Things you need to know ~
- PPI due out at 8:30
- HD beats on both top and bottom lines – stock rallies then retreats
- WMT, JWN, KSS, ROST, LOW and a host of others later in the week
- Retail sales tomorrow, housing starts and existing home sales later in the week.
- Trump to announce something…speculation runs rampant
- Try the Potato/Escarole Soup for a first course
***I am on my way to NY and will be live with Maria Bartiromo tomorrow as a guest host from 6 am – 9 am. Thursday with Charles Payne at 2 pm and Friday morning with Stuart Varney. Be sure to tune in***.
Stocks fell, bond yields rose, oil got clobbered and the dollar fell, rose, fell, and rose again to end the day at $106.60. Gold continued to push higher – rising $6 to end the day at $1,775…..up significantly from the fall lows of $1620 ish….
Overnight Sunday into Monday we heard from Fed Governor Waller – from Sydney, Australia – who told us that – don’t overthink this….while the pace of increases might slow – the goal is to kill inflation and the idea that the FED is about to pivot is completely unfounded….and then during the day – interestingly enough, we heard Vice Chair Lael Brainard say the SAME thing……she told a Bloomberg group gathered in the nation’s capital that it ‘would be appropriate soon for the central bank to slow its pace of interest rate hikes’ – which the algo’s took as an admission of a coming pivot – taking stocks higher…until she qualified it by saying that the FED ‘has additional work to do to bring down inflation’…and that caused the algo’s to slam on the brakes and go in reverse. Now she did not commit either way – she did not say it wouldn’t be 75 bps nor did she say it would be 50 bps…..and nor did she define the word ‘soon’….….
By the end of the day the Dow fell 211 pts or 0.6%, the S&P lower by 36 pts or 0.9%, the Nasdaq down by 127 pts or 1.1%, the Russell down 21 pts or 1.1% and the Transports down by 22 pts or 0.1%.
I mean is anyone else tiring of this back and forth by the algo’s and the FED? They all talk, they all send out mixed messages while trying to appear in line….but the way they speak and the intonation they use – clearly causes angst and confusion….so at this point – I wish they would just listen to JJ – who told us that the terminal rate is now at least 5.25% and it makes no difference how we get there – we are going to get their by March of 2023…which means we will most likely do 50 (Dec), 50 (Jan) and 25 (March) – that will get us to 5% – 5.25%…..Now, they could do 75 (Dec) and 50 (Jan) and then pause – that still gets us to 5% – 5.25% – a bit earlier than March, but it gets us there….and if inflation does not respond then they could take us to 5.25% – 5.5% in March. In any event – it’s not like investors don’t know where we are going. Because if you don’t – then you are living under a rock or living in a cave.
Today we are getting 2 more economic data points….the first one – will speak to the state of manufacturing in the Northeast – the Empire Manufacturing Survey and that is expected to be down by 6 pts….which would be up from last month’s -9 pts….and while this is a relatively important data point – it is sure to be ‘trumped’ by the 8:30 am PPI report – which will detail the cost of manufacturing new products – it will speak to the input costs….because as the input costs rise (or fall) the impact of that move ends up being reflected in the following months’ CPI reading….now last week – we saw CPI rise m/m but decline y/y….and today we are expecting the same read. On the top line – it is expected to be up 0.4% m/m and up 8.3% y/y which is down from +8.5% last month. At the core level – which deletes Food and Energy it is expected to be +0.3% and +7.2% in line with last month.
Now look – just because many think inflation has peaked or that it appears to be in decline after one report, doesn’t mean that it ‘all clear ahead’….on no, no, no…..the recession is coming and with it – will be plenty of pain as rates rise. Remember – something that we don’t talk about very much, but with each increase in the FED funds rates we see increases in a range of consumer rates…think mortgages, now running at 7.35% for 30 yr. money and going higher, think HELOC’s, think adjustable rate mortgages which can see rates rise by as much as 2% from the initial teaser rate, and even more insidious are consumer revolving rates – think Bloomies, Nordstroms, HD, etc.….the latest reports revealing that those creditors are now charging rates as high as 19.4% on revolving credit…..and we still have 3 more rates hikes coming before they even consider pausing….
Now some analysts are celebrating the decline in the last week’s CPI saying that the FED hikes are working – Yeah – if you want to buy a new ‘used’ car, it’s great – how is that going to feed your family? Pay your electric bill? Pay for gas in your car? Every one of those costs continue to RISE. And then they say that the costs of a house have declined – great – and how does that put food on the table? If you bought your house at $800k and now it’s worth $700k – so what” It means nothing in terms of living your daily life….You have to live somewhere and if you paid for it outright or locked in a 30 yr. mortgage – the decline in housing makes absolutely NO difference to your day to day living expenses that continue to rise…so back off.
Remember – we need to see a trend in a real decline…not a single data point….
