Things you need to know.
- Eco data suggests that prices are rising – stocks are falling.
- Xi Xi bans’ iPhones at work – AAPL gets Whacked.
- Treasury yields rise, Dollar up, Oil flat, Gold up.
- More FED speech creates confusion.
- Try the Sicilian Swordfish
Tuesday it was oil, the dollar, and treasury yields that all spiked higher and that sent gold and stocks lower…..Yesterday it was all that PLUS the hot economic data – ISM Services PMI rose to 54.5 – up from 52.7 and well ahead of the estimate of 52.5 and the key metric that I pointed out yesterday was the ISM Services Prices Paid component…that also rose – coming in at 58.9 vs. last month’s 56.8….the prices paid component is exactly what it sounds like….the price that you will end up paying for services and that number went UP – can you guess what that means? It means the expectation is that prices are not going DOWN…. Think inflationary pressures….couple that with the increase in the PMI component along with a rise in the ‘new orders’ dept and you get a sense that inflation is getting ready to rear its ugly head (again) while the economy continues to hum along….…..and that speaks directly to what the FED has to consider or reconsider when they meet on the 19thand 20th.
My good friend Quincy Krosby – Chief Global Strategist at LPL had this to say about the ISM report –
“Unfortunately, the prices paid component moved in the wrong direction – similar to the higher prices paid in the manufacturing report…. this is certainly NOT good news for a data-dependent FED.”
Now to be fair – the FED’s beige book told a different story….it suggested that the economy and jobs slowed in July and August and that there is an expectation of an easing in wage pressures…Ok – there I said it….(I don’t believe it, but I did the right thing and reported on both sides).
In addition – we heard from Boston Fed President – Suzy Collins – who suggested that they need to be patient and that further tightening may still be required while former St. Louis’s Fed President Jimmy Bullard saying that the Fed should ‘pencil in one additional hike this year.’ Again – just right of center and still hawkish…. but maybe a little less so….
And stocks retreated (my guess is that investors didn’t believe it either)….the Dow gave up another 200 pts or 0.6%, the S&P’s lost double what it lost on Tuesday – falling 32 pts or 0.7%, the Nasdaq gave up 14 times more than it did on Tuesday – falling 150 pts or 1.05%, the Russell gave back 6 or 0.33% (recall that it was down over 2% on Tuesday) and the Transports took another hit – falling 115 pts or 0.75%….
And as you would expect – all of this pushed treasury yields even higher…on the speculation that the FED will not only raise rates but hold them there for longer….the 2 yr. ended the day just over 5% while the 10 yr. kissed 4.31% before backing off to end the day at 4.275%…….The 3 and 6 month bills continue to yield 5.5% and 5.552% respectively. Fed Fund futures though, continue to suggest that there is only a 7% chance of a September hike, but there is now a 60% chance of a November hike…. I think a pause in September vs. November will be a decision that the FED regrets… I was with Liz Claman yesterday – here is how that went.
https://www.foxbusiness.com/video/6336698314112
Let’s not misinterpret this – While I too wish that this ‘chapter’ would come to an end – my sense is that it is NOT……and I am playing defense as we move through September into October…Recall – yesterday I said that if they paused now and then raised in November – they would most likely kill an end of year rally….as it would clear that they made a mistake…and that would leave the December meeting…which is on December 13th in play…..that meeting comes one day after the November CPI report is out and the same day that the November PPI report is out. It’s sure to be an exciting time……Do not fall asleep.
Apple was the story of the day – the stock lost 3.6% or $6.80/sh to end the day at $182.91…..…..Xi Xi announced that he is barring the use of iPhones for all Chinese agencies at work – saying that ‘China seeks to cut the country’s reliance on FOREIGN TECHNOLOGY’ – now that’s comical……Foreign technology? Is that what he said? You can’t do business in China without the Chinese owning a majority stake in that business……they STEAL the IP and the technology (don’t tell me you didn’t know that……!) I mean it’s comical….But – investors didn’t like it……and just think what he will say next….suddenly he will ban the use of iPhones in public and then in your home and then if you get caught with one – it will be the firing squad….I mean – I know that’s bit dramatic – but it is China…..In the end – Apple is a Dow stock, an S&P stock and a Nasdaq stock – so as Apple goes, so go the indexes! Capisce? When Apple rallies – so will the indexes! This isn’t brain surgery. Apple stock is down nearly 3% again in the pre-mkt…. quoted and trading at $178….
