Things You Need to Know
- Ta Dah! The shutdown is over, and stocks take a hit!
- Valuations are stretched – guaranteed rate cut NOT guaranteed.
- FED Heads deliver a coordinated – ‘Not so Fast Big Boy’
- Algo’ go into almost panic mode.
- Try the Scampi
Rewind:
Yesterday, I reminded everyone of this:
“Let’s not pretend the market was hanging by a thread because of the shutdown.”
No — it was hanging by a thread because valuations were stretched like a rubber band and because the street had convinced itself that ongoing rate cuts were guaranteed. And yesterday proved that point in real time.
I also said we were about to start getting eco data and we should expect a wave of jawboning from Fed heads ahead of the 8-day blackout window. If they had something to say, they were about to say it.
And don’t discount the headlines about Softbank selling all of their NVDA and Mikey Burrey making a big bet against tech and then closing his high-profile hedge fund. (both being perceived as negative)
And like clockwork… the FED members did not disappoint (or maybe they did)
Suzy Collins (Boston) → “No vote” on a December cut.
Alberto Musalem (St. Louis) → Wants to “move cautiously” because inflation isn’t at target — that’s another NO vote.
Bethy Hammack (Cleveland) → Rates should remain “somewhat restrictive” — call that strike three.
Neely Kashkari (Minneapolis) → Didn’t support the last cut and is “undecided” for December — not exactly confidence-inspiring.
Trump’s latest Fed pick, Stevey Miran → He was noticeably quiet.
And so, reality hits…
Valuations that had been pushed higher — stretched, extended, inflated – choose the word — was because analysts, traders, and the algo’s were pricing in guaranteed rate cuts and yesterday they got punched in the face! In fact, the last couple of days- the rumor was 50 bps was back on the table – and that only excited the markets more!
Yesterday’s chorus from the Fed made it clear: A December cut is anything but guaranteed. In fact, the odds of a cut fell to 49% down from 65% only 2 days ago. So, a cut is still a reality, just a little less so than Monday. (The irony, of course, is that I’ve been in the “don’t cut” camp the whole time.).
So, the algo’s did what they do — went into full-blown overdrive mode, hitting the SELL button on everything that wasn’t nailed down. Buy algo’s see this and cancel in line bids – that results in a void in prices and boom – down we go……Now remember – when stocks go up 1.5% or 2% in one day – everyone celebrates but when they go down 1.5% – 2% in one day – the mood goes from celebration to despair.
Now, The Nasdaq, the Mag 7, the Russell, and the Equal Weight S&P all breached short-term trendline support. And while that is not a death knell, it is notable because of what happens next…the algo’s get more anxious and sell more and that just puts more pressure on stocks and the broader market. And that is exactly what happened to the Russell and Equal Weight – they breached and then they got hit again forcing these indexes lower almost kissing intermediate trendline support — which would’ve caused the algo’s to become really hysterical.
By the close: Dow: –797 pts (–1.6%), S&P: –113 pts (–1.6%), Nasdaq: –540 pts (–2.3%), Russell: –68 pts (–2.8%), Transports: –274 pts (–1.7%), Equal Weight S&P: –91 pts (–1.2%), Mag 7: –900 pts (–2.7%).
Now here’s the funny part…The talking heads on CNBC are acting like the end is near, asking one of the guests “are you frightened’? It’s laughable! Stocks had a down day – they didn’t crash and burn!
We’re talking 2%. And be honest — are you really surprised we finally saw three days of selling pressure? Think about it: stocks have gone straight up for eight months: S&P: +42%, Nasdaq: +60%, Russell: +42%, Mag 7: +74% so grab a hold of yourself…. This is not a crisis….
We’ve been talking about this for weeks — and nothing has changed. I’ve been cautious about how and where to deploy new money, and I’ve been crystal clear: DO NOT CHASE TECH.
It’s been stretched. It needed a pullback. Shaking the branches is ok – it gives you a chance to see who falls out. Since last week’s highs, here’s where we stand:
Dow: –1.6%, S&P: –2.6%, Nasdaq: –4.8%, Russell: –6.2%, Transports: –2.5%, Equal Weight S&P: –4.8%, Mag 7: –6.5%
And while that might feel a little uncomfortable, let’s keep some perspective: We are still well within normal trading bands.
Yes — individual names are down more. That’s always the case during a shakeout. But this is why you own a diversified portfolio instead of betting the ranch on one name. You’re not exposed to a single point of failure. You own a basket of assets that are designed to weather exactly this type of volatility.
Now of the 11 S&P sectors – only one ended slightly higher – Energy + 0.25% – which was a big win considering the pressure. The other 10 sectors lost ground – Tech lost 2.5% (it is still up 23.5% ytd), Consumer Discretionary lost 2.5% – leaving it up only 3.4% ytd – because it has been an underperformer due to economic uncertainty – remember Discretionary are ‘wants’ not ‘needs’ and so those are the first to get cut if you become nervous….
On the other hand, Consumer Staples ended the day flat (they are down 1.5% ytd) – again – why would you buy boring Staple stocks when you could buy exciting stocks? – A move I keep telling you is a mistake – This is exactly why you should buy boring consumer staple stocks – they have been on sale and when the markets get anxious they tend to hold up.
