Things you need to know ~
- PPI was a bit hotter, What will CPI reveal?
- PEP beats and offers strong forecast
- FOMC mins reveal stubborn inflationary pressures
- DAL reports and beats – BLK, WBA and DPX are next
- AMAT warns of trouble ahead…taking the chip sector lower AGAIN
- Try the Chicken Cutlets w/Lemon and Walnut Sauce
PPI came in a bit hotter than expected (not good)….PEP beats the estimates (good) defying fears of any consumer slowdown…..strong earnings and better yet – strong guidance…and their ‘organic revenue forecast for 2022 at +12% – handily beating consensus estimates of +9.2%....Net revenues up 8.8% at $21.97 billion vs. the estimate of $20.81 billion….they pay a 2.8% annual dividend which means that they are paying YOU $4.62/sh for every share you own on top of it……You get the picture right? The stock opened strong and ended the day up $7.24/sh or 4.45%. Leaving this stock only down 3% on the year…. (The S&P is down 25% and the Consumer Staples sector is down 12% – so clearly PEP is beating the odds…. No surprise – they mostly always do….)
And then at 2 pm – we got word that the FED minutes revealed what we already knew….Fed officials are committed to ‘restrictive rates’ – although they do see risks of a recession rising if rates become too restrictive – Here’s a clue – too late…the recession is here already….now it’s about how deep they are gonna make it go…saying that the ‘cost of doing too little action – outweighs the cost of doing too much’ – which means – the pendulum is about to swing way too far to the right….after swinging way too far to the left….isn’t that always the case?
They overstimulated (13 yrs. of zero rates and bond buying) and now they are gonna over restrict to try and cover up the mess they created…..and then the bell rang and the day was over…the Dow ending the day down 28 pts, the S&P lost 11 pts creating another NEW CLOSING 2022 low – at 3,577.03 – This new low created in the last 7 mins of the trading day….and I say that because had it happened sooner, my gut tells me it would have closed even lower….but time ran out….today is another day….let’s see what happens. The Nasdaq fell 9 pts, the Russell lost 3 while the Transports gained 78.
And then we have all these other organizations trying to chime in….the IMF (Int’l Monetary Fund) lowered their global growth forecast – saying that 2023 is going to ‘feel like a recession for millions around the world – telling the FED to stop their rate increases while the UN (United Nations) is now calling on the Fed and other central banks around the world to ‘suspend’ rate increases in favor of ‘public spending’ increases….Hmmm – Now isn’t that interesting….? Since when does the UN drive monetary policy around the world and since when does the UN vote to increase public spending? Thoughts on this?
In any event – oil pulled back by $2 after the US Energy Dep’t cut their outlook and after OPEC slashed their own projections as well – citing the coming recession and ongoing Covid 19 ‘containment measures’ that XiXi continues to think is helping…..….justifying the reasons for their production cuts…..The group of nations (OPEC) cut 4th qtr. global demand by 900k bpd plus they cut the forecasts needed for their own production by 440k bpd – which equates to 1.3 million bpd – so why did they cut by 2 million bpd? Simple – if they cut supply even more than the drop in demand – they will ensure that demand will always outstrip available supply and that will keep prices up vs. down…. see?
So why you ask did prices fall yesterday…. Again, simple. The headline is suggesting that the drop in demand will come from a deeper recession – so think ‘demand destruction’. Just what the FED ordered – yet I am not in the camp that demand for energy is going to fall significantly at all…. think about it – the world runs on energy – at the moment it is fossil fuel energy – and that is not changing anytime soon….at least not in MY lifetime…
And by the way – have you seen what’s going on in Europe? They have an energy problem – after Angi (Merkel) put all of their eggs in ONE basket (think Russian energy supply – which was cut off….) So, I am of the opinion that energy is one of the places you want to be now and next year…. And energy is not just oil per se, it’s coal, Nat gas and nuclear…. Just a thought.
Overnight oil tested support at $87.09 and bounced. It is now trading up 24 cts at $87.52 barrel leaving it in the $87.09/$93 trading range. A failure to hold the line here could see oil drop to the mid 80’s again on the ongoing recession story, but that will only embolden OPEC to stick to the plan.