Now – treasury yields which had declined on Friday – rose a bit yesterday….and remain inverted – now in its 21st week….or 6+ months…and not one analyst even considers that any longer….it’s old news…which is funny, because when they inverted for all of 10 mins in February – the media was ringing the alarm bell – CNBC’s Andy Sorkin – becoming nearly hysterical on tv as he revealed that an inverted yield curve translates into a recession 12 – 16 months out….so now it’s been inverted for 6+ months – which would mean that we can expect it to ‘officially’ begin in April 2023….Can you imagine how hysterical he’ll be then!
Oil – fell sharply yesterday…down 4.2% or $3.75/barrel to $85.80. And why? Well the Saudi’s (OPEC) slashed their 2022 demand forecast (well that’s good considering there are only 6 weeks left in 2022) – for the 5th time – citing mounting economic challenges – think global inflation, rising interest rates and ongoing lockdowns in China…. This after the IMF (Int’l Monetary Fund) also made negative comments surrounding the global economic outlook.
This morning oil is down another $1 at $84.90/barrel…. once again breaking its 50 dma – leaving it ready to test the October lows of $81.30 ish…. Expect the next announcement to be more production cuts by the Saudi’s to protect prices.
Gold is up $2 at $1,778/oz….while the Dollar index – DXY continues to come under pressure – down 67 cts at $106. Support will be found at the trendline at $104.90. Now look, the dollar had a dramatic move up – which many think was overdone…so a pullback to trendline would not be a surprise…..And if inflation reports suggest further weakening, then we can expect the dollar to retreat further…with a test of the June lows ($102.50) in the bulls eye.
This morning – stock futures are up ……Dow futures + 140 pts, S&P’s +30 pts, the Nasdaq + 140 and the Russell+13 pts.
It’s a big retail week….this morning we will hear from both WMT and HD…WMT is expected to report $1.31 share while HD is looking for $4.31 share. And…….HD did NOT disappoint – they reported $4.25/sh….and top line revenues up as well. And they ‘re-affirmed’ their guidance….demand is steady…..and the stock traded up $4 or 1.3% before reversing course and going negative. Which isn’t really a surprise considering that it has rallied +13% – into today’s report. I suspect that WMT will not disappoint either….considering how inflation is eating away at the US consumer.
Later in the week we will get LOW, KSS, JWN, ROST and more. Tomorrow will bring us Retail Sales data – let’s see how that compares to what the retailers are telling us.
European markets are mixed….trading between -0.3% to +0.3%. UK unemployment came in at 3.6% in the 3rd qtr.….Job vacancies declined but pay continues to increase suggesting that inflationary pressures are not subsiding. Wednesday we will hear from ECB President Chrissy Lagarde and Thursday brings Eurozone CPI
The S&P closed at 3957 – down 35 pts after kissing 4000. Watch today’s PPI report – if it is better than expected – then expect the algo’s to take us higher in one swift move…. And if it is stronger then expect the algo’s to go in reverse. In any event – Will the narrative change or will the FED stay the course? Again, I don’t think the story will change until we hit a terminal rate of at least 5.25%. Which is 1.25% HIGHER from here.
The markets are awaiting the ‘big’ Trump event tonight – how will they react if he announces a run for the Presidency? And if he announces tonight – expect there to be Trump Fatigue before the end of this year……just like there was Hillary fatigue in 2008 election cycle – when she announced 18 months ahead of election….only to fail as Obama ran her over…..Will we see Ronny or another dark horse (that no one expects) run over Trump? (Said with a tone of hopefulness).
NY Fed President Johnny Williams and Vice Chair Lael Brainard to speak on Wednesday….SEC Chair Gensler is also set to speak on Wednesday – clearly about the FTX disaster and the possibility of others at risk. Minneapolis’s Neely Kashkari and Cleveland’s Loretta Mester are up on Thursday.
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
Pureed Potato/Escarole Soup
So here is another soup recipe in case you are still undecided about what to serve first for Thanksgiving dinner. This one is a pureed potato/escarole soup – thick and rich – it makes for a perfect starter dish.
This soup is topped with fresh mozzarella, toasted pine nuts and sweet raisins…..Come on now….how good does this sound?
For this you need: fresh mozzarella cut into chunks, pine nuts, olive oil, chopped onion, Yukon gold potatoes, peeled and coarsely grated, Chicken or Veggie stock, fresh escarole roughly chopped, s&p, golden raisins, soaked in hot water for 5 minutes then drained.
In a large pot – heat oil over medium-high heat. Add onion, reduce heat to med and cook, uncovered, stirring occasionally for about 10 mins…. Next add potatoes and cook, stirring occasionally, about 5 minutes more. Now add in the escarole and season with s&p.
Continue cooking, covered, stirring occasionally, until leaves are wilted and tender, about 10 minutes more; add the chicken stock (or veggie stock) and bring to a simmer. Enough to just cover the potato and escarole.
Transfer contents of pan to a blender or food processor and purée until smooth; season with salt to taste.
When serving – add chunks of the fresh mozzarella, some toasted pine nuts and sweet raisins…..you can drizzle a bit more of the olive oil if you prefer…..
Buon Appetito
