Things you need to know.
– September does not disappoint…. Markets end lower.
– DC averts a crisis! But is Kevy in Hot Water?
– PCE miraculously is ‘better than expected’.
– Oil, dollar and yields were all up and are all up today.
– UAW still on strike
– Try the Shrimp Cardinale
And so, September did not disappoint….it did what it always does……it remained volatile lunging forward on some days only to fall backwards on others to the end the month lower than where it began…. but do not despair – while it was the worst month so far – all of the indexes are still higher on the year…. At 4 pm on Friday – we found the Dow down 159 pts or 0.5%, the S&P lower by 12 pts or 0.3%, the Nasdaq rose 18 pts or 0.15%, the Russell gave back 10 pts or 0.5%, while the Transports lost 17 pts or 0.1%.
Friday’s big economic number was the PCE Deflator…. which as I told you was expected to inch higher…..both m/m and y/y….Well – m/m it rose by 0.4% up over last month but a hair below the expectation of +0.5% while the y/y number came in as expected at +3.5% – up over last month’s +3.4% – yet they somehow managed to get the CORE number to be even better than expected – calling it the ‘weakest monthly increase since 2020 – (making a usually negative word into a positive word) remember – that’s when they take out Food and Energy… and that’s the number they wanted us to focus on – because it supports their story and it has now given the trader types a reason to reignite the ‘FED is finished’ story… Not only are they done raising rates – this MUST mean that they are preparing to CUT rates…. I mean – it’s so comical – you gotta laugh…
And then we had the clock ticking on a gov’t shutdown – which appeared as if it was a done deal – that was until House Speaker Kevy McCarthy apparently caved in – late Saturday – on Chucky’s demands…aligning himself with the Democrats to get a deal done….leaving the right wing of the GOP unhappy and now threatening to ‘oust’ him by the end of this week. Although – you have to believe that there must have been a ‘back door’ deal that will have the Democrats protecting Kevy in what is sure to be this week’s battle on Capitol Hill. Jo Jo wasted no time in calling ‘the MAGA republicans the problem…. telling us that ‘it is not this hard to govern’ – Hmmm…. just look at the job he’s done! Oh boy….whatever…… Understand that while congress pushed this bill to Jo Jo’s desk at 11:50 pm – it is only another temporary measure – they managed to ‘kick the can down the road until mid-November…… they managed to make a crisis out of something that should never have been a crisis…and then they all pat themselves on the back saying “Look what we did, we averted a crisis!” Expect this now to be front and center in DC – but it will NOT price stocks in the long term.
And Shaun Fain remains defiant – calling on more UAW union members to strike GM, F and Stellantis….as he pushes for a big increase in benefits and wages….this is now entering its 3rd week with no end in sight – I keep asking myself – who is going to blink first? The auto companies are trying desperately to drive a wedge between the union leadership and the union members.
But like I said – do not despair– for the year – the Dow is still up 1%, the S&P +12%, the Nasdaq +26%, the Russell up 1.4% while the Transports are ahead by 12%. Now this will change again this quarter – especially if treasury yields continue to move up…. which they are expected to do….and that suggests that the FED is not done….
The surge in treasury yields during the month – gave investors far and wide more options on what to do with their money without adding more risk. At the end of the month, we saw significant moves up in yields…. The 2 yr. ended the month yielding 5.04% (up 5.5%) and this morning it is up 5 bps at 5.09%, the 10 yr. ended the month 4.58% (up 12%) and this morning it is up another 4 bps at 4.618%. The shorter duration 3- & 6-month bills continue to yield 5.46% and 5.5% respectively. The move up in yields pushed prices down…the TLT – which is the 20 yr. treasury bond ETF lost 9% for the month – leaving it down 11% on the year….
All while mortgage rates push higher – current 30 yr. conventional mortgages are now 7.5% and likely still go higher….and if you have a credit score below 740 – you can expect to pay even more. HELOC loans – another category that sneaks up on borrowers are now pushing 9+% (and that is an average) – and that is up from 4% in January…. representing a 125% rise in those costs…remember – those rates fluctuate monthly and have done nothing but go up all year. And revolving credit? Oh yeah – they are usurious – ranging anywhere from 10% – 29% based on credit history and the lender. Auto loans are beginning to go into default, and we still have the pending commercial real estate debacle that is simmering on the back burner…. Just sayin’
Oil – ended the month at $90.79 up a whopping 14% (and up 30% for the qtr.) – this as the Saudi’s and the Russians continue to squeeze Joey’s privates…in order to stabilize oil at higher prices. In addition – energy demand is expected to grow in 2024 and beyond….estimates around the street calling for $125 – $150 oil by mid-2025….And that whole China is slowing story – yeah – not so much at all….China has been buying up oil from anyone who will sell it to them and in addition – they are also buying up coal like there is no tomorrow….both issues that I have been pointing out all year….This as the US is expected to see oil production hit 13 million barrels/day this month – a level not seen since Donny was in the White House…as demand is alive but the higher prices wreaking havoc on America’s pocketbooks – never mind what it is doing to transportation costs that will only push up the prices of everything we need on a daily basis think food, energy, utilities….….This morning oil is up another 40 cts at $91.25.