Only two of the 11 sectors were up yesterday – Utilities – XLU were up 0.2% – (it is down 12% ytd) while energy – XLE showed a very slight rise of 0.04%. And the contra-trades were up….the DOG + 0.6%, SH + 0.65%, the PSQ + 0.9% and the VIXY +1.6% – these are the names you would buy to protect yourself from a decline….they are short term trades – not long term holdings….and if you wanted to lever it up – then look at the SPXS – which is the Direxion 3X’s levered inverse ETF – gets you short the S&P x’s 3….and that was up 2% (the S&P was down 0.7% so +2% makes sense, right?) Now the SPXL – which gets you LONG the S&P x’s3 was down 2% – and that makes sense as well.
The VIX – which is the fear index – did rise 3.2% yesterday after trading up 9% earlier in the day….as traders tried to price in what comes next.
Most everything else was lower…. with broader Tech – XLK taking the lead – down 1.1%…. although Disruptive Tech – ARKK was up 0.4%. (ROKU a big part of that move – it was up 3%)
If you look further – we saw Airlines – JETS – down 1.3%, Semi’s down 0.7%, the growth trade – SPYG down 1%, Metals & Miners – XME down 0.7%, Aerospace and Defense – ITA – 1.3%, Coal and Nat Gas names down 2%, Cybersecurity down 0.3%, Robotics and Automation – BOTZ – 0.5%…
This morning we see European markets churning around the flat line…. …. after having been under pressure earlier this week…. Investors there are waiting for Eurozone revised 2nd qtr. GDP as well as the unemployment rate. By now you know that Germany is heading for a recession before year end as both manufacturing and services decline…. High energy prices and a ‘weaker’ China being blamed for their tough times. Analysts though, do not expect any recession to be very long…. The IFO institute is forecasting a contraction of 0.4% for 2023 and a 1.4% increase in 2024. At 7 am – markets across the zone are between -0.1% and +0.3%.
US futures are down again…. The Dow is flat, the S&P is down 14 pts, the Nasdaq down 100 and the Russell is down 4. Expect Apple to continue to put pressure on the indexes – unless of course we find bargain hunters that scoop it up….The action yesterday took the stock down thru the short term trendline leaving it resting on the intermediate term trendline….at $181…..a failure to hold that could see us test the August low of $171 fairly quickly. The long term trendline is $163.77 – just so you know….and while I do not think that is at risk – More news out of China could cause an emotional reaction – which will provide long term buyers with an early Christmas gift….at $163? I’d BACK UP THE TRUCK – but that’s me…you do you.
Oil is trading at $87; Gold is trading at $1944, and the Dollar index is UP another 12 cts at $104.99 – having broken out of the June high and now testing the March 8thhigh. Remember – a higher dollar suggests higher rates. Just sayin.’
The S&P ended the day at 4465 down 32 pts….…Like I have been saying, a pullback should not be a surprise to anyone. We remain in the 4350/4465 trading range with the path of least resistance lower not higher. The FOMC meeting will continue to create volatility in the week ahead….so, proceed with caution for now…. Understand that if the market comes under pressure – all of the high-flying sectors will be the first to get shot. Don’t go chasing the names (sectors) that are stretched – you’ll get that opportunity just a bit later as they retreat…. (See my apple comment). Build some boring into your portfolio.
Don’t stress – stay focused, give me a buzz…. Remember – this is a long game and there is always an opportunity somewhere.
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.
Swordfish – Sicilian Style
A great dish from the Island that sits just off the toe of Italy.
You need: Raisins, green olives, capers, pignoli nuts (pine nuts), tomatoes, garlic, onion, s&p, olive oil and swordfish. This dish is easy to make – it will tease your senses – and tickle your pallet – only takes about 15 or 20 mins to prepare and 20 mins to cook…. enough time to set the table, pour the wine, light the candles, put on the music, and dim the lights….
Next soak the raisins in warm water for about 1/2 hr… drain and set aside.
**Preheat oven to 400 degrees (f).
Season the swordfish with s&p.
Heat the olive oil in a sauté pan on med high heat…. sauté the diced onion and crushed garlic until soft. Do Not Burn. Maybe like 5 / 8 min’s…. add raisins, diced tomatoes, chopped olives (no pits!), and capers – like 1 tblspn. (If you like capers feel free to add a bit more – but not too much as the taste will overpower the dish). Reduce heat to simmer and cover…stirring occasionally…. for about 15 min’s or so…
Grill the swordfish quickly – just enough to sear it so that it takes on the grill marks…Flip and repeat and then place in the baking dish. Cover the fish with the raisin/olive/caper/tomato mixture – bake for 10 or until the steaks are firm…. careful not to overcook.
Present the fish on a warmed plate – serve with a large mixed green salad with red onions, cucumbers, grape tomatoes, maybe some fresh mozzarella…. dress with s&p, oregano, a splash of fresh lemon juice, balsamic vinegar, and olive oil.
Buon Appetito
