Things you need to know ~

• Stocks started out strong – but ended the day off their highs
• Earnings continue to beat and the ones that do not get punished
• NFLX will no longer report subscriber growth – as they try and change the investor narrative
• Dollar up, yields up, while Oil and Gold were down
• Try the Spaghetti with Butternut Squash Sauce for Thanksgiving

Stocks started the day out strong…. the Dow rising 600 pts right out of the gate….and then by 9:39 am….it started to fail…. the S&P, Nasdaq, Russell, and Transports failed even earlier…This as the dollar index caught bids, and treasury yields pushed higher…. In addition, the slump in oil did little to help the broader market…. of the 9 companies that reported before the opening….7 of them beat – resulting in a 78% run rate of companies that are ‘beating the estimates.

Goldman managed to ‘beat’ on the bottom line while reporting mixed results across their profit centers and that surprised even Goldman…. the stock surged by 5.1% on the opening trade before weakening, but still ended the day up 2.4% or $7.32/sh to close at $313.85.  LMT +9%, JNJ -0.2%, TFC -2.4%, SBNY +2.7%, & STT +0.6% – all beat the numbers…but had mixed investor results – JNJ beats the estimate but got hurt because the strong dollar dented forward guidance – which does not really make sense to me – every analyst knows the relationship between the dollar and the big multinationals.

Just to put it in perspective – JNJ is down only 2.2% ytd when the broader mkt is down 22% ytd…. proving that investors continue to find safety in the name that pays a 2.7% divvy as well.

HAS and SI were the two losers and they suffered at the hands of the algo’s…. HAS down 2.9% was hurt by when they suggested that ‘price sensitivity’ was impacting their consumer (price sensitivity – think inflation) and SI got smashed…. losing 22.8% to end the day down $16/sh.

And what we see is that earnings season offer investors the chance reward or punish management based on what they didn’t reveal prior to their report…So – Silvergate which is a holding company that operates as a bank for ‘innovators’ -think Crypto currency….reported numbers that not only missed street estimates – but  didn’t even come close – so investors react by blowing them up….You see, here is the issue – SI should have come clean weeks ago, when they knew damn well what was going to happen, they should have been a bit more transparent; in addition they also revealed that the launch of  their stable coin would be ‘indefinitely delayed’ – the introduction was expected at year end.    – I mean it is not like they did not know they were going to disappoint, or they were going to delay the launch….…. Consensus street estimates were $1.41/sh…they reported $1.28 an 11% MISS…. that is big…  But apparently SI was banking on the fact that y/y comparisons were up from 88 cts…so in their minds they were reporting a number that was 45% BETTER than last year…. well guess what?  That was a bad decision….the story was about what this year’s estimates were (and they knew what those estimates were) – they should have pre-warned a week ago and if they did – my guess is that investors would have reacted negatively then, but not nearly as much as they did yesterday….So – let that be a lesson to anyone else that is going to surprise on the downside!

By the end of the day – while up, markets were off their early morning highs, the Dow gained 338 pts or 1.1%, the S&P rose 42 pts or 1.14%, the Nasdaq rose 97 pts or 0.9%, the Russell gained 20 pts or 1.1% and the Transports added 175 pts or 1.34%.

As noted above – Treasury yields moved up….the 2 yr. yielding 4.48%, the 5 yr. 4.28% and the 10 yr. yielding 4.06%……This has been a breaking point for investors…..They can now get nearly 4.5% for 2 years with NO issues….and that is becoming a problem for the markets…..the 10 yr. above 4% is also going to challenge some investors to consider locking that rate in- but I say, not yet….if the FED remains aggressive even thru year end – then I expect treasury yields to go even higher – so in this argument patience is a virtue.  30 yr. rates (think mortgages) are now north of 7% and will likely be kissing near 8% by year end…. Again, IF the FED stays the course.  Today we are getting weekly mortgage applications – which have been down for 14 weeks now – what will today suggest?  We are also getting data on Housing Starts – exp to be down 7.2% while Building Permits are expected to be down by 0.8%.  Today might just be one of those ‘expectations vs. reality’ days. ….so, let us see.

Oil came under pressure yesterday falling 2% for a number of reasons.  One because China – which is the world biggest IMPORTER of oil decided NOT to release some of their economic data.  John Kilduff – partner at Again Capital LLC said that “it’s not good when China decides not to publish economic figures”  In this case – he is suggesting that those figures would suggest ‘demand destruction’ for energy…Two – Joey was expected to announce the release of another 15 million barrels of oil from the SPR (Strategic Petroleum Reserve) in his effort to try and cool ‘hot’ energy prices ahead of the mid-term elections and Three – is that the US is expected to report that US crude stockpiles rose last week….Output at the Permian Basin in TX/NM is expected to rise to a record 5.43 million bpd this month.  So then, maybe the Saudi’s were right – there is too much supply based on this information. This morning oil is trading up $1 or 1.3% at $83.80/barrel

The dollar index also found buyers in the morning – sending it higher- which is what helped to put pressure on stocks before IT came under some pressure allowing the algo’s to keep the stock rally alive.  This morning – the dollar index is up 26 cts at $112.40 – leaving it in the 112/113.50 range.  Yesterday I told you that the trendline drawn from the low in August thru today – suggests that the dollar should find plenty of support at 112. 

