Things you need to know.
– Earnings season starts off with a BANG!
– S&P crosses into another new century.
– “I Hear a Symphony” ….
– Bonds fall, yields up, Oil rallies, gold rallies.
– Try the Pork Tenderloin in a Dijon, Caper Sauce.
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Earnings season kicks into high gear and ignites the next leg up – JPM, BLK WFC, BK, FAST all beat on the bottom line (eps), while all but WFC beat on the top line –(revenues). The KBW Bank index (BKX) closed at a 2-yr high – pushing that index further into uncharted territory….…. Now while the earnings were good, that doesn’t mean that profts didn’t’ fall from a year earlier, it just means that they fell LESS than expected. Oh and that NII (net interest income) that Jamie was worried about 3 weeks ago wasn’t’ an issue for them, but was for WFC, thus the miss, although they assured us that that wouldn’t’ be a issue next quarter…..By the end of the day – JPM closed up 4%, BLK +3.6% (their assets hitting $11.5 trillion), WFC +5%, BK lost 0.4% (because that was a ‘buy the rumor/sell the news reaction) while FAST added a whopping 9.7%.
Eco data showed that the September PPI was a mirror image of Thursday’s CPI – ticking slightly higher while the U of Michigan surveys all came in a bit weaker than the expectations…
Markets surged to new closing highs, the S&P + 35 pts – kissed and penetrated 5800 to close at 5815 – taking us boldly into another new century. (Now just fyi – it took just 3 weeks to go from 5700 to 5800). The Dow +410, the Nasdaq added 60 pts, the Russell up 46 pts, the Transports ahead by 340 pts while the Equal Weight S&P added 72.
It’s all very exciting as the market refuses to give up any ground at all….good news is good news and bad news is good news as evidenced by the earnings reports (all better) and the eco data (slightly worse)….…..….You can just hear Diana Ross and Supremes now…..for those of you who don’t know who they are – you can google it….….
‘You’ve given me a true love (massive gov’t spending) , and everyday I thank you, love, for a feeling that’s so new, so inviting, so exciting (as my 401K surges higher) – whenever you are near (JJ and the FED), I HEAR A SYMPHOMY, a tender melody, pulling me closer, closer to your arms (into a soft landing)….”
And that is exactly what it sounds like – a Symphony!
And it is JJ directing it….and while the recent rate cut will take time to work thru the system, the results posted by these big banks suggest that ‘it’s all good’….the economy is fine and the labor market is NOT imploding….Consumers are resilient and they are PAYING their bills – and that is a good thing.
Now what’s interesting is that of the 11 S&P sectors only Consumer Discretionary fell….- the XLY down 0.4% and I say that is interesting because it is contra to what the big banks told us….a strong consumer should mean that ‘discretionary’ spending is good to go….yet – they sold it…..but they bought the Financials – XLF +2%, Industrials – XLI +1.8%, Real Estate +1%, Utilities +0.9%, Healthcare – XLV + 0.7%, Communications – XLC + 0.7%, Energy – XLE +0.6%, Basic Materials – XLB +0.6%, Consumer Staples – XLP +0.5%, while Tech – XLK rose 0.2%.
Down the chain – Disruptive Tech – ARKK + 1%, The Value Trade – SPYV rose 1.2%, Metals & Miners – XME + 1.5%, Cybersecurity – CIBR + 0.7%, Semi’s – SOXX + 0.9%, Oil and Gas Exploration – XOP + 1.1%, Aerospace & Defense – XAR gained 2.1%, (that make perfect sense – think mid-east conflict – it is now up 18.5% ytd). Large Pharma – XPH +2.2% and the list goes on….
Bonds SOLD off – the TLT down 0.4% while the TLH lost 0.15% and that sent yields UP…the 2 yr is now yielding 3.95% while the 10 yr is at 4.10% – just 6 bps away from trendline resistance at 4.16%. The 30-yr bond is yielding 4.41%. Mortgage rates have stopped going down after hitting a low in September and have ticked UP in the last 2 weeks…the average 30 yr mortgage now has a 6.5% rate on it…. Jumbo loans were a bit higher at 6.7%+.
Oil traded in a large range – $74.40 – $76.80 before ending the day down 35 cts at $75.56. The surge driven by short covering by the big hedge funds that decided to close out their bearish bets, while the pullback was all about the latest China ‘stimulation’ story (or lack of the bazooka that they thought it was).
The erratic moves also a response by investors as they await the Israeli response to the Iran bombings one week ago. Now, over the weekend Hezbollah launched over 300 missiles from Lebanon, primarily targeting military positions near Haifa. The attacks resulted in several injuries, and Israel responded with airstrikes, targeting Hezbollah positions in Lebanon. And this isn’t even the response the world is waiting for….so expect oil to remain fairly volatile in the days ahead.
