Things you need to know.
- 8:30 is all about the Elephant in the Room
- September is living up to its reputation.
- They are PUSHING HARD for a 50-bps cut – pressure coming from everywhere.
- We are now fully engaged in the ‘danger zone.’
- Try the Scampi
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Good morning, America! Good afternoon, Europe and Good night, Asia – Guess who is back! Me! So, I missed a couple of days and what happened? – I’ll tell you what happened……the street (traders and algo’s) is demanding a 50-bps cut (vs. the 25 that the FED has prepared us for) – that’s what happened.
Since Tuesday morning – The Dow is down 808 pts or 1.9%, The S&P is down 145 pts or 2.6%, The Nasdaq is down 592 pts down 3.3%, the Russell is down 85 pts or 3.8%, the Transports are down 426 pts or 2.7% while the Equal Weighted S&P is off 144 pts or 2%……..
NVDA – the TECH darling – is down 10% since Tuesday morning – and down 25% off the June $140 high – closing last night at $107.21. The Dollar Index is down…. Oil is down, Economic data is mixed, and they tell us that Kammy is ahead in the polls……so, naturally the markets are focusing on the negatives – in order to justify their demand for a 50-bps cut….
Do you remember that old adage – ‘Eliminate the negatives and Focus on the Positives’ – yeah, well they have flipped that on its head as well……apparently the saying goes ‘Eliminate the Positives and Focus on the Negatives’! Because if they focus on the negatives – they can (they think) force JJ into making a bigger cut…. why? Because if they create panic in the markets (coincidentally just weeks ahead of the election) then that will put even more pressure on JJ to make a bigger cut…. or at least that is what appears to be happening….
Remember what I have been telling you…. We entered the ‘danger zone’…. Top Gun Style….
Recall what I said on Tuesday morning….
“This morning the VIX is at 16.16 – stuck between the trendiness (15.05/16.49) once again suggesting 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…… 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”.
To be clear – indexes that are down 2.5% or 3% is hardly a ‘meltdown’ and if the market is up 16% and then backs off 3% and you get all worked up – then maybe we need to discuss this…. You can say the same thing about NVDA – it was up 184% ytd ($140) on June 20th…it has since backed off by 25% (but still up 116%) …. closing last night at $107….and you want to run away? When Bloomie’s puts dresses on sale down 25% you buy 3 more…. Use that same logic…. use the weakness in KEY names to add to and build up your long-term position –
The KEY word is KEY names….Names that are game changers, names that become so significant to the current industrial/tech revolution, that you need to have some exposure….and NVDA is just one of those names….which doesn’t mean it won’t go down anymore…It may – and as far as I am concerned – I would not be surprised to see it test it’s long term trendline at $89 IF the eco data turns ugly, or IF the FED panics and cuts rates by 50 bps on the 18th vs. the 25 bps that is expected. This morning the pressure is building – it is already quoted down another 1.8% at $105.30 and it’s only 4:30 am.
Recall- a 50 bps move would send a very different message to the markets…and unless the FED can convince the markets (think traders & algos’) that a cut of 50 bps should not be viewed as weakness (or panic – which I think it will be) Then they run the risk of a temper tantrum…but here is the funny thing….they run the risk of a temper tantrum no matter what….If they cut by 25 bps when the street wants 50 – the algo’s will go into high speed sell mode….and if they cut by 50 bps without being able to convince the markets that it’s ‘ok’ – then you’ll get the same reaction but for a different reason……You’ll get a sell off because the message will be that the economy is going over the edge, that the job market is collapsing (which it is NOT), that the FED missed it, sending the US economy into a recession….(something that it has keenly avoided so far).
So, you see – they are stuck between a rock and hard place……you should not be surprised though since I have been saying this for 7 weeks already…. What I am hoping for is that JJ remains steadfast and cuts rates by 25 bps now and then 2 more 25 bps cuts in November and then December. Because, in the end – WHO is driving the bus – the street or the FED? (It’s like who runs the house – the parents of the kids? – Capisce?)
Now that doesn’t mean that you don’t try to prepare for the downturn without selling your well diversified, large cap, key name portfolio. You can…and you can do this a couple of ways… You can build a larger cash position (paying you nearly 5%. You can buy some gold, or you can buy a ‘hedge’…. think the contra trades…
The DOG, SH and PSQ all get you ‘short’ different parts of the market….the Dow, the S&P and the Nasdaq respectively…as the indexes fall, those contra trades rise (thus the hedge)….…or you can consider the VIXY – which allows you to play the volatility….as the VIX rises the VIXY rises….To that point –
The VIX (Fear Index) which had traded back down to complacency territory last week (15 ish) after exploding higher in early August has once again raised its (ugly) head – as of yesterday is up 39% this week – and this morning it is up another 12% trading at 22.30 – as we await the ‘elephant in the room’ – the 8:30 am Non-Farm Payroll report… and that has kept the markets on edge this week – partly because everyone has been conditioned to ‘focus’ on this data point.
