Things you need to know.
– Stocks rally hard – Dow gains 550 pts! S&P back into the ‘normal trading range’
– Let’s not get too excited – we were in a ‘well oversold’ condition.
– Today begins the 2-day FED meeting – results tomorrow at 2 pm.
– Gold up, Treasuries steady, Oil lower on declining worries.
– Some Arab States call for a ceasefire – Netanyahu says No.
– Try the Eggplant Caponata
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Stocks exploded higher on Monday after getting beaten up last week….…. which is what the latest pattern looks like…. weakness into the weekend and then Monday surges…and that is the story for the past 3 weeks – ever since Hamas invaded Israel…. We get anxiety going into the weekend and that sends stocks lower – fearful of what may happen during those 48 hours only to rally sharply on the following Monday because the intensity of the fighting did not accelerate…and that was the story yesterday as well….
Recall – the losses last week – that started on Wednesday and took stocks down hard thru Friday….breaking thru technical key support levels that only added to the action….the smart logic algo’s reacting by issuing wave after wave of sell orders – sending the S&P clearly into ‘correction territory’ joining the Nasdaq, the Russell and the Transports….. Buyers – while alive and well, took the cue from those technical breaks, stepped aside and watched as stocks fell, as the sellers got more and more anxious, and the geo-political situation in the Middle East got more intense……..leaving stocks in a ‘well oversold’ short term position….and then the weekend came……the world waiting on what’s next? Would there be a full ground assault? Would Lebanon, Syria and Iran jump in?
And then there wasn’t and they didn’t (yet), but Iran keeps beating that drum….and so on Monday – buyers were feeling emboldened…..assessing the damage done to great stocks and wanting to go in and ‘scoop up’ some perceived bargains…and so, the Buy side Algo’s went all in….the sellers – exhausted after having pushed prices lower – took a breath and then they stepped aside – leaving voids in supply sending all of the indexes higher….at 4 pm – the Dow was up 511 pts or 1.6%, the S&P up 50 pts or 1.2%, the Nasdaq gained 147 pts or 1.2%, the Russell gained 10 pts or 0.6% while the Transports surged 270 pts or 2%….
The action taking the S&P from ‘correction territory’ back into ‘normal territory’…. adding to the relief by so many traders and algo’s. It doesn’t get any more complicated than that…. The only data point yesterday was the Dallas Fed Manufacturing Survey – and that was weaker than expected – coming in at -19.2….and that would support the idea that the FED does nothing tomorrow. (Manufacturing activity is weakening, economy must be slowing, so prior hikes must be working….). We had 16 earnings ‘beats’ and 5 ‘misses’…. but let’s be honest – not one of the reports yesterday could be credited to the move…. not even MCD’s which beat – reporting $3.17/sh vs. the expected $2.98/sh…. The move yesterday was both geo-political relief and a move off of a well short-term oversold condition.
Gold rose by 0.4% or $7 to end the day at $2006/oz – and that is where it is this morning, the Dollar held in at $106.11 and is trading at $106.07 this morning while Oil gave up 3.5% or $2.95/barrel to end the day at $82.30…on the idea that the Israel/Hamas war will NOT escalate beyond those borders and supply disruptions will NOT happen….this now leaves oil in the $80/$90 trading range….
Now recall – oil was trading at $81 on October 6th….and then the invasion happened and oil spiked by $9 or 10% in 6 days….as fears rose that the conflict would disrupt supplies and draw Iran, Lebanon and Syria into the conflict creating an even hotter ‘hot bed’ in the region…..That has NOT happened yet and so oil is calming down…..something that I think is illogical – only because I am not convinced yet those fears will not be realized – this morning the World Bank predicts that oil could surge to $150/barrel IF this war escalates….….and btw – even before this conflict – oil demand was expected to grow in 2024 and 2025…..leaving demand outstripping supply….and so, I remain bullish on oil if only for that reason. This morning oil is trading up 90 cts at $83.15.
Treasury prices traded a bit lower – sending yields up slightly…. ahead of tomorrow’s refunding announcement….and this isn’t getting much attention – but it should…. the announcement will detail what the treasury is expecting to bring to the markets and ‘MORE’ supply will mean LOWER prices and HIGHER yields…. Capisce?
Two weeks ago – we saw a dreadful response to a 30 yr. auction…buyers demanding higher yields and that is part of what has caused the volatility in stocks…higher yields will continue to be a headwind for stocks…and if tomorrow’s refunding announcement is met with trepidation – watch what happens to yields – no matter what the FED says about monetary policy…..Which btw – will be a pause – again something I think is a mistake only because I think inflation is about to turn up again….( I hope I’m wrong!) – but I’m not a member of the FOMC!
This morning prices for bonds are slightly higher and that is sending yields down just a bit – but let’s be honest – the 2 yr. is yielding 5.05%, the 10 yr. is at 4.81% and the 30 yr. is at 4.97%. 3- & 6-month bills are still paying you 5.4% and 5.5% while your gov’t money mkt account is paying you 5.1%….so there ARE alternatives if you are anxious….
Now – futures this morning is up again…. Dow up 130 pts, the S&P’s up 8, the Nasdaq up 3 and the Russell is up also up 3.
Eco data today includes Housing Price Data, MNI (Market News Int’l) Chicago PMI – which is expected to be 45 – leaving it in contractionary territory. We will also get the Dallas Services Activity number and the Conference Board Consumer Confidence report. – both expected to be weaker. Today also starts the 2-day FOMC (Federal Open Market Committee) meeting….and don’t’ expect to hear anything new……they are now in lockdown mode ahead of tomorrow’s presser at 2 pm. Now, UNLESS the FED surprises us with a hike (or a cut) … no one should be surprised to learn that they are pausing… They tell us that the economy is strong, and the consumer is spending…. that inflation is retreating…. but let’s be honest – inflation has not gone negative…it is still positive and prices are still rising – albeit at a slower pace – but they are rising….and that to me explains why consumers are spending more….it’s simple – things are more expensive….we are not buying MORE, we are just spending more.
