Things you need to know.
– Monday is nothing but a memory.
– The algo’s that created the chaos on the way down, are now creating chaos on the way back up.
– The BoJ says “We’re sorry, we’ll never do that again.”
– The FED says NO emergency meeting – No reason to have one.
– Try the Espresso Rubbed Bone In Rib-Eye.
“Stocks Rebound After Market Selloff! – Further volatility is expected amid US growth worries, unwinding of trades” – WSJ 8/7/24
And after the pendulum swings too far to the left – it swings right back to the right…albeit with a little less strength….so yes, we saw buyers come in after that $6.5 trillion debacle spurred a wave of buying by some long-term investors, traders and of course the algo’s. The same traders & algos’ that ran OUT the door on Monday and then ran back IN on Tuesday… and yes, they took stocks up higher by mid-day, the sold them off into the bell – leaving them on another roller coaster ride but still in positive territory and still yearning for more….…. It’s a Wicked Game we play, it’s a wicked thing to do….
Chris Isaak – Wicked Game
The Dow gained 295 pts or 0.8%, the S&P added 54 pts or 1%, the Nasdaq up 167 pts or 1%, the Russell gave up 25 pts or 1.25%, the Trans gained 220 pts or 1.5% and the Equal Weight S&P up 70 pts or 1%.
Every group in the S&P 500 was UP… (of course they were, they were destroyed over two days….) leaving many kissing ‘oversold’ territory according to their RSI’s. Real Estate was the surprise winner – up 2.2%, Financials up 1.6%, Tech up 1.4%, Industrials up 1.2%, Consumer Discretionary and Communications up 1.1%, Utilities up 0.8%, Consumer Staples and Energy up 0.7%.
The contra trades as you would expect all gave back what they gained on Monday…the VIXY which gained 45% on Monday – lost 21% on Tuesday – and all this says is the FEAR is still alive and well. While the VIX is below the highs of Monday – when it hit 65.70 it is still 25% higher than it was on August 1st, which does continue to suggest some level of nervousness.
Remember – We are just at the beginning of the seasonally weak time of year…. It’s early….and just like in Florida – we are just at the beginning of the real Hurricane season – It’s early and it’s just beginning to heat up. It is funny that Florida got hit by Hurricane Debbie on Monday while the market got hit by Hurricane ‘Japanese Carry Trade/Traders Stamping their FEET’ – So slow down, don’t get drawn into this ‘ I missed it frame of mind’ ….JPM thinks we test the long term trendline at 5000 sometime in October….And my friends at Strategas Research, you know Jason Trennert and his team…Well Chris Verrone tells us that
“There are certainly pockets of the market more deeply oversold than others after the last few days, but on balance, we’d still stop short of calling this enough of a rinse to really lean into yet. It might be an easier call if it was October, but we frankly struggle to think of many markets that have put in their corrective lows in early-August.”
“On a scale of 1 to 10, with 10 being deeply oversold… we’d put this market in the 6 or 7 zone. Some pockets are certainly more rinsed than others, and likely enough for near-term relief, but on balance would stop short of saying we’re ready to aggressively lean in.”
Capisce? Now let me tell you – Jason and his team are one of the best on the street – so pay attention! What have I been telling you – expect stocks to remain a bit volatile as we move thru August into September and then into October and ahead of the election time frame. Speaking of the election we now have the two teams…. Trump/Vance vs. Harris/Walz…. but we’ll have plenty of time to discuss that.
So, sit back – patience is a virtue especially when we have had such a swift and chaotic move down. There are technical breaches all over the place…and so the market has to retest and possible test lower to shake the branches just a bit more to make sure that all the weak hands fall out of the tree. (I will make an interesting observation though; I think the long-term investors have caught onto this algo game… – I had more calls over the past 2 days with clients wanting to ‘buy stock” – unfazed by what they classify as chaos created by the very technology that now gives every Tom, Dick and Harry access to the markets allowing them to screw it up.)
In any event – All the indexes Every one of them on Monday evening was left sitting right atop the 30 line on the RSI scale. (Relative Strength)– a line that signals OVERSOLD. So in the morning, the algo’s that pushed stocks down to that level came in and then bought them up. In what is known as a Dead Cat Bounce…signaled by the way the day ended…well off their highs….so let’s not get carried away.
As you might expect – with stocks up, bonds retreated a bit…. don’t forget about the BIG rally that took bonds higher over the past couple of weeks…. the TLT is up 9% in 2 weeks while the TLH is up 7.25% in the same time frame. So, taking some money off the table there also makes sense…No? The TLT ETF fell by 2.25% while the TLH ETF fell by 1.75%….
