Things you need to know
- Stocks tank then rally back hard – as investors hunt for bargains
- IBM – beats across the board – Stock up 5% in the pre-mkt (core holding)
- Crypto’s continue to thrash around – and that is far from over
- The FED holds the KEY – Take back control of the conversation
- Global leaders threaten Vlad with diplomatic sanctions
- Markets on high alert
- Try the Escarole and Bean Soup
And the Sh*t hit the fan…. stocks went into a free fall on Monday morning…. futures pointing lower in the pre-mkt led to a collapse once the opening bell rang…. the Dow falling 415 pts by the time the bell stopped ringing…. the S&P, Nasdaq, Russell, and Transports not far behind. European markets which were down nearly 2% got weaker……Wiping out most of 2021 in the matter of hours as the S&P traded as low as 4,222 – just 371 pts above the closing level on January 20, 2021, when Joey & Jill moved into 1600 Pennsylvania Avenue.
Weekend comments from both GS and MS suggesting that the FED’s situation is more dire than they let on….and that it ain’t over by any stretch…..GS saying that even their suggestion of 4 rate hikes might be wrong while MS is saying ‘stay away from tech’…..all while Jeremy Siegal – you know him – a Professor from the Wharton School telling the audience that we can expect anywhere from 7 – 8 rate hikes in 2022 all setting the tone. Then toss in the Russia/Ukraine issue, the Iran (Houthi)/UAE issue and the brewing China/Taiwan issue and you have the recipe for a short-term disaster…because remember – while all the geo-political stuff will cause short term chaos – it doesn’t price stocks in the long run. But that doesn’t mean you have to get run over in the process.
And then news that Joey was scheduling a zoom call with European leaders to discuss the building tensions between Russia and the Ukraine and the world…. sent stocks even lower…Recall how he said that he expected Russia to make a move last week during his 2-hr. press conference – almost giving Vlad the A-OK…. while leaving the leadership in Kiev wondering what on earth he was doing.
The Dow notching an 1100 pt. loss, the S&P over 170 pts, the Nasdaq down 670 pts while the Russell gave back 57 pts and the Transports lost more than 300 pts….as it seemed the flush was coming……then stocks stabilized a bit, rallied into the early afternoon only to weaken again as the clocked ticked towards 3 pm only to rally and go positive by the 4 pm bell. By the time it was over the Dow added 100 pts, the S&P up 12, the Nasdaq up 87 pts, the Russell up 45 and the Transports up 190 pts.
It was an amazing day for sure….and while buyers stepped out of the way in the early part of the day allowing sellers to toss it out the window, they waited patiently for them to tire….and then they went in for the kill…..scooping up names like NVDA that was down 10% by noon – this on top of 36% it was already down – let me reiterate – this is NVDA….are you kidding? (Now to be fair – there is some stock specific news out about NVDA – the ARM deal is off because of regulatory pushback – so that is not helping the ‘buy’ story now, but I do not think it is a death knell for NVDA at all and in fact – the stock is trading right back where it was on Sept 20th the day the deal was announced). Or AAPL – which was already down 13% coming into the day – sold off another 4% before the buyers stepped in, MSFT was off 16% then sold off another 5% yesterday…..XRT (retail) off 22% fell another 3 %, as the morning turned to afternoon, and one of my favorites – IBM – which was down 9% – fell another 3% before buyers started scooping it up ahead of last night earnings – which beat the estimates. The stock is up $5 pts or another 4% this morning.……and you could come up with a slew of others that are great names that have come under pressure because of a change in policy, building anxiety, geo-political chaos, yet whose stories have not changed…..so buyers started scooping them up…..backed up the truck taking the Dow from -1100 pts to +100 pts – a stunning 1200 pt. swing from low to high….as some of the best names in the country went even further on sale.
As this was happening – the 10 yr. treasury yield fell to 1.70% as money poured into the bond market in what was a ‘safety play’…that was until, buyers started to pile in…and then there was a change of heart, money came out and yields rose to 1.77% to end the day.
Oil – which is expected to surge to $150/barrel if Vlad takes the place over (according to some JPM analysis) saw the energy sector trade as high as $86.60/barrel before it backed off into the bell as well – closing the day down $1.83 at $83.31. This because the markets are not yet convinced that Russia will force himself on the Ukrainians…. the thought is that he will be ‘invited in’ to settle unrest in the country – unrest that will clearly be made up….as he installs a puppet gov’t. And if he is invited in vs. just going in – then maybe oil will not spike…. but let’s just see what happens. In the end – Russia is looking to take back Ukraine.
