Things you need to know.
– Stocks close LOWER for a 3rd day! OMG!
– The eco data is weakening…Is this the start of the slowdown?
– Oil – hits a vacuum and falls by 3+%. The Saudi’s are NOT happy.
– More job cuts on the horizon….
– Is the VIX starting to whisper something?
– Feast of the 7 Fishes – #4 Baked/Broiled Salmon
Oh boy….the media makes it clear…..Stocks have declined for 3 DAYS (and maybe 4 today)….quick – call the stock police…..the way they emphasize it though, makes it sound like the bottom has fallen out….as if, this is a real problem….Let me be clear – the Dow is down less than 0.1% off the most recent peak…the S&P down 1% – is that anything to get alarmed about? Hardly….
Stocks continue to churn – backing and filling as the most recent rally is running into some headwinds – which should not be a surprise……. the Dow, S&P and Nasdaq teasing with all-time highs while the Russell and Transports play catchup. Bonds continue to rally – sending prices up and yields down…the 10 yr. now yielding 4.10% down another 6 bps…. leaving yields down more than 18% since kissing 5% only weeks ago….
Yesterday’s eco data was mixed…. Mortgage Apps up (think lower rates), Non-Farm Productivity better than expected at +5.2%, Unit Labor Costs down more than expected at -1.2% (that’s good) while the ADP employment report came in weaker than expected at 103k new jobs vs. the expected 130k. So, what’s the issue…. overall – that was not a bad day’s worth of data….in fact – you COULD argue that it supports the rate cut story more than it supports the pause or hike story…. No? But stocks sold off….
At the end of the day – the Dow lost 70 pts, the S&P lost 18, the Nasdaq gave up 84 pts, the Russell lost 4 pts and the Transports gave up 60 pts. But here is the issue now – Remember what I told you – be careful what you wish for….the only valid reason for the FED to cut rates anytime in the next 6 months is because we went off the edge or are on the verge of going off the edge….They are not cutting rates because it’s all a bed of roses…Let’s make that clear….
A recent survey conducted by 22V Research reveals that investors believe all of this good news is over….the US labor market is softening….the slowdown in hiring is becoming more obvious…Unemployment is expected to tick higher on Friday – and the recent weakness we are seeing in the JOLTS report, Initial Jobless Claims & ADP are only confirming that. Today we are about to get the Challenger Job Cuts report…and for those of you unfamiliar – this report measures the change in the number of job cuts ANNOUNCED by employers – a higher number is a negative for the economy and that is what would give JJ the green light to move on rates and a move on rates will be bearish for the dollar and now potentially negative for stocks – why? Because the reason the FED is cutting is because the economy is circling the drain, not because it is robust and healthy…. …. Last month the reading was +8.8% – if today’s report is higher than that then watch out……
The fear now is that the trajectory is clearly going up – leaving many to ask – is it just transitory? Is this an anomaly? Surely, this must be a one off…. or maybe not…. maybe this is the beginning of the slowdown that we have been expecting for months now….and that means that we could see unemployment continue to climb. And that means tougher times ahead….and that means, Can the FED succeed in managing that ‘soft landing’ or is it too late? Has the pendulum swung too far to the right – the same way it swung too far to the left when they left rates at zero for much too long? Well, sports fans – we are about to find out leaving many to ask – Are we about to enter the ‘danger zone’?
The other day we learned that WFC is setting aside $1 billion for severance packages, (they are about to toss people out, because not as many are retiring as they need – and you can blame the cost of living on that), but now, they are no longer offering HELOC loans, citing ‘unpredictable market conditions’……….Hmmm…that’s curious? Are they seeing cracks in the foundation? Remember – all of the big banks allocated more money last quarter to their ‘loan loss reserve accounts’ – suggesting that they are all expecting defaults to rise…. So, is this news now the canary in the coal mine? Who will be next to cancel HELOC’s? Remember – HELOC are based on the equity in your home – if the equity is ‘expected’ to come under pressure (think falling housing prices) then it makes perfect sense….
Others who recently announced or implemented layoffs? Morgan Stanley, Citibank, Charlie Schwab, GM, Stellantis and Ford, and yesterday – Jack Dorsey – CEO at Block announced a wave of job cuts at Tidal, Square, and CashApp – all companies owned by Block. And all this means is that these companies are aiming for ‘financial stability and sustainability’ with Dorsey emphasizing the need for ‘constraints. These planned layoffs are part of a larger trend that we are beginning to see in the labor market that suggests tougher times ahead.
But again – why is anyone surprised…. this has been part of the narrative all along…. economists and analysts have been warning of what needs to happen IF the FED is going to succeed in bringing inflation to their 2% target. In fact – recall that Larry Summers suggested some time ago that we would need to see unemployment rise to 6+% for the FED to succeed. Tomorrow we will get the latest read and it is expected to have a 4% handle on it – something we have not seen since January 2022.
