Things you need to know.
– The algo’s push stocks to test a technical level – buyers defended the position.
– The dollar, vix, yields, and oil all surge higher, stocks and bonds push lower.
– Do not discount ‘end of qtr’ reallocation and ongoing seasonal weakness.
– Key inflation data point only hours away….
– Try the Ratatouille
This morning it’s the famous Carole King –
“I feel the Earth move under my feet, I feel the sky’s tumbling down, I feel my heart start to trembling, whenever you’re around….(this would be ANY FED member….) as Minneapolis’s Neely Kashkari talks out of both ends…..the other day he reiterated that he sees ‘potentially multiple’ rate hikes….and then yesterday he said that a ‘potential US gov’t shutdown and the effects of the UAW strike may slow the economy, requiring less aggressive moves from the FED’…..Now isn’t that a slap in the face…..It’s exhausting, and btw – they are supposed to be the smartest guys in the room.
Look, I have been saying all along that I think 6% is the target terminal rate and that means that they need to raise by either 1 – 50 bps hike or 2 – 25 bps hikes…and I say that because so many members of the FED floated that idea one year ago and haven’t wavered (Neely being one of them)….and now that the FED has paused – when the data suggested otherwise, they have to delicately try to redefine the situation….and recognize that inflation is not only NOT dead, but is very much alive…and is about to move higher again….tomorrow’s PCE and then the September CPI & PPI reads due out in 2 weeks…. will reveal what ‘we’ all know…. inflation is getting stickier, Oil is up 40% since the June low and is up 13% this month alone – so just start to think what that means for so many other parts of the economy…..Transportation costs are about to soar…..that’s all you need to know….But don’t worry – TV’s and used cars are coming down in price….
Stocks got slammed for most of the day yesterday….All of the indexes – getting beaten up again, – think about what it sounds like when you flush a toilet….yeah, that sound…..All of the indexes down more than 1% at one point as bond yields, oil, the dollar and the VIX all spiked higher….
The 10 yr. bond is now yielding 4.62%! Do you realize that on September 1st that same bond was yielding 4.10% – (that’s a 13% move up in the 10 yr. yield…. just fyi – that’s a BIG move…. But more importantly – what does that move tell you? Well, what it doesn’t say is that ‘we got this under control’) …. the 2 yr. which began the month yielding 4.88% is now yielding 5.11%…. (a 6% move up). Oil? Oh, right that kissed $95/barrel yesterday making that a star performer this month…. up 18% for the month alone…. but up 40% off the summer lows of $66 ish. The dollar index traded as high as 106.83 before settling in at 106.66 – it is now up 3.5% this month and up 7.5% since mid-July. And the VIX…. oh right, remember our conversation about that earlier this week? It spiked higher and is now north of all 3 trendlines…. ending the day at 18.42 – up 50% from just 2 weeks ago….so what did you expect stocks to do?
September has (again) lived up to its reputation of being a difficult month for stock and bond investors…the Dow has given up 5%, the S&P is down 7%, the Nasdaq, the Russell and the Transports have all given up 8%. Bonds – represented by the TLT – the iShares 20 yr. Treasury Bond ETF is down 9%
But if you paid attention – you were well prepared for it. So, whether you just allocated new money to the ‘cash’ portion of your account (for now) or you bought some of the ‘contra trades’ (SH, PSQ, DOG, VIXY)– as a strategic short-term hedge – you managed it well. What you would not notice from yesterday though – if you just looked at the indexes closing prints – is the angst produced during the day. And why not? Because – late in the day – there was a turnround rally…. Some are crediting the AI commentary that Jo Jo made at one of his fundraising meetings in CA (That is not the reason – trust me) while others are pointing to a ‘technical’ data point….and others are just saying that it’s just sellers ‘exhaustion’…..now, I agree with the latter 2 points….I am not in the camp that anything Jo Jo said can be credited to the late day turnaround. At the end of the day the Dow lost 68 pts, the S&P added 1 pt, the Nasdaq added 30, the Russell gained 18 while the Transports added 9 pts.
Now that ‘technical’ data point – for the S&P (which is broad representation of the economy) it was the intraday low of 4238…a level that should represent support – as it was a key level of resistance back in early 2023…..We tested it in February, and backed off, we tested it in April and backed off, we tested it in May and backed off and then we tested and PIERCED it in June – and that momentum took us all the way 4610…..so now – we have retreated off that high, all the way back to this level that SHOULD offer support…and when we hit it – that is exactly what happened. The algo’s recognize this as a technical level, the sell side pulls back, leaving buyers a bit confused but ready to act….and act they did – and that sent stocks and the indexes up in the last 90 mins of trade. It’s all a dance, very orchestrated…. But by no means should it be a surprise….
Now look, we have two more trading days in the quarter……..I would not be surprised to see the market test that low again to see if it really holds….So, sit tight…no reason to go all in yet…..let it test and then lets see what happens…remember too that Friday will give us the latest inflation read….the PCE deflator and that is already expected to be elevated…..the surprise will be if it elevated MORE than the expectation…… I can’t see how it could be less than the expectation – unless of course they really massage and focus on the SUPER CORE data point….remember- that’s the data point that takes out EVERYTHING that matters…food, energy and housing….and if they do that – then you can expect them to tell you how great everything is…. It’s comical….
