Things you need to know.
It is that time of year when the NYC charitable fundraisers kick off…As you know, The Headstrong Project is dear to me. I am chairman of the ‘advisory board’ that seeks to raise awareness of the work we do on behalf of our veterans that suffer from PTS. (getheadstrong.org). Our NYC Gala takes place on Thursday, November 7th at Cipriani’s Wall St. General Jim Mattis is our keynote and I expect that we will raise ~$4 mil that evening. If you are considering supporting a charity this year – please consider our Veterans and The Headstrong Project. Give me a call if you’d like to learn more.
https://support.theheadstrongproject.org/give/551757/#!/donation/checkout
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– Stocks advanced slightly on Friday as we await the action this week.
– The election is tomorrow and the FED meeting on Thursday.
– Expect volatility if we don’t have an immediate winner.
– Oil – advances as OPEC+ holds off production increases.
– Gold steady and Bonds confused.
– Try the Butternut Squash Feta Pasta
Stocks advanced on Friday – The Dow up 290 pts, the S&P + 25 pts, the Nasdaq ahead by 145 pts, the Russell up 14 pts, the Transports added 100 pts and the Equal Weight S&P gained 5 pts. The action dictated by the economic data, the upcoming election, the ongoing earnings reports and the expected FOMC decision on Thursday this week.
Friday’s drama was all about the October NFP report…and it was ‘ugly’ (some prefer to call it ‘noisy’) – only 12k jobs were created….vs. the expected 110k jobs….last month’s job number was also revised lower and the last two months number is down 112k jobs…so, not good….by any stretch…..Manufacturing payrolls – yeah, those down as well – 46k….….Now, this was all explained away due to the two hurricanes and that big Boeing strike….which kind of leaves me to ask – Wait, but we knew those events occurred during the month…..shouldn’t those effects have been built in? Shouldn’t the expected number have already reflected those events? Well, I guess not…. because then, how would they have explained the weakness? I mean hurricanes and strikes makes it all more real….in any event – unemployment remained at 4.1% and Average Hourly Earnings m/m were +0.4% while y/y was 4% (both in line).
AAPL lost 1.2% – leaving it down 7% off the October high….this as investors, traders and algo’s were apparently spooked by a $14 billion fine in Europe and some weakness in China – nevermind that they continue to earn $100 billion every 3 months…..or $1.1 billion/day….Also, never mind that their services business earned $25 bill in the quarter, which equates to $100 billion/yr.…I mean, it’s ridiculous, but it is what it is….like I said on Friday – ‘Go ahead – sell your AAPL because growth in China is slowing, I am keeping mine and buying more because every other metric for the company keeps making new highs.’
AMZN – yes, they beat on over metric and profitability surged – they took it up 6.2% leaving it up 30% ytd… Investors can’t get enough – and there appears as if there is more room to grow…. estimates revised to as high as $250/sh.
Bond yields rose – which is opposite to what they should be doing if JJ is cutting but would make sense if the market doesn’t think they should.….….traders are still holding tight to the idea that JJ is going to cut rates by 25 bps on Thursday (96% chance) and then again in December while the market is sending a different signal…..On Friday afternoon – the 2 yr. ended the day yielding 4.19% while the 10 yr. is yielding 4.37%….
Over the weekend – we had the final early voting push around the country and we also had a number of new polls that suggest that Kamala Harris is now in the lead – ABC has it at 49% to 46%, NBC has it tied at 49% while the Des Moines Register in Iowa is pointing to a Harris win……..….the dollar has taken a leg lower (down 60 cts at 103.69) and as a result – Treasury prices are up sending yields plummeting – which I think is a knee jerk short term reaction…..to the flip in the polls….…this morning the 2 yr. is down 4 bps at 4.15% while the 10 yr. is down 9 bps at 4.28%.
In the end – I am siding with the treasury market – it is not supporting more rate cuts, it is screaming rising inflation if the FED moves to cut, and maybe that is the decision – cut rates to cut the cost of the debt service, raise inflation to ‘inflate our way out of this mess’….…but – what do I know….
To be clear – To “inflate our way out of this debt” refers to a situation where the FED allows inflation to rise, effectively reducing the real value of its outstanding debt. Here’s what it means in detail: The 2% target becomes 4% – but the risk is that 2% becomes even more…remember the 9% inflation rate?
Debt’s Real Value Falls: As inflation increases, the real (inflation-adjusted) value of the debt decreases. Thus ‘inflate our way out’.
Easier Repayment: With higher inflation, the government collects more revenue from taxes because wages and prices generally go up, making it easier to repay the debt without raising taxes or cutting spending.
But this is not without side effects….(the economic impact): While it can ease the burden of debt repayment, this approach reduces purchasing power for consumers, can cause potential loss of investor confidence – sending stocks reeling, and higher interest rates as creditors demand more (higher long term rates) for lending money under inflationary conditions. Recall that the last time this happened – 1980, interest rates went to 20+%…anyone with any money put their money into cd’s or MM funds with zero risk….and stocks plummeted…. just asking…. Will history repeat itself?