Rising rates helped to push the dollar up 3% for the month….and up 6% from the July low….to end the quarter and month at $106.16. This morning we are seeing strength in the dollar again – up 16 cts at $106.32…. marking a new high for 2023…. the prior high was back in March when the dollar kissed $106…. leaving $108 as the next upside target.
And this strength is pummeling the gold trade…. gold ended the month down 5.5% and the quarter down 7.5% off the July high to end the month at $1865….and this morning – with the dollar up again – the gold ‘algo’ traders are taking another $12 out of it…leaving it at $1853.30. Gold is now DOWN 2% on the year…. leaving it struggling to find support in here – something that it may not be able to do…. if rates and the dollar are expected to continue to advance.
Why? Because higher for longer only raises the opportunity costs of holding gold …..which pays 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. On Friday – I suggested that we should find support at $1850…. well, here we are…. Now what?
Eco data today is all about Manufacturing PMI’s…. The S&P reading is expected to be 48.9 while the ISM read is expected to be 47.9 – both in contractionary territory. Wednesday brings us the ADP Employment report – with 150k new jobs to be created, then we will get Services PMI’s of 50.2 & 53.2 – both in expansionary territory….but the big number will be Friday’s NFP report…..and that is expected to show an increase of 165k new jobs created…..the unemployment rate expected to tick down to 3.7% (down from 3.8%), Avg Hourly earnings m/m of +0.3% and y/y of + 4.3%.
This morning US futures are UP…it’s a new month and a new quarter…. Dow futures + 85 pts, the S&P up 15 pts, the Nasdaq up 80 pts and the Russell is ahead by 6 pts. The enthusiasm supposedly a result of ‘crisis averted’…. Remember that the algo’s were bracing for a shutdown…so they need to be reprogrammed reflecting relief and that is apparently what is happening.
Remember – last week we test a ‘technical’ level on the S&P (which is broad representation of the economy) – 4238 – which found the support of buyers….and boom – up we went…. But I suspect that we will test it again before this is over and in fact test the long term daily moving average trendline at 4200…. where I think we will find real support.
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.
European markets were higher but have now turned lower….as the quarter begins… Eurozone manufacturing activity continues to decline – the news defining the drop as ‘sharp’, and the weakness is dropping at a pace that has not been seen since 1997. Input costs were lower, but so was employment, purchasing activity and inventories. In Germany – the picture is even darker….as output fell at the steepest rate in 3 ½ yrs.
The S&P ended the day at 4288 – down 12 pts… after trading as high as 4333……- recall that on Friday I said that ‘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’ and it did not happen on Friday and most likely will not happen today either…. but we are in the 4200/4385 trading range……. And while we may test it early on this month, I suspect that it will fail…. leaving us in that trading range.
Year to date we have Communication in the lead +36%, followed by Tech +31%, Consumer Discretionary + 24%, Energy and Industrials are +3.3%, Basic Materials are +1.1% leaving Financials – 3%, Consumer Staples – 7%, Healthcare down 5% and Utilities down a whopping 16%….
Other tech sectors all higher…Semi’s + 42%, Cybersecurity + 17%, Robotics and AI + 21%, Disruptive Tech +26%. The Value of Trade up 6%, the growth trade is up 17%, Small cap growth up 1.5% and mid cap value +1%.
This is going to be a big month again…. We are going to get the latest CPI and PPI next week…. the 11th and 12th…. along with all of the usual monthly reports…but these two data points will be key to understanding what the FED think might be at the next FED meeting on October 31/Nov 1st…The speculation all month will be will they raise or will they continue to pause…..So, step up to the window and place your bet.
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
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Shrimp Cardinale
This is a simple dish to make and is so rich and delicious.
For this you need: 2 lbs. of large, cleaned shrimp, butter, 1 lb. of linguine, ¼ c of Brandy, 1 c of heavy cream, marinara sauce and s&p to taste.
Turn on the oven – Bake 350 degrees. Bring a pot of salted water to a rolling boil.
Melt a stick of butter in a large bowl – now toss the shrimp – season with s&p. Lay the shrimp out on a baking dish and bake in the oven for 5 – 7 mins… remove and add to a large sauté pan.
Put the linguine in the boiling water and cook for 8 mins or so.
Now – in a large sauté pan – add the brandy and allow it to burn off a bit – next add the heavy cream and about 3 or 4 cups of tomato sauce. Reduce the heat to simmer and allow the sauce to thicken. Taste and season if necessary.
When the pasta is done – strain (always keeping a mugful of the water) and add directly to the sauté pan and mix well. You can always add back some of the pasta water if it needs it. Serve in warmed bowls.
Buon Appetito
