Things you need to know.
– Stocks rally after 4 FED Heads promise MORE.
– The message? Economy is just fine, nothing to worry about.
– Oil down yesterday, but higher today. Gold holds steady.
– Try the Rigatoni – see my X (@kennypolcari)
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Stocks pulled a fast one…and ended the day higher – all on the idea that rates are going lower and maybe faster than we thought…..….the Dow up 62 pts or 0.15%, the S&P up 16 pts or 0.3%, the Nasdaq added 26 pts or 0.15%, the Russell lost 8 pts or 0.35%, the Transports gained back 130 pts or 0.8%, after the meltdown on Friday, while the Equal Weight S&P added 36 pts or 0.5%.
Ok – so get ready…remember yesterday? I told you that we were going to hear from Chicago Fed Pres Goolsbee* and Atlanta’s Raffi Bostic? They were not expected to go against the FED’s latest move…and they didn’t and nor did Minneapolis Fed Pres Neely Kashkhari or Fed Governor Chrissy Waller…all these guys came out and not only confirmed that they supported the move, but left the door wide open to another 50 bps cut – if the data demanded it….The headline makes it very clear…
“Fed Officials Leave Door Open to Another Large Interest Rate Cut”
Noting that current rates are still high and are weighing heavily on the economy. Goolsbee – who is very much a dove and leans left told us that-
“Over the next 12 months, we have a LONG way to come down to get the interest rate to something like neutral to try to hold the conditions where they are.”
He went onto say that the benchmark rate was ‘HUNDREDS (plural) of basis points above neutral. A rate that he said cannot be ‘directly measured’. Although, FOMC committee projections did define the longer run neutral rate as 2.9%.
Hundreds – btw- – means at least 200 but could mean more…Recall that rates are now 4.75%-5% – so 200 bps takes it down to 2.75% – 3% – a level well outside of the historical norm and a rate that makes no sense to me – given the potential for inflation to surge again. Now – it does make sense from a debt perspective…The treasury has to fund the massive debt we have created so lower rates are better for the gov’t…. but they are not better for savers – Capisce?
In addition – lower rates will benefit those commercial real estate owners that got caught with their pants down after loading up on debt when borrowing was cheap – only to see those same cheap loan rates surge when rates rose – causing many to miss payments and lose properties to the lenders. But don’t stress – because those ‘distressed’ properties created all kinds of ‘opportunities’ for those savvy and well managed real estate private equity guys that were licking their chops waiting for the bottom to fall out – buying properties for 50 cents and in some cases 20 cents on the dollar…. See, there is always a silver lining….
Now, Bostic – did not directly commit to another 50-bps cut and warned the markets not to ‘assume’ it will be repeated but did qualify that statement by saying that.
“Any further evidence of material weakening in the labor market over the next month or so will definitely change my view on how aggressive policy adjustment needs to be”.
And then you had Neely weigh in on the conversation via an essay posted to the FED’s website saying that he backed it and seeks more 50 bps reductions if the data demanded it all while making it clear that the economy remains resilient. So here is the question – if the economy remains resilient (and the labor market is not falling out of bed) – why did they cut rates by 50 bps? In the end – the sense from all of them was for us to expect 25 bps cuts in the rate at the next two meetings – November and December but not be surprised if they chose to cut by 50 bps again. And then that continues into the new year until we hit 3.5%- 3.75% and assess what the data says then.
(*Goolsbee, Bostic and Waller are all voters on the FOMC, Neely is not).
Now all of this happened as S&P US Manufacturing PMI fell further into contractionary territory – falling from 48.6 to 47 while S&P Services PMI ROSE from 55.2 to 55.4 putting us further into expansionary territory…and considering we are a 75% services economy – that suggests that things are just fine.
Just fyi – average prices for good and services ROSE at the fastest pace in 6 months – and that suggests that we could see inflation pickup in the months ahead. Today we will get the Philly FED NON-Manufacturing activity – (which is services) – it is expected to be -9.3 but that is UP from last month’s -25.1. We will also get the Richmond Fed Manufacturing Index of -12 – up from -19.
