Things you need to know ~
- Countdown to 2 pm….What’s NEXT?
- Oil demand is alive and well and China looking to relax
Covid lockdowns - Dollar index retreats a bit/Gold remains steady
- Mid-terms only one week away – and it’s really heating up
- Try the Pumpkin Risotto for Thanksgiving
Stocks ended slipping a bit lower yesterday – after a good ‘ole college try to push higher in the face of the today’s FOMC (Federal Open Market Committee) meeting. Continued concerns over what the FED will do ‘next’ being bandied around as investors/traders and algo’s await today’s 2:30 pm press conference. Now by ‘next’ I do not mean today – that’s locked and loaded – expect them to raise the rate by another 75 bps today bringing the range to 3.75%/4% – it is what happens at the December and into the new year that is causing all off the stir now. And that is what I mean when I say ‘next’.
And while the hope is that they will announce a 50 bps hike coming in December – I say – Not so fast cowboy…..…..reality is we have not seen any evidence at all that inflation is responding to the most recent moves….yesterday’s JOLTS (Job Opening and Labor Turnover Survey) revealed that we got more job openings than expected – keeping employers fighting for workers by having to push wages higher and that will continue to put pressure on the FED – you see – JJ wants to see that number decline, he wants to see less jobs offered, putting employers back in control of what they are willing to pay – currently with job openings increasing – the sense is that the worker is in control to ‘demand’ higher pay and higher pay leads to higher prices as all costs along the rising scale ultimately get passed down the chain and end up as higher prices paid by the consumer….
In addition ISM New Orders also rose to 49.2 up from 47.1 while S&P US Manufacturing PMI rose to 50.4 – up from 49.9 and ahead of the expectation of 49.9 and those also suggests stronger demand which aligns with continued rising prices. So- before you go bettin’ the ranch, I would think about it.
Remember JJ told us – Inflation is key and the FED was not going to push on the brakes until they say a significant decline in the pace and rate of inflation. We are due to get 5 more reads on inflation between now and the December meeting – so there will be plenty of ‘data’ to assess along the way….. So, in my mind, it will be very hard for him to justify a slowing down on the pace of hikes IF we don’t see inflation responding to higher rates….
The trick here is that we must wonder – ‘how long will it take for these higher rates’ to cause a reversal in demand? Ahhhh – that is the question – There are some economists that suggest it might take 3 or 4 months while others suggest that it kicks in starting at around 7 or 8 months….Rates started to rise in March by 25 bps, May by 50 bps and then in June they rose by 75 bps and have risen by 75 bps in July, September and now November…taking us from 0.25% to now 4%….with little to show for it OTHER than pressure on housing as mortgage rates have gone from 2.75% to 7.25% – barring that – the rise in rates has not sufficiently slowed the consumer down at all – so you see – JJ has a problem on his hands….How does he manage the prior hikes as they permeate thru the economy? Does he wait (thus slow the pace) to see what happens or does he barrel ahead until the pressure causes cracks in the foundation which then begins to shift causing the bricks to fall off the house? Oh boy, it’s a tangled web we weave and it’s a mess that we’re in….
And while stocks did start out strong – by 10 am they entered negative territory and stayed there all day – By the end of the day, the Dow lost 80 pts, the S&P gave up 16 pts, the Nasdaq fell 98 pts, the Russell – bucked the trend and added 4 pts while the Transports lost 63pts.
The bond market rallied a bit – sending yields down – but they are still inverted – we are now in the 20th week of yield curve inversion…..and on Monday we saw the 3 month and 10 year invert (if only for a short time) but that is supposed to be the ‘ final nail in the coffin’ – suggesting that a recession is ‘absolutely, definitely without a doubt’ coming to a theater near you…
This morning we find the 2 yr. yielding 4.50%, the 5 yr. yielding 4.25% and the 10 yr. at 4.04%. Lots of talk about how the shorter duration bills/bonds are causing some investors to ‘wait it out’ – the current yield on a 3 month bill is 3.99%, while the 1 yr. is yielding just as much as the 10 yr. at 4.04% – leaving some investors (think the baby boom set) to consider putting a percentage of cash into those short term instruments and guarantee themselves a positive return until they feel a bit more comfortable about what the future looks like. And that will be the challenge for stocks at least in the near term. The 20 – 50 yr. old set has no interest in doing that nor should they…Let’s not get crazy….
OIL rose and is climbing once again on guess what? MORE DEMAND! Go figure! Yesterday the American Petroleum Institute (API) reported that crude stockpiles fell by 6.5 million barrels for the week ended 10/28…… (the expectation was for a rise in inventories). Gasoline inventories also fell by 2.6 million barrels vs. the expected decline of 1.4 million barrels and all that suggests is that demand is alive and well…….In addition there is a rumor that China was trying to ‘think of ways’ to ‘relax’ those insane (think stupid) covid 19 lockdown policies by March 2023.
And all of that suggests is that demand is holding up (if not growing) despite the sharp rise in rates over the past year…..which again – puts the FED into a tough position.
Yesterday, oil rose by 2.4% or $2/barrel to end the day at $88.57…leaving us smack in the middle of the most recent rage of $85/$90. This morning oil is up 30 cts at $88.87 barrel.
