Things you need to know.

–        Market goes from Risk OFF to Risk ON!

–        25 bp cut is all but assured.

–        Oversold TECH makes a comeback.

–        End of quarter is only 2 weeks away…Remain patient.

–        Try the Spaghetti w/Butternut Squash Sauce.

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It was a crazy, neurotic day yesterday….what started out as more panic – after the morning CPI read, which came in inline –  sent stocks down more than 1.5% by 10  am – the Dow down more than 700 pts, the Nasdaq down more than 250 pts….….turned into a buying frenzy by the end of the day…..The pressure on stocks seen in the morning driven by a couple of things….. One is that the market has to now accept that we are ONLY getting a 25 bps cut next week – something I have been saying for weeks now…and two was the initial reaction to the Wednesday night debate between Donny and Kamala…The media going with the Kamala win, suggesting that she exceeded all expectations while he failed to deliver his message…..and so, markets reacted to what that means for regulation, taxes, the economy, national security and the list goes on…

So, as we saw – the initial reaction was not good…the algo’s went into sell mode out of the gate, buyers stepped aside as prices careened out of control for the first 60 mins of trade…all of the indexes testing and then piercing different trendline supports….think the 50 dma, the 100 dma  – before the talk turned to the possibility of a 50 bps cut in November…..the selling eased, as the buyers stepped back in…and then it was off to the races….bargain hunters looking for opportunities while longer term investors took advantage of the weaker prices….

And when the sellers realized that there was real demand – then they all pulled back to see what the buyers would do….and so the same way they trip over each other when they want out, is the same way they trip over each on the way back in…. 

Analysts and strategists getting on TV suggesting that the anxiety was overdone, the economy is not going off the edge and while the labor market is slowing, it is not collapsing and that S&P earnings for 2024 remain intact at $243/share with 2025 earnings still in the $275 range –  and that a 25 bps cut was appropriate and that sent the market higher….by the end of the day – the Dow gained 125 pts or 0.3% (an 825 pt turnaround), the S&P up 60 or 1.1% (a 148 pt swing), the Nasdaq up 370 pts or 2.2% and a 610 pt swing from low to high, the Russell added 6.5 pts or 0.3% and a 47 pt swing from low to high while the Transports lost 60 pts and the Equal Weighted S&P added 7 pts.

Tech stole the show…. gaining 3.4%…. Names like NVDA which has been one of the market drivers and has LOST more than 30% since the June $140 high surged ahead by 8% or $8.50 share…to end the day at $116.91 – after trading as low as $107.42.  AAPL +1.6%, AMZN +1.1%, MSFT + 2.1%, IBM 2.2%, GOOG +14%, AMD +5%, even INTC found buyers rising by 3.5%….and this makes sense, because it has been a sector under pressure or late….as money moved out of tech and into other sectors of the market….so when bargain hunters go looking for good bargains – big name TECH is always one of the places to look – especially after the 10% pullback in the sector we’ve seen over the last 3 weeks.

And the biggest losers on the day were Consumer Staples – 0.9% and Energy – 0.9%.  And remember those ‘contra’ trades that we spoke about? The ones you would use ‘strategically’?   – Well, they lost as well…. the DOG -1.2%, SH – 0.25%, PSQ -2.1% and the triple levered short- the SPXS – yeah, that was down 3.1%. And the VIX – which soared in the morning – rising 12.25% by 10:30 – causing the VIXY to surge by 8% came crashing down – the VIX closed at 17.69 losing 7.3% on the day (a 20% move from high to low) while the VIXY ended the day down 4.5% (a 12% move from hi to low).  Again – see how fast the mood can change and then how fast the winners turn to losers and the losers turn to winners.

In any event – it continues to speak to the angst in the market and the seasonal weakness that remains.  Yes, the weakness turned to gains, but don’t become so complacent just yet thinking that the selling is exhausted…. (because I do not think it is – yet). We have 5 or 6 more weeks of increased volatility….so patience remains a virtue. Which doesn’t mean you shouldn’t buy good stocks that go on sale…it just means – don’t get drawn into thinking that you missed out…. because you have not.

Today brings us the August PPI figures – and remember this is inflation at the producer level…now it too is not expected to surprise to the upside and nor do I think it changes the narrative at all….because for me, the narrative has always been 3 – 25 bps moves this year…and so I am not expecting today’s report to move the needle. Tomorrow brings us the U of Mich Sentiment surveys and they too are expected to be benign.