Gold came under pressure yesterday – thanks to both rising yields and the stronger dollar and is down $10 this morning trading at $1645/oz.   

NFLX reported after the close yesterday and they killed it – reporting some 2.4 million new subscribers this quarter -well ahead of the expected 1 million…in addition they announced some new tweaks to their revenue lines telling investors that they need to stop being focused on subscriber growth, but should be focused on revenue growth – and as a result they have decided not to report subscriber growth any longer.  Investors took the stock UP 10% in the after-hours session and this morning it is quoted up $30 at $270/271.  Remember – NFLX is down 70% from the November high – so a 10% move up is not surprising at all on that news.

We are going to get 11 company reports before the bell this morning – they include:  NDAQ, MCK, PG, PLD, BKR, ABT & ALLY.  After the bell – look for 13 more reports from the likes of TSLA, AA, LCRX, STLD, LVS, IBM & PPG.

US futures are mixed this morning…. Dow futures are -18 pts, S&P’s +2, the Nasdaq up 25 pts and the Russell is -3.  The initial focus will clearly be on the housing data – but weakness is EXPECTED so that should not be a huge surprise unless of course the data is a HUGE surprise!  The ongoing focus will be on earnings….and the excitement of the ongoing bear market rally….which we have seen before…..and while some are calling this latest rally ‘the bottom’ I am not in that camp just yet….there is still too much uncertainty I think that necessitates caution – which doesn’t mean stay away – it just means be cautious on how you allocate capital.

European stocks are mostly lower – The Eurostoxx index up 0.5%, CAC 40 up 0.2%, while Spain is down 0.7%, DAX – 0.1%, Italy -0.1% and the UK down 0.25%.  – all as investors there worry about ‘scorching inflation’ and the coming recession.   UK inflation was reported at 10.1% – and that is putting continued pressure on the Truss gov’t to act and act now….The only problem is that she is fighting for her life – as many in her party want her to resign after only 6 weeks on the job…She has said that she has no intention of doing so….(where have we heard that before????).

The S&P closed at 3719 up 42 pts…. Recall that I said this rally could see them try and take the S&P back to 4000 – which would be below the August high of 4325…. while the October low of 3585 is below the June low of 3660  – confirming the lower high/lower low pattern……Yesterday’s Capacity Utilization number came in at 80.3% ahead of the expected 80% and that suggests ongoing inflationary pressures while next week’s PCE report is expected to show the same….which only supports the move to raise rates by 75 bps in November and possibly December….

Challenges remain for investors…consensus estimates remain subject to revision (down not up) while inflationary trends, hawkish central banks and a slowing economy will keep investors on the edge of their seat thru year end and into 2023.
Sit tight as a long-term investor – stick to the plan…. take advantage of dollar cost averaging (DCA) and dividend reinvestment programs. Overweight the big boring names – buy the stuff that people need (STPN). Consumer Staples, Utilities, Healthcare, Energy…. while underweighting (not eliminating) Tech, Basic Materials, and Communications right now.

Take Good care

Chief Market Strategist
kpolcari@slatestone.com

Spaghetti w/Butternut Squash Sauce

This is another possible 1st course for your Thanksgiving table –

Set a pot of salted water on the back burner – warming it up so it is ready when you need it.

Start with cubed butternut squash – place 2/3 of it in a pot of chicken stock, some crushed garlic, & a stick of butter – careful not to add salt as the stock will be salty enough. Add enough stock to cover the squash (as this becomes the sauce for the pasta). You want the squash bathing in the liquid.  Boil until the squash is soft – when done – use a masher (or one of those handheld puree utensils) to mash the squash… You want it nice and thick.

Now add the remaining 1/3 of squash and simmer for 15/20 mins… making sure that the new cubed pieces have time to cook and soften… this way – you get a thick sauce with chunks of squash for the pasta… Turn the heat off and add a handful of shredded parmegiana cheese and mix well.

Turn up the heat on the water – Add the pasta and bring to a boil for 8 /10 mins or until aldente. Strain pasta – always reserving a mugful of the pasta water to re-moisten the pasta… return to pot – now mix with the butternut squash -if the pasta sucks up all the sauce, then add in a bit of the pasta water to re-moisten – Serve immediately in warmed bowls and garnish with a bit more of the Parmegiana. Always supplying additional cheese for your guests if they so desire.

Buon Appetito.