Things you need to know.

–        Stocks end the week, weak and start the week, weaker

–        10 yr treasuries are once again above 5% this morning

–        The war in Israel intensifies

–        Stocks in Europe lower

–        It’s a big earnings week – 30% of the S&P to report.

–        Try the Fusilli

And the beating just won’t quit…..Stocks and bonds got hammered again on Friday, culminating a disastrous week for investors…Bonds got whacked – sending the 10 yr. yield above 5% (if only for a moment), the 30 yr. hit 5.109% while conventional mortgages kissed 8%,  causing more angst in the markets….

The Dow lost 290 pts or 0.9%, the S&P -55 pts or 1.3%, the Nasdaq down 202 pts or 1.5%, the Russell lost 22 pts or 1.3% all while the Transports gained 15 pts or 0.1%…. There is always someone that doesn’t follow the crowd….

It was a litany of things that are coming to a head – mixed earnings, rising bond yields,  DC Chaos, FED policy and interest rates. A test of and then a KEY technical break in the S&P (4233) sent and will send stocks lower as the algo’s shift into ‘sell’ mode and finally the bloodshed and the ongoing war in Israel that appears ready to enter stage 2.  Notice – no one even discusses Ukraine/Russia, Trump indictments and Hunter Biden any longer, you would almost think there is a method to this madness. 

As stocks and bonds fell – gold and oil surged higher – for very different reasons….…as some investors ran from risk trade (stocks & bonds) into the ultimate safety trade (gold).  Oil is up because of the war in Israel and the possible disruption to supply and the possibility that it extends beyond Israel’s border – dragging the Arab states and the US into the fold.

Now while stocks plummet, you’d think  that everyone is running for the door – but remember there are always two sides to a trade – both a buyer and a seller…just keep that in mind….while someone who is selling is nervous – the one buying is viewing it as an opportunity….There is no right or wrong answer here….it depends on who you are, what your risk profile is and your expected time in the market…. Yes, it’s ugly, yes, sellers are being aggressive – which is exactly why stocks are trading lower…the buyers know this…they see the fear and so, what do they do?  They step aside, and boom…. down we go….

What is the normal trading band?

S&P is now down 8% of the July high….which by the way is still trading within the ‘normal’ band….the S&P has to trade to 4180 before it enters the ‘correction’ zone….which is defined as a 10% move off the high….anything less than that is ‘normal’ and while it feels uncomfortable – it is not a disaster…The Russell is in correction territory – down 16% off the high, The Transports are also in correction territory down 14%, The Nasdaq is only about 80 pts away from entering the ‘correction’ zone…while the Dow has to fall another 3% to take us there.

Now some stocks clearly get hit harder than others – for a variety of reasons….Some stocks are under pressure for the sole reason that asset managers use them as a source of cash when they need to meet demands – they hit the sell button on names like AAPL, AMZN, META, MSFT,  etc.…. and others because the story changes….…Did they miss on estimates?  Did they lose a big contract?  Is a competitor eating their lunch? Is demand waning for their product?  Is the forward guidance significantly lower?

AMEX for example reported on Friday – guess what? They beat on Revenue – $15.38 bil vs. $15.33 bil, they beat on EPS $3.30 vs. $2.95 – Loan yields were up, credit metrics were strong and operating expenses were better than expected –  YET they put MORE money aside for what?  CREDIT LOSSES…. $1.23 bil vs. $1.18 bil – (a 4% increase) – that is the same as the LOAN LOSS RESERVE ACCT at the big banks – which also saw increases….and what does that mean?  It means that AMEX and the big banks are expecting more defaults, more people who can’t pay – Capisce?  They also were cautious on the forward guidance leaving investors unsure of whether or not AMEX can deliver the 10+% revenue growth in 2024.

So, AXP fell by 4.6% on Friday….and that dragged down COF – 2.7%, DFS – 2.9%, V – 1%, MA -1.3%, PYPL – 2.6% – now clearly the overall tone of the market did not help, but you have to ask what does the AXP results suggest for the other cc companies? Will we see even more money allocated to the ‘credit loss’ act?  

Yields ended the week at 4.91% for the 10 yr., while both the 2 and 30 yrs. are paying you the same amount – 5.07% – which makes zero sense….who would put money into the 30 yr. if you’re getting the same return as the 2 yr.! Shorter duration 3- & 6-months bill is yielding 5.4% and 5.55% respectively.  Gov’t money markets are paying you 5+%, while 12-month CD’s will earn you 5.5%.... Leaving many investors to opt out of the chaos and into security.

As you would expect – Every sector was lower…. Tech, Financials, Consumer Discretionary, & Energy all went down more than 1.5%, Basic Materials lost 1.2%, Industrials, Utilities, Communications down 1% and the other sectors – Consumer Staples, Healthcare, and Real estate down about 0.5%. 

And the contra trades – well they did better than you would expect.

The VIX was up only 1.45% – leaving it up 29% on the week.  The VIXY rose by 0.8% leaving it up 9.6% on the week.  The DOG + 0.9%, the PSQ + 1.5% and the SH was up 1.3%.  And the SPXS – the triple levered short trade – was up 3.8% yesterday.

Now on the geo-political front – we have new problems that are creating short term chaos – we are starting to see US bases in Syria and Iraq coming under drone attacks – while the Houthi Rebels in Yemen and Hezbollah rebels in Lebanon launch cruise missiles into Israel – prompting new concerns about how this Hamas/Israel war can spark a bigger conflict in the region – pulling the US into the fight….And that only added to the angst.  The Pentagon assuring us that ‘our focus is on deterring a broader regional conflict…not joining it.’