And the VIX – well that spiked too…. rising as high as 38.84 before settling $1 at 29.90. The VIX up 135% since January 4th, this as the Nasdaq is kissing BEAR market territory, the Russell is in a BEAR mkt, and the S&P, Dow and Transports are all in correction territory.
But like I said yesterday with Charles Payne on ‘Your Money’ – don’t go celebrating just yet…. after such a volatile move like – you can expect more to come. You don’t see the markets break down like that and then say, OK, it’s all better now….You, do as I said 3 months ago…you strap yourself in….and get ready for more turbulence ahead…and that is exactly what we are seeing this morning…US futures are pointing lower (again)…Dow futures down 105 pts, the S&P’s off 35 pts, Nasdaq off by 165 pts and the Russell is down by 15 pts.
Look – nothing has changed – the main plots continue to be the FED and monetary policy, a ‘pandemic’ and we are trying to price in a Russian invasion of Ukraine – an invasion that Vlad thinks will restore his place in world history. The sub-plots are China/Taiwan, and Iran and the Saudi’s – which are simmering on the back burner- but that’s a different story.
Today starts the 2-day FED meeting, do not expect to hear anything official until tomorrow at 2 pm. There is lots of speculation about what ‘might’ happen and lots of speculation about what ‘should’ happen from all corners of the markets. The big banks have helped to jawbone the markets lower – ahead of ANY FED move – and until we hear what Jay has to say – expect the jawboning to continue.
You see – Jay must TAKE back control of the conversation if he wants any of this to stop…. He needs to lay out the plan – whatever it is, but he also needs to stop the idea that we are getting any more than 4 rate hikes in 2022…talk of 6 – 8 hikes are ludicrous – (in my opinion – not helpful at all). He needs to clarify the issue about the balance sheet and the pace at which the ‘long end of the curve’ will rise. Because they have risen significantly in the past 3 weeks. 30 yr. money is now available at 3.7% when only a month ago it was hovering around 3% and one year ago it was 2.5%….and depending on what we hear will determine where the long end will go. And that should help to slow the housing market and it will help to reprice risk assets… (as we are witnessing).
Overnight – the US put 8500 troops on alert and the Kremlin has said that only ‘exacerbates the tensions. This while Vlad has amassed thousands of troops, tanks, and equipment on the eastern border – saying it means nothing – he has no intention of invading…. Yeah – how’s that working for you? The Biden zoom call yesterday afternoon is being defined as a ‘great meeting’ while Germany is still set against ‘arming Ukraine’…. More meetings over the next couple of days as NATO tries to negotiate a diplomatic solution.
European markets are all up…. this after they closed lower across the board by more than 3%. Investors there bracing themselves for policy updates and political updates. Earnings season is in full force so like here, there are lots of stock specific headlines, but they are not driving the action….now…. At 6 am – all the markets across the region are up less than 1%…. but it feels like they might go negative as morning turns to afternoon. Just a gut.
Crypto’s continue to thrash around as well, after the beating they have taken over the past month…. Bitcoin is trading at $36k and Ethereum at $2,400 – higher than they were yesterday, but still lower than overnight trading. Expect the volatility in this asset class to remain high even if the volatility in stocks calms down….
The S&P closed at 4410 – after testing a low of 4222 – which took us back to April/May 2021……a level that I had suggested would offer support and did…. I would expect that we will test that again…. after such a violent move and as investors attempt to figure it out. Just to be clear – there has been a lot of technical internal damage done to the markets, so it will thrash around until it gets clarity. The FED holds the key right now, what they say will matter, but it will be what investors HEAR that is more important. Do they believe what Jay has to say? Do they agree with the FED think? And then – are valuations properly reflected in that thought?
Either way – I said it before, and I will say it again…Buckle Up and Strap In…. stick to the plan, add new monies to VALUE and be patient with the sexy high growth names…because they will continue to get hammered until the FED offers more clarity and takes control of the narrative once again….
Take Good Care
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Escarola & Bean Soup
Simple yet comforting…. All you need for this is your basic chicken soup, white beans, and fresh escarole – and as always plenty of fresh grated cheese.
Take your chicken soup. Remove the chicken but keep the veggies – carrots, celery, and onions. Bring to a boil then turn to simmer. Add a can of white beans – cannelloni beans always work well and then add in the chopped escarole. Stir to allow the ‘escarola’ to wilt. Serve in warmed bowls and have plenty of fresh grated cheese on your table. Picture to follow on my Twitter – @kennypolcari
Buon Appetito.