This morning oil (curiously) is down 1.7% at $74.32/barrel…after the unrest seen over the weekend. Word has it that the US is sending an air defense system along with 100 US troops to operate it – Maybe Kammy needs to rethink her comments about ‘NO US troops are in harms way….’
This morning the VIX is up 1% or 0.20 cts at $20.65…. this after being up 20% in the wee hours of the morning…. The weekend exchange of fire in the mid-east keeping markets on edge.
Gold – which was trending lower over the past 2 weeks ($2620) on the idea that maybe we won’t be getting those jumbo cuts as promised – rallied hard on Friday…rising 1.4% or $35/oz to close at $2675 as investors once again move into the ‘safe haven’ trade.
Look, gold is waging a war on 3 fronts…. One – What will the FED do? (And by extension how will the dollar react and how will Janet react? Two – What will happen in the middle east and then by extension to a larger global conflict and three – who is going to be elected President. All of this uncertainty is re-igniting demand for the precisou metal. Overnight – gold traded as high as $2684 before backing off just a bit. At 6 am – gold is trading at $2675 – leaving it solidly in the $2600/$2700 camp.
Ok – so onto the earnings season… Investors have to reconcile lofty valuations against the reality of an economic slowdown vs. positive future guidance. And if Friday’s reaction says anything – it appears as if investors, traders and algo’s like what they are hearing…Solid forward guidance (in the financial space) is providing a positive catalyst for stocks – or at least it did on Friday. If it continues thru earnings season, then expect it to generate support for continued momentum…. Year-end S&P targets of 6000 don’t seem to be that nuts after all. If the current pace of the advance keeps up – the S&P will kiss 6000 in just 6 weeks…which puts us at Thanksgiving.
Remember – long-term price appreciation in equities is almost entirely driven by underlying earnings growth, one of the reasons why ‘future guidance’ remains a critical consideration in evaluating the path of the S&P. Recall Larry Kudlow’s famous line – ‘profits are the mother’s milk’ for price appreciation in the long term, but in the short term swiftly rising prices often outpace underlying earnings growth on the expectations of future profits. And when the tone of the markets is euphoric, momentum builds as the algo’s take stocks higher and higher…. until they don’t.
Now – at the moment, the tone is euphoric, rates started to come down, the FED has managed to pull off a soft landing (thanks to massive gov’t spending), earnings season has just kicked off on a ‘plus tick’ and so stocks advance. I guess we’ll have to see what happens over the next 3 weeks of earnings, what happens at the next FED meeting on November 7th and what happens when the 10 yr yield pierces resistance at 4.16%. Recall that last year it was 5% that represented difficulty for stocks…Will that be the case again?
This morning futures are churning…. Dow futures -25, S&P’s up 8, the Nasdaq up 36 while the Russell is up 3. I would just be careful about chasing just anything up here. Look at the names or sectors that are underperforming vs. the market for opportunity…. If you are establishing a new position – go easy….and if you already own it, celebrate, if you want to add more – be patient and if you want to take money off the table then hit the SELL button…
Expect all kinds of analysis over the start of earnings season…While there are no earnings today look for results tomorrow from JNJ, BAC, UNH, PNC, SCHW, PGR, GS, STT & C.
European markets are mixed as well. Not sure which way to go as they search for direction. On Friday we learned that UK growth has returned after 2 months of declines. Over the weekend – Chinese officials hinted at more stimulus in order to shore up their economy. At 6 am – The UK and France are down slightly while Italy, Germany and Spain are up slightly.
The S&P closed at 5815 – up 35 pts…. It is a holiday today; banks and the bond market are closed so do not expect any fireworks from the stock market.
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.
Pork Tenderloin in a Dijon/Caper/Butter Sauce.
This is simple to make and delicious to eat.
For this you need: 1 ½ lb. tenderloin, butter, heavy cream, s&p, olive oil, shallots, Dijon mustard and capers.
Begin by warming up the oven to 350 degrees.
Season the tenderloin with s&p and then massage with a bit of olive oil. Set it aside.
Now heat up a large skillet – melt ½ stick of butter. When hot – place the pork in the melted butter and sear on all sides – remove and set into a roasting pan.
Using that same skillet – add in ½ stick of butter and the sliced shallots. Sauté for 5 mins. Now add 2 tbsp of the Dijon Mustard and 2 tbsp of capers (with the juice). Stir for 3 mins.
Reduce heat to low and add in the heavy cream – stir – sauce will thicken. Remove from the heat. Take ¾ of a cup of the sauce and set aside…. The other ¼ – use to coat the tenderloin.
Bake in the oven for about 35 mins…. or when the meat thermometer reaches 150. Remove and tent with tin foil to allow it to keep cooking for another 5 mins.
When ready – slice into medallions and serve with the sauce on top.
Make sure you have some sauteed spinach and garlic along with a large mixed salad. Enjoy.
Buon Appetito.
