Things You Need to Know
- Regional Banking Crisis? Don’t be ridiculous!
- Trump tells us that everything will be ok with China – stocks rally.
- 10 yr yields are back above 4%, 30 yr yields are 4.6%.
- Oil is about to kiss $55 and Gold churns off it’s high.
- Try the Orecchiette with Ragu Bianco
Investors, traders, and algos did a full 180 on Friday — deciding that Thursday’s regional bank anxiety, the same one that sent markets into a tailspin, was nothing more than a hiccup. What was a full-blown panic on Thursday became a “non-event” on Friday.
The fear that bubbled up — sparked by headlines about credit implosions at Zion’s Bank and Western Alliance — had everyone suddenly looking for the next shoe to drop. And the algos? They didn’t disappoint. They scraped every negative headline they could find talk of an AI bubble, the usual geopolitical flashpoints (Russia/Ukraine, Israel/Hamas), trade tensions with China, and of course, the never-ending government shutdown drama.
But then, just as quickly as it started, the mood shifted. Trump took to the mic, saying those “high tariffs” weren’t sustainable and assuring everyone that the U.S. and China would be “getting together” to fix the problem. And then 5th Third Bank (another regional bank) reported that their profit rose even after they posted an increase in credit losses due to their exposure to auto lender Tricolor. And just like that the Regional Banking ETF – KRE rose by 1.6%, ZION added 5.8% and WAL added 3% — the market exhaled, the buyers came rushing back, and the fear of a selloff became the ‘fear of missing out’!
And while we did not take it all back – we did make some headway….the Dow gained 238 pts, the S&P up 35 pts, the Nasdaq up 117 pts, the Russell gave up 15 pts, the Transports added 20, the Equal Weight S&P up 35 and the Mag 7 added 315 pts.
Now look — Thursday’s reaction tells me there’s a level of angst simmering under the surface. Everyone wants in – until they don’t. And in my opinion, it’s being fueled by all the automation and algorithms running the show these days. You see, these so-called smart logic algos scrape headlines from everywhere — news wires, social feeds, blogs, you name it — and then they interpret those headlines and then react. So, when something negative hits the tape — like the headlines about Zion’s Banks and Western Alliance — they read it as a five-alarm fire and instantly hit the sell button. No nuance, no context, just selling and that selling causes anxiety.
And of course, the same thing happens in reverse — when a positive headline flashes, they flip to buy mode and chase prices higher. The only difference? It feels a hell of a lot better when they’re buying than when they’re selling.
Now to make matters worse — think back to JPM’s earnings this season. They took a $170 million charge-off tied to the money they lent to now-bankrupt Tricolor. Jamie summed it up perfectly — calling it “not our finest moment.” But it was what he said next that really hit home: “When you see one cockroach, there are probably more.”
So, when the Zion’s headline hit the tape? Bam — there it is…. another cockroach scurrying across the floor. Cue the selloff. And before you could finish your espresso the sellers were in full retreat.
In any event – it just goes to show you what not to do….You don’t make long term investment decisions based on one headline….day traders and algo’s sure – go for it, but if you are a long term investor – all Thursday was, was noise and an opportunity.
Bonds ended the day slightly lower…nothing to write home about – and that left the 10-yr yielding 4.01% up from last weeks low at 3.95% while the 30-yr closed at 4.60% after testing 4.54%. Current 30 yr mortgage rates are now about 6.25% if you have a 720-credit score or higher.
Oil continues to grind lower — now off 13% since late September — and it feels like it wants to retest the April and May lows around $55. And remember, this weakness isn’t about demand — it’s all about oversupply – plain and simple — something we’ve been talking about for weeks. (OPEC+ is raising production, while output from the U.S. and Brazil continues to flood the market).
Analysts have been calling for $55 oil for a while now… and here we are. The real question — does $55 hold, or do we slice right through it? Because if $55 doesn’t hold, the next logical stop is $50 — and that could open the door to a whole new narrative for inflation. Think: cheaper input costs for manufacturers, a tailwind for transportation, but it also means more pressure on the energy complex. This morning oil is down 20 cts at $57.36.
