Things you need to know.
– FED speak Confusion – Again causing traders to go RISK ON
– Bond rally sending yields lower, oil down, dollar down, gold down then up!
– PCE Deflator due out at 8:30….But they want you to focus on the Super Core PCE
– It is the end of the month & quarter – only 85 shopping days till Christmas
– Try the Sherry Braised Chicken
Richmond FED President Tommy Barkin – comes out swinging…. telling investors that ‘it’s UNCLEAR whether more monetary policy changes will be needed in the coming months, it’s too early to know….’…. WHAT???? Where exactly does Tommy live? What is he seeing that the rest of us are not? And then Chicago’s Austan Goolsbee – supports that thought by saying that ‘policymakers were at risk of overshooting on interest rates by putting too much emphasis on the idea that steep job losses are needed to quell inflation…’
And…it was RISK ON! Remember – stocks have gotten kicked in the gut this month (some suggesting prices were overdone on the downside) – so it is not a surprise to see them rally on any bit of hopeful news….and those comments were considered hopeful news….
The Dow gained 116 or 0.35%, the S&P gained 26 pts or 0.6%, the Nasdaq rose 108 pts or 0.8%, the Russell tacked on 15 pts or 0.9% while the Transports gained 158 pts or 1.1%……
Every sector was in the green except Utilities – which fell 2.1% – on the idea that rates are NOT coming down anytime soon…..and let’s be honest – 5.5% short duration rates, 4.6% 10 yr. rates are not helping the sector (remember – investors buy utilities because they are boring – which is supposed to offer stability – and they are decent divvy payers…but even those divvy’s can’t compete with rates today)……….That narrative has caused Utilities to have a really bad September…..Note the collapse in the sector immediately after the FED meeting – when JJ announced that while they are pausing, and may raise rates again – and they will hold them higher for longer than the market expected…..The sector is now down 16% ytd…. Ouch!
On the flip side – Basic Materials, Real Estate, Communications, Consumer Discretionary all gained more than 1%, Financials & Tech up 0.7%, while Industrials, Consumer Staples, Healthcare were up about 0.4%…leaving Energy up only 0.4% – which is still a win, considering that oil fell by 2%.
Down the list we saw strength across the board in all of the popular sectors….Airlines +1.3%, Home Builders + 1.2%, Semi’s +1.8%, Disruptive Tech + 1.2%, AI +3%, Metals and Miners + 1.8%, The value trade + 0.6%, the growth trade + 0.6%, Small cap Growth up 1.1% while Mid-cap Value gained 1.3%….I mean it was hard to find anything that was significantly lower….and some of those names that I referred to yesterday – that have gotten unnecessarily beaten up, were some of the biggest beneficiaries. Of course, they were – they had been marked down by 15% – 20% and more…. Hello???
Oil fell by $2 or 2% and that helped to fuel the rush back into some transportation names that had gotten beaten up……as oil prices surged over the past 2 months…..We saw gains across the board in names like UPS + 2%, JBLU +2% R +1.6%, UNP +1.7%, NSC + 1.1% – all names that have been under pressure as energy prices rose…..and all names that provide an opportunity for the short term trader (to flip ‘em) while the longer term buyer tries to decipher the noise.
Bonds rallied…the TLT gaining 0.3% – and that causes yields to move lower….now it was only a matter of time -as the move up in bond yields was being considered a bit overdone (at least for now)..…which also means that bond prices were overdone on the downside….thus the rally. The 2 yr. lost 6 bps to end the day at 5.03%, the 10 yr. lost 3 bps to end the day yielding 4.57% – both are lower again this morning…. (Can you guess what futures are doing?). I still think that bond yields are not done going up, which means that bond prices are not done going down…which then means that stock prices are not done going lower either…..
Now the dollar retreated (that was also helpful) while gold fell out of bed as well…. falling $9 to $1878/oz…. gold is now down 10% since May – when the FED made it clear that it would higher for longer…. Why? Because higher for longer only raises the opportunity costs of holding gold …..which pay you nothing in either divvy’s or interest……It might make you feel good, but don’t go looking for anything else…which is not a negative and not a reason to NOT buy it – it’s just the fact…..You do what makes you feel safe…..and secure. Allocating a small percentage of your portfolio to physical gold is never a bad idea…. But where is it going from here? My guess is that we are in the $1850/$1950 trading range…. this morning gold traders are tripping over each other……. taking it up $11 to $1889…. Again, think overdone to the downside.
