Things you need to know.
– JoJo ignites a fire.
– Donny adds some fuel.
– Tech gets slammed…. Were you really surprised?
– Bonds do nothing, Oil rallies on larger drawdown.
– Fed all but confirms a September, November and December rate cut.
– Try the Linguine Arrabiatta
Oh boy…. Tech stocks across the board got smashed and traders are not happy…. …. JoJo threatens to tighten restrictions on chip sales to guess who? CHINA! He said that he is ‘considering severe curbs if companies like Tokyo Electron and ASML keep giving China access to advanced semiconductor technology. He also mentioned that he is considering tougher sanctions on Chinese chip maker Huawei….
And this is what they call a UFO – and Unforeseen Occurrence – something that investors and the markets were not expecting….and it sent tremors thru the Nasdaq…. stocks that could do nothing but go UP – suddenly went DOWN…. At the top of the list was none other than NVDA – 6.6%, AVGO – 8%, QCOM – 8.6%, META – 5.7%, UBER – 7.6%, SMCI – 7%, AAPL – 2.5% AMZN -2.6%, TSLA -3.4%, ARKK – 2%, SOXX -7.2% and while it was ugly and uncomfortable – was the move a total surprise? No! Remember – we discussed this – all we needed was ONE catalyst, something that the market was not expecting to light the fire. And light the fire is what JoJo did….
And then to add fuel to the fire – In an interview with Bloomberg when asked about defending Taiwan against a Chinese invasion – Donny suggested that Taiwan needs to ‘pay the US for our defense’ – saying that ‘that country doesn’t give us anything’. (Remember – Taiwan is depending on the US and Europe to defend them against a Chinese invasion). Recall – Xi Xi has made it clear – the reunification of that island nation with the mainland is a ‘historical inevitability’ and while it is NOT happening at the moment – the world does expect that Xi Xi has every intention of taking it back at some point…..….and with the world in chaos – there is this sense that now is as good a time as any for China to create a 3rd conflict in the Pacific rim forcing the US & Europe to try and manage a 3rd global conflict. Names like TSMC – 2.5%, ASML – 12%, LRCX – 10% & AMAT – 10.5% all making headlines. Remember that Taiwan makes about 70% of the of the world’s most advanced chips – any disruption will surely create chaos for the tech industry (and has the potential to disrupt the world order)….If China takes Taiwan – then they essentially control the chip industry for the world – So, shame on us and for even allowing that to be an issue – this is not new news, the threat has always been there, and again, while it is NOT happening now, the threat IS becoming ‘more’ real and so the temperature continues to rise – and just FYI – the rising temperature here is not about the climate crisis.
At the end of the day – it was an interesting performance. The Dow GAINED 243 pts or 0.6%, the S&P lost 79 pts or 1.4%, the Nasdaq gave up 512 pts or 2.8%, the Russell lost 24 pts or 1%, the Transports lost 277 pts or 1.4% while the Equal Weighted S&P gave up 25 pts or 0.4%.
We saw investors pile into Financials – XLF + 0.8%, Consumer Staples – XLP +1.3%, Energy – XLE + 1%, HealthCare – XLV + 0.5% and Real Estate – XLRE + 0.9%. The value of trade – SPYV rose 0.6%. And if you played it from the short side – (as discussed in yesterday’s note) you won as well. The PSQ (Nasdaq short ETF) rose by 3%, the SH (S&P short ETF) gained 1.5%, the VIXY added 3.4% – this as the FEAR Index – VIX shot up by 9.7%. (Again – look at yesterdays’ note). The Disruptive Tech short ETF – SARK – added 4% while the triple leveraged S&P short ETF – SPXS also added 4%.
Besides Tech – XLK down 3.9% – we saw Communications – XLC – 1.25%, Consumer Discretionary – XLY – 1.7% Basic Materials – XLB – 0.2% & the growth trade – SPYG – 2.9%. Other sectors that got whacked – Homebuilders – XHB – 2.5%, Airlines – JETS – 1.4%, Aerospace & Defense – XAR – 1.4%, Metals & Miners – XME – 2%, Cybersecurity – CIBR – 2.2%,
So now the question is – Should you be concerned? Should you bail? So, the answer there is Maybe and No. Concerned – because you have to consider what this means – Does it change the investment thesis in the long term or not? If it does (for you) then making some re-allocations and rebalancing your portfolio might be the answer. Underweighting tech and overweighting value or even putting more money into cash and cash equivalents may be right for you. But if you are not worried about it in the long term, then maybe you sit tight and do nothing. You keep your current positions and add new money to other sectors that are not tech – essentially rebalancing without making any sales….