And this morning stocks are SURGING around the world…. this after the Bank of Japan (BoJ) tried to calm ongoing fears after the chaos that we saw on Monday….
In Asia – Taiwan was the big winner + 3.9%, Japan, Hong Kong and South Korea all up 1.5 ish%. Australia up 0.25%.
In Europe all markets across the region are up between 1.25% – 1.6%.
And here in the US – we are surging higher…. Dow futures + 310 or 0.7%, S&P’s +60 or 1.1%, Nasdaq +245 or 1.4% and the Russell is up 30 pts…or 1.5%!
“BoJ Deputy Governor Shinichi Uchida sent a very dovish signal by pledging to refrain from hiking interest rates when the markets are unstable.”
This after last week’s BoJ rate hike that took interest rates to levels not seen in 15 yrs. In addition, they also announced a plan to slow down ‘their’ massive bond buying program…. a program that has been in place for more than a decade. You see it was this announcement that lit the fuse and set off the bomb that caused Japanese stocks to crater (down 18% in 2 days) and that is what caused the swift unwinding of the famed ‘carry trade’ that sent global markets into a tailspin.
In addition – DO NOT discount the stretched valuations for ‘tech’, worries of a recession in this country and the perceived error by the FED. (Just to be clear – I am not in the FED made a mistake camp nor do I think they should be forced into an ‘emergency meeting’ nor a 50-bps rate cut in September…because in the end – what does a 25 or 50 bps rate cut do for you? Does it make food cheaper? Does it make utility bills cheaper? Does it make auto/home insurance cheaper? Does it make revolving credit cards rates cheaper? (NOT!!!!). Just sayin’.
Maybe it makes mortgages cheaper, but prices will rise – so you’re in the same position…it might make auto loans a bit cheaper – but are you buying a car 3 times a week? I don’t think so…. One thing that seems certain – it will have the ability to ignite the inflation monster again…. how’s that working for you?
There is no eco data today to speak of, so expect the markets to continue to celebrate as the algo’s all jump back in and if futures remain strong then we will test the intermediate term trendline at 5308. (which is up 68 pts on the S&P).
Oil has rallied a bit….and this morning is trading at $74.02. We remain in the $70/$75 range.
Gold continues to hold tight in the $2400/$2500 range – trading solidly in the $2425/$2450. This morning it is at $2433.
The S&P closed at 5,240 -up 53 pts…. We are 224 pts from the long term trendline at 5016 – that is a 4% move down while we are 6% away from the all-time high at 5667. Stay tuned – the chaos is not over……the recent moves are a stark reminder of how quickly it can all change…Yes corporate balance sheets are strong, but recession risks have risen over the past couple of weeks, guidance is ok, and earnings appear to be tailing off a bit.
In the end – be confident in your portfolio, make sure you know what you own and in times like this talk to your advisor if you are concerned. Feel free to call me at 212-381-6194.
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.
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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.
Bone In Rib-Eye w/Espresso Coffee Rub
For this you need the Espresso coffee rub 1 tblsp of brown sugar, 1 tblspn of Espresso Coffee (I used Medaglia D’Oro), ¼ tspn of ground cinnamon and 1 tspn of crushed black peppercorns.
Now – I made a jar of it and then just put it in the cabinet for future use.
So now you need the Bone in Rib-Eyes, olive oil, butter, kosher salt.
Begin by salting the steaks on both sides and let them sit at room temp for at least 30 mins. If you are going to leave them longer – you should probably put them in the fridge and take them out 20 mins before you cook them.
Next – when ready just pat them dry with a paper towel and then season them with the ‘rub’. (I massaged the rub into the meat – but that’s me)
Preheat your oven to 400 degrees.
Now – in an oven proof ribbed frying pan – add some olive oil and heat it up really hot…. then drop the steaks into the pan and let them sear for 2 mins – when this is happening – I took a dollop of butter and added it to the pan and swooshed it around.
After 2 mins I flipped the steaks and repeated the process with another dollop of butter and let them sear for 2 mins.
Now place the pan into the oven and let them cook for another 3 mins – now turn off the oven – but leave the steaks inside and let them continue cooking for another 5 mins. (now so much depends on the thickness of the steaks – the ones I ate were thick on the bone and the timing was perfect). Remove and serve – should be perfect.
Enjoy with your favorite Red – a Chianti works well for a ‘work night’.
Buon Appetito.
