Things you need to know –
- The churn continues – stocks close lower , the mid-terms are officially over– Suddenly the administration is acknowledging that we have an inflation problem!
- Mortgage Apps fall again….no eco data today – but tomorrow brings us the PPI
- Big week next week for the central banks
- Oil tests $72/barrel – while Joey defends that position
- Try the Feta Shrimp
Stocks move lower (again). The Dow closed flat – actually up 2 pts, the S&P lost 7, the Nasdaq lost 57, the Russell gave back 6 and the Transports lost 130 pts.
Investors continue to worry about the stronger eco data, stubborn inflation that will cause the FED to push rates higher than expected only to hold them there longer than expected and then toss in a new last minute spending deal that the DEMS are trying to push through congress before the new year begins and the DEMS lose control of the House and you have more angst.
Now that the election is finally over – Georgia voted to keep Rafael – it is easier for Joey to admit that the ‘transitory’ inflation argument is not transitory and is in fact here and it’s not going away anytime soon…..In a statement yesterday – he acknowledged that it will take a long time to tame inflation AND that there will be ‘hiccups’ along the way – but ‘our economy is strong’ and we can do this….blah, blah, blah…..At this point he has nothing to lose by saying it….the next election is 2 years away…..and so much can happen. Hopefully, now the NBER (National Bureau of Economic Research) will ‘call the recession’ for what it is….a recession!
And when they do call it – maybe that will be the bottom….because the market is forward looking and is pricing it in – have you noticed the performance? Dow – 8% ytd, S&P -18%, Nasdaq -30%, Russell -20% and the Transports have given back 16%. Now remember – they were all lower, they have recovered a bit, but remain in anxious territory….the chatter now has turned from ‘buy the dip to sell any rally’ and what that means is that PM and asset managers are expecting lower prices. And those lower prices will be about the recession (that is not here) until it is…..
Goldy and Morgan Stanley are still calling for the S&P to trade down another 20% or so from here before this is over – Jamie Dimon – (JPM) told us that he ‘thinks we could, maybe have a recession next year – or maybe not’. We have heard from so many CEO’s that are all calling for caution, we have seen layoff announcements hit the tape, and we are seeing more earnings revisions (lower) for next year… – …..and while I think there is some more downside, I’m not sure its 20% – I mean it could be if the data suddenly turns weaker faster than they expect, but I’m in the camp that we might have another 10% to the downside which takes us to the Sept/October lows…at about 3600….realizing that we did trade down to 3450 on October 13th – but I think that was a bit overdone.
In the end – the recent bounce is a bit overdone IF a recession is coming….because when it ‘officially’ hits – inflation will still be well above the 2% target and the FED will not be able to cut rates – which leads me to think that the FED is going to start to change that narrative….they are going to revise their target from 2% to maybe 3% or even 4% if they can’t get inflation lower. In any event – it will be the lack of clarity that is going to continue to cause the volatility….and the truth is – the FED can’t be any clearer than they have been – because we are in unchartered territory (they don’t know what the reaction will be)……we kept rates way to low for way to long, we bought way too many bonds and inflated the FED’s balance sheet and now we have to figure out how to get out of this without bringing down the house. And since we have never been here – there is nothing in history to guide us.
Treasury prices rose – sending yields a bit lower….leaving the curve still inverted across all time frames…in fact the 2 yr. is now yielding 4.24% while the 10 yr. is yielding 3.46% – widening the curve by 0.8 bps….suggesting a larger slowdown (contraction) of growth but no relief by the FED. Recall earlier in the fall – the 2’s and 10’s spread came with 0.25 bps and that was when the economy was expected to weather the storm and the speculation was for the FED to slow down and pivot…..as of yesterday – the spread has widened and that suggests the economy will slow down more than expected and the FED is not going to pivot…..Capisce?