Gold! It fell on Friday — can you believe that? It lost $75, or 1.7%, to end the day at $4,251. The selloff was pinned on headlines suggesting that trade tensions with China might ease — after Trump told reporters he doesn’t want China “playing the rare earth game, he wants China to stop the fentanyl, and he wants them to start buying up more soybeans.” But let’s be honest — part of that move was also technical. Gold’s RSI (Relative Strength Index) was screaming overbought at 87.36 — and it was starting to show signs of fatigue.
Now, while some of that panic buying may be unwinding, the fundamental drivers haven’t disappeared. Central banks are still hoarding it, rates in the U.S. are trending lower, and demand for a hard asset hedge hasn’t gone anywhere and this morning gold is up $2 at $4,253. My sense is that IF we see a pullback – it might take us to $4000 – down 6% – which is far different than trendline support with is down at $3693 – which would be a 13% decline from here. Something I do not see happening UNLESS suddenly everything goes right in the world.
This morning US futures are higher! Dow futures are up 125 pts, S&P’s up 22, Nasdaq is up 105 pts while the Russell is up 20. Once again – we won’t get any eco data today, but we are expected to get the September CPI on Friday – recall this was expected last week but was delayed due to the shutdown. The story this week will also be about the Mag 7 earnings which start this week with TSLA & GOOG on Wednesday… MSFT, META are next Wednesday the 29th while AAPL and AMZN are on Thursday the 30th. NVDA – the one that everyone is waiting for is not until November 19th.
It’s a big week of earnings…We’ll hear from KO, CLF (beat), ZION, NOC, HAL, LMT, RTX, MMM, PM, NDAQ, NFLX, WAL, HLT, T, TSLA, GOOG, AA, RJF, IBM, HON, DOW, CBRE, BX, F, DLR, INTC, NEM, PG, HCA…
We are now in the blackout period for any of the FOMC members – as the meeting is one week away. Expect to hear plenty from the non-members and as always – keep your eyes and ears on what Nicky T from the WSJ and Goldman Sachs have to say, Because JJ always uses them as his ‘deep throat’ if the narrative is about to change. For now – it is what it is, rates are expected to decline by 25 bps….and if that happens the range become 3.75% – 4%. A range that is far from ‘restrictive’, but I guess that depends on your definition of restrictive.
European markets are higher…. Spain in the lead – up 1.5%. Investors there are shrugging off any credit concerns. There is not eco data to speak of – so the focus will be on earnings.
The S&P closed at 6,664 up 34 points. Last week we watched the index back off and test trendline support 6,550 for the second time. My guess is that it needs to happen one more time – just to see if the bulls defend the position. If they do, that’s bullish, and if they don’t then we could see us test intermediate trendline support at 6360 ish. Which would not be anything to worry about – it would be a healthy pullback. In any event – no need to worry about it right now – because everything appears to be ‘ok’!
Here’s your new countdown:
9 days until the next Fed decision.
35 days until Black Friday.
And only 55 days until Christmas.
Let’s review your plan. Call me for a complimentary, no-obligation portfolio analysis: 561-931-0190.
Take good care,
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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Orecchiette with Ragu Bianco
This is a simple and delicious dish – the kids will love it.
For this you need: 1 lb. of Orecchiette (you can use med shells), Olive oil, 1 lb. of ground beef, and ½ lb. of ground pork (again you can use all beef). Dry white wine, s&p, diced carrots, diced celery and diced onion and 1 crushed clove of garlic and of course fresh grated Parmegiana.
In a large sauté pan, heat up some olive oil, add in the veggies and crushed garlic. Sauté for 5 – 8 mins… Now add in the meat – crumbling it as you add. Cook until it’s all nice and browned. Season with s&p.
Now add in 1/2 c of white wine – let the alcohol steam away. Now add in 1 c of beef broth – Stir – turn heat to low, cover and cook for 20 mins.
Now – when you have 10 mins to go – bring a pot of salted water to a rolling boil – add in the pasta and cook until aldente. Strain – always reserving a mugful of pasta water. Add the pasta directly to the sauté pan – and mix. Add a handful of cheese and mix. If you need to add a bit of the pasta water to keep it moist – not saucy – just moist.
Serve – always have extra cheese on the table.
Buon Appetito!