Yesterday – Andy Jassey – AMZN CEO made some very telling comments ……he is seeing the consumer trade ‘down’ to cheaper products (which is interesting since AMZN is a ‘cheaper products site), on top of that we are seeing defaults rise on auto loans and revolving credit cards…..and I say – just wait until all of the ‘buy now/pay later’ firms can’t collect….think Affirm, Klarna, Sezzle, PayPal, Afterpay and Greensky….Recall that Goldy just sold Greensky (a buy now/pay later firm) to 6th St – a consortium led by KKR, Bayview Asset Management, PIMCO and CPP.
Next up – Oil….
And it is now in free fall mode…. down 4.25% or $3 to end the day at $69.25 yesterday…. Oil is now down 22% off the most recent high…. This as they tell us that the markets are oversupplied (vs. a lack of demand in my mind). Just to be clear – we use 97 million barrels/day, and we produce about 94 million barrels/day. (a 3-million-barrel deficit) But if the narrative is about a slowing economy, then that’s what it’s about.
Again, demand is strong, the non-OPEC members are pumping oil like there is no tomorrow – the US is exporting a record amount of oil to Europe and Asia on a daily basis (which equates to demand, no?) – and the Saudi’s and OPEC can’t actually change the narrative or control prices by extending their current production cut levels. The other rumor is that Russia is pumping more oil than they say they are and supplying the black market (this supply not being officially counted) …. resulting in more oil than the world needs on a daily basis…. So, what now? Well, OPEC and the Saudi’s can try to raise their cuts in production even more if they want to try and stabilize OR they can decide to turn on the spigots and create a tidal wave of supply – sending prices reeling and putting pressure on the Non-OPEC suppliers and anyone else that is not playing by the rules….…- because remember – the Saudi’s can produce oil at $8, the US gets hammered if oil falls below $50. Oil is now in the $65/$70 range….at least until the Saudi’s decide what’s next. This morning oil is trading at $70.
Gold is holding steady at $2050…. – trendline support is at $2010 while resistance appears to be $2150. More talk of rate cuts will weaken the dollar and strengthen gold.
On the economic front – we will get the Challenger Job Cuts (we discussed that), Initial Jobless Claims (expected to be higher), Household change in New Worth and Consumer Credit…. Again – tomorrow brings us the very important NFP report and that is data point to watch. It is expected to show an increase of 190k new jobs. A weaker number will continue to support the slowing economy story. Unemployment is rumored to come in at 4+%. …again, moving in a way that the FED needs to see in order to kill demand and bring inflation down even faster.
The VIX remains well into complacent territory at $13.21 (up 0.8% yesterday) and to me that suggests that the next move is Up and not Down…. Which is why the VIXY etf is an attractive and cheap insurance option against a downturn. Remember – If we get a headline that challenges the current narrative – the VIX and the VIXY will shoot higher as stocks fall – today and tomorrow’s eco data may shed some light on this – so keep your eyes on the VIX.
US futures are mixed…. the Dow -62, the S&P flat, the Nasdaq +35, and the Russell -4. Overnight the BoJ hinted that they are about to ‘scrap the world’s last negative interest rate regime’ sending rates in that country higher. Japan fell be 1.8% after a weak auction of long-term debt. Now pay attention to that…because we are going to get whacked with $1.4 trillion worth of debt auctions between now and March 31st. Any hesitation by buyers will cause bond prices to fall and yields to rise. And Janet hasn’t even announced the refunding requirements in the 2nd, 3rd and 4th qtrs. of 2024.
European markets are all a bit lower…. Markets across the zone are down between 0.2% and 1% (Spain). Investors waiting on 3rd qtr. employment figures and GDP for the zone and German Industrial production due out this morning.
The S&P closed at 4549 – down 18 pts as the market is feeling just a bit tired after the run that we’ve all seen. .…I think so much of the ‘good news’ has already been priced in – so we need to digest it…and that could mean we just churn in place to catch up or we churn a bit lower to see who falls out of the trees….
Look, no one should be surprised to see stocks pull back – after the explosive rally in November. We have one more week of real action for the markets – and then we move into ‘holiday’ mode…..the 2 weeks in between Christmas and January 5th are the official ‘Santa Claus Rally’ weeks….November wasn’t officially the time frame – but it felt good for investors anyway….….Sit back – make year adjustments to take care of tax loss harvesting if you haven’t already done that.
Review your plan, talk to your advisor, and remember – investing is not ‘trading’ it’s investing…it a focus on the long term and not the daily machinations of the markets. Don’t be emotional, do your homework, take advantage of dislocations in names that you own or want to own….do not chase and if you are just starting out – don’t be dismayed – time is on YOUR side.
Call me to discuss.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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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.
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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.
Feast of the 7 Fishes – #4 Baked/Broiled Salmon
This one is the easiest of them all. (We keep it easy because there are 7 Fishes to eat!) You need only a couple of things. – Salmon, Old Bay Seasoning, fresh lemon juice and olive oil.
Get you salmon – skin on – rinse under cold water….pat dry. Place nicely in a baking dish – season with Old Bay and a squirt of fresh lemon juice and olive oil and bake on 375 for 15 mins…. Now Turn from bake to broil and broil the tops for a couple of more mins…. Careful not to burn. Remove and serve. Simple! No fuss, no mess.
Buon Appetito.