In any event – we remain in a seasonally weak time of the year…. (Sept/Oct) so don’t stress, stick to your plan, keep putting cash into the ‘cash account of your long-term portfolio’ and then we can take a look in a couple of weeks. Now, if you have some key names that have backed off substantially (think names like AAPL which is down 15%, AMZN down 13%, TSLA down 22%, JNJ -12%, MSFT -15%, the VTI – 8% – and there are plenty more…. that we could name….) – I would argue that you could add to them, but you have to know your own risk profile….…. Talk to your advisor…. know what you own and why you own them.
Recall what I said yesterday…. while some investors hit the sell button, there were plenty of other investors that hit the BUY button…. There are those that see darkness while there are those that see the light….
Where did we see the late day strength……Industrials, Tech, Communications and Energy…. which btw was the leader…. up 2.5% on the day…. of course, it was…. (Think oil).
Now away from Wall St, we still have the chaos on the Hill and we still have the UAW striking the Big 3 – and UAW President – Shauny Fain is ready to expand that strike again tomorrow if there is no movement in negotiations….Look, This is a defining moment for the country, for the automakers and for the future of that industry……If the Big 3 accept anything close to the deal that UAW President Shauny Fain has put on the table – they can all kiss their asses good bye.
On the other side is the political pressure being put on them by Jo Jo, Press Sec KJP, Sen’s Schumer, Sanders and Warren is coming to bear. Tuesday’s 12 min appearance by Jo Jo – which was a first for an American President joining the picket line of striking UAW workers…. was nothing short of pandering to the union – as he begs for their support for his waning 2024 Presidential campaign. The interesting thing here will be what happens when Joey is not the candidate?
Look, the math is simple…. If the UAW proposal moves forward, it would implode the Big 3 business models unless of course they just hiked car prices to make this work…. Well, car prices are going up anyway….so I guess that’s a moot point……. But more pressure will hand over the reins to Tesla, Rivian, and other automakers in Europe and Japan who are ready to go after the masses of consumers loyal to GM, Stellantis and Ford.
Eco data today includes final 2nd qtr. GDP – expected to be +2.2%, Pending Home Sales of -1% m/m, -13% y/y and Initial Jobless Claims of 215k – which would be up 14k over last week.
US futures are trying to do something…. not sure what, but it is something…. this morning…. The Dow +25 pts, the S&P’s +1, the Nasdaq down 10, while the Russell is flat. There is nothing new today…. that will change the narrative….so expect more churn…. Remember – tomorrow is the end of the marking period – so I expect more volatility going into the month end.
European markets are struggling to move higher…. there are no new data points to day….so it just more churn….
The S&P ended the day at 4274 – up 1pt…. We are only 80 pts away from testing the LONG TERM trendline…. that represents a 2% move lower from here…. something that is not out of the question by any means…. If that happens, we need to see it hold…. the algo’s will be key here…because if it doesn’t hold – then expect the algo’s to unleash wave after wave of selling…. And the buyers know this……but if the buyers are willing to defend the position – then it will stop the bleed…..and what will drive that is the larger narrative around the macro-economic data – specifically – what the PCE, CPI and PPI reports reveal about inflation…..and then what the FED says around that narrative…..Will they admit that maybe they made a boo boo when they told us that they had it under control? Do we need them to admit it or is it understood?
Remember – Good stocks get arbitrarily dislocated because asset managers and retail investors use them as ATM’s – withdrawing cash as needed….and that is where you will find great opportunities…buying good names at a discount is never a bad idea. Stick with the large boring names (for now) ….be more defensive, but I am not bailing…. keep your cash in cash……no need to even put money into riskless 5.5% treasuries…you can now get that in a gov’t money market fund.
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 Capital Advisors.
Ratatouille
It’s time again for some Ratatouille – Fall is coming and this is an easy yet hearty dish to make.
Ratatouille – (Rat – ta – too – ey)…..comes from the French word – Touiller – meaning to “toss food”…….because when you make this you – literally “toss” it all together…..now this can be a side dish, or a main dish…you can serve it over Pasta or rice. It is a great fall kind of “stewy” meal…. thick and delicious yet not overpowering at all.
Key Ingredients – garlic, onions, zucchini (green and yellow), eggplant, bell peppers (green, red, and yellow), carrots, celery, basil, crushed tomatoes, s&p, oregano, and olive oil.
Peel and cube the eggplant – layout on paper towels on the counter for about 30 mins or so…
You can also slice the onions, peppers, chop the carrots and celery and cube the zucchini – set aside.
Begin by heating up the olive oil – about 1/2 c or so…. Now add the crushed garlic and sauté for a bit.
Next add the onions and sauté until translucent, now the peppers, carrots, and celery – continue to cook on med heat…. until they feel soft – about 15 mins or so…. Finally add the cubed zucchini and eggplant – mix well and season with s&p. Cook for another 10 mins or so…. now add a can of crushed “kitchen ready” tomatoes – NOT PUREE. (Depending on how much you are making you may need two cans of tomatoes). Now add fresh basil, a bit of oregano and cover – allow to simmer for about an hour – while stirring occasionally.
Feel free to taste it in case you need to adjust the seasoning. At this point, the Ratatouille is complete. You decide how to serve it – over pasta? – Make sure to have fresh grated Parmegiana cheese! As a main dish? As a side dish? You cannot go wrong!
Buon Appetito