Oil is up $2 or 3.15% after OPEC+ (the Saudi’s) decided to push back its planned production increases that were to take effect in December….and Iran continues to ramp up the rhetoric against Israel – saying that we ‘should expect a crushing response’ – a response that is expected to happen after tomorrow’s election but before the January inauguration…….I’m curious – will it also depend on who wins that election? Is the outcome different depending on who wins? Oh, it’s a tangled web we weave…. Oil is now above what was trendline resistance at $70.20 trading at $71.70 – leaving us about to test intermediate trendline resistance at $73.05.
Gold continues to churn in the $2750/$2800 range…. this morning – it is down $1 at $2749…. leaving it in limbo…. unsure of what’s next…. So much depends on this week…. Trendline support is down at $2650 – while resistance appears to be at $2800.
Eco data today includes Factory orders expected to be -0.5% while Durable Goods is expected to be -0.8%. Tomorrow brings us ISM services PMI of 53.8 (expansionary), Wednesday brings us S&P Services PMI of 55.3 (expansionary). And then Thursday brings us the FOMC announcement….remember – members of the FED are now in blackout mode – they can’t talk – so keep your eyes on the WSJ and any story from Nicky T or from Goldman Sachs…because if either one of them comes out with a news story then that is what we can expect the Fed to do…If he does not write a story or Goldman does not have a ‘breaking report’, then we are getting a 25 bps cut.
US futures are up…. Dow futures +30, the S&P’s up 11, the Nasdaq +33 while the Russell is ahead by 2. News over the weekend that the Dow is going to be reconstituted…. INTC is coming out- NVDA is going in while Dow Chemical is being replaced by Sherwin Williams…. all of this happening on Friday November 8th. Expect all kinds of action in these names to reflect the change in the index.
And while we are still in the midst of earnings season – the chatter this week will be all about the election and the FED…Period….However do not discount what happens in Congress….if it remains divided – then we have gridlock – something the market likes…but if we get a sweep either way – that is surely going to mean a new round of spending on either side – as both sides have promised to ramp it up…..The only thing will be that the Republicans will accompany that with less regulation and less taxation, while the Dems will add more regulation and more taxation….so, pick your poison….I guess the only thing we have to worry about is when will we know?
European markets are a bit higher…. up between 0.2% and 0.6%. It is the rise in oil that is causing some excitement, all while the US election is causing angst for Europeans….They know what they get with Trump, they are not sure what they will get with Harris……and so investors there are not making any big bets just yet….
The S&P closed at 5728 – up 25pts. Last week – we traded right down to the short term trendline at 5700 and held….- this morning futures are suggesting that we trade a bit higher…..but we know how that can all change….I would not be surprised to see us test it 2 more times….to see if it holds…..but remember – this could be a very volatile week – investors should not be drawn into making a rash decision….markets can be irrational in the short term…..depending on the rhetoric….so talk to your advisor if you are concerned about your portfolio…but if it is well balanced and has the biggest names in their respective industries then don’t panic….if, on the other hand, you have more speculative names in your portfolio – maybe you want to revisit that idea???? Just a thought….
Trendline supports are at 5700, 5592 and 5359…. a move down to the long term trendline support (5359) is only a 6.5% move from here and well within what is considered ‘normal’…. We’d have to trade down to 5295 to suffer a 10% correction off the October high of 5878 – so for me, that is the key.
Using some of the contra trades to provide a hedge against your portfolio would not be a bad idea, just know what you are using and how it reacts…..The DOG, SH & PSQ are 1:1 in terms of reaction…the SPXS is 3:1 while the VIXY will respond to what the VIX does….This morning – the VIX is up 2.5%….at 22.45…….23.20 ish is a level you want to watch….if we test and pierce that, then I would expect the VIX to surge and stocks to fall….so buying the VIXY would be an appropriate response….Just sayin’.
Again, the next couple of days are going to be full of angst….do not make emotional decisions.
My guess is that once the election is over and the winners (WH, Senate and House) are determined, then investors can focus back on what the economy would be expected to do under either administration.
Successful investing is a marathon not a sprint. Click on the link to send me a message – I’m happy to discuss.
https://slatestone.com/contact-us/
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.
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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.
Cavatappi with Roasted Butternut Squash/Baked Feta
For this you need: a block of feta cheese, 5 cups of cubed butternut squash, sage, s&p, garlic bulb, honey, olive oil, butter, and of course cavatappi pasta.
Bring a pot of salted water to a rolling boil.
In a large roasting pan – add the squash, season with s&p, olive oil, ½ stick of butter, garlic bulb with top sliced off, and the block of feta cheese. Roast in the oven at 375 degrees for 30 mins…. or until the squash is soft.
When you have 10 mins left – add the pasta to the water and cook until aldente.
Now remove the squash from the oven – and mix well…. add in the sage and then add in the pasta and finish it off with a bit of warmed honey. Now add in a ladle of the pasta water to keep it moist. (You can also use ‘hot honey’ – honey with chili peppers if you prefer).
Buon Appetito
