Things You Need to Know
- Valuations Concerns? I guess not! Stocks end higher.
- Supreme Court hears Tariff arguments – Outcome unclear now…
- Bitcoin rallies, bonds get whacked, gold inches higher.
- Stay focused on the goal – call me to discuss.
- Try the Fall Medley – Butternut Squash Soup.
Recall my headline from 3 weeks ago…. Weeble’s wobble but they don’t fall down! And that has not been any truer than yesterday…..
While tech stocks got hammered on Tuesday over valuation concerns – that was not the case on Wednesday…. In fact – some said ‘Valuation concerns? You must be kidding’!
Buyers wasted no time stepping back into a market where every dip is seen as a buying opportunity, it didn’t take long for the algo’s that led stocks lower on Tuesday, to lead them higher on Wednesday…because – the anxiety that caused the algo’s to go into SELL mode disappeared overnight. Investors, traders and algo’s using the dip as another opportunity – especially in the names that got crushed on Tuesday – think AI, Semi’s, Disruptive Tech, Quantum Tech….
Now, while we did not take back all of the losses suffered on Tuesday, yesterday was a bit of a reprieve…. And all the indexes ended the day higher.
The Dow gained 225 pts or 0.5%, the S&P added 25 pts or 0.4%, the Nasdaq gained 151 pts or 0.7%, the Russell up 38 pts or 1.5%, the Transports gained 151 pts or 0.9%, the Equal Weight S&P gained 45 pts or 0.6% while the Mag 7 took back 296 pts (recall they gave up 786 pts on Tuesday) or +0.9%.
Now, let me be clear…..It was NOT a buying frenzy at all…..nor was it a stampede….. but let’s make sure we are on the same page…..Tuesday dramatic response to PLTR’s earnings and guidance reminds us just how stretched this market is and how headline-sensitive it has become. One bad headline and its risk-off as the algo’s accentuate the negatives and eliminate the positives while one good headline causes a risk-on mentality that accentuates the positives and eliminate the negatives…and that my friends is exactly what happened yesterday. The question is – when will the headlines remain negative for more than 24 hrs.? Because that is when the weakness will become an issue.
Now at this point – I don’t see it happening anytime soon. We are less than 8 weeks from year end, performance (if you’ve been in) has been admirable, my gut says that no one is going to let it slip away in the next two months…. But January 2nd? That’s another conversation…New year, clean slate, it’s all very orchestrated.
In any event – the other BIG thing happening is the Supreme Court Case over Trumps Tariffs that is now before the court. And yes – this has implications for stocks, bonds, gold, and the investment thesis…. Maybe not today, but you need to recognize what’s at stake.
The question: Does Trump have the legal authority to impose sweeping tariffs under the International Emergency Economic Powers Act (IEEPA) without explicit Congressional approval?
Now the challengers (US importers and Manufacturers) say NO. Congress has not given the President open-ended power to impose major import duties via IEEPA — tariffs are more properly a legislative or taxation power reserved to Congress.
The government says ‘not so fast big boy’…… IEEPA does authorize this kind of trade action in a national-emergency context, and that tariffs are more about trade regulation than simply raising revenue.
Ok – so now what? Several justices (Roberts, Gorsuch, Kavanaugh & Jackson) from both camps voiced skepticism about the administration’s interpretation of IEEPA — especially because the statute doesn’t explicitly mention tariffs or grant such broad authority. Chief Justice Roberts and others emphasized that the power to impose taxes and tariffs is traditionally Congress’s domain.
The Court pressed the government on the major questions doctrine, meaning that where an agency or executive claims huge economic power under a vague statute, the law must clearly authorize it.
We are now in the ‘post argument decision window’ – here is what we can expect to happen. The Court will not (most likely) completely invalidate presidential tariff authority. But it may tie his hands a bit – requiring stronger congressional language, stricter justification, or narrower scopes of “emergency.
And why is this important? Because the ruling could reshape U.S. trade policy tools and executive power going forward and it will most likely cause some chaos in the markets if the ruling is too restrictive. The ruling could come as early as December and as late as June…. The longer they delay a decision the more disruptive it could be to the markets and economy.
If they completely invalidate the tariffs (unlikely) – it would trigger a worldwide chain reaction – both economically and politically. My gut says that will not happen, but do not be surprised if they clip his wings a bit. Now, we can’t make decisions now for an event that may or may not happen, but you can be more cautious – no need to keep chasing anything…..– so stay tuned….Expect to hear much more in the coming days and weeks ahead.
Bonds got hammered a bit yesterday on this very issue…. The TLT lost 1% and the TLH lost 0.9%…. Why? Because if they rule against Trump then all those companies that paid the tariffs will demand a refund and we will have to pay it. (and trust me – they are already lawyering up). If we do not have the money in the general fund to make those refunds – then guess what? We have to issue MORE bonds to ‘cover it’…. More bonds = more supply = lower prices = higher yields = tough on stocks. Capisce? It’s not rocket science, it’s econ 101 – supply & demand.
