Things you need to know.
– Stocks continue to come under pressure.
– Key trendlines continue to fail and that increases the momentum to the downside.
– Oil UP on sanctions, Gold UP on the Safe Haven Play.
– Bond yields push higher.
– Try the Linguine Arrabiata
Stocks got hammered again, after Friday’s much stronger than expected NFP sent the algo’s into a tailspin, causing traders and investors to reassess their bets on what the FED is going to do next….
The Dow lost 700 pts or 1.6%, the S&P lost 92 pts or 1.6%, the Nasdaq gave up 318 pts or 1.6%, the Russell lost 50 pts or 2.25%, Transports lost 185 pts or 1.15% while the Equal Weight S&P gave up 108 pts or 1.5%. Leaving all the indexes in negative territory for 2025…. The Russell is in the lead, down 2.25%.
The VIX (fear index) surged by 8.25% to end the day at 19.54 leaving it just 3 pts away from the ‘breakout’ zone….A push up and thru 22 will really send the algo’s into overdrive as they all attempt to run for the door at the same time (think Friday) and when that happens, the buyers step aside and prices fall faster. This morning it is kissing 22.
The contra trades all did well (you know the ones that go up when stocks go down!) – the DOG added 1.7%, the SH gained 1.6%, the PSQ gained 1.6%, the VIXY added 6.9% while the Triple levered SPXS gained 4.5%.
Of the 11 S&P sectors – only Energy was in the plus column – rising 0.4%. Of the other sectors – both Financials and Real Estate were the biggest losers – down 2.4%. Behind them we saw Tech down 2.2%, Communications down 1.5%, Consumer Staples lost 1.3%, Industrials -1.1%, Consumer Discretionary & Basic Materials -1%, with Healthcare and Utilities down 0.5%.
Other action included – Home Builders lost 2%, Disruptive Tech – 2.5%, the Value Trade – SPYV getting slammed down 1.5% while the Growth Trade – SPYG lost 1.4%, Semi’s – 2.4%, Aerospace & Defense – 1.3%, Big Pharma – 0.8%, Oil and Exploration – 1.2% and that Quantum trade that has been so hot lately lost 2% as well with individual names losing much more.
Some in the media calling the report a ‘blowout’ – and while sometimes a blowout can be interpreted as ‘good news’ THIS wasn’t one of those times! Friday’s reaction to the report was ‘Good news is Bad news’ for stocks….and why?
The much stronger report that saw us add 223k jobs vs. The expected 140k (the most since March 2024), also saw the unemployment rate ‘unexpectedly’ decline and that tells us that the labor market is strong, healthy, even robust. U of Mich Inflation expectations jumped to 3.3% for both the 1 yr and 5 yr outlooks – substantially higher than the prior reads. Average hourly earnings y/y rose by only 3.9% down from 4% all while inflation is picking up its head – CPI (inflation) last month coming in at +3.3% up from +3.2% over the summer, the next CPI read is due on Wednesday and the estimate remains at +3.3% but the risk is to the upside.
Remember – we have seen the PPI move higher over the past 3 months and the next reading is Tuesday and guess what? Prices at the producer level are expected to surge higher. The estimate for PPI y/y is +3.5% vs. last months 3%! And PPI ex food and energy y/y up 3.8% vs up 3.4%!
And at some point – higher prices at the Producer level become higher prices as the Consumer level. So, brace yourself for a stronger CPI report on Wednesday. We can only hope that stronger PPI’s and CPI’s might finally force the ‘team at the FOMC’ to wake up! Let’s be clear – prices are not going down right now….so I have to ask – why did the FED cut rates by 100 bps (or 1full %?) in the final quarter of the year and why do some of them (think Goolsbee, Daly and Waller) keep telling us that they are going lower multiple times this year?
Remember- I am in the NO CUT camp, and I think the risk is that rates will need to RISE before year end. The idea that he told us that the labor market was weakening reminds me of the ‘it’s transitory’ argument…. How’d that work out? Yeah, that’s what I thought.
In any event, the report sent bond yields surging…the 2 yr gained 11 bps to end the day yielding 4.379%, the 10 yr gained 7 bps to end the day yielding 4.759% while the 30 yr ended the day up 2 bps yielding 4.94% but only after piercing and penetrating 5% in the morning. TLT lost 0.65% while TLH gave up 0.75%, while the AGG lost 0.5%. Those 3 bond ETF’s are also down on the year, down 2.15%, 1.9% and. respectively.
This morning bond yields continue to push higher. The 2 yr is yielding 4.4%, the 10 yr 4.77% while the 30 yr is at 4.956%.
Oil pushes higher, rising 3.6% or $2.65, to end the day at $76.57. On Friday, the US imposed the most aggressive sanctions on Russian oil producers and 183 vessels that transport Russian oil in order to punish Vlad and further diminish the oil revenues that Russia uses to fund its military activities in Ukraine. By implementing these sanctions, the U.S. aims to disrupt Russia’s oil exports to countries like China and India, compelling refiners in these nations to seek alternative sources from the Middle East, Africa, and the Americas. This shift is expected to increase oil prices and freight costs, only adding anxiety to the inflation narrative. Higher energy prices affect all aspects of the global economy so Friday’s ‘sanctions’ only amplified the stronger NFP report and that only amplified the inflation narrative.