But again – much of that decision will depend on who you are and WHERE you are on the risk and age scale. A 30 yr. old will have a very different view than a 60 yr. old…a 30 yr. old has a lot more time and can afford to take more risk – not undue risk, but controlled risk….while a 60 yr. old MAY want to pair back on the risk….Again, it’s a personal decision – there is not right or wrong answer, but, do not make emotional decisions based on one day’s action….. Call your advisor to help you navigate the landscape.
Ok – let’s move on….
So, as tech was getting smashed – members of the Fed were not going to let this event get in the way of confirming lower rates….Fed Governor Chrissy Waller immediately taking the stage – telling us that he thinks ‘cuts are near’ – essentially confirming a September start (hoping to stop the bleed) – but he needs to play both sides, so he did qualify it by saying that he needs to see more progress – blah, blah, blah….
Bonds did nothing really on all of this…. the TLT & TLH rising less than a tenth of 1 percent….
Oil prices rose – up 3% or $2.35 to end the day at $82.85….…. The EIA reported that US crude inventories fell by 4.9 million barrels last week – this vs. the expected 30k barrel decline and more than the 4.4-million-barrel decline reported by the API. Hmmm….so, I’m guessing that there is not a demand issue…. This morning – oil is trading up 14 cts at $82.99…. and remains in the $80/$85 trading range.
US futures are mixed…Dow futures -45, S&P’s up 4, Nasdaq u 45 and the Russell down 8. Chip stocks attempting to rally…after yesterday’s beating…. Look – let’s not kid ourselves…. the chip stocks and the tech sector were vulnerable to a pullback…it was just a matter of time before it happened. So, let’s just let this paly out a bit…Do not make decisions based on one day’s headlines or one day’s action…. Revisit the investment theme – tweak, if necessary, remain focused on the long term.
The S&P closed at 5588 down 79 pts…. but still kissing all-time highs…. Could we see further weakness – of course…. Can this story continue to make headlines – of course…which is why you need to stay awake, talk to your advisor and stick to the plan. Fed futures are pricing in a 100% probability of a Sept cut and a 70% chance of a November cut and an 87% of a December cut…. The market’s reaction will be about how the FED tells this story…. are they cutting rates because we are going off the edge, or because we have slayed the inflation monster? The market’s reaction will be how that story is told….one is a negative while the other one is a positive. So, sit tight….
Give me a call to discuss a long-term plan, one that creates long term and generational wealth.
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.
Markets were angry – Perfect time for something spicey and HOT…
How about the Linguine Arrabiatta
Arrabiatta Sauce – this is a southern Italian tomato sauce that gets its kick from the crushed red pepper – in fact – Arrabiatta means Angry….you can use this sauce over pasta or even meats – today let’s eat.
You will need: olive oil, onion, garlic, red wine, sugar, crushed red pepper (or chili peppers if you want hot, hot, hot), lemon juice, oregano, s&p, crushed tomatoes, tomato paste and chopped parsley….
Bring a pot of salted water to a rolling boil –
In a large pot (or deep sauté pan) on med-hi – heat up olive oil and garlic…. sauté a bit – but do not burn – 3 mins or so…. Now add sliced onion and sauté until soft – like 5 mins more. Next – add 1/2 cup of red wine, 1/2 tblspn of sugar, fresh squeezed lemon juice (about 1 tblspn), oregano, bit of tomato paste, and a 28 oz can of kitchen ready crushed tomatoes (not in puree – just crushed tomatoes), crushed red pepper (or crushed chili pepper if you prefer) – bring to a boil and then reduce to simmer and cook for 15/20 mins….
Add the spaghetti to the boiling water and cook for 8 mins or until aldente – strain – reserving a mugful of the pasta water. Return pasta to pot and add back about 1/4 cup of the pasta water to re-moisten. Stir….Now add pasta directly into the sauté pan with the sauce – toss well – add a handful or two of grated parmegiana cheese and serve immediately in warmed bowls. Enjoy yourself with a nice bottle of Brunello di Montalcino. Always have extra cheese on the table for your guests.
Buon Appetito