But remember – that is a knee jerk reaction – the argument just happened yesterday – the decision is yet to come…. but it just speaks to how sensitive markets are to ‘headline risk’ (see commentary above).
The move lower in bonds sent yields higher…the 10 yr gained 5 bps to end the day at 4.15% while the 30 yr rose 7 bps to end the day at 4.73%. This morning – bonds are steady and yields are down by 2 bps.
Oil continues to trade tight…..This morning WTI is trading at $60.10. For now, $60 appears to be a floor. We’ve tested it 6 times now in the past week.
Gold moved a bit higher yesterday rising $47 to end the day at $3,979 and this morning it is up $28 – taking us back above $4000 – a level it seems to want to hug. Short term trendline support continues to advance and is now at $3,870. This whole supreme court case will keep a floor under gold – if for nothing else than the ‘safety net’ it provides.
The VIX – is settling down – but you know how quick that can change.
This morning US futures are churning…..Dow down 11, S&P’s up 5, Nasdaq +9 and the Russell is flat. If you were sitting on cash, you’re good – you have ammunition. Don’t be so quick to deploy it – patience is a virtue and in nervous times like this – cash is king.
Eco data yesterday was ‘ok’…..ADP employment showed we created a bit more jobs than expected – we won’t get an NFP report this Friday – that means we’ve missed 2 of these important reports. Services PMIs were strong…. S&P at 54.8 while the ISM came in at 52.4. Prices paid though, rose from 69.4 to 70 – suggesting services are getting more expensive. Hmmmmm…..
And the earnings parade continues as expected – beats on the top and bottom lines and robust guidance. We will hear from 20+ companies before the bell…and another 15 after the bell. AFRM (Buy Now/Pay Later) is the standout for me…. If AFRM misses, it won’t be about the headline earnings number — it’ll be about whether consumer credit stress is starting to show up in BNPL.
European markets are lower as well…. Lot’s of earnings hitting the tape across the pond…as investors await the BoE policy decision – they are expected to hold rates steady at 4% – as they await the budget proposal on the 26th – and that is expected to show Rachel Reeves needs to raise taxes….something that will not be well received.
The S&P closed at 6,796 – up 25 pts. I did nothing new yesterday –I wait 24 to 48 hrs. after a reaction like Tuesday to see how it settles down. There is no need to do ‘something’ everday………There is cash in the acct, and the rest is invested in quality names, the portfolio is performing as expected – You are good.
Yesterday we did test lower (6763) than the low on Tuesday (6766) before ending the day higher. This is key – if we continue to hold right here, that will make me feel a bit better, but my gut says we won’t – thus the patience. Short-term trendline support is at 6660…..something I expect we will test. I just want to see if we’ll hold it.
Remember – once they focus on a negative headline – then they ONLY focus on the negative headline….
The ground is shifting just enough to keep you on your toes. This is the time to stay focused, stay disciplined, and don’t get sucked into the noise.
Call me at 561-931-0190 – to give you a no obligation review of your portfolio. Its all about risk management – let me help you assess the risk of the portfolio vs. the risk you are willing to take.
Countdown
37 days into the Gov’t shutdown
23 days until Official Black Friday
49 days until Christmas
55 days until the ball drops in Times Square
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.
It’s a Fall Medley of flavors – Butternut Squash Soup.
This is a simple yet delicious recipe. Not a lot of work to get it done, and it’s great to eat.
For this you need: A butter nut squash cut in half, (skin on, seeds removed), bulb of garlic – top cut off, 2 large carrots – trimmed and cut into chunks, 2 red bell pepper, sliced in half, seeds removed, and 2 large Vidalia onion, peeled and cut in half, Beef broth (bone broth even better), fresh thyme & fresh grated parmegiana cheese.
Preheat your oven to 375 degrees. In large roasting pan – put the squash – skin side down, add the cut-up peppers, carrots and onion. Place the garlic bulb in one of the ‘holes’ in the squash after you remove the seeds.
Season with s&p, a splash of olive oil. Add in a couple of sprigs of the thyme and roast in the oven for 40 mins or so…. make sure the squash is soft.
Now – remove from the oven – place the veggies in a large pot, Remove the squash from the shell – add to the pot, squeeze the roasted garlic out of the bulb – add to the pot. Toss the Thyme away.
Now add the warmed broth – allow the flavors to come together for 5 mins.
Using an immersion blender (or food processor) blend the soup until it is pureed.
Add the fresh grated parmegiana and stir. Serve immediately with a touch of high-quality olive oil.
Make yourself a toasted grilled ‘gruyere’ cheese sandwich on fresh baked ‘hearth bread’ to dip. So good!
Buon Appetito!