Things you need to know.
– Fighting intensifies in the middle east all while Jo Jo lands in Tel Aviv
– Macro data confirms strengths and weaknesses.
– Yields rise across the curve – the 10 yr. is yielding 4.83%
– Earnings continue to ‘beat’, yet the market remains confused.
– Oil kisses $90/barrel – Think Mid-East conflict.
– Try the Tuscan Soup
Breaking News – The conflict in the middle east hits new flash points – a hospital in Gaza gets hit, killing 500 + people – the Arab world blames Israel, protests across Jordan, Turkey and other Arab nations…..All this while Israel points to Hamas as bombing the hospital – only to blame Israel to inflame Arab hate and they have succeeded in doing just that…..Condemnation from the Arab world was swift – although media reports appear to prove that the Israeli’s did not bomb the hospital….…..…All while Jo Jo lands in Tel Aviv to show US support for the Israeli’s.
The macro data hits the tape – some of it remains robust – Retail Sales rose by 0.7% vs. the estimated +0.3% and many were quick to point to the strength of the consumer…..I would suggest that it reflects higher prices rather than more demand, but I’m not the one trying to convince that it’s all good, Industrial Production was better and that suggests that manufacturing is alive and well, Capacity Utilization rose inching closer to the 80 mark – (80 is a level that suggests inflation will become a problem…..Will? How about it? And then we saw a bit of weakness in the NAHB Housing Market Index FELL to 40 – which suggests weakening….in the housing sector which can indicate future weakness in manufacturing. Remember – housing requires Durable Goods and yesterday I defined what that means…. – think appliances, furnishings, toilets, bathtubs, windows, AC’s, heating systems, flooring, lumber and that speaks to the overall health of the economy. A number north of 50 reflects a favorable view…south of 50 – less favorable. So, a reading of 40 suggests weakness….
Treasury yields rose…. the 10 yr. adding 12 bps to end the day at 4.82%, the 30 yr. rose 7 bps to end the day yielding 4.92%…. leaving the 30 yr. at 4.96%. The Kobeissi Letter points out the fact that the 10 yr. note yield is now ABOVE the median cap rate for the first time since 2008. Essentially, the ROI on investment property is now below the 10 yr. note yield and that could help explain why investor purchases are down more than 40% and likely going lower….
Look, when interest rates are high, cap rates tend to increase as well because higher interest rates lead to higher borrowing costs and that means that investors will require higher returns on their investment to compensate for the increased costs. Higher cap rates can also mean that the property has more risk – and investors demand a higher rate of return to purchase it – and that just means prices have to fall to reflect that risk – we have started to see that happen in the commercial real estate market and expect that we will see more….the question now is – when will we see housing prices come under real pressure to reflect higher mortgage rates? My guess is – pretty soon. But let’s see. Current 30 yr. mortgage rates are hovering around 7.6% and likely going higher….8% rates are coming….and that should shock not only housing prices but commercial real estate prices just a bit more.
And all this did was create confusion for investors…. leaving markets directionless. The Dow rose 13 pts, the S&P lost ½ point, the Nasdaq down 35 pts, the Russell gained 19 pts and the Transports were up 128 pts.
Fed fund futures are now pointing to the fact that traders now expect the FED to RAISE rates in January of 2024 after pausing next week and then again in December…. Richmond Fed President Tommy Barkin reinforces that fact – saying that they ‘have time to work it out’.
And then we had more earnings….there were 10 reports – 9 of which BEAT the estimates – leaving only JBHT (JB Hunt Transports) to miss…we are about to get 25 more reports today…both pre and post the trading day….Look for ABT, NDAQ, USB, MTB STT, ALLY MS and then after the bell – look for TSLA, NFLX, STLD, CCI, LVS, LRCX, AA, PPG, ZION, KMI.
On the back of the overnight news in the mid-east, Oil is spiking higher…. currently up $3 or 3.4% leaving it just pennies below the $90 price point…
And Gold also spikes higher – rising $20 this morning to $1956/oz – in the ultimate safety play as the conflict intensifies. Gold is now kissing the intermediate term trendline at $1957 and will likely go higher in the days ahead for no other reason than geo-politics.
This morning US futures are trading lower…. Dow futures down 60, S&P’s down 15, the Nasdaq lower by 75 and the Russell is off 6. This is as earnings season heats up and speculation builds about what the next FED move should or will be. Economic data today includes Mortgage Apps, Housing Starts – which are supposed to be up 7.8% m/m while Building Permits are expected to be down 5.7%. At 2 pm – we will get the Fed’s beige book – which details the state of the union across the 12 Fed regions.
Stocks in Europe are lower – tech weaker, energy stronger…… investors there digest the latest earnings reports, inflation data along with developments in the Middle East. Eurozone inflation for the bloc declined in September – coming in at 4.3% down from 5.2% – but individual country inflation remains hectic…We are seeing big UP moves in Addidas, NEXI, Worldline while ABB gets whacked.
The S&P closed at 4373 up 45 pts…. Again – we traded right up to the trendline and failed.….and that speaks to the weakness I have been talking about. It feels tired and edgy…. We remain in the 4220/4400 trading range.
I am in Nashville today and then will be in NYC for the Headstrong Project Annual Gala – on Thursday, October 19th at pier 60. You can find more information here about the work we do to save our veterans that suffer from PTS. Our goal this year is $3 million. Consider helping us.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Tuscan Soup
For this you need – 1 lb. sweet sausage, 4 slices of thick cut bacon, 1 large Vidalia onion, 2 cloves of chopped garlic, about 8 cups of chicken broth, red potatoes – thinly sliced – use a mandolin for the perfect slice. 1 cup of heavy cream and a bag of fresh spinach. (you can substitute Kale if you like).
Begin by browning the sausage meat in a heavy pot. Season with s&p – once it’s all browned – remove and set aside.
Next in the same pot – crisp up the bacon. When all crisped remove and set aside. If there is a lot of bacon fat – remove most of it leaving only about 2 tblspn in the pot.
Next add the chopped onion and chopped garlic. Stir until soft – maybe 6 – 8 mins.
Now – add the chicken broth to the onions and garlic – add back the bacon – bring to a boil – next add the sliced potatoes and cook until fork tender – maybe like 15- or 20-mins max. Reduce the heat to med low and add back the sausage and pour in the heavy cream – stir to combine and heat through. Add the spinach right before you’re ready to serve – this way it doesn’t completely wilt and stays bright green.
Serve immediately.
Buon Appetito
