Things you need to know ~
- Stocks attempt to rally – Dow, Russell and Transports UP, S&P and Nasdaq down
- PPI due out at 8:30…. CPI tomorrow
- PEP to report – what will they say about the global economy?
- US futures bouncing off 2022 lows…another Dead Cat Rally?
- BoE – insists that the emergency bond buying program will not extend beyond Friday
- Try the Dover Sole Meuniere
Stocks which started the day weaker, ended the day mixed……the tension remains high as we wait for today’s data which includes the PPI (producer price index), the FOMC (Fed Open Mkt Committee) mins and earnings from PEP – which is not a Dow stock, but it is a big multinational stock that will certainly have some insight into what’s going on around the world and the role that the strong dollar is about to play in the earnings season……….In overnight trading – Asia markets ended mixed, European markets opened lower but have since turned up, while US futures are higher ahead of all of this…..but don’t be lulled into a sense of security just yet….remember – the markets have taken a beating over the last couple of weeks….much of it in anticipation of what we are about to get…..so sit tight, because the day has arrived….think ‘dead cat bounce’.
Now yesterday – stocks were attempting to move higher and in fact were all higher at mid-day – offering just a bit of relief….but the rally faded as the clock ticked down after BoE (Bank of England) Governor Andy Bailey made it very clear – in fact ‘on the record’ clear – that they would stop the ‘emergency bond buying’ program on Friday………..Stocks began to weaken – on the back of that headline……by the time the closing bell rang – the Dow ended the day up 36 pts, the Russell added 1 and the Transports added 4 pts…hardly anything to celebrate – but anything positive would always be welcomed….…..the S&P and Nasdaq though, were a different story. They both ended the day lower…. many crediting the ongoing disaster in the semiconductor space – in addition to the BoE news…at the closing bell the S&P gave back 24 pts or 0.6% and the Nasdaq choked – losing 116 pts or 1.1%….
There was no eco data to report so the focus was all about what we are going to learn this morning…..we are at a tenuous level – sitting on the edge…..the S&P sitting directly on the new 2022 low at 3588…..suggesting that it could go ‘either way’…… – investors and the markets are begging for relief – anything……anything that they can point to that will contradict the current mood…..and by the way the futures are acting, it is expecting that to happen today.
At 8:30 am – the gov’t will release the PPI (Producer Price Index) report – this is the report that details the cost to manufacture the goods that are ultimately sold to consumers. Survey says – the PPI will rise by 0.2% m/m, Ex food and energy it will rise by 0.3% m/m, while y/y data suggests a rise of 8.4% on the top line – which would be a bit lower vs. last month and 7.3% ex food and energy – which is in line with last month….So let’s be clear – if there is any decline – no matter how slight it might be- I would expect the market to ‘rally’….
Why? Because they will say: “See, I told you so……” Because in the short term it is way over done…..there is not doubt that the economy is in trouble, but the move lower was dramatic – maybe just a bit more dramatic than it needed to be – or maybe not…..but if it is even 0.1% higher – I would expect the algo’s to fall back into sell mode. Futures action this morning is suggesting the former….
At about the same time – we will be hearing from PEP – and many are waiting patiently to hear what they have to say…. How will they define the global economy? What has happened to margins? What role will the strong dollar play in their announcement – recall that the dollar index is up 8% since July 1st….and it is up 18% ytd…. Remember – a stronger dollar causes foreign profits to appear weaker when converted back into dollars…. has PEP accounted for that in their estimates, or will we be surprised? My gut says that PEP management is not going to get caught with their pants down and that their guidance fully reflected this – were the analysts listening?
PEP is down 5.5% on the year…..not bad considering that the S&P is down 24% on the year, they pay a 2.8% dividend….They have pricing power, they run a tight ship, so I am not expecting PEP to disappoint at all….they hardly ever do….so I expect that their report will help the mkt psyche today….in fact – the stock closed yesterday at $162.59 and this morning in the pre-mkt it is quoted at $162.90/$164…..That is certainly better than $159/$162 – capisce?
Then – at 2 pm we are going to get the latest FOMC mins, and some are suggesting that they will give us new hints into FED think…. something I think is ridiculous – what else do we need to hear? Haven’t they all been clear enough? If anyone thinks that the mins are suddenly going to suggest a change in the narrative – I’m thinking you need to go to the gym and work that out…not happening…Think about it – how could they release mins that would be in direct contrast to what EVERY ONE of them has been telling the markets? Makes no sense at all and IF they do contradict the narrative – then we’ve got a bigger problem to worry about. CREDIBILITY – So in the end – I do not expect the mins to reveal anything new.
Now today’s PPI will be a prelude to tomorrow’s CPI (consumer price index)…which is expected to show a slight decline….that would NOT be a surprise – we have been talking about it for a month now….we have been talking all about it as the market continued to fall….SO….what do you think is going to happen? If the report comes in as expected then it should show a slight decline in the CPI – which is still running at 40 yr. highs – and that will also add fuel to any rally that begins today….think relief…but understand that the price of oil – which is part of the data has surged by 20% since the start of October and that increase will NOT be reflected in either the PPI or the CPI this month…that is a November data point….and my fear (which I have been expressing for months now) is that – Yes, we could see a slight decline before we see another push higher….Just like what happened in the early 80’s……..So tread lightly….which doesn’t mean – bail out and light your hair on fire – it just means use your head for something other than a hat rack. If you are a long-term investor building a long-term portfolio – don’t get drawn into this FOMO (fear of missing out) reaction…. Stocks are down big – there is plenty of time to get in (if you are not already in). Now if you are a day trader – then get ready…. because any reaction to the upside is sure to be swift – recall what happened last Monday and Tuesday?
