Things you need to know.
– Fed is ‘recalibrating’. Bostic & Goolsbee will ‘clarify’ today.
– Are the Transports saying anything?
– 50 bps was a 10% cut…That’s a BIG cut – just sayin’….
– FDX disappoints.
– Oil flat, Gold UP, Bonds flat.
– Try the Veal Francese.
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Stocks traded mostly in negative territory all day on Friday – after their explosive rally on Thursday that saw the Dow and S&P kiss and make new closing highs… The euphoria created on Wednesday – by JJ” s announcement of a 50-bps rate cut seeming to fade further away as the day passed…. Investors and traders trying to understand the latest buzzword in the FED commentary….’Recalibrate’.
In order to understand RE-calibrate – you have to make sure you understand what it means to calibrate…..Calibrate means to make standard – so in this case – we are talking about calibrating interest rates… – and they had been ‘calibrated’ (made standard) to reflect what was considered to be neutral – 5.25% – 5.5% – when the FED was fighting inflation and raising rates………but now that inflation appears to be trending lower (but still rising) JJ and the team thought it necessary to ‘RE-calibrate’ rates (make different again) to reflect the new normal….suggesting that the 5.25%-5.5% rates were no longer necessary and in fact could be tight enough to bring the economy to a standstill – not what they want to do….…..(I know it sounds dramatic – but it is all about the drama….) Thus the ‘re-calibration’ and that came in the form of that ‘crisis level’ – 50 bps rate cut…
Now we can talk all day about whether or not it was ‘crisis level’ because that is an individual interpretation….…. It’s all in the interpretation linked to our own experiences… So, we will each make our own decisions based on what we ‘think’ is happening. I am in the camp that suggests caution ahead and not to go ‘all in’ as if you got FOMO’ized. Remember – it’s about the plan and sticking to it……and on Friday morning Stuart Varney (Fox Business) asked me about that exact question…. Click on the link below to see my appearance on Friday morning.
https://video.foxbusiness.com/v/6362208634112
Ok – in any event – at the end of the day – the Dow did add 38 pts, the S&P lost 11 pts, the Nasdaq gave up 66 pts, the Russell lost 24 pts, the Transports got absolutely crushed…down 577 pts or 3.5% while the Equal Weighted S&P gave back 28 pts.
Now, for me, the Transports are KEY here….They are whispering (or screaming) in your ear to remain vigilant – The idea that the Transports – which are now -1% on the year – had this violent reaction suggests to ME – that you just need to be cautious….it’s like the sign that the janitor uses – “Caution – Slippery When Wet” – you know the one that has the guy falling – whose legs go up in the air and he lands on his head – Yeah, that one….. That’s what the transports are warning about…Weaker transports just suggests that the economy may be weakening…. a weaker economy would mean less things to ‘transport’…. Capisce? And if you have less things to transport – that suggests that demand is weakening and if demand is weakening then that means the economy is weakening…
It’s a vicious circle – which is why I am in that ‘crisis level’ camp….50 bps is a big move considering we were only at 5.25%, I mean it’s not like Fed Fund rates were 8% or 10%. 50 bps represents a 10% move in rates…. (0.0050/0.0525 = 0.095 – which is really 9.5% – but you always round up if the third number after the decimal is 5 or greater! – or at least that is what THEY taught me in 4th grade).
Now I say this because when interest rates were 21% back in 1982 and the FED chair CUT rates – he also cut them 10% – which was a full 2%age points….and that brought rates down to 19% and they continued falling until they reached the 4%-6% range in October 1991 (9 yrs.)….Very different from where we were on Wednesday morning, no? 5.25% vs. 21%…. Just sayin’…. In any event – it is what it is….so let’s move on…. Cause we ain’t going back….at least not now….
Now we also got a number of disappointing reports…and the biggest one – in my opinion – was FEDEX…. FEDEX – an economic bellwether – fell by 15% – helping to drag the Transports lower….and the headline speaks to exactly what I referred to:
“FEDEX Slumps as Lowered Outlook Offers Economic Warning Sign”
A bellwether is ‘an indicator or predictor of something’ – FEDEX is a major US and global transport company and so it is an indicator of the health of the economy…. If business slows down at FDX – then it can be an ominous sign about the direction of the US economy. Capisce? Which speaks that 50 bps cut in rates.
Bonds didn’t do much really…. the TLT fell by 0.4% while the TLH lost less than 0.01% The 2 yr. is yielding 3.59% while the 10 yr. is yielding 3.74%.
Oil continues to churn as it tests and retests resistance at the August lows of $72 ish…. This morning oil is trading at $70.94 down 0.07 cts/barrel. Do not forget – the unrest in the mid-east is not fully priced into the price of oil because there have not been any major disruptions – yet. If we suddenly see that, then I would expect oil to surge higher.
Gold continues to trade and make new highs – this morning it is trading at $2641 down $5 but this after trading at a new high overnight of $2656. We discussed this…. lower rates will cause the dollar to decline (currently at 100.723 – down 5% since the July high – when the whole rate discussion thing got more serious) and that will cause gold and other precious metals (and commodities) to advance. Gold is up 11% since July while Silver is up 13%. The BCOM – Bloomberg Commodity Index is up 6.3% since August 5th. BCOM includes – gold, silver, Nat gas, crude oil, copper, corn, soybeans, live cattle, live hogs, zinc, nickel, wheat and a whole lot more).
