Things you need to know.
– I’m back from a short vacation – What happened?
– Strong eco data, a hawkish BoJ and a Fitch Downgrade
– Bond yields surge and stocks prices fall on investor angst – but let’s not get crazy….
– Oil pierces $82/barrel as the Saudi’s and Russian’s promise more cuts
– Dollar up, gold down
– Try the Pork Chop Arrabiata
Good morning, America! After a couple of days off – I am now back, and boy is there a lot to say! While I stepped away – stocks stopped going up~! (S&P down 2.5% and the Nasdaq down 3.1% – Nothing to get your panties in a bunch, but down is not up) investors became a bit more skittish…that 13 day ‘historic’ bull run (which I told you I thought was nothing but BS) came to an end…. It started last week when the BoJ (Bank of Japan) threatened a more hawkish stance – something the markets weren’t really prepared for, then it was the eco data in this country that continues to be stronger than what the Fed had hoped for, ADP employment came in much stronger than the Fed had hoped for as they reported a 324k increase in jobs vs. the 190k expected increase…..S&P US Services PMI came in at 52.3 and ISM Services PMI came in at 52.7 leaving both well in expansionary territory – remember that the US economy is a 75% SERVICES economy – so this is also not what the Fed wants to see. Toss in Factory Orders, Durable Goods all better as well…. And then we had the event that apparently no one saw coming….
Fitch – a 3rd rate ratings firm DOWNGRADED the US Credit Rating – taking us from AAA to AA+… citing ‘fiscal deterioration for the next 3 yrs., a high and a growing gov’t debt burden…that has manifested itself in repeated debt limit ceiling standoffs and last-minute resolutions.’ What was MOST interesting about the announcement was what Fitch’s Senior Director Richard Francis added that ‘January 6th (2021) has only added to the ‘polarization within both parties – the Dems have gone further left while the Republicans have gone further right – so the middle is falling apart.’ Are you kidding??? January 6th, 2021, is now one of the reasons that Fitch has downgraded the US credit rating? That statement alone made the whole thing untenable (for me)…But – the algo’s thought differently – all they could understand was the headline – which was negative – Fitch DOWNGRADES THE US…..They didn’t say Fitch UPGRADES, they said DOWNGRADES and in this sentence that is a negative use of the word and that is all the algo’s had to see…..
And then we were headed into another big earnings week of the season…. lots of tech numbers were due out and as we know – tech has been the leader; investors have priced them to perfection…. and so, it makes sense that if any one of them disappointed – we would see at least the Nasdaq get hit….and while it hasn’t been a disaster – investors needed a reason to take some profits…and they did – period the end….
So while July was a good month, August has begun on a sour note – all of the indexes have now fallen for 3 days in a row….and again, no one should be surprised – I have been telling you that we were coming into a ‘typically’ weaker time of the year…August – October can be volatile…markets tend to trade lower, volatility tends to rise (VIX +32% in 4 days) and if for no other reason – performance has been outstanding, earnings have been ‘better than expected’ and investors have priced stocks for perfection….Capisce? The tech rally that carried much of the move higher began to feel a bit tired, stretched even….so it makes sense that we would see some pullback and in fact – I for one, want to see a pullback….I want to shake the branches a bit, I want to see who hangs on and who panics….
By the closing bell on Thursday – the Dow gave up another 66 pts, the S&P lost 11 pts, the Nasdaq lost 14, the Russell lost 5 and the Transports ended the day flat….
Bond yields have surged…. the 2 yr. is now yielding 4.94% up from 4.6% on the 13th….th 10 yr. is at 4.19% up from 3.82%, the 3 month and 6-month bills are yielding 5.43% and 5.48% – up slightly from where they were…. The Fitch announcement made it sound like Treasury investors are doomed – the implication of the downgrade suggested that – let’s be clear the US is NOT at risk of NOT paying you back…. There is NO risk at all of that event happening…. NONE, ZERO. All Fitch did was get their name in the headlines for 2 or 3 days…and the idea that they cite January 6th as one of their reasons for the downgrade should make everyone suspicious….and let’s not forget – how ALL of them sold their souls to the big Wall St investment banks back in 2005 – 2007 when they rated all of that crap (think sub-prime MBS’s) as Triple A – knowing damn well that they were crap…but the big investment banks rewarded them handsomely for those AAA ratings…..Don’t get me started….. and for that reason alone, I don’t pay a lot of attention to what they have to say.
The dollar has had a nice move higher and is up nearly 3% since July 17th…..this on the idea that the FED is NOT done raising rates and that the July hike is not the last hike and that the eco data, the strong jobs markets the upward pressure on wages will weigh on JJ…..This morning the dollar is trading at 102.54 – that is up from 99.84 – 2 weeks ago.
Oil is also up – (responding to supply cuts rather than a strengthening dollar – which should be putting pressure on prices) …. this morning it is up 60 cts at $82.20/barrel…leaving it up 21% from the June lows of $68.20/barrel…. (Recall my thoughts on oil….). The global market is tightening, the Saudi’s and the Russians continue to reduce supply – both announcing the extension of their cuts into September…. with the Saudi’s suggesting that they could even cut deeper…. OH, now THAT’S a surprise! $80 is their preferred level with $90 being their target level……A look at the charts suggests that maybe we will top out here for now….as we revisit highs from November, January and April….If they do nothing more – then we churn here, if they cut again, then strap in for higher prices…..and remember – we are about to enter the fall/winter heating season in the northern hemisphere – I am not banking on lower oil prices…..