We have now broken the October high of $76.41 and that means the algo’s will push oil to test the July high of $80. Now, it’s about the momentum, it’s not about Chinese demand or US stockpiles…it’s just about the chart and where the momo guys want to take it. Remember –recent headlines have all been about waning Chinese demand – which should send oil prices lower (and usually does), but the story now is all about the charts and how the algo’s respond. Demand is just fine;
And as stocks weaken, Gold moves higher as investors play the ‘safe haven’ game – seeking refuge in a ‘risk off’ environment all because of renewed uncertainty over inflation and the next FED move. The sense is that all that chatter about multiple rates cuts in 2025 is all but DOA after the latest NFP report and signs of brewing inflation. And with a new administration only days away now, there remains much uncertainty about how this all settles out. Now while higher rates are usually not good for gold, the volatility that is expected in stocks due to a confusing FED narrative does help support the idea of holding more gold, because in the end, a safe haven is a safe haven and gold is gold.
US Futures continue to weaken, and it looks like it will be another uncomfortable day – at 6 am – Dow futures are down 160 pts, S&P’s down 55 pts, Nasdaq is down 300, while Russell is down 30 pts.
Like oil, this is now a momentum story. On Friday – The Dow BROKE its intermediate trendline, The S&P is about to break its intermediate term trendline this morning, the Nasdaq just broke its short term trendline, while the Russell will break its LONG term trendline at 9:30 and when they break trendlines, the momentum picks up because the technology allows and encourages it.
Now, listen to me, when the tone is ugly (which it appears to be) and when the trendlines get broken (which is happening) the ‘sell’ algo’s respond by ramping up the selling (momentum builds), human buyers know this and the buy algo’s are programmed to know this – and so they pull their bids and move lower, creating a void in prices, so prices fall…and yes, is it uncomfortable? Sure, but you can’t tell me you’re surprised. How long have we been discussing this? Now is the time you need to update your shopping list…look for the highest quality names that are going on sale. Take your time and add money strategically.
Now the difference is that when prices are rising – and trendlines are ‘pierced’ (not broken – notice the positive vs. negative connotation), buyers react by getting excited, sellers pull their inline offers once again leaving a void in prices and stocks go higher – and THAT is not uncomfortable! Come on, tell me I’m wrong! The difference here is when they all run OUT the door it creates fear and the VIX spikes higher, but when they all run IN the door, it creates excitement and the VIX plunges.
Now like the NFP report – Delta airlines reported a ‘blow out’ earnings report on Friday – and in this case, a blowout in earnings was ‘GOOD news and investors took the stock up 9%. See how you can get two very different reactions to the same descriptive adjective? A blow out NFP report sent the algo’s into a temper tantrum, while a blow out in the earnings report sent the algo’s into overdrive. 😊
Eco data this week is all about the inflation narrative – PPI tomorrow and CPI on Wednesday…. Earnings also start on Wednesday with the release of the Big Banks – JPM, C, WFC, GS & BK.
European markets are lower. Italy down 1% while the UK is only down 0.3%. The story continues to be about the bond market and global bond yields. The rise in US treasury yields and the dollar is rising borrowing costs around the world. UK Gilt yields continue to rise, German Bund Yields hit their highest level in 5 months, Italian, French and Spanish bond yields also all higher. Again, it’s Econ 101.
The S&P ended Wednesday at 5827 – down 92 pts. That 81 pt GAP, (5783 – 5864) created on November 6th, that I have been discussing is likely to get ‘filled’ on the opening- the S&P needs to trade down to 5783 but that may not be enough to stop the bleed….We could see the S&P trade down to the 5720 range….which btw would be 6.5% off the high….Still within the normal trading range. And while the indexes are not on fire, individual names may be, so make sure you update your shopping list and get ready to pounce.
Remember – stay focused, manage your risk, stick to the plan. History demonstrates that a well-planned, long-term focused and diversified financial plan can withstand virtually any market surprise and related bout of volatility.
Any questions? Give me a call. Click here https://slatestone.com/contact-us/ to contact me – Put KP in the message box and I will reach out to you to discuss your investment portfolio and any questions you may have.
Take good care.
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kenny Polcari or SlateStone Wealth.
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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Try the Linguine Arrabiata
So, in keeping with the theme today – how about an Arrabiata Sauce – this is a southern Italian tomato sauce that gets its kick from the crushed red pepper – in fact – Arrabiata means Angry….you can use this sauce over pasta or even meats – today let’s eat.
You will need: olive oil, onion, garlic, red wine, sugar, crushed red pepper (or chili peppers if you want hot, hot, hot), lemon juice, oregano, s&p, crushed tomatoes, tomato paste and chopped parsley….
Bring a pot of salted water to a rolling boil –
In a large pot (or deep sauté pan) on med-hi – heat up olive oil and garlic…. sauté a bit – but do not burn – 3 mins or so…. Now add sliced onion and sauté until soft – like 5 mins more. Next – add 1/2 cup of red wine, 1/2 tblspn of sugar, fresh squeezed lemon juice (about 1 tblspn), oregano, bit of tomato paste, and a 28 oz can of kitchen ready crushed tomatoes (not in puree – just crushed tomatoes), crushed red pepper (or crushed chili pepper if you prefer) – bring to a boil and then reduce to simmer and cook for 15/20 mins….
Add the spaghetti to the boiling water and cook for 8 mins or until aldente – strain – reserving a mugful of the pasta water. Return pasta to pot and add back about 1/4 cup of the pasta water to re-moisten. Stir….Now add pasta directly into the sauté pan with the sauce – toss well – add a handful or two of grated parmegiana cheese and serve immediately in warmed bowls. Enjoy with a nice bottle of Brunello di Montalcino. Always have extra cheese on the table for your guests.
Buon Appetito