Gold is also the ultimate safety play for investors (and people) as they grow more concerned about the economy and inflation. This is also another reason we are seeing a more dramatic move into gold. For now – trendline support is at $2512 down $130 or 5% from here. Since we are above all 3 trendlines – you have to try and create an area that should provide some resistance and if you draw the trendline from December 2023 – it suggests that we might run into resistance at $2725 ish…. And if you draw it from the April highs it suggests that we are already at resistance – so tread cautiously….…. Remember – Gold is up 22% ytd.
Eco data this week includes New Home Sales – expected to be lower, 2nd revision to the 2nd qtr. GDP, Pending Home Sales – expected to be lower, Personal Income & Personal Spending and Friday brings us the all-important August PCE report…the FED’s favored inflation gauge and that is expected to be down….(which is a positive)…..and that will confirm the FED decision.
Today we get to hear from two FED heads – Atlanta’s Raffi Bostic and Chicago’s Austan Goolsbee…expect both to reiterate/support the 50 bps move…. You don’t really think that the first two Fed Presidents to speak post the move are going to go against the move, do you? (That would be Mishy Bowman). In any event – it will be more about what these two say about the next move and then the moves after that. Will they suggest or clarify what new neutral rate is?
US futures are up…. Dow futures are +40 pts, the S&P’s +10, the Nasdaq +50 pts, while the Russell is up 6. Keep your eyes on PLTR up 116% ytd….and is NOW a member of the S&P 500 – The stock is up 22% since the announcement as more people and more institutions pile in. INTC – 56% this year – is also going to be quite active today….Over the weekend – QCOM indicated that it is interested in discussing a friendly takeover offer while this morning – Apollo Management has offered to make a $5 billion investment in the company….The stock is up 5% in the pre-mkt – would be more but there are ‘significant regulatory, financial and execution challenges’ to any acquisition.
European markets are mixed. Germany +0.3% while Italy is down 0.2%. German and French business activity are in decline and that suggests that the continents two biggest economies are having trouble…. France fell to 47.4 (contraction) from 53.1 in August. German activity fell from 48.4 (contraction) to 47.2 (more contraction).
On a side note –
Every once and a while I toss out a name that I have been watching – NTGR +47% since I mentioned it, HEAR +7%, GRPN flat (after surging by 50%) but I still believe in the story and then there is APCX -12% (this also after surging by 500% before it collapsed) – well today is a new one…TSAT +14% ytd… Their LEO (Low Earth Orbit) satellites, improved broad band connectivity, recent gov’t agreements as well as their latest SpaceX agreement are expected to drive significant demand. They are buying back their debt and that should enhance their stock valuation. This is a SMALL CAP Canadian name ($650 MIL) – thus it is volatile….do your own homework, understand you risk profile, and as always proceed with caution.
The S&P closed at 5702 – down 11 pts. Expect to see more FED heads coming out to ‘tell the story’ and try to keep markets calm. In addition – we are nearing the end of this presidential election cycle, and we have a simmering Mid-East all while, China and Russia are making noise over the North Pacific (jt military exercise) as they deepen their bonds.
One week from today is the end of the quarter…so expect lots of window dressing this week as portfolio managers ‘dress up’ their portfolios for the marking period. And then we have October which is about 35% more volatile than the other months of the year…and then we have the final weeks into the election – all while early voting has already begun in some states….…So there is a lot just in front of us….
Don’t let your emotions get the best of you in either direction. Building a strong, well diversified portfolio takes time and commitment. Stay the course.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Veal Francese –
This is a favorite – and one of my readers asked me to share…so – Buon Appetito.
For this you need: 1 lemon – juiced, 1 lemon sliced thin for garnish, 2 eggs beaten in a separate bowl, 1 pound thin sliced veal cutlets boneless – 8 cutlets, s&p, flour for dredging cutlets, olive oil, chicken stock, ½ cup dry white wine, butter, ½ cup heavy cream (optional), fresh parsley minced.
Instructions
Heat your fry pan over medium-high heat. Add olive oil to the pan.
Season the cutlets with s&p then dredge in flour and dip into the beaten egg.
When the oil is hot, add the cutlets – Cook for 2 minutes on one side, flip, and cook another 2 minutes on the other.
Transfer the cutlets to a plate, cover them with foil and keep them warm.
Repeat until you have cooked all the cutlets.
Using the same pan – reduce heat to medium, add the 1 c of chicken stock, lemon juice, and wine, and stir to combine.
After 3 minutes, whisk in the butter one tablespoon at a time (4 tblsp), and (then the heavy cream if using).
Now put the veal cutlets back in the pan and cook for a couple of minutes to reheat and combine with the sauce.
When serving – place the cutlet on the plate and top with the sauce and sprinkle with minced parsley. Serve this with steams green beans and a large mixed green salad.
Buon Appetito.