Gold on the other hand IS responding to a stronger dollar…. after testing $2025 ish…. We have seen gold fall $50 dollars (on a strengthening dollar) and this morning it is trading at $1967/oz. We are sitting on the long term trendline ($1958) – a level I think holds – that is unless the FED starts to make noise about more rate hikes to come….and I think there is at least one more (but would not be surprised to see 2 more).
Eco data today is all about the NFP report…..and it is expected to show 200k new jobs created…but remember – the ADP report was much stronger than the expectation – so that is leaving some to suggest we could see the same today……….Unemployment is expected to remain at 3.6% while Avg Hourly Earnings are up 0.3% m/m and 4.2% y/y.
There will be lots of talk about how AMZN crushed it and AAPL disappointed…. AMZN is up 9% in the pre-mkt while AAPL is down 1.5%. APPL is up 47% ytd…a pullback would be a welcomed move…Sluggish iPhone sales and a slight miss on Revenues being cited as the reasons for investor angst…. Look – Timmy Cook reported $81.8 billion in revenues for the quarter…. $81.8 billion – think about that for one minute….and the street raised their price targets….
AMZN continues to impress – Net Sales of $134.4 bil…. Operating Income of $7.7 billion, Net Income of $6.7 billion – the numbers are ridiculous…. the street also raised their price targets – are you surprised? The stock is up 53% ytd – but remember it was down 51% in 2022….it is still 23% below January 2022 levels…. while Apple was down 31% in 2022 but is up 47% ytd….and is 5% higher than the January 2022 level. – So, yes…a pullback in AAPL and a surge in AMZN does make sense on a technical level.
US futures are higher this morning…. on the AAPL and AMZN news as well as what analysts are expecting out of the NFP report today…I think the NFP report will give the FED reason to remain more hawkish….and I suspect that the market will see that as well in the days ahead. At 7 am – Dow futures are up 37 pts the S&P up 10, the Nasdaq is up 60 and the Russell is down 2.
European markets are mixed…. The BoE (Bank of England) raised rates by 25 bps yesterday – not a surprise at all….in fact – the surprise might have been that some expected them to raise by 50 bps….so 25 might be seen as dovish…. Bank earnings in Europe are due out today…. along with the US’s NFP report…. The Eurostoxx is up 0.3% while Germany is down 0.1%…. Everything else is in between.
The S&P sits at 4501……this is down from its recent high of 4607 on July 27th…. Futures are looking up this morning…on what feels just like a knee jerk reaction to the pressure from earlier this week as well as the AAPL and AMZN reports and upgrades to their price targets…. I have been saying that I think the mkt is tired….and I still do….I still expect it to back off, but I won’t complain if they push it up – why, because I’m invested and I’m invested in the names that are moving….Tech, banks, consumer staples, SMID’s, communications and value..
Last week I said do not get lulled into a sense of ‘never never land’…. because ‘never never land’ does not exist… Investors recognize that we are stretched and that it needs to take a breather…patience is a virtue…. You should not be chasing names that are running away…. There are plenty of other options and opportunities that will balance out and stabilize your portfolio for the longer term. Investing is a ‘long game’….
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace
Pork Chop Arrabiata (Angry Pork) – perfect for the mood of the day……
Arrabiata -means in a “rage”, “angry” – fairly appropriate for the last couple of days, no? The good thing about this Arrabiata sauce is that you can use it on pasta, steak, pork, lamb and even chicken. Penne Arrabiata is a classic pasta dish and can be found on almost any menu in a Southern Italian restaurant.
You begin with the basic marinara sauce – plum tomatoes, garlic, onions, grated carrots & celery, fresh basil, pinch of sugar and salt and pepper.
Add some Olive oil to the pan – with the side of the knife – smash the garlic and then chop – add to the pan and sauté…. next add the diced onion – continue to sauté for about 10 minutes…. heat is med – do not burn the garlic!
Next add the shredded carrots and celery (maybe 2 of each) and continue to sauté for another 15 minutes or so – so that the veggies get soft and almost begin to melt away. Now add the plum tomatoes…. If you want a chunky sauce, then “hand crush” the tomatoes and add them to the pot…if you prefer a smoother sauce – then run through the food processor and blend well.
Once you add to the pot – season with fresh basil, salt and pepper and a pinch of sugar (think this is more psychological – but my grandmother did it – so just do it). Bring to a boil – then reduce to simmer, stir and cover…returning to stir occasionally. Should simmer on the stove for 30 minutes or so….
Now the Arrabiata – you need: Pancetta, crushed red pepper flakes, garlic and olive oil….
In a large sauté pan – add olive oil (just a bit) – add some smashed/chopped garlic and sauté…now add the pancetta and continue to sauté for about 5 minutes…. introduce the red pepper flakes – the more you add the “angrier” it gets…capisce? Now add 4 ladles of the marinara sauce and mix.
If you are making the pork – season the pork chop with salt and pepper and then place it on the grill. Cook for about 3 minutes on each side – then remove from the grill and add to the sauté pan with the Arrabiata sauce and let it simmer for 5 minutes or so…. bathing the chop as it simmers.
When ready – place the chop on a plate and spoon the sauce over the chop. If you are really in the mood for more Arrabiata add to a side of pasta with the same sauce and plenty of fresh grated Parmegiana Cheese.
Buon Appetito
