Things you need to know ~
- Global central banks follow JJ’s lead and tell us – ‘it isn’t over yet..’
- Stocks react by moving lower…. surprised? Don’t be…did you think they would rally hard?
- Renewed talk of a recession was apparently ‘re-ignited’ – Challenge!
- Try the Candied Pecans
Global central banks followed suit (and stocks crashed) – raising rates (as expected) while also delivering the same message……The SNB (Swiss National Bank), the BoE (Bank of England) and the Philippine Central Bank all raised rates by 50 bps as expected, Norway followed suit and raised rates by 25 bps and then Chrissy Lagarde – ECB (European Central Bank) President made it crystal clear….after raising rates by 50 bps (which was also expected) she noted that 1/3 of the ECB team opted for a 75 bps hike.
After much debate (apparently) – the governing council ended with a compromise on the size of the hike – but prioritized the message of future moves (continued hikes) and made it clear that they will start to reduce the balance sheet – sound familiar? Because it should…..she mimicked JJ and the FED – and again – she said months ago that she would follow the FED’s process when the time came…..and she did….. In the end – the global messaging is the same…..They all have ‘more work to do’ and global rates are on the move…..
In her commentary post the hike – she said –
“Anybody who thinks that this is a pivot for the ECB is wrong. We have longer to go and we are in for the long game…”
Hmmmm – that sounds eerily familiar as well, no?
She made it clear that while the decision slowed the increment of increases -it did not slow the pace of continued hikes….she delivered a message of strong anti-inflation language that included additional 50 bps hikes in 2023 – saying that there was ‘wide support’ for this strategy.
So? Can you hear me now? Hello? Global stocks fell – European stocks down on Thursday and are lower again today…..US stocks got clobbered….the algo’s not knowing what to do – did what you would expect when they can’t figure out the language – they go into sell mode….(the path of least resistance), buyers see this and step aside – in fact the algo’s do this for you – leaving a void in demand sending stocks significantly lower.
By the time the closing bell rang – The Dow had given up 765 pts or 2.2%, the S&P lost 100 pts or 2.5%, the Nasdaq gave up 360 pts or 3.25%, the Russell lost 45 pts or 2.5% while the Transports gave up 390 pts or 2.7%. Now while these stocks closed lower – they did not close on the low of the day….(if that makes you feel any better).
It was UGGGGLY…..sectors that are down the most on the year that had found buyers (bottom fishers) ahead of what they thought was going to be more dovish commentary all around – got slammed the most…..Tech – XLK lost 3.75% (-26% ytd), Communications – XLC lost 4% (-39% ytd), Consumer Discretionary – you know the things you DON’T need – lost 1.7% (-33% ytd)….Retailers – XRT – 3% (31% ytd), The Growth trade – SPYG gave back 3% (-28% ytd), Semi’s – SOXX lost 4.2% (-33% ytd) – again that is confusing to me since they are everywhere, Cybersecurity – CIBR gave up 3.3% (25% ytd) and the list goes on…
Basic Materials – XLB lost 3% (-12% ytd) while Industrials – XLI lost 2.4% (-7%) on the ‘idea’ of a not only a US recession but now a global recession….which is comical – because – a majority of analysts have been calling for a recession all along – even though JJ told us that it is ‘unknowable’ whether or not we enter a recession. And like I said yesterday – is history NOT a guide any longer? Does JJ realize that when the eco data begins to weaken and the yield curve inverts (every time) – the result is a recession? Let me remind you – some of the eco data is weakening (the ones that will fall into place in the months ahead) and the yield curve is inverted and has been inverted for 7 months now…but throw history out…. it is different this time!
The contra trades soared….the Dog +2.3Z%, the PSQ + 3.3% and the SH rose by 2.6%.
Oil? That rally ended after central bankers made it clear that they will continue to tighten – hoping to rein in inflation…..re-igniting the global recession fears…..I find it interesting that they all say that the latest move ‘re-ignites’ those fears….. They were NEVER extinguished……there was never a ‘re-ignition’ – there was an admission they are (were) wrong……and so like stocks – trader types took some of the recent profits off the table….Oil fell 1.2% to end the day at $76.40. and this morning – the selling continues….oil is down another 1.8%, trading at $74.70.
