Things you need to know
- Stocks rally hard after the WSJ confirms the next FED move
- GS – now confirms the story – changing their forecast as well
- Oil – finds support at $81….as the strong dollar puts pressure on commodities
- Mortgage rates hit 7%…. ouch
- Try the Lemon Chicken
Stocks surge higher…partly due to sellers exhaustion and partly due to confirmation of what’s next in a story published by the WSJ…..followed up by our friends at Goldman……The Dow gaining 435 pts or 1.4%, the S&P up 72 pts or 1.8%, the Nasdaq up 250 pts or 2.1%, the Russell added 40 pts or 2.2% while the Transports ended in last place gaining 73 pts or 0.5%.
So the WSJ confirms what many of us have been expecting for a while now….It is T-13 days and the FED is NOT going to cave – Rates expected to go higher by 75 bps….taking the fed funds rate to 3% — 3.25% band…..leaving us just 2 meetings away from the 4% target that many of the Fed members have been suggesting….Now – the article was written by Nick Timiraos – who many define as ‘the FED whisperer’ – which leaves me to ask – how can he whisper what the FED is going to do unless someone at the FED ‘whispers’ it into his ear? Which brings up the question – Who is ‘deep throat’ at the FED…..yes, you can say we’ve heard from the whole crew – and while they have all indicated higher rates are needed – the market kept suggesting that 50 bps was enough…..no reason for any more…..So – they pull out all the stops and instruct Minneapolis Fed President Neely Kashkari to whisper the next move to Nick….and then Nick writes a story suggesting that ‘his investigative work’ reveals that the FED is on pace to raise rates by 75 bps….See how this works? In fact – you can say that there is NO news unless someone leaks a story…. and so, it is….
Then Vice Chair Brainard comes out and opens the door – saying that ‘the bank will have to raise interest rates to restrictive levels and keep them there’ – while also saying ‘risks would become more two-sided in the future’….See that…..she opened the door just a crack to basically say – back off…we’re going to get aggressive now…..then maybe we can discuss slowing down….at some point…..On the back of that – This morning we have another FED favorite – none other than Goldman Sach’s Jan Hatzius – who came out in a research note and said that they are now ‘lifting their forecast’ for the future pace of hikes….they see 75 bps in September and then 50 in November….and that just about seals it……The WSJ and GS both confirming what the move is…and today – at 9 am – JJ Powell is due to speak at the CATO institute – do you really think he is going to suggest anything different after all that hard work yesterday?
Now – there was plenty of opportunity – right? Stocks have gotten beaten up over the past two weeks – the major indexes down 10+% – after that surge off the June lows….that took stocks up nearly 15%…..On Tuesday – we saw the S&P trade down to 3886 – still well above the June lows….but where it appeared that sellers became exhausted….no longer willing to hit the sell button as speculation ran rampant about what the next FED move was…
Every sector with the exception of energy rising significantly……Utilities – XLU ringing the bell at +3.1% (think higher electricity rates….), Consumer Discretionary – XLY +3% – Basic Materials – XLB + 2.7%, Communications – XLC, Real Estate – XLRE & Financials – XLF+ all up 2%, Industrials – XLI, Tech – XLK, Healthcare – XLV +1.6%….
Disruptive Tech – ARKK +3.4%, Retail – XRT and Airlines – JETS both up 3%, Semi’s, Cybersecurity and Artificial Intel all up 1.7%….
All while Energy fell….XLE down 1.1% – still leaving it up 41%…..ytd though….Now look – they are creating hysteria…China lockdown….with Chengdou now locked down indefinitely….and then the recession (that is supposedly not here) causing demand destruction and then rising US interest rates that is sending the dollar higher is putting pressure on all commodities – as they are price in $ and have the inverse effect……but a rising dollar that causes oil and other commodities to fall in value does not mean that demand is declining at all…it just means a stronger dollar forces prices lower…..It’s a math problem not a demand problem.
That being said – they have taken oil to $81/barrel – back to levels last seen in Feb/March of 2022 – also a level I think will hold….and when the hysteria stops and we start pricing in what’s happening in Europe (Vlad threatens to let them freeze this winter) and the winter in the northern hemisphere – I think it starts to move higher again…..Look – Russian oil is off the market – the US upped its demand expectations for next year while supplies are expected to slow, the Saudi’s upped their global demand expectations last week and cut production this week to defend the price and I suspect that they will continue cut production to defend the price…..But – the momentum right now is lower…..and no need to jump in front of a speeding train…..some estimates call for oil to fall to $60 while others have oil back in the $120 range before year end….(I’m in that camp).
