Things You Need to Know
- It went RISK ON and then RISK OFF very quickly.
- The focus is once again on the FED – NVDA is behind us.
- The crash in Bitcoin is not helping the mood.
- Bonds higher, Oil lower, Gold lower.
- Try the Veal Rollatini
Stocks went Risk ON in the morning to celebrate the NVDA print that hit the tape on Wednesday evening and then went Risk OFF when it became clear that the latest NFP report (which was the September report, 2 months late) revealed that we added 119k jobs vs. the expected 53k jobs and well above the August rate of 22k jobs. The unemployment rate, which many expected to surge, came in at 4.4% up just 0.1% of 1% and still in what is considered ‘full employment’.
And that caused the ‘some’ investors, every trader, all the algo’s and all the momo guys to reconsider what that means for the FED’s next move. And guess what? It wasn’t pretty….All that talk of having to cut rates to save the labor market appear to be off balance – the labor market does NOT appear to be in distress – thus the rally in stocks on the assumption that the FED was just going to continue to slash rates now and in the future – is NO longer the assumption. Capisce?
Stocks did a complete 180 going from all green to all red in what was the biggest intraday reversal we have seen in a long time….
Here’s what happened from intraday high to intraday low in what was an emotional, algo driven, momo amplified ‘Shoot First, Ask Questions later’ reaction.
Dow: swung 1,100 pts.
S&P 500: swung 236 pts.
Nasdaq: swung 1,104 pts.
Russell 2000: swung 100 pts.
Transport: swung 475 pts
Equal-Weight S&P swung 187 pts.
Mag 7: swung 1,675 pts.
The closing bell told us how this chapter ended. This is what the scoreboard looked like: Dow lost 387 pts or 0.8%, the S&P gave up 103 pts or 1.6%, the Nasdaq gave back 488 pts or 2.5%, the Russell gave back 42 pts or 1.8%, the Transports gave up 220 pts or 1.4%, the Equal Weight S&P lost 87 pts or 1.2% while the Mag 7 gave up 541 pts or 1.70%.
Let’s look at the trendlines, because these are important (for the algo’s and the momo guys especially)….DOW, S&P, NASDAQ are all sitting right on their intermediate term trendline support – this is KEY….should they fail to hold, then expect another wave of selling pressure. The Russell and MAG7 have pierced theirs and are starting the day below that trendline…. the Equal Weight S&P is about to test its long term trendline support at 7318…..
This morning – the tone is once again negative…Asian mkts closed lower, European markets are trading lower. Spain and the Euro Stoxx both down better than 1% – the others are down about 0.4%.
US Futures are trying to buck the trend. Dow futures up 165, The S&P up 1, the Nasdaq is down 40 while the Russell is flat. But it is FRIDAY after a bruising week – this could go either way……it will depend on the tone of the headlines. A break of the trendlines for the DOW, S&P and Nasdaq will absolutely put more pressure on stocks.
Now, let’s be crystal clear:
NONE of the indexes are in correction territory — not yet. Every move you saw yesterday is still well within what’s considered a normal trading range inside an ongoing bull market.
But that doesn’t mean we won’t get there. It just means we’re not there yet.
What’s driving the mood right now isn’t disappointment in AI, tech, or the NVDA story —
The shift to negativity is being fueled by the macro data and then amplified by the argument that stock valuations — not just tech (but especially tech), are stretched beyond what many consider sustainable. Funny thing is this isn’t a new story. It’s just that when the crowd chooses to focus on and accentuate the negatives, suddenly everything looks negative. And in this case, the villain of the day was the Fed. Remember – current fed rates are 3.75%/4% – hardly restrictive, but it was the expectation that they would just keep cutting that drove the narrative.
Yesterday morning the focus was on the positives — NVDA lit the fuse, and the whole market came in ready to rally. But once they started to dissect the NFP report… the tone shifted. Then came the hawkish Fed commentary… And when the algo’s suddenly realized that the “guaranteed rate-cut parade” might not be so guaranteed… well, that’s exactly the kind of thing that sends traders and machines running for the exits.
And then — the kicker — a circulating piece featuring Stevie Sosnick, Chief Strategist at Interactive Brokers, warning about the collapse in Bitcoin and whether that kind of “break” could set equity markets on fire. Recall – Bitcoin is now trading at $82k – down from $120k only one month ago…that’s a 36% decline and that swift decline has caused a number of negative reactions. Remember – you can never do just one thing…. One action here causes ripple effects there and when it begins to overwhelm it causes the algo’s to hit the sell button and run for the exits…
His answer? Unfortunately — or not — was YES.