But that weakening demand story that they talk about – I’m not buying it….India is buying Russian crude like its going out of style….Russia has caved on the demand that they would block any sale of Russian oil affected by the price cap…selling boatloads of Russian crude to India on tankers insured by Western companies. Any tanker insured by any Western insurance company is bound by the price cap – so, so much for that! And China? Yes, they are still in bed with Xi Xi and they just solidified their relationship with the Saudi’s locking in plenty of supply for that country….and demand in the US is not going away anytime soon….have you been on the roads recently? Have you been to an (any) airport recently? Have you seen people allow their homes to freeze across the country recently? Come on, man….unless we go into a 1930’s style depression – demand destruction to the extent that they are suggesting is not happening. But that is just my opinion. I am sure you have yours.
GOLD – remains just below $1800/oz – leaving it in the $1740 – $1818 range.
Now – this morning – it is ugly again….US futures continue to move lower….Dow futures down 330 pts at 5 am, S&P’s down 44 pts, the Nasdaq off by 128 pts and the Russell is down by 24 pts. Eco data today includes S&P Manufacturing and Services PMI’s. Both are expected to be well in contractionary territory (sub 50) at 46.9 and 46.5 respectively.
It is also the final ‘triple witching’ of the year…that is when 3 sets of option trades simultaneously expire and need to be rolled over. It causes a surge in volumes but does not usually cause major dislocations…but today might be different…. $4 trillion worth of options are due to expire today and given the recent central bank language – this expiration could turbocharge another move lower….creating chaos in the markets while also creating longer term opportunities. We won’t know this until it starts to happen….and if the futures action is any indication – expect stocks to end they day a bit cheaper.
European markets are lower this morning as well, not huge, but the trend is down and not up. Investors there need to process the latest central bank statements and then decide if those moves are correct and if they will tamp down inflation. In the UK – the downturn appears to be easing…the latest composite PMI rose (unexpectedly) to 49, up from 48.2 last month, but it was a mixed bag – the services component rose, while the manufacturing component fell. At 5 am – bourses across the continent are lower by about 0.8% across the board.
The S&P closed the day at 3895, down 100 pts…. Trendline support is 3861….and if futures are any indication – we are set to slice right thru that like a ‘hot knife thru butta’. IF that happens – then watch for the algo’s to once again kick in and go into sell mode (it would be a technical sell signal as we broke the trendline) and don’t expect buyers to just stand there waiting to get run over….they won’t….They will step aside….and so the weakness feeds on itself…and becomes a self-fulfilling prophecy.
Now it is Friday – the end of an ugly week….and it feels like they are just gonna throw everything out – including the kitchen sink…BUT it could change…. (Or may be not). If we break the trendline – then 3800 is the next stop…. I told you yesterday – we are now in the end of the year trading pattern…. Moves can be and you should expect them to be exaggerated over the next 10 trading days… – Expect more year-end tax loss harvesting (which will produce more selling) during this time….but remember – in case we get an outsized move to the downside and it feels like we are…. – be ready to put more money to work in names you have researched and like. If not, then sit back and enjoy the holidays…. I am still in the year end Santa rally mode that takes us back to the 4000/4100 range.
Make your plan, stick to your goals, take advantage of DCA (Dollar Cost Averaging) in your long term account over time. Overweight the STPN (Stuff that People Need) which tend to be big, boring yet beautiful names that pay decent divvy’s. Staples, Utes, Healthcare & Energy. Complement and underweight that with other sectors that you like but may underperform going into 2023 …
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
Candied Pecans
Here is a quick and easy holiday recipe that I got from my friend Scott. It works well as a gift or just to have on your table.
You can use them on a range of dishes, breakfast cereals, salads, desserts.
For this you need – 3 large egg whites, 1 cup white sugar, 1 tsp cinnamon, 4 cups pecan halves. 1/2 cup melted butter (You can also add a tblsp of maple syrup).
Lightly whip the egg whites, add sugar and cinnamon (and syrup if you’re using) and pecans and blend. Pour the melted butter on the baking sheet, spread the pecan mix on top. Bake about 30 minutes turning every 10 minutes at 350 degrees.
Remove and let cool
Buon Appetito