Next week is FED week – the FOMC announcement due out on Wednesday at 2 pm.  And while we can expect JJ to cut rates by 25 bps it will – as always – be what he says after…. how will he couch it?  What will he suggest is going to happen for the balance of the year and into next? And so, it is…

Next week also begins the early voting process…so strap in….because the countdown has begun…..and as I said yesterday – the best we can hope for is a split congress….in fact the data shows us that a Democratic President and a Republican Senate/Democratic House is the best combination for investors, while a Republican President and Democratic Senate/Republican House is the next best thing……beyond that – the combinations and permutations of the mix decline for investors. The worst outcome would be a sweep for either party – because then all of the checks and balances get tossed out the window…. So, let the games begin…

This morning – US futures are higher as the market awaits today’s data…. Dow futures are + 40, the S&P’s up 6, the Nasdaq +14 while the Russell is up 4.  Overnight Asian markets ended the day higher – Japan gaining 3.4% while Taiwan added on 3% (think tech) and this morning European markets are higher as well – with Germany, Spain, Italy and the Eurostoxx up more than 1%.  It seems to be that it is ‘risk on’ again after the action we saw yesterday in the US tech space. 

And while next week – we will hear from the FED; this week the Europeans will hear from Christine Lagarde and the ECB (European Central Bank) who is also expected to cut rates on Thursday by another 25 bps.  Remember – IF we are going down that path, then slow and steady rate cuts make more sense and sends a message of control to the markets rather than a panicked 50 bps move (again think of the Tortoise and the Hare) …and so the same is true across Europe.  A 50-bps cut would suggest trouble ahead…the same way it would here at home.

Oil – now while energy names fell yesterday – oil itself gained a bit and is up again today…. Now it’s about Hurricane Francine that is barreling thru the gulf about to slam into Louisiana and all the oil facilities located there. This morning oil is up 60 cts at $68.25.  It looks like we might have put in the low earlier this week at $65.75…but remain cautious as it tries to push thru resistance at $72.50. 

Gold continues to trade in the $2550 range….even as the expectation is only for a 25 bps cut…..but again – the reaction will come when the news is definitive….Like I said – I think it will cause gold to back off a bit when it is clear…but I expect $2500 to be support.

Bonds gave back a bit of what they gained this week…. the TLT and TLH both lost 0.1%.  The 2 yr. yield jumped from 3.56% to 3.64% while the 10 yr. yield went from 3.61% to 3.67%.  Today is the 6th day of being un-inverted – and still no recession….

The S&P closed at 5554 up 58 pts…Futures are pointing higher, but the end of the quarter is just 2 weeks away…. So, expect the window dressing to begin post the FOMC announcement…. This is where asset managers polish up the portfolio for the qtr. end marking period.   

In the final analysis – long term investors need to remain focused and balanced. Building a strong, well diversified portfolio takes time and commitment…. 

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.

Spaghetti w/Butternut Squash Sauce

Its’ getting to be that time of the year…. fall, cooler weather and the Thanksgiving table….

Start with cubed butternut squash – place 2/3 of it in a pot of chicken stock, some crushed garlic, & a stick of butter – careful not to add salt as the stock will be salty enough. Add enough stock to cover the squash (as this becomes the sauce for the pasta). You want the squash bathing in the liquid.  Boil until the squash is soft – when done – use a masher (or one of those handheld puree utensils) to mash the squash… You want it nice and thick. 

Now add the remaining 1/3 of squash and simmer for 15/20 mins… making sure that the new cubed pieces have time to cook and soften… this way – you get a thick sauce with chunks of squash for the pasta… Turn the heat off and add a handful of shredded parmegiana cheese and mix well.  

In a separate pot – bring a pot of salted water to a rolling boil… add the pasta and bring to a boil for 8 /10 mins or until aldente. Strain pasta – always reserving a mugful of the pasta water to re-moisten the pasta… return to pot – add back a bit of the water and stir… do not make it watery – just a bit moist… now mix with the butternut squash – Serve immediately in warmed bowls and garnish with a bit more of the Parmegiana. Always supplying additional cheese for your guests if they so desire. 

Buon Appetito.