Now – the eco data this week has been ‘interesting’ Manufacturing PMI” s was weak, weaker than expected…. (no surprise), while Services PMI” s was stronger than expected…. (again, no surprise – because the services sector remains hot). Yesterday’s Prices Paid was hotter (think services costs up), and ISM Services New Orders was up as well. This data point measures the level of NEW demand for services that businesses are receiving. A value > 50 suggest expansion while a value < 50 suggests contraction….It is a forward looking indicator….and if all of the services indicators remain strong – that will keep inflation from retreating much further…..And if the FED makes money less expensive – which they are going to do (think cuts rates) then that will stimulate even more demand potentially igniting the inflation monster all over again….something that no one wants to see….and we haven’t even discussed all the new spending being proposed by the Democrats and the Republicans – which will only add to that equation…..
So that brings me back to the original argument – How is a 25 or 50 bps cut in rates going to cause the price of food, consumer staples, utilities, housing, automobiles or insurances to come down? Answer – it is not…who is kidding who? But that is what they want us to believe….you see – keeping rates at 5.25% is what will cause the prices of those things to come down once we enter a recession….(because that is what needs to happen if you really want prices of things we need to come down). But let’s not get crazy…….
Now, the expectation is for the NFP to report 165k new jobs created and for unemployment to drop from 4.3% to 4.2%…….So, here we go…if it comes in at say 135k – 175k – then, I think we get a 25 bps cut….if it comes in below 135k new jobs…..then they will be screaming for a 50 bps cut…. pushing JJ into the corner – the algo’s will go into sell mode – trying to create panic to force the FED into that narrative….
Then all we have to see is one or two FED heads come out and suggest that very move……Now San Fran’s Mary (SVB fame) Daly – already intimated such a thing, saying that the FED needs to cut rates to keep the labor market healthy…….Which is her way (I think) of supporting a larger cut vs. a smaller one. I just want to know who is the next one to fall and then the next after that? Barkin, Williams, Barr, Bostic, Bowman, Cook, Hammack, Jefferson, Kugler or Waller? (I’m thinking Bostic then Barkin….)
Oil has come crashing down this week….slicing right thru the $72 level – a level that I thought would provide some support…..Ongoing worries over a slowdown in Chinese demand, the possibility of a US economic slowdown and the surprise return of Libyan oil to the market all putting pressure on oil…all while OPEC + announced a delay in the October Production increase that had been on the books….Even the announcement failed to slow the decline…..The October increase has now been put off until December 2024 with 2.2 million bpd gradually reintroduced to the markets over a 12 month period.
Oil has now broken all 3 trendlines and then broke the July/Aug support level at $72, broke the December 2023 low of $68.92 before settling in at $69.21. This morning – oil is trading at $69.55.
Gold bounced off of the $2500 level on Tuesday and rallied right back to mid-century at $2550 as it too is now not sure – whether we are getting 25 or 50. All as we await today’s NFP report….Lower rates will help support gold and a 50 bps cut will support it even more. Gold remains in the $2500/$2600 range.
FUTURES UNDER PRESSURE….
US futures are all lower at 4 am…. Dow futures -175 pts, S&P’s -40 pts, Nasdaq – 215 pts and the Russell is down 14 pts – all this as we brace for today’s report – Recall – many analysts are considering this a ‘crucial’ data point….and are pushing hard for a 50-bps cut… But I repeat – I do not think that the FED will push the panic button…I just don’t.
Remember – keep your eyes open for a ‘special report’ from Goldman….or a front page WSJ article from Nicky T….both of them act as mouthpieces (I like to say ‘deep throat’) for the FED, they say the things that the FED doesn’t WANT to put in print, when the FED wants to take the temperature… So in this case – watch for a “Why a 50 bps cut is Likely” story….in the days ahead if the FED is really considering a 50 bps cut….…remember – next Wednesday (the 11th) begins the ‘quiet period for any FOMC member…….They can’t say anything to the media….but Goldman or Nicky can… Capisce?
European markets are all a bit lower this morning…. markets across the region are all down about 0.3%…. investors in Europe are also waiting for the news….so they can consider what’s next….
The S&P closed at 5503 down 16 pts….…. Besides today’s NFP report – next week we will get one rounder of inflation data (CPI & PPI) before the FED meeting…Neither are expected to surprise to the upside….so do not look for them to change the narrative.
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 on Varney and Co. (Fox Business) at 9 am will be on the Larry Kudlow radio show on Saturday at 12 pm. WABC radio – tune in, won’t you?
Take good care,
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Shrimp Scampi
This one has a slightly different twist…. You are going to use shallots and sliced cherry tomatoes to add depth and flavor.
You need only a couple of things….1 lb. of large cleaned, deveined shrimp, butter, olive oil, garlic, lemon, a splash of white wine, shallots, cherry tomatoes, chopped parsley, s&p….and a lb. of linguine….
Bring a pot of salted water to a rolling boil so that its ready when you need it.
In a sauté pan – melt butter and add a splash of olive oil, add crushed/sliced garlic and sliced shallots – sauté…. keep heat on med so that you do not burn the butter. Now add 1 doz sliced cherry tomatoes and season with s&p. Sauté until the tomatoes burst and begin to melt. Now add the juice of one lemon, complement with some white wine…turn heat up to high…. Letting the wine steam off.
Add the pasta to the water and cook for 8 mins…
Next add shrimp, s&p, and sauté quickly until nice and pink on both sides…no more than 5 mins……strain pasta – reserving a mugful of water – add pasta to sauté pan – mix and serve…. You may need to add back a bit of the pasta water to keep moist -as the pasta sucks up the juice…. Serve in warmed bowls with fresh grated cheese at the table.
A side of garlic bread never hurts!
Buon Appetito.