The surge higher yesterday and again this morning speaks to the significant ‘price adjustments’ on some significant names….and while there is still some risk created by geo-political events – they will be short lived – unless one of those ‘leaders’ does something really stupid…(which could happen) – I suspect that long term investors can find real value in some ‘good names’ and we saw some of that yesterday….. Remember – and this is KEY…. even though the market is broadly lower – the buyers are not on strike…. they are just being prudent.
Today we will hear from 20+ S&P companies that are reporting……the ones I think are most significant – CAT (beat – but weren’t really bullish going forward – stock quoted down 3%), JBLU, GEHC, PFE – before the bell, and AMD, after the bell….you’ll also get a report by MTCH – the online dating service after the bell….Can’t imagine anyone holding their breath to learn what they have to say about the next 4 – 6 months….Can you?
European markets are up …..Italy in the lead +1.3% while the UK is taking up the rear – rising by 0.55%……..The headline this morning reveals that Eurozone inflation dropped to a 2 yr. low – the CORE rate -which excludes food and energy was down 0.3% leaving inflation at 4.2% on an annualized basis. GDP for the zone contracted by 0.1% – coming in below consensus but unchanged from the 2nd qtr. Germany – the zones biggest economy saw its GDP fall by 0.1% for the 3rd qtr. as well…. but that is much better than one year ago when it fell by 0.8%. The BoE (Bank of England) is expected to announce their latest policy statement on Thursday…recall that the ECB held rates steady last week – despite the risks of rising inflation caused by higher oil prices due to the Israel/Hamas conflict.
The S&P closed at 4166 up 50 pts…. After testing the 4100 level on Friday….the boomerang bounce being credited to a ‘short term oversold condition…and one that investors should NOT react to….meaning – don’t go thinking you missed it….don’t go running in as if prices bottomed out….We are now in the 4100/4200 trading range…4160 is now KEY for the algo’s…..that is the 10% threshold off the high….that is what separates ‘normal trading’ and ‘correction zone trading’….Seeing us hold here will cause the buy algo’s to be more aggressive and that is being seen in the pre-mkt action….(futures higher).
4240 is the long term average trendline which should provide lots of resistance initially -…..My guts says that will kiss it, then back off only to kiss it again before we pierce it….which should allow that ‘Santa Claus Rally’ to take root – potentially taking the S&P back to the 4300/4350 level….which would be a 3.5% – 4% move up from here….….but don’t get too excited – so much will depend on the geo-political issues that can cause short term chaos…so sit tight… Stick to your plan…. keep new money in the money mkt account if that makes you feel better…
I am waiting just a bit longer to see what the FED says and what happens in the Middle East. We have Egypt, Jordan, Qatar, and The Saudi’s all calling for a ceasefire while Netanyahu says ‘No Deal’…. that would be tantamount to surrendering to terrorists and that will not be his legacy…. And so, the situation remains heated and that will keep the volatility high in a range of assets….
I am invested, I have not sold anything I own – so if we move up – I’m good. I’m participating as you should be doing too.
As a long-term investor – look at your portfolio and assess some of the damage, is there opportunity for you to add to some positions that will improve your dollar cost average? Are there new opportunities that you have been watching that need your attention? Remember – investing is dynamic not static…. remain agile, but don’t overdo it. Leaving a larger allocation to ‘cash’ isn’t necessarily a bad thing at all – they are paying you 5+%…but don’t discount the sales that are staring you in the face either….
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Eggplant Caponata
This is a great dish to serve over the holidays as a pre-appetizer along with your soppresata and cheese.
For this you need: 1 lg eggplant with some of the skin removed, olive oil, chopped celery, chopped Vidalia onion, sliced red pepper, smashed/chopped garlic, 1 can of plum tomatoes- hand crushed, Green olives (pitted) and rough chopped, capers (drained/not rinsed), 1 tlbs of tomato paste, some oregano, s&p to taste. (Optional ½ cup of yellow raisins).
You will also need ½ c of red wine vinegar, 2 tblsp of water and 2 tblsps of white sugar.
Begin by cutting the eggplant into bite sized cubes – place in a colander and sprinkle with salt – let it drain for 30 mins. Next – heat up a large skillet with olive oil – add the eggplant and stir well – turning them so that they cook evenly on all sides…now the eggplant sucks up the oil – so you may have to add a bit more as you cook the eggplants…..go ahead, but don’t drown it. Remove the eggplant and place in a clean plate and set aside.
Now add the onions red peppers and sauté until soft (If you need more oil – go ahead) – maybe 8 – 10 mins…. remove and place on a separate plate. Now sauté the celery, onions, and peppers – and cook until a bit soft. (Again, if you need a bit more oil – go ahead). Stir in the chopped green olives and the capers. Taste and season with s&p and oregano. Now add the hand crushed plum tomatoes and the tomato paste. Allow it all to blend – as you cook over med high heat. Careful not to let it burn. Re-introduce the eggplant and allow all of the veggies to simmer. (Here is also where you will add the raisins if you use them).
In a separate pan – add the vinegar, water and sugar and bring to a boil and allow the sugar to dissolve. Once dissolved take it off the heat. Add this mixture to the skillet with all the veggies. Allow it to all blends. Remove from the heat and allow to cool. Can be eaten warm (not hot), at room temp or even cold from the fridge. My preference is room temp – not hot nor cold, just right. Serve it with the warmed sliced Italian bread.
Buon Appetito