Later in the week – we will get Retail Sales Data…. along with earnings reports from JPM, C, WFC and MS…. which are being rumored to be ‘better’ overall, but will show some weakness in Investment Banking, Consumer credit, mortgage originations etc. I mean recently the news has been all about how these same banks are setting aside ‘billions of dollars’ to prepare for the expected massive losses created by consumer credit defaults. So, it appears that they are fully expecting tougher times ahead…. just sayin
Last night Joey did a CNN interview with Jake Tapper – Tapper asked him directly if American’s should be preparing for a recession – his answer was an emphatic NO, we should not – saying that there is nothing in the data to suggest that (remember he lives in the WH) – but then he qualified it by saying – well maybe we are going to have a very slight pullback – but nothing to get worked up about…which is interesting because yesterday – the IMF (Int’l Monetary Fund) came out and CUT the global growth forecast saying that ‘the worst is yet to come’ and that another 20% decline is ‘certainly possible’ if the FED and other central banks continue down this rate hiking path….….now that’s encouraging – don’t you think? In any event – it will be what it will be….and my gut says that it ain’t over til the fat lady sings….and I don’t hear her yet – do you?
As noted above – US futures are significantly higher…. Dow futures are up 200 pts, the S&P up 30, the Nasdaq is up 112 and the Russell is up 20. All this while nothing has changed….right – in fact if anything I would argue that the IMF report only adds to the angst, but the algo’s are not paying any attention – they are all focusing on what is expected to be a slight pullback in the inflation numbers…and the fact that the FED’s hawkish commentary and actions has begun to cause demand destruction which should take the pressure off of rising prices. OK – go with that…. I am running with a ‘relief rally’ nothing more…. Like the FED, until we see significant moves in global inflation, I am not buying into the bottom is in argument – yet. But that doesn’t mean I am not finding values among the ruins….
I have to tell you, I am beginning to like the semi space….I think the 44% loss in the sector is now providing an opportunity for selective long term investment…..it’s almost becoming a ‘value’ play….I continue to like the energy space – even though it is up 45% ytd…clearly it has more room to run…let’s be honest – fossil fuels are not going away in my lifetime – and while the transition is good, it not going to suddenly just go away….not happening…and besides names like XOM and CVX are not standing still, they are building out renewable businesses, so you’re throwing XOM or CVX out because why? Nat gas and coal are also places that have been and will continue to provide shelter in the storm…BTU +162% ytd and CRK is +117% ytd….CHK + 53%, EOG + 43%
US treasury yields remain elevated but will surely come in today if the market rallies – and that is ok too because they were a bit overdone as well….so a pullback in yields makes sense if we see stocks rally. The curve though, remains inverted for the 17th week….so someone should tell Joey that the recession that he doesn’t think is coming is already here…It’s hard to see from 1600 Pennsylvania Avenue.
Oil – which has also been on a tear for a couple of weeks took a breather over the last couple of days and that makes sense too…This morning – WTI (West Tx Intermediate) is flat on the day…trading at $89.35 – leaving it in the $87.70/$93.10 trading range. Yesterday – rumor had it that Joey has appealed to the Saudi’s and OPEC+ to delay their announced production cuts for one month…. Hmmm…that’s interesting…. our mid-term elections are just one month away…. I wonder if that’s just a coincidence? What do you think? Either way – do not expect oil to collapse anytime soon…. That is not happening and that was made very clear by the prince.
European stocks are all a bit higher….Now there is a headline this morning that suggests the BoE is going to EXTEND its emergency bond buying program past Friday even after Governor Andy Baily said ‘no way, not happening’…..Hmmm – seems a bit fishy to me….but let’s see what happens on Friday…..Recall – they were also the ones to say that the volatility in the long dated gilt mkt was posing a material risk to UK financial stability….. At 7 am – market across the region is all higher by about 0.3%……Investors there are also anxiously awaiting our PPI / CPI data…. that will shed light onto the state of our union.
The S&P closed at 3588 down 24 pts…. testing the September 30th low of 3585…. futures action this morning suggests a decent bounce off of that KEY level…..and that is a KEY level….just to be clear…. A bounce will give investors a sense of relief – but will it be enough to change the psyche? I’m betting not yet….
We are back at levels not seen since the collapse of markets in October 2020…. And we are in a seasonally difficult time for markets…. I expect the volatility to continue as we move into earnings…. We are about to find out how companies have been preparing for 2023…what they think about their businesses and about the US/global economy. Remember – it’s not about the earnings…those are history – it’s about future guidance. Stay close….
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
Dover Sole Meuniere
Still feels a bit ‘fishy’ to me so try the –
Sole Meunière – easy to make and can be varied according to your own tastes:
You will need: Dover sole (or lemon sole) flour, s&p, butter/oil, lemon, parsley and capers.
Rinse and pat dry the filets – Combine flour, salt and pepper – dredge the filets and set aside.
In a skillet over medium-low heat, melt the butter and add a splash of Olive oil to prevent the butter from burning. As soon as the butter stops foaming place the filets in the pan – being sure not to overcrowd the pan (maybe 3 fillets at a time). Cook for 2 – 3 mins then turn and cook for an additional 2 – 3 mins depending on thickness of the filet. Only turn once during cooking.
Place the filet on a warmed platter and melt a bit more butter in the skillet – turn off the heat so that you do not burn the butter….squeeze the fresh lemon into the butter – add capers and stir together.
When completed – pour this sauce over the filets – sprinkle with fresh parsley and serve immediately. Serve this dish with French cut green beans – that are first blanched in salted water, then shocked in a cold bath then quickly sautéed in a bit of butter and s&p. Easy, quick, and good for you.
Buon apetit
