Things you need to know.
– August goes out with a BANG!
– Lots of eco data this week – but the KEY is Friday’s NFP
– Oil remains confused – Libya’s National Oil Corp – cries foul.
– Gold traders take some $ off the table.
– Try the Bucatini Felice (Happy Buccatini!)
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Stocks barreled higher into the end of the week and the end of the month…..The Dow +230 pts or 0.55%, (making a new high), the S&P up 56 pts or 1% (kissing the old high), the Nasdaq +200 or 1.15%, (4.5% below its high), the Russell up 15 pts (2.5% below its high), the Transports +175 pts (1.6% below the high) while the Equal Weighted S&P +54 pts and that too is making a new high.
And as I alluded to on Friday morning….it was the end of the month, the last trading day -so we were expecting some window dressing….and that’s what they did in the final 10 mins of trade….They ‘spiked the ball’….pushing stocks up closing within a ‘whisker’ (21 pts) of its all time high…. Suggesting that the angst seen at the beginning of the month is all but a distant memory…. Just a side note – the S&P has now closed higher 4 months in a row amid data that is showing that the economy remains fairly robust – allowing JJ to cut rates in September…
Now this week is also an important – holiday shortened week – We will get a fair amount of new eco data…..S&P US Manufacturing PMI – of 48.1 (contractionary), ISM Manufacturing PMI of 47.5 (contractionary), JOLTS Job Openings, Factory Orders +4.7%, Durable Goods +9.9% (both strong), ADP Employment: 142k new jobs, and then we will get both Services PMI’s (S&P and ISM) – both have been in expansionary territory. Friday brings us the August NFP (non-farm payroll) report….where it is expected that we will add LESS than 175k new jobs…and that would be the icing on the cake for the FED….if that happens then it is all but assured that they will cut rates by 25 bps on the 18th….and then again on November 7th and then again on December 18th. (3 x’s 25 bps = 75 bps cut by the new year).
The VIX (Fear Index) trading all the way back down to where it was before the Japanese started the fire by raising rates over that first August weekend…catching all the hedgies with their pants down – sending them and all the algo’s they use into a frenzied tailspin……….and that caused a meltdown in the ‘carry trade’ – something that many of you had no idea existed and then wondered how and why you got caught up in it! Mamma mia…. Che Cazzo…. (google it…LOL)
This morning the VIX is at 16.16 – stuck between the trendines (15.05/16.49) and once again suggests complacency…. capisce? It suggests it’s all good…nothing to see here…move on! Which is exactly why you need to be cautious and pay attention…….Remember what we have been discussing….August – October tends to be a ‘seasonally weak’ time of year…and while you are about to tell me that I was wrong on August – I’ll tell you – patience my friend, patience…While August may be over – the time frame is August – October – so we’ve got another 8 weeks to go….Capisce? And not that I am calling for a meltdown – I am not, I am though calling for cautiousness…. That’s all, don’t go betting the ranch…. Stick to the plan, call you advisor if you are confused.
In any event – There is a lot more that is about to happen….depending on Friday’s NFP report…..If, as expected, it produces less than 175k new jobs – the algo’s will love it….because that seals it for them – and easier monetary policy would go a long way to extending the economic expansion – and that bodes well for earnings growth and that bodes well for the ongoing rotation into value…..think Financials, Basic Materials and Industrials – all strong last week. The SPYV – the value ETF trade was up 7.75% in August and is now up 12.5% ytd…. (not so shabby for a group of ‘non-sexy’ companies!).
On the other hand, easier monetary policy can also reignite inflation – especially if the gov’t embarks on another round of huge fiscal spending on top of what they have already allocated to spend….add in the ‘free’ money’ given to first time home buyers, housing, healthcare and food subsidies for millions of illegal immigrants, student loan forgiveness, and the potential for ‘medical forgiveness’ (Lizzy Warren idea) and it is a recipe for another round of high inflation. And when Kammy tacks on new higher tax rates – just think about what that will do to your quality of life.
Oil – as you know – broke down last week – falling thru trendline support – testing as low as $73.36…overnight we tested $72.89, and this morning oil is trading at $73.45 Oil remains stuck in the $72/$76 range.
Over the weekend – Libya National Oil Corp – declared ‘force majeure*’ after ‘authorities in the east stopped all output and exports in a dispute with rivals over control of the central bank.’ Bringing the countries production to about 450k bpd…half of its usual production. The standoff is between the East and West gov’ts as they try to take control of the central bank.
*Force Majeure is a legal clause that allows companies to suspend contractual obligations due to circumstances beyond their control.
