Things you need to know ~
- It was a great week – will we see follow thru this week?
- AAPL up while AMZN gets beaten up – Did investors overreact?
- OIL remains in tight range – China continues to ‘lock down’
- Another big earnings and economic data week
- Try the Parmegiana Crostini
Good morning…so where should we begin to explain the explosive move higher on Friday….Apple +7.5% – reported RECORD quarterly revenues of $90.1 billion for the 3 month period? (~$360 billion annually), or was it Amazon that reported a beat in their earnings but warned of tougher times during the ‘crucial holiday shopping period – which ended up sending the stock down 11% on the opening bell but only ending the day down 6.8% at $103.41. Nearly every analyst on the street CUTTING their price targets like a bunch of lemmings on the news!
Was it the RECORD profits generated by XOM +2.9% and CVX +1.1% that drove the action? Maybe it was the surprisingly resilient results we’ve seen from some of the biggest industrial names – think CAT +3.4% that saw its quarterly sales rise by 21%. Or maybe it is the strong dollar? How about rising oil prices?
How about the PCE which is the FED’s favored inflation gauge that showed continued upward pressure on prices – the core rate up 5.1% vs. last month’s +4.9%? What about Pending Home Sales? They collapsed – falling more than 10% in September – think rising mortgage rates – when the expectation was for a smaller 4% decline? Or was it the idea that wages and prices keep rising – which is only keeping the pressure on the FED that drove the action? Or was it just simply more follow thru on the rally that started 2 weeks ago when we started seeing ‘cracks’ in the FED narrative about the pace and increments of future rate hikes?
No matter what you think it is about, it is what it is…..and algo’s/traders and investors took stocks higher. Talk of a more reasonable (less hawkish) FED has been at the core of this month’s dramatic move up and that argument continued to push stocks higher on Friday. By the end of the day, we saw the Dow gain 830 pts or 2.6%, the S&P up 94 pts or 2.5%, the Nasdaq added 310 pts or 2.9%, the Russell added 40 pts or 2.2% while the Transports gained 205 pts or 1.5%.
Everything was higher….Tech – XLK which has been clobbered all year – the sector down more than 34% at one point this year rallied the hardest – rising 4.3% leaving it off 25% ytd as of Friday’s close. Utilities – XLU added 2.7%, Communications – XLC which is another ‘underperformer’ this year down nearly 40% rallied 2.5%, Financials – XLF up 2.5%, Real Estate – XLRE gaining 2.4%, Industrials – XLU rising 2.3%, Consumer Staples – XLP up 2.2%, Healthcare – XLV and Basic Materials – XLB both up about 1.5% while Consumer Discretionary – XLY gained 0.1%.
The Value trade – SPYV gained 2.2%, the Growth trade – SPYG added 2.6%, Semiconductors – SMH or SOXX up nearly 4% – again a sector that has gotten crushed this year. Individual names – NVDA +5%, INTC +11.6%, and AMD +5.8%. Disruptive Tech – ARKK added 2.7%.
As you might expect all of the contra trades ended the day lower. DOG -2.5%, SH – 2.3% and the PSQ – 3%. The VIX continues to come under pressure…. falling 6% to end the day at 25.75.
We are now halfway thru the earnings season and are seeing about 68% of the reports beat on both the top and bottom lines – which is below the typical quarterly rate of about 75%….earnings are growing at about 2.2% according to FactSet – which isn’t that encouraging and represents the slowest growth rate since the height of the pandemic.
The bond market continues to be inverted across the spectrum with the 2 yr. yielding 4.48%, the 5 yr. yielding 4.25% and the 10 yr. at 4.06%.
OIL remains in at tight range $85/ $89 barrel as investors ponder the next move. This morning – oil is trading down 40 cts at $87.53 – after China once again warns of more shutdowns to come – think ‘zero covid policy’ (which btw doesn’t seem to be working all that well) continues to drive the ‘demand destruction’ story attempting to push prices lower. On the other hand – word that productivity in the Permian Basin – the US’s largest shale oil field is slowing is helping to keep upward pressure on prices.
In addition – US oil exports rose to a record last week suggesting that demand is just fine and that talk of destruction is nothing more than trader talk.
The mid-terms are only 9 days away and while expectations are for a split congress the market always does better 12 months out….because we will once again have some clarity on policy and we can be sure that the Dems will no longer be driving the bus alone…..a split congress will force cooperation and would be welcomed by the markets, it will force both sides to come to the middle, it will eliminate the fringes on both sides which will be viewed as longer term positive. And remember – historically – the market is always higher 3 months, 6 months and 12 months later.
