Things you need to know ~
- The week begins on a sour note
- The BoE warns of UK financial instability
- Jamie Dimon warns of ‘serious headwinds’
- Investors await inflation data and the start of earnings
- Semi’s continued to get smashed
- Try the Sicilian T-Bone
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MWCB – Market Wide Circuit Breakers Alert.
Level 1 – the S&P would have to fall 252.86 or 7% to force a halt.
level 2 – the S&P would have to fall at total of 469.61 pts or 13% to force a second halt.
Level 3 – the S&P would have to fall a total of 722.47 or 20% to halt trading for the day.
Stocks continue to trend lower…. the Nasdaq making a new 2022 low – falling 110 pts or 0.7% to end the day at 10,449 – a 2 yr. low – left investors/traders/analysts & algo’s on the edge of their seats…. In sympathy – The Dow gave back 94 pts or 0.3%, S&P fell 28 pts or 0.7%, the Russell lost 10 pts or 1% while the Transports bucked the trend and rose by 10 pts or 05%. All of these indices remain above their 2022 lows – leaving many to wonder – Is this it? Are we getting to the point no return? Are we about to ‘circle the drain’? Yesterday was a bank holiday in the US and there was no eco data to report nor was there any bond trading, so it was expected to be a ‘muted’ day, in the morning we heard from the BoE (Bank of England) who is trying to stay calm in their brewing economic crisis and then we got Jamie Dimon – of JPM to fire a shot across the bow…warning of dire consequences in the months ahead…
Those concerns PLUS – CPI, PPI, Retail Sales, coming FED minutes and the start of earnings season all weighing on investors’ minds as everyone tries to price in what they think the risk is…….A hotter than expected CPI & PPI would force the FED to make sure and push rates up by the ‘expected’ 75 bps and consider continuing to raise by 75 bps increments in December as well…and that is a change from the narrative for sure and that is part of what is ailing the markets – the continued confusion ….…. Wednesday brings us the latest FOMC minutes and many are now suggesting that those minutes will provide some ‘new’ insight (which I do not agree with) into what the pain point is…. remember – JJ already raised that pain threshold from 4% – 4.25% to 4.5%- 4.75%…. suggesting that 4.6% was the desired ‘terminal rate’.
Recently, there has been some suggestion that even that may not be the real terminal rate – leaving some to speculate what Jimmy B (St Louis Fed President) intimated….5% is really the terminal rate! What is clear – whether anyone wants to believe it or not is that FED officials are resolutely hawkish – they have not veered off course (yet) leaving many to speculate that neither financial market volatility nor a threat of a recession would deter them from raising rates…. Again, I think we are already in one, it just hasn’t hit bottom yet….
Then – Jamie Dimon of JPM fame – during a European interview – said that there are a ‘very, very serious mix of headwinds that will likely tip both the US and the global economy into a recession’ by the middle of 2023. He also added that the S&P could fall another 20% from here IF the FED did NOT engineer a soft landing – again, I told you months ago that Soft and Landing should NOT be used in the same sentence when referring to the current economic environment. And you can bet that another 20% move lower from HERE will be much more painful than the first 20%….so get ready….
Let me be completely clear – there is NO way, NO how that the FED can ‘engineer’ a soft landing now – we passed that point and are now at the point of no return….
All you have to do is go back and listen to the 1974 classic by Johnny Bristol (he was one of those ‘one hit wonders’)….‘Hang on in there Baby……don’t be afraid, I know just how you feel….we’ve almost got it made…..I can’t wait till we reach that sweet moment of surrender, we’ll hear the thunder roar and feel the lightning strike….” Although- my gut tells me that unlike that song – when we reach that moment of surrender and hear the thunder roar and feel the lightning strike this time – it just won’t ‘feel the same’…. take a moment and re-visit this baby boom classic….
https://www.youtube.com/watch?v=UtDRHPt8yrU
Ok – time to move on….
Recall that Jamie also predicted an ‘economic hurricane’ back on June 1st causing his global market strategist – Marko Kolanovic to publicly challenge him- by basically saying that he was overreacting and that there was nothing to worry about that the FED would navigate a smooth soft landing with little risk at disrupting anything……..How’d that work out for Marko? On June 1st, The S&P stood at 4100 – yesterday it closed at 3600 – down 12% from that day….and likely going lower in the days ahead….
And then to add even more confusion – as if we needed any –
At 1:30 pm – Lael Brainard – Vice Chair at the FED came out and suddenly appeared to make a case for ‘caution’ leaving the algo’s confused – was she advocating for a ‘pivot’? Was she floating a test balloon? Was she taking the temperature? I mean there is always this idea that a FED pivot is coming, that they won’t have the stamina to maintain the course…. And you know what happened then……the S&P which was sitting right on the lows reached on Sept 30th….3585 – suddenly shot higher as the algo’s interpreted her comments as a ‘shift in position’….……Just look at the chart – the S&P did a 180 degree turn and rose more than 1% in 30 mins….as the algo’s tried to ‘compute’ what she meant….in the end – investors decided that her comments did not represent a change in position and stocks ended the day in negative territory yet again.
