Things you need to know
- UK ‘abandons’ the tax CUTS that were announced last week – the Pound rallies and UK stocks fall
- US futures which had been struggling overnight – got a boost from that headline are now slightly higher but struggling to hang on.
- Oil -is up 3+% on the chatter that OPEC+ is set to announce more production cuts on Wednesday when they meet in Vienna
- Gold bounces off the low to challenge $1700 while the Dollar retreats off of its high last week.
- Try the Pasta Faggioli
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MWCB (Market Wide Circuit Breaker) levels (Again). Just for your information
Level 1 – the S&P loses 250.99 pts – 7% to halt trading for 15 mins
Level 2 – the S&P loses 466.13 pts – 13% to trigger the 2nd halt – 15 min.
Level 3 – the S&P loses 717.12 pts – 20% to trigger a trading halt for the balance of the day
And stocks ended the day and the quarter markedly lower… global economic concerns continued to deepen and hopes faded that the FED would ease up anytime soon…. Bonds yields surged and the broader indexes suffered wave after wave of sell pressure after the PCE Core Deflator revealed that inflation remains stubborn and rumors of a European investment bank in trouble stole the headlines. -The Dow down 500 pts or 1.7%, the S&P lost 55 pts or 1.5%, the Nasdaq down by 162 pts or 1.5%, the Russell off by 10 pts or 0.6% and the Transports down 200 or 1.6%….and this leaves the indexes tracking for the worst year since the 2008 financial crisis. YTD – The Dow now down 21%, the S&P – 25%, the Nasdaq off by 32%, the Russell down 26% and the Transports down by 27%….
The 2 yr. treasury now yielding 4.22%, the 5 yr. is yielding 4.05% and the 10 yr. is yielding 3.8% – making this the 16th week of inversion…taking us closer and closer to that ‘elusive’ recession…You know- the one that is not coming…….
Mounting losses in stocks and bonds continued to hit investors that had been hoping for a reprieve…even if just for a moment….but that was not how the quarter would end and now we are facing the month of October….and the start of earnings season….and I like many others continue to think that estimates are just too damn high….. Many investors concerned since much of the guidance from the C-Suite in the July earnings season suggested much more cautiousness about the future. We heard from the likes of FDX, TGT, WMT, SNAP, GS, JPM and a host of others about pulling back on hiring and in fact laying off employees. META announcing on Friday that investors and employees need to be prepared for a ‘restructuring’ – code for layoffs, cost cutting and weakening internals. We need to see more revisions – ahead of earnings day……otherwise I fear that the algo’s will react more violently…….
In fact – this morning – TESLA is down 4% after they reported a miss in 3rd qtr. deliveries….343k vs. 358k……. the stock is off 25% ytd. It is quoted at $253.50 – $253.80.
Do not discount the role that the strong dollar is about to play in the multinational names….companies that get a lot of their income overseas….Because the dollar has done nothing but surge higher – up 7.5% since the start of the qtr. and 18% ytd – levels that I don’t think were expected when analysts came up with estimates. And we all know what that means. Foreign revenues when converted back to dollars will be negatively impacted due to the STRENGTH of the dollar and that has to cause companies to reconsider their prior guidance to the street, which means analysts need to reconsider their estimates.
Now here is the rub. If companies forewarn and pre-announce or at least guide expectations lower now – they will take a bit of a hit, but investors will ultimately appreciate the fact that management is being proactive…vs. a company that waits until reporting day to say – “Oh, and by the way – we got dinged because of the strong dollar…”. Because in the end it is about the messaging…. how did they handle it? What did they do to keep investors informed….
There is a lot of eco data this week – We will get both Manufacturing and Services PMI’s…. services being the key metric – as the US economy is a 75% services economy…. S&P has it in contractionary territory while the ISM still has it in expansionary territory. Factory Orders, Durable goods Mortgage Apps and ADP employment – which is expected to show an increase of 200k jobs restored…..and the big one is on Friday when we get the September Non-Farm Payroll report and that too is expected to show a restoration of 200k jobs….unemployment to remain at 3.7%, Avg Hourly earnings m/m up 0.3% while y/y earnings up 5.1%. Labor Force Participation rate of 62.4%…. but so much more is set to happen during the week.
OPEC meets in Vienna on Wednesday, and it was rumored all weekend that OPEC – led by the Saudi’s is set to announce a 1 million barrel/day production cut to help support the price of oil…in fact overnight – WTI (West Tx Intermediate) rose by 3.3% to $82.16/barrel before backing off a bit.
Credit Suisse struggling to convince the markets, investors, and employees that ‘everything is under control,’ that there is nothing to worry about, that they have a ‘strong capital base’ – this as credit default swaps climb by 15% last week to levels not seen since 2009. CEO Ulrich Koerner promising to send regular updates until they announce their new strategic plan at the end of the month that will include thousands of job losses as well as ‘sweeping changes to their investment bank.’ Concerns over Credit Suisse has now caused some analysts to produce a list of other European banks that may come under pressure – Deutsche Bank, Credit Agricole, UniCredit, Société General, even Barclays…if Credit Suisse should start to hemorrhage….
And then there was mess created in the UK over tax policy with PM Truss promising to cut taxes while the IMF says – ‘Slow down, not a good idea’ and Moody’s threatens to cut the country’s rating….and that caused the Bank of England to suggest a pivot even as they vowed to fight 9% inflation…. sending the UK bond markets as well as currency markets into a tailspin on Thursday and Friday.
