700) created on Tuesday morning…. we got close – 3722 but failed to close it…. let’s see what happens today…. We remain in the 3585/3960 trading range….It is important that the S&P hold that low created at the end of September 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 lows….in that lower high/lower low pattern I described on Tuesday.
Look – we are now in the final months of 2022…. PMs are certainly going to be going shopping for names that have been completely dislocated (as you should as well) and while I think this rally will stall once earnings start while the mid-terms only add another level of uncertainty…. In any event – I do expect a Christmas rally post the election – yr. end target around 4k ish….…. 2023 expectations will be modified post the election when it is clear what the outcome is.
In the end – it is always best to stick to the plan…. Talk to your advisor. Be strategic when allocating new money to your long-term portfolio…. Overweight big, boring names that are good divvy payers, while we are in the storm….
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Pasta Carbonara
I was asked to give this recipe again…so Andre – here it is.
For this you need: 1 lb. of spaghetti, one package of bacon – diced, 1 small onion diced, 1 clove of garlic (whole), ¼ c of dry white wine, 4 lg eggs beaten, fresh grated parmegiana cheese, s&p.
Bring a pot of salted water to a rolling boil
In a large sauté pan – add a splash of oil and then add the chopped bacon and the clove of garlic…. Cook and let it render – leaving the fat in the pan. Remove the bacon (only) and add the diced onion to the bacon fat – cook until translucent – then add the wine and let the alcohol burn off.
Add the pasta to the water and cook until al dente – 8 mins or so.
Add the bacon back to the sauté pan and keep on simmer….
When the pasta is cooked – turn the heat in the sauté pan back to med hi…. using tongs – put the pasta in the sauté pan – coating it well with the bacon fat…. turn down the heat. Now add the beaten eggs – making sure to mix the pasta as you add the eggs so that is all coated…. toss in 2 handfuls of cheese. If it seems a bit dry – add a ladle of the pasta water to moisten…
Serve immediately…. having more cheese on your table for your guests.
Buon Appetito.