The supply cut in Libyan oil is not causing wide spread concerns because remember, OPEC+ is considering ramping up supply in October. But it is exactly that, that is helping to keep a lid on oil prices – more supply, coupled with (supposedly) weaker demand out of China – will cause prices to fall – (supply exceeds demand – Econ 101)
Gold has backed off from the $2550 range – as traders reacted to a rise in the dollar last week and await this weeks’ eco data. Remember – gold started to surge higher in April when the dollar started to get weaker. Gold is up 18.75% – a big move for this asset class – -this as the dollar is down 5.6% since the April high…..and on Friday – we saw the trader types just take some money off the table ahead of all of this weeks coming data. If they try to sell it again, I think it finds support at $2500….as lower rates will help support the metal…. now it’s just a matter of how many rate cuts are coming and at what pace… (25 bps or 50 bps).
Now if we see the dollar strengthen in the days ahead, then we will see gold get weaker…. but my sense is that with lower rates in the offing – it is hard to see the dollar rally very much from here.
US futures are a bit lower as we begin the week and the month. …. Dow futures -175 pts, S&P’s -29 pts, Nasdaq – 160 pts and the Russell is down 18 pts.
Hmmmm – are investors bracing for stocks to weaken over the next 8 weeks – A time of year that proves to be the most challenging for investors and stocks. Keep your eyes on the VIX (see my comments above) – as it tends to rise in September…. (a rising VIX = a headwind for stock advances). And of all the eco data this week – it will be Friday’s NFP that will have all the talking heads on TV chatting it up…
Depending on what we learn – it will provide what some are calling – crucial insights – into the FED’s next move. Crucial? Really? That suggests to me that we are not sure what’s next….. I’m good, not crucial for me – I repeat – they will make 3 – 25 bps cuts this year…. (not that I think they should, but hey, I am just one lone voice). My gut says that while we will get those cuts, do not be surprised to see the mkt back off on that ‘official news’ – why? Because we have been discussing this ad nauseum – the cuts will not be a surprise – so we could get the old ‘Buy the rumor/Sell the news’ event.
In any event – Do not discount the chaos that the Presidential election is going to add to the mix this time….we can expect the VIX to react to what it thinks will happen in November….but remember – politics causes chaos in the short term….but hardly ever in the long term – unless we get some really stupid policy ideas…For Example: Think 28% Corp tax rate (up from 21%), a 39.6% top rate (up from 37%) along with a Medicare surcharge of 5% (up from 3.5%) for anyone making over $400k- bringing the top marginal rate to 44.6% and the winner – a 25% tax on UNREALIZED GAINS – year in and year out….. (I want to know the name of the rocket scientist and the ivy league school that taught THAT idea).
European markets are all a bit lower this morning….France is flat, while all the other market centers are down about 0.25%. As I just noted – investors in Europe continue to consider the outlook for global rates and have fully priced in US rate cuts beginning on September 18th. They are also pricing in more cuts by the BoE and the ECB.
The S&P closed at 5648 – up 56 pts…. Today is the first day of the end of the year positioning…. asset managers are now lining up what 2025 will look like… We have one more round of inflation data (CPI & PPI) before the FED meeting…and then the country starts with early voting in some states….PA, SD, MN, VT, MI, IL all start as early as 40 days out….some as early as 46 days out…which means September 20th .
Earnings will start officially again on October 11th – when we hear from the big banks – led by JPM.
In the end – it is important to always take a ‘balanced’ approach to long term investing…building a strong, well diversified portfolio takes time and commitment…. Give me a call to discuss.
I am out of for the next 3 days…so my next note will be on Friday – Sept 6th.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Bucatini Felice –
A simple and a quick ‘end of summer’ dish…. (For those of you in the Northeast).
For this you need the 1/2 lb. of Bucatini (thicker spaghetti), Grape Tomatoes, garlic, s&p, fresh basil, parsley, dried oregano, sugar, olive oil and fresh Ricotta Cheese and of course fresh grated Parmegiana.
Bring a pot of salted water to a rolling boil on the back burner – so it’s ready when you need it.
Begin by slicing the tomatoes in half and putting them in a big bowl – – You can break them up with your hands…. but do not mush them all. Add in sliced garlic, tiny bit of sugar, s&p, and lots of fresh chopped basil, parsley, and some dried oregano, finish with olive oil. Mix well and let it sit for 15 mins. (You can even add mint if you like).
Now add the pasta to the water and cook until aldente. 8 mins or so.
While this is happening – break out the Ricotta Cheese – add in 3 tablespoons of the cheese to the tomatoes – mix well to make a creamy ‘uncooked’ sauce.
Strain the pasta – reserving 2 mugfuls of the water. Add in about 1/4 of a cup of water to the tomatoes sauce and mix well. Now add in the hot pasta and mix – coating it well with the sauce. Use more water if you need to, to keep it moist.
Now serve immediately – with fresh grated cheese on the table. Enjoy with a chilled white wine.
Buon Appetito.
