Things you need to know –
Our prayers go out to a nation in mourning….in fact to a world in mourning – as the death of Queen Elizabeth becomes a reality. King Charles III now to take over the monarchy. God Bless the Queen.
- Stocks rallied hard – JJ takes the guesswork out of it, confirming the move
- Treasuries yields rise and remain inverted; the Dollar index retreats
- Gold, Oil, and another commodities rally
- 3 more FED Heads today…. don’t expect them to change the narrative
- Try the Chicken Cacciatore
Stocks rallied again….
Super-size it! That’s what JJ confirmed – in his speech yesterday morning to the CATO Institute – he made it clear the FED is ‘squarely focused’ on bringing down inflation before it becomes fully entrenched in the economy…. suggesting that investors should expect a 75-bps hike in 2 weeks….
…so now stop asking and stop doubting that that’s what gonna happen….if JJ Powell and the other FED heads DO NOT raise rates by 75 bps on September 20th – they will lose all credibility…..and at this point it makes no difference what the CPI and PPI are next week….(they know what it’s gonna be and they are prepared to defend their decision – the same way the Saudi’s are prepared to defend the price of oil!) Both have already drawn the line in the sand (see how I did that?)
And just so that everyone is clear on what the expectations are – Both of those reports are expected to be better…… the CPI is expected to come in at 8.1% y/y – which is down from 8.5%…..which is good (think the recent decline in oil and other commodities), but let’s be honest – it is still 8.1% y/y – still near 40 yr. highs and prices of food, housing (rent) and electricity are still on the rise – which is why the FED cannot do anything other than stay firm…..So stop the whining….It is what it is…I guess what we can celebrate is that the rate increase will not be 100 bps.
In fact – I’m gonna go out on a limb here and say that if they raise rates by 75 bps – I think the mkt rallies…if they raise by 50 bps (or 100) – I think it sells off – (think unexpected)…..because at this point – the market is pricing in a 75 bps increase – they have worked very hard to get that message out – so why screw it up now? And if you were unaware – Christine Lagarde – President of the ECB (European Central Bank) – raised rates by 75 bps yesterday as well….the WSJ described this as ‘the largest amount since the early days of Europe’s currency union, moving aggressively to combat record inflation even as an energy crisis puts Europe on the brink of recession’. So, there you go…. Is any of the unclear?
Investors loved it….and took stocks higher, then lower and then higher again…by the end of the day – The Dow gained 195 pts or 0.6%, the S&P up 26 pts or 0.65%, the Nasdaq up 70 pts or 0.6%, the Russell added 14 pts or 0.8% while the Transports ended lower by 12 pts or 0.1%.
Now this brings up the next conversation…. are 3 – 75 bps hikes enough or will the FED remain aggressive until they have consistent evidence that inflation really is rolling over and dying….? Well, that’s the debate – and as you can imagine – everyone has an opinion – some think they have already overdone it, while others think they have not done enough…..The truth is – the pendulum is still on the upswing – swinging to the left – we won’t know until it stops and begins to swing back down and to the right……And to be honest – more than likely they will, but that’s only because the hikes move through the systems at different speeds, so while one macro data point suggests slowing, others remain ‘hot’ and so – the conundrum is – How do they manage that? How will the FED navigate it? Investors must decide – Will it be soft or hard? Will it be long and deep or short and shallow? And that is the riddle….
In any event – treasury prices fell – sending yields up – the 2’s now yielding 3.47%, the 5’s 3.37% and the 10’s at 3.27%….Yes….did you notice – the curve is still inverted at the end of the 12th week – Monday begins the 13th week of the inversion…..and that solidifies the idea that a recession is coming – but again – will it be long and deep or short and shallow?
OIL! Oh right – that! Well, they took it down to near $80/barrel as they try to convince us that the ‘recession’ that isn’t here yet, but is coming will be deep enough to destroy demand….couple that with the ongoing China lockdowns and maybe they could spin it….BUT – not so fast – both the Saudi’s and the Int’l Energy Administration (IEA) RAISED their global demand estimates for oil or 2023 while also pointing out that current supply production will not be able to keep up…..couple THAT with the ongoing war in Eastern Europe (think Russia/Ukraine), the building crisis in Western Europe (think the Eurozone and UK) and the expected complete halt of oil delivery to the Eurozone on December 5th and the story becomes a bit more complicated. And if Xi Xi unlocks his people – demand from China will surge….
