Things you need to know ~
- Consumers spent a record amount of money over the weekend – Buy now/Pay later services are in demand. Which tells you what?
- Protests in China are growing across the country – Twitter telling the story
- Oil – comes crashing down on global economic slowdown and China covid restrictions – expect to hear more from the Saudi’s
- Treasury yields holding steady, Dollar index testing support and Gold Rallies
- Try the Fusilli Verde
Stocks closed mixed on Friday and despite the holiday continued to push higher and close up on the week – The Dow gaining 152 pts, the S&P down 1, the Nasdaq down 58, the Russell +5 and the Transports added 62 in the shortened trading session. From the lows of November 4th – the Dow is up 8%, the S&P up 8.7%, the Nasdaq + 9%, the Russell up 5.5% and the Transports are up 12%.
The eco data last week was mixed – weakening PMI’s, weakening mortgage demand, weakening housing prices all leaving us to wonder why the market is marching higher – well you can point to the FED minutes….You see – besides the eco data last week – the FOMC minutes confirmed what we all suspected……the FED is intending to slow the pace of rate increases – JJ is expected to ‘set the stage’ for the slowdown this week…(see below)……the December move (almost) guaranteed to be 50 bps – (Boston Fed President Suzy Collins did say that 75 bps is still on the table – but she remains the outlier on this move)… the January move is leaning towards 50 as well while the March move is expected to be 25 bps…..- that would get us to 5.25% by end of March – a level that the FED has now said could be the terminal rate.
Now, recall – that St Louis Fed President Jimmy B – did give us a ‘range’ that temporarily stunned the markets 2 weeks ago, when he identified a 5% – 7% possibility. – something that I think was just the FED taking the temperature of investors and the markets in the event that inflation does not respond fast enough to the recent hikes….this way they can point to the headline that said – ‘Bullard Floats Higher Terminal Rate’ – and say – ‘Hey, what are you surprised about? Jimmy B ‘suggested’ it was possible!’
In any event – it seems that investors are getting more comfortable with the 5.25% terminal rate – assuming that the hikes are in fact making a dent in inflation and that the FED (for now) has this under control…which doesn’t mean it will be a soft landing, it just means maybe they have it under control, causing the economic data to retreat faster – note the falling PMI’s, Mortgage Apps, Housing data, consumer sentiment. We can expect unemployment to rise – some economists think 6% would not be out of the question (current rate is 3.7%), housing defaults and other credit lines to rise (remember – during the earnings season we learned that all of the big banks are preparing for rising credit defaults by setting aside larger reserves) – causing a ‘harder landing’ than anticipated. Let’s hope I’m wrong. But if I am not – then you will be well prepared.
Saturday’s WSJ reported that
‘Black Friday Crowds Return, but Door Buster Deals Fade’ while Bloomberg reports that ‘customer traffic was modest even as retailers discounted heavily’. In any event – the story goes onto say that we spent $5.3 billion in online activity – on Thursday – UP 2.9% over that last year and are expected to spend another $9.2 billion on Black Friday – up 3% over last year.
Mastercard is forecasting an 18% rise in total sales in physical stores while they forecast an increase of 3.7% in online sales. The increase of double digit sales is directly tied to the higher cost of gifts….so yes, sales are up, because prices are up….but the quantity of gifts is down. What we need to see is a decline in total sales, not continued increases – but that would be counter to what the administration wants you to believe…Now, what happens if you adjust for inflation – would total sales be in decline? Let’s just be patient. In any event – it will be the discount retailers that see the benefits this year……Think, TJX, KSS, COST, WMT, TGT and BJ Wholesale to name a few.
This is a bit economic week – lots to digest….Dallas Fed Survey, more housing data (pending home sales) expected to be -5%, ADP employment +200k jobs, 2nd revision to 3rd qtr. GDP and that is expected to be +2.8%, PCE Core Deflator of 5% – (FED’s favored inflation data point), JOLTS job openings of 10.3 million, Personal Income and Personal Spending, ISM Manufacturing PMI, construction spending and the all important NFP report which includes new jobs created, unemployment, avg hourly and avg weekly wages. So yes, it is a big week for economic data.
Breaking news over the weekend shows that Chinese citizens have been pushed to the brink and are now taking action….massive protests over being locked down over the past 2 years is taking its toll, ongoing daily covid tests are now putting citizens at odds with the govt’. Videos of the protests across the country all over Twitter, calls for Xi Xi to resign are heard around the world, images of Chinese police welding doors shut to prevent people from coming out of their apts also all over twitter…Protests from Beijing to Kashgar now putting Xi Xi in an interesting spot, leaving many to wonder what happens next. This story has only just begun – the last time something like this happened was Tiananmen Square in April – June 1989 and while the protests will not price stocks in the long run, they do have the opportunity to create short term chaos which is what is happening today.