Industrials lost 1.5% (leaving it up 15.4% ytd), Utilities lost 1.4% (they are 17.2% ytd), Financials down 1.3% (they are up 9.6% ytd), Communications down 1.4% (leaving them up 15.6% ytd), Healthcare ended flat – leaving it up 11% ytd (think defensive), Basic Materials lost 0.6% (up 4% ytd) while Real Estate gave up 1.3% leaving it up 0.4% ytd.
And of course anything tech got slammed but it is also not a ytd disaster – Disruptive Tech – ARKK lost 5.4% (leaving it up 35%), Next Gen Tech – ARKW lost 5% leaving it up 43%, Semis’ down 3.4% but still up 35%, the Growth Trade -SPYG lost 2.2% leaving it up 19%, the Value Trade – SPYV lost 1% but is still up 10%. Are you seeing a pattern?
The VIX surged by 14.3% – pushing it up and thru its long-term trendline and that helped the contra trades to be bought. The DOG +1.6%, PSQ + 2%, SH + 1.6%, the VIXY + 6.6%, the SPXS + 5%. Just fyi – the VIX is up 6% again this morning and that is putting more pressure on stocks…. futures are lower.
Bonds ended lower – The TLT and TLH lost 0.8% and 0.5% respectively. The 10 yr is now yielding 4.12% up 4 bps while the 30 yr is yielding 4.72% up 6 bps.
Oil did not do much yesterday, but it is up $1.60 or 2.7% this morning. This is – in my opinion – a dead cat bounce. I still expect oil prices to trend lower as we digest the oil glut that is expected in 2026. Markets are expecting WTI to settle into the high 40’s and low 50’s before this is over. We are below all 3 trendline supports, so you have to make some assessments based off the chart and the chart is telling me that we are in the $55/$62 range.
Gold continues to churn near the highs, this morning it is down $23 on top of the $23 losses yesterday – this is a direct result of the idea that the FED does not cut rates….If that is the case – do not be surprised to see us test trendline support at 3940 – a level we got close to 2 weeks ago. But for now – the chart tells me that we remain in the $3940/4350 trading range – which is quite large, but that is the range. I think we test lower before we test higher.
It’s Friday – the mood is a bit negative for stocks and so futures are lower…you should not be surprised. Dow futures -210, S&P’s -40, Nasdaq down 265 and Russell is down 16. Don’t overthink it…. A pullback is normal and healthy.
As you can imagine – European markets are lower as well. Mkts across the zone are down about 1.5%.
The S&P closed at 6,737 – down 113 pts. This morning futures suggest that we are going to test short-term trendline support (6700) on the opening trade. This will cause the algo’s to sell more to see if the bulls defend the position or if they step aside to test the anxiety level? If they step aside – then watch as the broader market comes under more pressure – again uncomfortable – sure, normal – yes. Recall we could see the S&P trade down to 6228 before we enter the ‘correction zone (10% off the high). A level I do not think is going to happen.
Now look – the next big data point is the NVDA earnings….and they come out on Wednesday after the bell. The market is betting that they beat the estimates by a significant amount…but that does not mean anything about how the stock will react – because right now there is too much anxiety over tech….and tech valuations. Ask yourself – How dependent is NVDA on what the FED does next – remembering that rates are well within historical normal ranges. If the FED does nothing does that change the long-term investment narrative? Not for me. But you do you.
As I have been saying – I think the markets will churn into year end….test a bit lower and then rally back to the 6800 range by year end. Today ‘s test of the short term trendline is KEY to what happens next…. Sit tight – remember what I told you last week. After the market has a negative reaction like this, I typically wait 24 – 48 hrs. to see how it settles down…And that has not changed….
Stick to your plan – remain disciplined, talk to your advisor if you are concerned, patience is a virtue – especially when the markets get nervous.
Call me at 561-931-0190 – to give you a no obligation review of your portfolio. It’s all about risk management – let me help you assess the risk of the portfolio vs. the risk you are willing to take.
Countdown
14 days until Official Black Friday but only 6 days (11/20) until the Pre-Black Friday sales begin.
26 days until the FOMC announcement.
41 days until Christmas
47 days until the ball drops in Times Square
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.
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.
Shrimp Scampi Over Linguine
You need only a couple of things….1 lb. of large cleaned, deveined shrimp, butter, olive oil, onion, garlic, lemon, white wine, chopped parsley, s&p….and a lb. of linguine….and of course some fresh grated parmigiana cheese….
Bring a pot of salted water to a rolling boil ….
In a sauté pan – melt butter and add a splash of olive oil, add crushed/sliced garlic and sliced onion……and sauté for about 10 mins……. keep heat on med so that you do not burn the butter, garlic, or onions…
Now add the linguine to the boiling water…. stir…
Next add the shrimp to the sauté pan, season with s&p, and sauté quickly until nice and pink on both sides…no more than 5 mins……
Now add juice of one lemon, complement with some white wine…about 1/4 cup…in pan – and a glass for you – turn heat up to high and let the wine steam away…no more than 2 mins……strain pasta – reserving a mugful of water – add pasta to sauté pan and a handful of fresh grated parmigiana cheese…. – mix and serve…. You may need to add back a bit of the pasta water to keep moist -as the pasta sucks up the juice…. Serve in warmed bowls with fresh grated cheese at the table.
Buon Appetito!