Tomorrow’s eco data will be the next data point to consider – it is the PPI – Producer Price Index….. Expectations call for PPI final demand y/y to be 7.2% down from 8% and Ex food and energy of 5.9% down from 6.7% – those would be significant moves lower which would negate much of the negativity…. Then on the 13th – we will get the latest CPI and that is expected to move lower as well….both of these are directly in front of the next FED announcement – which is Wednesday the 14th….where the mkt expects a 50 bps hike. But the real news will be what investors think now? Are we still talking about a 50 bps hike in January (yes) and a 25 bps hike in March (yes).
Oil has gotten absolutely blasted this week – all that talk of demand destruction – falling 12% to end the day at $72/barrel! We have now broken the September low of $74 and have created 3 significant lower highs / lower lows patterns since the June high of $107.
US inventories and production unexpectedly rose – the EIA (Energy Information Administration) reporting that production rose to 12.2 million bpd – the highest level since August. Add in the recent US / Venezuela deal that allows Chevron to produce more oil in that country only adds to the supply chain while a re-opening of China only adds to the demand story….….My gut tells me that the increase in inventories is NOT because of demand destruction but rather supply increases…..in any event oil is now down 22% from the November high….and at a level that the US is committed to buy oil to refill the SPR….Recall – Joey pasted an open buy order on his forehead and announced to the world that $72 was his price.
Remember – The Saudi’s (OPEC) do not want to see oil below $80 barrel – but Joey has now released the Saudi Crown Prince from any responsibility surrounding the murder of Khashoggi – so maybe they will reconsider their stance. We are now at levels last seen in the fall of 2021- so we should find some support here with resistance now at the short term trendline $83.25.
This morning – US futures are slightly higher….At 4:30 am – Dow futures are +40 pts, S&P’s +7, Nasdaq +35 and the Russell is +4. There is no eco data today to speak of, so the focus will be on tomorrow’s PPI and next week’s CPI, and FED meeting. We will also hear from the BoE and the ECB next week as well – so it will be the last hurrah before the end of the year.
European markets are mixed. investors there remain anxious over the EU economy and rates of inflation. AT 4:30 am – European markets are trading between -0.2% – +0.1%.
The S&P closed at 3933 after trading down and thru the trendline at 3930 – yesterday’s low was 3922. On Tuesday I told you to keep your eyes on 3930 – which I expected to be tested and it was…..now the question is – does it hold or are we about to test it again….a failure to hold would cause the algo’s to immediately test 3829 – the next trendline. I expect more churn until next week and then we could see the Santa rally take us back to 4000….but remember – the tone is now – SELL the RALLY vs. BUY the DIP….which is what I think will keep the lid on the S&P.
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
No. 3 – Feta Shrimp
Feta Shrimp – This one is easy and can be served a number of ways. Either in a large bowl with toasted garlic bread or over a pasta – maybe like an Orecchiette or even over white rice…
For this you will need: 2 lbs. of large cleaned and deveined shrimp, sliced garlic (a lot), thin sliced plum tomatoes, feta cheese, butter, s&p, olive oil & Madeira wine. * you can prepare all of this ahead of time and place in bowls to have ready for you when you are ready to cook. The thing about this dish is – you have to make it and serve it right away…
Begin by heating up ½ stick of butter and some olive oil on med high heat. Add a handful of sliced garlic and sauté for 4 mins or so…do not burn. Next add in enough shrimp so that you cover the bottom of the pan – do not pile them on top of each other… When they turn pink – flip them over.
Now add enough Madeira wine to “bathe” the shrimp – (do not drown or cover them in wine) – Turn heat to hi… season with s&p, place sliced plum tomatoes all over and then top with crumbled feta cheese. Cover and allow the steam to soften the tomatoes and soften the cheese. No more than 3 mins. Remove and place in a large serving bowl. Repeat process until you have cooked all of the shrimp. When serving – make sure that you have enough garlic bread for your guests.
*if you are putting over pasta – then boil the pasta – strain and mix adding extra feta cheese to the hot pasta to help make it creamy and delicious.
Buon Appetito