And here’s the thing you need to understand: Interactive Brokers is not your grandfather’s brokerage. Their roots, structure, and culture are deeply grounded in electronic and algorithmic trading. They were one of the very first firms to replace human market makers with fully automated, computer-driven quoting systems.
Their core business (like so many others) is automated market making and ultra-efficient execution. It’s machines trading with machines, running mathematical models, scraping headlines, interpreting broken trendlines, and firing off orders at the speed of sound. When the machines find something negative, they pounce. When they find something positive, they pounce too. Yesterday — it was all about the negatives.
The VIX – fear index – naturally surged…. stocks sell off, fear rises…. it’s a simple concept….and yesterday it surged by 11.5%, testing the October high at 28.99. – Just fyi – that’s not helpful, rising fear creates anxiety and that causes some investors to make emotional decisions….and so you get what you get – stocks go lower.
Of the 11 major S&P sectors only Consumer Staples rose…they closed up 0.7% and that makes perfect sense…..those are the names you run to when the mood gets anxious…think – WMT, COST, PG, KO, PEP, CL, MDLZ etc.. Oh, the move was aided by the blockbuster WMT report yesterday…. beat earnings and gave a bullish outlook.
The worst performer was as expected TECH down 3.1%, Industrials – 1.6%, Basic Materials – 1.5%, Consumer Discretionary – 1.5%, Energy and Communications down 1.3%, Financials – 0.9%, Utilities – 0.5%, Healthcare – 0.6%, and Real Estate down 0.3%.
Down the chain we saw weakness across the board in Homebuilders, Retailers, Airlines, Emerging Mkts, Semi’s got whacked down 4%, Disruptive Tech got slammed down 4.6%, Defense down 2.4% (on the idea that there is supposedly a deal to stop Russia/Ukraine), Exploration and Production lost 2.5%….
As expected the contra trades did well – DOG +0.8%, PSQ + 2.4%, SH + 1.5%, SPXS +1.8%, VIXY 6.6%.
Bonds ended the day higher…..the TLT rose 0.4% while the TLH added 0.3%. The 10 yr is yielding 4.06% while the 30 yr is yielding 4.70%.
Oil sold off…. falling 0.8% to end the day at $58.75 and this morning it is lower again…. down 2% or $1.20 at $57.50. The weakness in oil is being credited to the potential end to the Russian/Ukraine war….it is also necessary to note that Trump announced that we will auction off drilling rights in the Gulf of America on March 11th as well as expand west coast and Arctic offshore drilling….think more SUPPLY not waning DEMAND. Oil remains in the trading band of $55/$62.50.
Gold –is trading down $35 this morning at $4,040. The move lower a direct result of the idea that the Gold Bugs that were betting on a rate cut – sending gold higher, have found themselves caught up in confusion and that is causing gold to go lower. A no rate cut narrative stops the rally in gold…Trendline support is at $3,980.
The S&P closed at 6,538 – down 103 pts. Now after all of this – the S&P is down 5.5% off its all-time high (6,920). The Equal Weight S&P is off by the same 5.5%. I would not be surprised to see us end the day a bit lower…especially if the 3 indexes (DOW, S&P and Nasdaq) breach support and are not able to take it back as the day goes on. If we test and hold then we might start to see some stabilization.
Remember – next week is a shortened holiday week – people will be away, and volumes will be muted, so reactions can be amplified in either direction…so be careful not to make emotional decisions. Remember, reversals can happen fast.
Call me at 561-931-0190 – to give you a no obligation portfolio review. It’s all about risk management – let me help you assess the risk of the portfolio vs. the risk you are willing to take.
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.
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.
Veal Rollatini w/Prosciutto, Red Onion, Arugula and Fresh Mozzarella
For this you need: Veal cutlets, Prosciutto, sliced fresh mozzarella, arugula, red onion, butter, oil, s&p and some beef broth.
Preheat your oven to 350 degrees.
Begin by seasoning the cutlets… then take one – lay it flat on the cutting board, place a slice of prosciutto, a slice of the mozz, a slice of red onion and some arugula. Roll it and pin it with a toothpick – set aside and repeat.
Place a dollop of butter and a splash of olive oil in a frying pan and turn the heat to high… When it’s almost sizzling – add the rolled cutlets and brown on all sides… this might take all of 5 mins…
Place in a baking dish – now add more butter to the pan along with a 1/2 cup of beef broth (you could use a dry white wine if you prefer) and let it come to a boil – deglaze the pan and then add to the baking dish so that the rollatini are just bathing… cover and place in the oven and cook for another 10 mins max.
Remove and place on a serving platter – serve with an herb seasoned rice pilaf and a mixed green salad dressed in oil and fresh lemon juice, s&p and dried oregano. Simple easy and it takes all of 30 mins start to finish.
Buon Appetito!