Of the 11 S&P sectors – we saw weakness in Tech – 0.2%, Financials – 0.5%, Communications – 0.1% while Healthcare lost 0.6%. Consumer Discretionary was the upside winner – adding 1%, (think lower cc rates), Energy, Basic Materials and Real Estate all gained 0.4%, Industrials +0.35%, Utilities +0.3%, and Consumer Staples +0.1%.
Bonds didn’t do much really…. the TLT fell by 0.2% while the TLH lost 0.15%/ The 2 yr. is yielding 3.58% while the 10 yr. is yielding 3.76%. 30 yr. conventional mortgages fell to 6.15% while gov’t mm funds are now paying you 4.5% down from 5%. CD rates are also going to start coming in as well….
Oil closed lower on Monday on the back of weakening Eurozone business activities….as well as that China story…but this morning oil is up 1.4% at $71.40…as supply concerns increase as the war in the middle east heats up. Israel while fighting a battle in the south is now fully engaged in the north. More attacks by Israel into Lebanon now raise the risk that Iran will step in to assist Hezbollah and Lebanon against Israel.
In addition – another hurricane is building in the Gulf of Mexico and that is threatening US supply. Chevron and others are evacuating oil rig workers as a precaution. Oil seems to be stuck in the $65/$72.50 range for now…the Middle East will be the catalyst for a move up and thru $72.50.
Gold continues to trade and make new highs – nothing new here…this morning it is churning at $2650…after making another new intraday high at $2664. Remember – Gold is the ultimate safety play for investors (and people) as they grow more concerned about the economy and inflation. Trendline support is at $2512 down $130 or 5% from here, while resistance remains elusive…
US futures are up…. Dow futures are +11 pts, the S&P’s +5, the Nasdaq +35 pts, while the Russell is up 2. Excitement over coming lower rates continues to drive the sentiment. The market is working under the assumption that we will land ‘softly’ and that the labor market will not weaken further.
European markets are all higher…China introduced new stimulus measures to prop up their economy…. China and Hong Kong mkts both up 4.3%. In Europe – France is the big winner +1.6%, Eurostoxx +1.3% while Spain is the laggard up 0.4%.
The S&P closed at 5718 – up 16 pts. Expect to see more FED heads coming out to ‘tell the story’ and try to keep markets calm. Remember – it is the final week of the quarter…so lots of window dressing…..Next Tuesday (Oct.1st) starts the 4th qtr. and with that, do not be surprised if we see volatility rise…Earnings officially begin on the 11th with JPM….and we already heard them tell street analysts to ‘revise’ their estimates lower. So, sit tight.
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. Give me a call.
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.
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.
Rigatoni with Beef Shanks
This is so simple and very hearty…. I made it on Saturday and posted the steps on my X account (@kennypolcari). So delish….
For this you need: 2 big meaty beef shanks on the bone, olive oil, ½ c of red wine, beef broth, tomato paste, s&p, flour, Italian seasoning, diced, carrots, celery, onions and garlic and a rind of Parmegiana cheese.
Begin by seasoning your shanks with s&p on both sides and then dredge in flour.
On the stove – heat up the olive oil – enough to cover the bottom of the pan and sear the shanks on both sides. Once done – remove and set aside.
Next – add the diced veggies and garlic to the same pot and sauté for 8 – 10 mins…Now add in 1 small can of tomato paste, stir….now add in the wine and let it come to boil so the alcohol burns off….after 3 mins…add in one whole container of beef broth (College Inn 32 oz). Mix well, bring to a boil and then turn the heat down to med low…. add back the beef shanks – making sure they are covered in the sauce. Add the cheese rind. Let it braise on the stove over 4 hrs.….
After 4 hrs.…bring a pot of salted water to a rolling boil and leave it on the back burner until ready.
Now remove the shanks and anything left of the cheese rind– using 2 forks -shred the meat (throw away the fat) and remove all of the bone marrow from the bone. Toss all of this back into the sauce.
Boil you pasta, strain, reserving a mugful of the water. Toss the pasta into the pot with the sauce. Add in one ladle of the pasta water. Add in a handful (or two) of fresh grated Parmegiana cheese, mix well. Serve immediately and enjoy… And any leftovers – taste even better tomorrow.
Buon Appetito.