Now yesterday the dollar index traders were betting on the FED slowing the pace of ‘future’ hikes and that caused the dollar to retreat just a bit- You see the dollar rises in value as the FED pushes rates higher, so any slowing by the FED should cause the dollar to retreat – even if only for a bit…….FED Fund Futures are betting that there is a 57% chance of only a 50 bps hike in December – that is down from more than 70% last week. They are looking for a ‘change in the language’ as the signal to suggest a slowing by the FED – something I think would be foolish…..Now- the FED could open the door to the ‘idea’ that that could happen, but in my opinion they need to keep the pressure on the idea that 75 bps is still very much on the table. You see – it is always easier to cut the expectation of the hike as we approach the December meeting rather than cut it now and have to raise it in ahead of the December meeting….This morning the dollar index is hugging the trendline at $111.28.
Gold is holding steady at $1658/oz….after testing the $1630 level a couple of times in the past 2 months. A weakening dollar will certainly help gold and other commodities find stability if not more demand. Watch for gold to test trendline resistance at $1688.
The mid-terms are only 6 days away – expectations are for a split congress and if so – we can expect the market to do better 3, 6 and 12 months out – a split in congress forces both sides to come to the middle – eliminating the fringes in both parties. We will also have clarity on future fiscal policy as we can be sure that the Dems will no longer be driving the bus and that would be welcomed by the markets. The races are heating up – early voting is at all time highs across the country – in fact – Georgia which was accused by the left of ‘hampering’ early voting is seeing a SURGE in mail in ballots and early voters taking to the polls. So, so much for that argument that the GOP was hindering efforts to get out the vote! By this time next Wednesday – we hope to have a much clear picture of the 4 swing states that are KEY to who controls the Senate for the next 3 yrs.….The surprise will be if the DEMS fail to hold onto that very slight majority.
US futures are essentially flat this morning….Dow futures are down 5 pts, S&P up 2 pts, the Nasdaq up 10 pts and the Russell is – 2 pts. In addition to the FOMC meeting – we will get Mortgage Apps at 7 am….expect more weakness and we are getting a sneak peek at the ADP employment report – which should show an increase of 185k new jobs…..a pre-cursor to the Friday NFP report. A stronger number is not what the FED wants to see – Capisce?
And AMZN fell by 5% yesterday (exiting the $Trillion club) as investors are reconsidering their warning around the holiday shopping season…..taking that stock down $5 to $96.79 – leaving it now down 48% from the November 2021 high. AMZN is now trading at levels last seen during the August 2018 – March 2020 cycle. So, this is KEY….a failure here could see more investors bail out – testing the fall 2018 $75 lows. Just fyi – I am not in the ‘sell camp’ at all, so I’m gonna back up the truck!
European stocks are mixed as they await the next FED move and await the next move by the BoE (Bank of England). The BoE is expected to raise rates by 75 bps on Thursday, but they are also expected to ‘soften’ their language. Spain reported that their September manufacturing activity plunged in October – marking its 4th consecutive month of shrinkage as surging inflation +8.7% takes its toll on the economy. Remember the ECB raised rates by 75 bps last week.
The S&P closed at 3856 down 16 pts after testing the 100 day moving average trendline…. – If the FED suggests that the December move is going to be 50 bps then I would expect a bit of a further rally…..but anything less than that will cause more churn to downside until analysts/strategists dissect and digest the comments and the tone at which he said it. Will he be able to convince investors that it’s all working or not? We are in a 3800/3900 trading range. A push up and thru 3900 could see a run to 4000. The level that I think will be the year end…. I’m still waiting for Goldman to ‘leak’ what JJ and the FED are thinking – so sit tight. But unless the data is much different than what we expect – I think any pullback will be met with reasonable demand.
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
Pumpkin Risotto
It’s Thanksgiving….
For this you will need:
Pumpkin puree – not pumpkin pie filling, olive oil, 2 large shallots, thinly sliced, 1 1/2 cups Carnaroli rice, ½ cup white wine (dry not fruity), 4 c of chicken broth, heated to a simmer, heavy cream, butter, pepper, fresh grated Parmigiano-Reggiano cheese, finely chopped flat-leaf parsley,
Heat oil and a dollop of butter in a large pot over medium-low heat. Add shallot and cook, until shallot is softened, about 7 minutes – (remember to stir). Add rice and cook, stirring constantly, until rice is translucent, about 8 minutes.
Now add wine and cook until wine is mostly absorbed, then add 1 ladle of broth and stir, until liquid is mostly absorbed, when almost completely absorbed – repeat the process again….now add pumpkin and stir to combine. Add remaining broth one ladle at a time until fully absorbed before you add more….(capisce?) do this until rice is tender yet still slightly firm to the bite…in fact you may not use all the broth. Depends on how much rice you used…..
When complete – fold in about ¼ c of heavy cream….. (You can always taste and add more if you like) another tblsp of butter, season with pepper to taste (do not add salt – the cheese should be salty enough). Divide risotto among warmed bowls sprinkle with parsley and serve. Now to make a real impact – shave some cheese over the top then sprinkle with the parsley….. Serve immediately
Buon Appetito.