But today is a new day….and guess what? US Futures are up – but up less than they were just an hour ago…. At 6:30 am – Dow futures up 120 pts, S&P’s up 16, the Nasdaq up 23 and the Russell up 10. More inflation data is on deck today – The CPI (Consumer Price Index) due out at 8:30 am….and the expectations are for it to show an increase of 0.2% m/m on the top line and if you take out food and energy- it is expected to be up even more….+0.4% m/m – which isn’t a positive since food and energy are considered the most volatile components…so taking them out – you would hope for inflation to fall even more – but that is not what is happening….inflation continues to go higher….Y/y reports expect an increase of 8.1% and 6.5% respectively….leaving inflation at 40 yr. highs….Which explains the latest FED comments and the fact that no matter what the read is today – rates will rise by 75 bps on November 2nd.
In addition, we will get Initial Jobless Claims at 225k (up over last week) and Continuing Claims of 1.365 million (also up over last week).
We are due to get earnings from DAL and Revenue is a big BEAT!!! The forecast is strong…..they expect to hit their target of $4 billion in FCF (free cash flow) as well…the stocks is quoted up 2.2% – but remember -it is down 38% ytd….., Next up – BLK, WBA and DPZ – let’s see what they have to say about the current state of affairs….Good, Bad or Cautious?
AMAT – Applied Materials is just another name in the chip sector that came out and warned of difficulties just ahead for both the 3rd and 4th qtrs.…..after the latest Biden regulations surrounding chip exports begins to sink in……..this morning AMAT – which is already down 55% ytd, is quoted down 1% at $75.10/$75.30 and that is infecting the rest of them…AMD, LRCX, NVDA, INTC, KLAC…are all also down 50+% ytd and are quoted lower in the pre-mkt….as this news continues to cast a pall over the sector.
The dollar index continues to trade near the highs – $113….and is up 3% since last week. It is under a little pressure this morning – more profit taking than anything else – as dollar traders assess the latest FED commentary and the direction of interest rates which will drive the move higher in the dollar.
Gold – is up $4 at $1680/oz…leaving it in the $1650/$1725 range.
US treasury yields are up and that makes sense – based on the latest FOMC mins…. But we might see them back off a bit today if earnings and the CPI don’t spook investors…. So, sit tight.
European stocks are all a bit higher…. The UK bond markets are also showing signs of recovery after the chaos two weeks ago….as the BoE (Bank of England) ramped UP its bond purchases…. doing more to stabilize the market before the Friday deadline…. which by the way is still unclear….is it a deadline or not? If the BoE steps aside – then it becomes a gov’t issue…. Let’s see how that plays out. At 6:30 am – European markets are all up by about 0.2%-0.5%.
The S&P closed at 3577 down 11 pts piercing the September 30th low of 3585…. which sets us up for a new conversation…. Can it hold onto a level that found so much resistance back in the fall of 2020 or not? You would hope it could….and this morning – like yesterday – suggests a decent bounce off of that level…. The bounce will help the mood this morning…. but will it change the psyche? I’m betting not yet….
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
Chicken Cutlets in a Lemon/Walnut Sauce
Lemons and walnuts have always been considered food for the Gods…..so today – let’s feed the Gods…..with Chicken Cutlets…..
Boneless Chicken breast – (preferably thin sliced) – if not then you can pound them. Flour, olive oil, (I use butter), fresh chopped parsley, lemon zest, lemon juice, walnuts, diced onion and chicken broth.
Begin by dredging the cutlets in seasoned flour (s&p). Shake the excess off. Set aside.
In a lg frying pan – heat up some olive oil (w some butter) and sauté the diced onion until soft – maybe 8 – 10 mins….Do not burn.
Remove the onions and set aside. Next – add the chicken breasts and brown on both sides.
While browning – chop the walnuts and mix with the chopped parsley and lemon zest – not too much but enough so that you get the flavor….(if unsure – add less and taste..you can always add more).
When the cutlets are browned on both sides – add in the chicken broth – enough to bathe them – do not drown. Add in the onions and about a tblsp of lemon juice – cover and simmer for about 5 mins….
Remove the chicken and set on a warmed serving platter leaving the juice in the pan. Turn up the heat to med hi and add the walnuts/parsley/zest. Allow the juice to thicken a bit – should be no more than 3 mins max. Pour the sauce over the cutlets and serve with roasted potatoes and maybe some sautéed spinach and a large mixed salad dressed in a champagne vinaigrette.
Buon Apetit