Gold – which they also smashed over the past 2 weeks (again think rising dollar) – taking it right back to $1700 – where it found support (as I suggested) is now trading back up at $1735/oz….as investors always find true safety in gold when they expect more volatility ahead. Gold remains in the $1700/$1760 range.
Treasury yields backed off a bit yesterday and that also helped fuel the surge…. but they still remain inverted…. And with rates expected to go up – guess what happened to 30 yr. mortgage money. 30 yr. fixed rates for someone with a 720 fico score topped 7% yesterday….7% – that is up 140%….from January….and if you have a 760 fico score – your rate would drop to 6.4%…..Just think about what that is gonna do to the housing market…..and we haven’t finished pushing rates up….could we be seeing 8% mortgage rates by Christmas???
The dollar index which has surged by nearly 6% since mid-August to trade up to 110.30 is backing off a bit as it digests the move and this helping the mood this morning….
European stocks are trading mixed…..as they await the ‘jumbo’ rate hike that is about to come….expectation is for 75 bps while the whisper number is 100 bps…..and we all know that the ECB is way behind the 8 ball all as inflation is hitting 9.7% and likely going higher in the months ahead…..What was Christine Lagarde thinking? Once again – feels like she too was asleep at the wheel.
US futures are up small this morning…. – the Dow +30 pts, the S&P up 3, the Nasdaq up 7 pts and the Russell is flat. Today’s focus will be on what JJ has to say this morning……Don’t expect him to change the narrative…. he can’t now…. he’ll lose ALL credibility…. or at least whatever he has left… There is no real eco data today of any consequence….so expect the chatter today to be about the FED, and next week’s CPI and PPI reports….
Friday brings us 3 Fed speakers – Evans at 10 am, Waller and George at 12 pm. And they too will not change the narrative….so don’t try to read between the lines…. not happening.
The S&P closed at 3979…..up a whopping 1.8%……setting us up to challenge trendline resistance at 4020…..While we got a rally yesterday – traders and investors are pricing stocks ahead of what is expected to be a HARD landing and a deeper recession…Look for earnings estimates to be revised lower….in the weeks ahead – recall that earnings start all over again in one month…..so get ready.
In any event –September and October are full of angst and volatility – I suspect this year won’t be any different. Stay focused – put money into your account and keep it in cash if you must – but be prepared to put it to work at some point…I always say it is better to remain in the game than sit it out, but that’s me. You do you. Remember – in an environment like this – Big, Boring names are Beautiful….and offer some shelter in the storm.
If you own good, solid US mega cap names that are decent divvy payers then sit tight take advantage of weaker prices that will bring down your average cost. Sectors to be overweight in? Energy, Healthcare, Utilities & Consumer Staples all fit that bill. But you have to balance that with where you are in the life cycle…younger = more risk, older = lower risk.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Lemon Chicken
This is a great dish if you are planning a party….it is easy to prepare and goes along way. You can make it ahead of time and just heat it up in the oven when ready. Served with another entree in a buffet style along with a large mixed green salad, Rice Pilaf and some sautéed broccolini – it makes a great presentation.
You will need to start with boneless/skinless breasts, and thighs. rinse, drain and pat dry….
To prepare – you need: – 4 lemons – sliced into 1/8-inch slices…. seasoned flour (s&p), beef broth, butter and bit of olive oil.
Cut the chicken breasts/thighs into bite size pieces – dredge in seasoned flour and set aside. Next – in a large sauté pan – melt the butter and a bit of olive oil to prevent the butter from burning – make sure it is hot before adding chicken. Add enough to fill the pan – but do not overcrowd. Keep the heat on med high/high. brown the chicken all over….it will take on a golden hue…. should be about 5 mins or so……
next add enough beef broth to bathe the chicken pieces – lay lemon slices on top of chicken and cover. Turn heat to med and allow the lemon and broth to permeate the chicken. About 3 / 5 mins more. Keep your eye on it and turn the chicken so that it does not burn. The broth will begin to thicken so make sure to not overcook. Transfer to a baking dish and repeat process for the balance of the chicken. You can cover and keep warm in the oven until complete.
Buon Appetito.