Stocks in Asia – sold off on Monday – Hong Kong -1.6%, China – 1.2%, Taiwan down 1.5%, Japan – 0.5%, Australia – 0.5% while South Korea fell by 1.2%.
Apple – which is the poster child for what is going on in China fell by 2% on Friday and is quoted down another 1.8% this morning as the turmoil in China heats up. Zhengzhou – a city that has been wracked by lockdowns for weeks is a key Chinese city for Apple production…..and the recent lockdowns threaten to leave Timmy Cook with a 6 million iPhone Pro deficit just as the holidays arrive and that is causing some investors to hit the sell button – leaving Apple down 5% since November 1st.
Oil continues to come under pressure – down 3% – the unrest in China and the strict covid lockdowns being cited for the weakness. WTI is now down 20% off the November 4th high of $91.60 and is now trading at $74 – a level that Joey said would be the price he is willing to pay to refill the SPR suggesting that we might find some support right here. Actually he indicated a range of $68-$73. Oil has now broken the September low ($75)leaving open the possibility that we could see oil test $68 ish…, unless of course OPEC cuts production further or Joey stands in place with an open BUY order.
US treasury yields are rising….the 2 yr. yielding 4.45%, the 5 yr. yielding 3.86% and the 10 yr. yielding 3.67%.
The dollar index – is once again testing trendline support at $105.38….. and that is helping gold move higher….currently up $6 at $1,775. We remain in the $1735/$1825 trading range.
So, as you might expect – US futures are DOWN. Dow -200, S&P’s -34, Nasdaq down 115 pts, and the Russell -15. On center stage – the focus is all about what is happening in China…..and what that means for the global economy. Stage left will have a range of analysts telling us what to expect from this week’s eco data and what to expect from the talking FED heads this week, while stage right will focus on retailers and the holiday shopping trends.
Stocks in Europe are all lower…for all the same reasons…Mkts across the region are all down by nearly 1%. ECB President Chrissy Lagarde is set to address the European Parliament later today.
The S&P closed at 4026 – down 1 pt. but solidly in the 3790/4070 trading range. The group – Dow, S&P, Nasdaq, Russell and Transports all ended the week a bit higher as I discussed early last week as the market tends to rally into the end of the Thanksgiving week in anticipation of what the holiday season has in store. Today is cyber Monday and then tomorrow is Small Biz Tuesday – and by the end of the week – we will have a sense of how the consumer is positioned and how generous the season is going to be. The protests across China are now putting a new twist into what the end of the year might look like. But as noted, while politics and these demonstrations will create short term volatility – they won’t price stocks in the long term.
Jay Powell, Jimmy Bullard and NY’s Johnny Williams are all set to speak this week and as it is a big economic data week – expect the markets to listen.
As discussed – I think investors will continue to make the markets churn over the next 5 weeks…..I suspect that we will remain in the 3920/4030 trading range – support and resistance trendlines….unless we get such good inflation reads with this weeks PCE and next month’s CPI and PPI . If those inflation data points suggest that inflation is falling faster than expected – then watch as investors/traders and algo’s take stocks higher with a test of the August highs in clear view. If the data suggests anything else- then watch as stocks continue to struggle.
Stick to the plan…overweight the STPN (Stuff that People Need) – Consumer Staples, Energy, Utilities, Healthcare. Look for the large cap, multinationals that have strong balance sheets and pay good divvy’s. No reason to suffer from FOMO (Fear of Missing Out) if you’ve paid attention and remained invested…..It is those that choose to try and pick tops and bottoms that feel the pressure of FOMO.
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
Fusilli Verde
This is a combo Arugula, Basil & Almond Pesto…. It is a delicious dish and so simple to make.
You need: equal parts of Arugula and Basil, parmegiana cheese, garlic, olive oil, and almonds.
In the food processor – add the arugula and basil – blend – now add in 2 cloves of garlic, half dozen almonds, a handful of cheese and some olive oil – blend again. Set aside.
Bring a pot of salted water to a rolling boil. Add in the fusilli and cook for 8 mins – until aldente. Strain – saving some of the pasta water to re-moisten. Add back to the pot – add in 1/4 cup of the pasta water and stir – give it a couple of mins to absorb….now add in the pesto mixture – stir to coat and serve immediately in warmed bowls. Always have extra cheese on the table for your guests.
Buon Appetito.