Over the weekend Truss’s office tossed ‘the chaos’ into the lap of the Chancellor of the Exchequer saying the ‘the decision was his’ (vs. hers) and has now chosen to put that idea on ‘hold’ (in fact the headlines read: Abandon the plan) and that is sending the British Pound higher…..stocks are not reacting in kind. Kwasi (Chancellor of the Exchequer) did speak today and ‘doubled-down’ on his proposal saying that his proposal was not a mistake….and that he supports the tax cut plan proposed…. No word yet on PM Truss’s stance…
Over the weekend the Telegraph ran with this headline story
“Eurozone at risk of financial meltdown as market chaos spreads – bloc exposed to surging inflation and higher rates…”
Oh boy….and this week central banks are both Australia and New Zealand are expected to continue to raise rates by 25 bps and 50 bps respectively
And all this will do is keep the volatility alive. In the end – what we are learning is that central bankers around the world went on for way to long and now the efforts to reign it all in will be anything but smooth.
Futures opened a bit stronger on Sunday evening but quickly turned negative by 8 pm……Overnight – they traded around the flat line – as traders struggle to piece it all together. This morning – at 7 am – US futures are mixed…as the new ‘new’ qtr. begins… the Dow is up 90 pts, the S&P up 5, the Nasdaq is lower by 33 pts and the Russell is ahead by 8 pts. Today’s eco data includes S&P Global Manufacturing PMI of 51.8, Construction Spending of -0.3% and total vehicle sales of 13.55 million. The mood is clearly calmer than it was last week but it is only Monday……and we have a full week of data and political jockeying.
Stocks in Asia ended mostly lower with the exception of Japan which added 0.5%…...China is closed all week for Golden week holiday…. Hong Kong ended the day lower by 1.5% to levels not seen since 2011…….Eurozone stocks are lower by about 0.7%…. Eurozone PPI is due out tomorrow, PMIs on Wednesday, Retail Sales on Thursday. BoE Deputy governor Davey Ramsden to speak on Friday.
The dollar was down 28 cts to 111.831…. This after backing off a bit last week…and coming off a high of 114.78…. but has now turned higher and is up 18 cts at $112.29. Remember – dollar strength is just another headwind for stocks.
Gold rallied strong last week during all of the weakness across global markets as it felt more and more uncomfortable…. this morning it is up 2.50 at $1674.50 as it looks to take back $1700/oz.
The S&P closed at 3585 down 55 pts…. Making another 2022 closing low….This morning the action suggests a ‘Risk Maybe’ mood – in what many thought might be a relief rally after the selloff in September.……Look – we are now in the final months of 2022…..PM’s are certainly going to be going shopping for names that have been completely dislocated – but don’t’ be surprised if that doesn’t happen with any force until after earnings season… The FED is still on track to hike in November and while JJ told us last month to expect another 75 bps, there is chatter that is challenging that….I’m still in the 75 bps camp…..as the PCE Core Deflator on Friday came in higher than expected 4.9% vs. 4.7% – and remember that is the FED’s preferred inflation gauge….and JJ along with all of the other talking heads has made that clear. But again – it is all so fluid.
Atlanta Fed President Raffi Bostic and NY’s Johnny Williams are both expected to speak today at different events. Later in the week we will hear from Logan, Mester & Daly on Tuesday with Bostic again on Wednesday and Evans, Cook, Mester on Thursday and Williams on Friday. I suspect the message will be the same…. Unless of course something else happens….
I remain overall cautious on the outlook as we now enter the final quarter of the year…Earnings season to provide the next set of challenges for investors and then there are the mid-term elections – November 8th after the next FED meeting – scheduled for November 1st and 2nd….With the S&P at levels last seen in September – December 2020 it will be interesting to see if it holds right here….if not – then a move towards 3400 would not be a surprise….Remember – GS has a sell on the markets for the next 3 months….with a downside target of S&P 3000.
In any event – it is always best to stick to the plan…. even if that means just putting new money into cash as you wait for clarity…. a strong well diversified portfolio will weather the storm – You just need to decide where you are in the process.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Pasta Faggioli
Now you can make this a number of ways…. much depends on what part of Italy you came from…but here is a simple and most delicious version
You need – a think cut piece of Pancetta that you will dice up, one onion, two cans of cannelloni beans (or one big can), ½ can (of plum tomatoes in juice (not puree), olive oil, 4 cloves of garlic – chopped, and you need a nice thick piece of Parmegiana cheese RIND….If you don’t have the rind, then you can use a thick piece of parmegiana cheese….(but use the rind if you can). ½ box of Ditalini (tiny pasta used for soups and this dish), water and fresh grated parmegiana.
Start by heating up some olive in the pot…not a lot just 2 or 3 circles…Now add the diced pancetta – let it render…. keep the heat on med med/hi…careful not to burn the pancetta. Once it is all nice and rendered – add the onions and sauté for 4 mins or so… Now add the chopped garlic…. sauté…. then add the hand crushed plum tomatoes and the cheese rind…. – let it cook for 10 mins on med low.
Next add in the beans…. stir……Now – add in about 6 cups of water…. bring to a boil and then add the pasta directly to the pot. Turn heat down to med – you do not want to boil this; you want this to cook slowly…. It should take about 10 mins for the pasta to be al dente. When that happens remove it from the heat and you are done.
Serve in a bowl – drizzle some fine olive oil on top…. just a drizzle and then add the cheese. This should now be a nice thick meal. If the pasta sucks up all the liquid – feel free to add a bit more water – but this is meant to be thick not watery…so be careful. Enjoy.
Buon Appetito.