While the tone at the end of the day was not a ‘disaster’ – it is clear that trouble is brewing…and that will surely keep the pressure on…..Overnight we saw stocks in Taiwan (which was closed on Monday) take a beating….the ‘Taiex Index’ fell by 4.3% – taking that market down 536 pts as the algo’s bailed on the ‘semi’s’ after they weighed the impact of the new Biden rules on their star performer – Taiwan Semiconductor – TSMC – which itself fell by more than 7%. TSMC is the world’s largest chipmaker and the idea that Joey has now put export controls on China’s ability to buy and manufacture advanced semiconductors used in military equipment is causing that sector to rupture….….Note the SOXX ETF – it is down 12% since rumors of that action began and is down 45% ytd…taking US names like AMD & NVDA – 62% ytd and INTC – 55% ytd even lower….
European stocks are all lower by 1% after the BoE warns of ‘Material Risk’ to UK financial stability…. extending their purchases of gov’t bonds – known as gilts which was supposed to end today to Friday the 14th…. They also included index linked gilts where the payout to bondholders is benchmarked to the UK retail price index….in their announcement they said –
“The beginning of this week has seen further significant re-pricing of the UK gov’t debt, particularly index-linked gilts. Dysfunction in this market and the prospect of self-reinforcing fire sale dynamics poses a material risk to UK financial stability.”
I think it is the ‘fire sale dynamics’ statement that is causing us to ‘hear the thunder roar and feel the lightning strike’……….
Then toss in the latest BS from Vlad threatening more missile attacks on Ukraine as he ramps up his attack on the country – never mind his threat to use nuclear weapons further escalating geo-political tensions…. and it is no wonder that the markets remain jittery with the path of least resistance being lower and not higher……...now – nervousness causes many to hit the sell button, but remember, someone is also always hitting the buy button – right? There are two sides to every trade….a buyer and a seller…..in this case – the buyers are in control….as they step back and reprice the risk that ‘they’ are willing to take, leaving sellers to have to settle for lower and lower prices….but remember – this too shall end, the question now is – When?
This morning – US futures are lower – although not as low as they were in the middle of the night….at 6 am – the Dow is down 250 pts, the S&P is lower by 35 pts, the Nasdaq is off by another 105 pts and the Russell is down 17 pts. Treasury yields are up again….and that is putting even more pressure on stocks…the 10 yr. and the 30 yr. are both now rubbing up against 4%, while the 2 yr. is now yielding 4.33%….There isn’t any eco data to report that will move the markets today – so the focus is on tomorrow’s PPI and FED mins and then Thursday’s CPI and then Friday’s Retail Sales numbers….
Tomorrow will bring us PEP earnings and while the mkt doesn’t count that as the kickoff to the season – let’s see what they have to say about the state of the union…..the strength of the dollar and the role that is playing in their guidance…because I expect the strong dollar to be an ongoing focus this qtr. and next…..
Speaking of the strong dollar – it is stronger this morning…. Up 10 cts at $113.26…….and likely going higher….
OIL – which shot higher after the OPEC news is taking a bit of a breather….and is down $2 at $88.94…. leaving it solidly in the $87.22/$93.20 range.
Gold continues to come under pressure – thanks to the strong dollar and is down $6 at $1,669/oz
The S&P closed at 3612 down 27 pts… after testing the September 30th low of 3585…..futures action this morning is testing that level once again…..at 6 am – S&P futures are down 35 pts – leaving us at 3590……It feels like we are going to break that today…..and create another new 2022 low….and that is NOT going to help the psyche at all. If it fails to hold onto that low – then brace yourself for even lower low…. We are back at levels not seen since the collapse of markets in October 2020…. between the 3rd and the 30th which saw the S&P drop by 8%…. today is October 11th and markets have been and are under pressure…. And while I am trying not to be superstitious…..October 19th is only one week away….and the mood feels eerily similar to my experience in 1987 – when many of you weren’t even a twinkle in daddy’s eye….…….In the weeks approaching THAT day, THAT year, the market kept coming under pressure, moving lower and lower…until it broke…...Remember, I started raising the warning flag last November about what rising rates meant and how it felt similar to the late 70’s….and in August, I warned of the coming ‘seasonal weakness’ …..so, I guess now I have to say – ‘brace yourself for impact’
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
Sicilian T-Bone
1-inch T-bones, crushed garlic, olive oil, Fresh grated Parmegiana Cheese, Oregano, breadcrumbs, and pepper…. (No salt as the cheese is salty enough).
Set oven to broil (high). Set the rack on the second level from the broiler. Begin by marinating the steak in garlic and olive oil, making sure to massage the steaks on both sides so that it is well coated. Do not drown the steaks in oil — just enough to massage them.
Next, in a separate plate combine the breadcrumbs, cheese, pepper and oregano – mix well.
Now dip the T-Bones in the breadcrumbs on both sides and place on a broiling pan. Place in the oven under the broiler. Depending on how you like it, you want to cook the steaks turning once halfway thru — 10 mins for a med rare steak, 14 mins for a medium steak, and 20 mins for well done.
Remove and place on each plate and serve with a large mixed green salad and either a baked potato or roasted potatoes. Enjoy with a nice Chianti.
Buon Appetito