This week is chock full of economic data – but there will be a couple of key items that will dominate the conversation. Wednesday’s FOMC (Federal Open Market Committee) press conference will be what investors pay attention to. By now you know rates are set to rise by 75 bps on Wednesday but what will be of interest is what JJ says at 2:30 pm. Will he start to draw back on his aggressive stance? Will he change the direction of the narrative? Currently FED Fund futures are suggesting a 44% chance of a another 75 bps rate hike in December – which is down from more than 60% two weeks ago…will he finally put that to bed and tell us that the FED is beginning to see inflation moderate, that the actions so far are beginning to take effect? But remember – we will get 5 more inflation reads before the December meeting, so in my view – while we want to hear him say that it’s all working, there is a real chance that we will see inflation continue to push up when we get the November and December CPI/PPI and PCE reports and therein lies the risk that rates will continue to push up. Remember they have suggested that 5% is the terminal rate (neutral rate). After Wednesday’s move – Fed Funds will be in the 3.75% – 4% range.
Remember what JJ told us – Inflation is key and the FED was not going to push on the brakes until they say a significant decline in the pace and rate of inflation. So, in my mind, it will be very hard for him to justify a slowing down if we see inflation continuing to move up….
In addition – Friday will bring us the all-important NFP (Non-Farm Payroll) – it is expected to show an increase of 190k jobs….Unemployment? 3.6%, Avg Hourly Earnings of +0.3% m/m and +4.7% y/y – both lower vs. last month. – which would suggest less pressure on wages…. Ahh…not so sure – but let us see what the data tell us.
US futures are under pressure this morning…Dow futures down 150 pts, S&P down 25 pts, the Nasdaq down 80 pts and the Russell is – 8 pts. It is the last day of the month so we can expect some end of month re-allocations/profit taking. It’s another big week for earnings that include UBER, PFE, AMD, PYPL, SOFI, LLY, NEM, MDLZ, CLX, PRU, CHK, MCK to name just a few.
European stocks are mixed…..France and Spain both a bit lower, while the UK, Germany, Italy and the Eurostoxx are all a bit higher. Investors there continue to react to the ECB rate decision last week that saw rates rise by 75 bps. The BoE expected to do the same this Thursday. In addition they got bad news….consumer prices continue to rise reaching a RECORD rate in October +10.7% – while economic growth slows considerably. They too are in the middle of another busy earnings week and await the latest FED decision….
The S&P closed at 3901 up 94 pts. The path of least resistance was to the upside last week, let’s see if that’s true this week. I’m still waiting for Goldman to ‘leak’ what JJ and the FED are thinking – so sit tight. Friday’s close left us pushing up again trendline resistance at 3903….and this morning it feels like it wants digest the push higher last week and would not be surprising to see so. But unless the data is much different than what we expect – I think any pullback will be met with reasonable demand. While I thought we would retest the October lows of 3490 ish….if the data suggests a slower cooling and JJ can convince the markets that he can navigate a soft landing then I do not suspect we will test it again….but that is a big ask – considering I don’t see how he pulls that off. Do you?
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 and 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
Parmegiana Crostini w/Cannelloni Bean and Kale Bruschetta
As we approach the Thanksgiving holiday season – Here is another appetizer to consider. Appetizers make perfect sense – just teases the taste buds and gets them ready for the ‘big meal’ – do not overdo them – just enough to tease your guests before the big reveal.
This is easy to make, and delicious to eat. For this you will need:
Kale, Cannelloni beans, garlic, s&p, chicken broth, and a French baguette, butter and olive oil and finely grated Parmegiana cheese.
First to make the crostini – preheat the oven to 400 degrees (bake not broil)….now slice the baguette on a diagonal into like 1/2 in thickness. Arrange on a cookie sheet and brush with melted butter/olive oil mix. Sprinkle lightly with finely grated Parmagiana cheese. (Just a hint). Bake in the oven until browned – then flip over and continue baking to brown the other side (do not brush with butter & oil). Remove and set aside.
For the Bean Bruschetta….cut the ribs out of the kale leaves and then rough chop the leaves. In a large sauté pan – add some olive oil and the thinly sliced garlic – sauté for 3 or 4 mins….now add kale – cook for 2 or 3 mins. reduce heat to low and now add chicken broth – maybe like 1/4 to 1/2 cup…you do NOT want to make it soupy…..cover and cook for about 5 mins more. Now add the beans (which you have drained and rinsed in a strainer)….mix with the kale and let cook for another 5 mins or so. Now – gently smash some of the beans to help hold it together….season with s&p, Remove and let cool for 10 mins….
Now spoon the kale/bean bruschetta onto the parmegiana crostini and arrange on a platter and serve immediately. This is a nice change from the usual tomato bruschetta that many people make. It is colorful and presents beautifully.
Buon Appetito.