Eco data today is all about the FED’s favored inflation gauge – the PCE Deflator – which as I told you yesterday is expected to inch higher…..both m/m and y/y….but – watch as they make you focus on SUPER CORE PCE – you know – the one that takes out ALL of the things that actually are important to you and me….like Food, Energy and Housing…and when they take those factors out – guess what inflation looks like? Yup….it will be lower and that is supposed to make you feel good – no matter that you are NOT feeling it…. But it supports THEIR story.
Now do not discount that ‘technical’ data point level on the S&P (which is broad representation of the economy) that I pointed out yesterday….4238 was a level that should have represented support and it did…… The algo’s recognized that when the buyers defended that position ….and boom – up we went…. But I suspect that we will test it again before this is over…and it may not be today as futures are up and European markets are up – so the tone today is positive…..Now, it could change very quickly at 8:30 when we get the PCE report…..so sit tight.
If we fail to hold that level – then expect us to test the long term trendline at 4200……and I also pointed that out yesterday as well….and I said, we had to hold that or get ready for another push lower….
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.
The UAW is still striking and threatening to strike more plants….Shauny Fain to take to Facebook Live once again…..and like I said yesterday…..This is a defining moment for the country, for the automakers and for the future of that industry……and it will also set the tone for other union contract negotiations when they come due.
US futures are UP on this final trading day of the quarter…. The Dow +150 pts, the S&P’s +20, the Nasdaq up 100, while the Russell is up 10. All eyes will be on the PCE Deflator, but more importantly on the Super Core Deflator number – because that is the one that everyone will use to support their narrative that it’s all good.
The S&P ended the day at 4299 – up 26 pts… and this morning it looks like they want to take it right back to the intermediate term trendline…. which is 4384…. which would be a 2% move up…now while possible – it is most likely not happening today….
Remember – as a long-term investor you need to eliminate the noise and stick to the plan – even when it feels uncomfortable. If you are well diversified, you have nothing to worry about…. short term price dislocations create longer term benefits…and opportunities.
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.
Sherry Braised Chicken
For this you need: a cast iron pot or oven proof frying pan – along with a cut up chicken – for your legs, thighs, breasts. S&P, fresh peeled garlic – crushed and chopped, 1 c of Dry Sherry, Red Pepper Flakes, Fresh Lemon Juice, ¼ lb. of Chorizo – cut into pieces, Olive oil, 2 Medium Red Onions – peeled and sliced, Red & Green Bell Peppers – cored and seeded and cut into strips, Chicken Stock, Plum Tomatoes cut in half and 3 large Potatoes – cut in half and then cut in half again.
The night before you want to make this dish – rinse and pat dry the chicken pieces. Place in a large pan – season with S&P. In a large bowl – mix the garlic, sherry, lemon juice, and red pepper flakes. Pour this over the chicken – mix well to coat all of the pieces – cover and place in the fridge overnight.
Next day – remove from the fridge and allow to come up to room temp.
Preheat oven to 325 degrees.
In a large cast iron pot or frying pan – Add in a splash of olive oil and fry the chorizo until it is browned up. Maybe 5 mins. Remove the chorizo* with a slotted spoon and set aside on a plate. Do not remove the rendering. Turn the heat to high and sear the chicken pieces until nice and brown on all sides – should be 10 mins or so. Remove pieces and set aside on a plate. Do not remove the rendering.
Now – add the sliced onions and bell peppers and sauté until soft – maybe 8 mins or so…. Next pour the leftover marinade in the pan and continue cooking for another 5 mins. Now add back the chicken and chorizo. Add in the plum tomatoes, potatoes, and chicken stock – bring to a boil. Taste the sauce and adjust seasoning if necessary. Cover and place in the oven (directly in that oven proof pot). This should now braise for about 40 more mins. Serve this with a large mixed green salad.
Buon Appetito