Oh, and don’t forget how Joey has nearly emptied the SPR (Strategic Petroleum Reserve) which now needs to be refilled – because WE are only 1 hurricane away from a supply disaster in this country….and we are at the height of that season right now. Yesterday – investors took oil higher and this morning it is higher again…up $1.35/barrel to $84.90/barrel – but it did trade as high as $85.16 overnight. Now, it appears that we are in an $80/$95 trading range…. I’m still think $120 before $60!
Gold – is up $18 this morning…. $1738/oz. Gold remains in the $1700/$1760 range.
The dollar index continues to digest its recent move higher and is off 1.20 at 108.52…. down from Tuesday’s high of 110.78…. the pullback in the dollar is helping the commodity space – think oil, gold, silver, hogs, lumber, soybeans, corn etc.
US futures are up smartly this morning…. – the Dow +230 pts, the S&P up 31, the Nasdaq up 127 pts and the Russell is +18. There isn’t any eco data to report, but we will hear from 3 more FED heads…. 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 4006 – up 26 pts……. setting us up to challenge trendline resistance at 4020 – which it appears we will do on the opening bell if nothing changes…. Again – the rally feels good (it always does – unless you’re short) but I don’t think we are out of the woods just yet…. 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. As earnings decline and the economy slows – expect unemployment to rise…. And that will cause hardship, but it will also work to bring down runaway inflation…. (Or it should). Remember – Larry Summers said that Unemployment has to hit 6+% before they can get inflation under control…. just to remind you- current unemployment is 3.7%.
In any event –September and October are full of angst and volatility – 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 – consistency is the answer…not FOMO…..…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
Chicken Cacciatore
Chicken Cacciatore – literally means Chicken prepared hunter style (cacciatore). In Italian – the cacciatore is the hunter and the hunter prepared his meals with braised chicken (or rabbit), garlic, tomatoes, onions, bell peppers, mushrooms, peas seasoned with oregano, basil, wine, and S&P. You would then cook the chicken in this sauce and serve it over Fusilli. (***you can also make veal cacciatore by substituting the chicken for veal stew pieces**)
I made this meal on Sunday – as it needs to simmer a bit and as with most tomato sauces – if it sits overnight – it is always more robust and delicious the next day….
Start by sautéing crushed garlic in olive oil…add the seasoned chicken pieces (s&p) – use thighs, and legs as they are juicy and tender – Breasts tend to be dry and never fall off the bone the way the dark meat does. Just brown the chicken pieces – no need to cook all the way through as it will cook in the sauce. Once you have browned the meat – remove and place on a platter. Next add sliced onions, and bell peppers – use 2 lg onions and 1 green and 1 red bell pepper – if you like the orange/yellow ones then feel free to use that also. Sauté the onion and peppers and until soft – about 10 mins…. season with s&p. Remove from the pot – now add two cans of kitchen ready crushed tomatoes – not puree – just crushed tomatoes. Then add one can of water (and 1 cup of red wine – optional). Season with s&p, oregano, and fresh basil…bring to a boil and then turn heat down to simmer. Add back the chicken, onions & peppers. Now add one can of sliced mushrooms (draining the water first) and one bag of frozen peas. Let simmer for 45 mins – stirring occasionally. At this point it is done – but like I said – the longer it simmers the better it is and if you let it cool and refrigerate until the next day – it is like you died and went to heaven. You can’t make this up….
When ready – bring a pot of salted water to a rolling boil and add the Fusilli…cook for 8 / 10 mins or until aldente. Drain – reserving a mugful of pasta water – and return to pot adding back about 1/4 of a cup of the pasta water to moisten…. let it sit for a min and absorb the water…now add 3 or 4 ladles of sauce and toss. Add two handfuls of grated cheese – Locatelli Romano works great – toss again and serve. You can serve with the chicken, or you can serve the chicken on a separate platter in the center of the table. This meal works well with a nice Chianti – remember this is a meal prepared by the hunter – he is a simple man so the wine should reflect his simplicity. Does it get any better?
Buon Appetito.