Just to be clear – the US has been sending more military gear and troops towards the region since last week – to do nothing more than keep Iran, Yemen, and Hezbollah from joining in the conflict.  Just FYI – we have put 2000 troops on alert for possible deployment. 

Gold rose $12 to end the week at $1994/oz.  This morning it is down $2 at $1992/oz, again it is the ultimate safety play as the conflict intensifies.  We are now up and through resistance at $1985 and this suggests that with further unrest across the middle east we could (will) see gold move higher.  $2028 is the next stop……beyond that?  $2100 here we come!   Now to be clear – IF the unrest settles down – then Gold will retrace quickly….

Oil traded up and thru $90 last week – nearly kissed $91 on Friday morning…only to settle at $88 at the end of the day. This morning oil is trading down 40 cts at $87.60.  Energy Secretary Jenny Granholm tells the world that the US will pay $79/barrel for the oil to refill the SPR. Really? Who does that? 

The dollar index – DXY continues to hold tight at $106.16 – this morning it is lower by 3 cts at $106.13.

Overnight – futures tried to rally, but have turned lower as the day dawns and concerns rise. At 6 am – The Dow is down 200, S&P’s down 25, the Nasdaq down 110, the Russell is off 10.  The 10 yr. yield is now back above 5% this morning and that is only adding more angst and pressure on stocks. CVX announces a deal for HES this morning….in an all stock transaction….CVX paying $171/sh for HES – or a 10% premium giving HES shareholders 1.025 shares of CVX for each share of HES.  CVX is quoted down $5, while HES is quoted up $3.

It is a big week for earnings….30% of the S&P is due to report this week.  Earnings will come from a lot of sectors:  containers and packaging CCK, steel producer CLF, X, NUE, consumer finance SYF, COF, managed care CNC, life sciences and healthcare DHR & HCA, auto’s GM & F – investors clearly curious about how the earnings will impact the strike demands. Strong earnings from both these car makers will only embolden the UAW’s demands, consumer electronics XRX, integrated electric utilities NEE,  smaller regional banks PACW, PEBO, SBSI, aerospace and defense RTX, GD, NOC,  ag products ADM, personal care products KMB, CL, diversified industrials MMM, oilfield services and equipment HAL & BKR, basic and diversified chemicals – DOW and four of the megacap tech giants – AMZN, META, APPL & MSFT – so strap in.

There is no eco data this morning, so the focus will be on the chaos in DC – there are now 9 republicans vying for the speakers seat, the war in the Middle east and the technical break in the market. This morning – we are seeing Israel intensify the bombings in Gaza as they prepare for the next stage of this fight while humanitarian aid is making its way across the border. 

On Tuesday we will get the Philly Fed Non-Manufacturing (think Services) Index – expected to be lower.  On Wednesday we will get US Services PMI of 49.9 – inching ever closer to neutral…. Richmond Fed Manufacturing and Richmond FED Business Conditions Index. Wednesday brings us New Home Sales – expected to be up 1% m/m…. Thursday brings us the first release of the 3rd Qtr. GDP and that is expected to be +4.3% up from the 2^nd Qtr. 2.1%. Retail Inventories, Durable goods, and Pending Home Sales. But the one that everyone is waiting for is Friday’s data.  Personal Income and Spending, and the all-important PCE Deflator….

Stocks in Europe are lower this morning….– markets across the region are down between 0.1% and 0.6%.   It is the same issues affecting the mood in Europe – Geo-political concerns, a big earnings week and the latest policy decision from the ECB.    

The S&P plummeted thru 4233 – which WAS the 200 dma long term support line…. ending the day down 55 pts at 4224.  So, this is now key – Will the sellers retreat? Will the buyers become more aggressive?  In any event – if we fail to take back the trendline at 4233 – we could see a swift move to the 4100/4125 range. Recall that a break below 4180 – puts the S&P into official ‘correction’ mode and that will send another negative technical signal to the algo’s causing a new wave of selling.

Take good care.

kpolcari@slatestone.com

Sources:  Bloomberg, CNBC, Reuters, Wall Street Journal

Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. 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 Kenny Polcari or SlateStone Wealth.

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, which may not necessarily align with our firm’s standpoint.

While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.

Kenny Polcari is the Chief Market Strategist for SlateStone Wealth.  Neither Kenny nor the partners of SlateStone Wealth are compensated in any manner by the issuers of any securities mentioned in the publication.

 

Fusilli w Crema di Zucca & Salsiccia Dolce (Fusilli w/ Pumpkin Cream & Sweet Sausage)

Sounds so romantic, no?  Fall is in the air – the mornings are brisk, sleeping at night with the windows open allows for more cuddling – always a feel-good moment….so – won’t you try it? 

For this you need: 1 lb. Fusilli pasta, 4 links Italian sweet sausage, casings removed, chopped sweet onions, garlic, olive oil, ½ cup white wine, 1 bay leaf,1 cup chicken broth, ¾ c of  canned pumpkin – (not the pie filling!), ¼ c fresh sage (opt), s&p, ground cinnamon to taste, Dash nutmeg, ¼ c heavy cream, ¼ cup fresh parmegiana.

Bring a pot of salted water to a boil.

Brown the sausage in a large frying pan.  Remove. Add the onion and garlic and a splash of olive oil.  Add wine and bay leaf. Bring to a boil. Cook until liquid is reduced by half.

Stir in the pumpkin, half the sage and all the remaining seasonings.  Cook a little longer, about 2 minutes.  Add the cream and sausage.  Heat through. Remove the bay leaf.

Drain pasta – and return to the pot and add the sausage mixture.  Toss to coat. Sprinkle the cheese and the remaining sage.

Serve in warmed bowls immediately.

Buon Appetito