Things you need to know ~
- Hello? Can you hear me now?
- JJ remains steadfast – saying we are NOT close to ending rate hikes
- The dot plot leans to a higher terminal rate
- Stocks trade erratically and are lower this morning.
- Today is all about European, Latin American and Asian Central bank policy
- Try the Mussel Posillipo – recipe #8
The headlines say it like it is….
“Powell Sees Rates Higher for Longer Amid Wall Street Skepticism” (Bloomberg)
“Fed Raises Interest Rates Half a Point to Highest Levels in 15 Years” CNBC –
(Here’s a hint, next month when they raise them again – it will be the highest level in 16 years…They act as if we aren’t aware……)
“Fed Lifts Rates by 50 bps, Signals it Isn’t Done” – WSJ
Ok, do you get it? Did you listen to what Fed Chair JJ said yesterday? I mean did you hear what he said vs. hearing what you wanted him to say? Because – here is what he said after he told us that rates are going up by 50 bps….(expected).
“The Federal Reserve is NOT CLOSE to ending its anti-inflation campaign of interest rates increases..”
“The labor market is EXTREMELY tight”
“I would not see us considering rate cuts until the committee is confident that inflation is moving down to 2% in a SUSTAINED way. Restoring price stability will likely require maintaining a RESTRICTIVE policy stance for some time…”
He also told the crowd that he does NOT see any rate CUTS before 2024 – Now he didn’t define when in 2024….so is it January, June or is it December?
Because it makes a difference! Or at least it makes a difference to investors that play the guessing game and try to time the markets – attempting to pick lows and highs….Which is completely ridiculous if you are a long term investor….it’s just that simple. Uncle Warren (Buffet) clearly proves that point – but let’s move on….
Now to be clear….he used very aggressive, specific words….restrictive policy, extremely tight labor market, moving down in a sustained way….No foreseeable cuts until 2024. In the end – he said “We will stay the course until the job is done.”
And don’t forget the dot plot….that graphical picture of what FED members think the terminal rate will be by the end of next year…with 7 of the 19 or 36% of the members seeing rates ABOVE the 5.25% rate that they had prepared us for……
So, Can you hear me now? And stocks snapped that 2 day ‘winning’ streak and traded erratically all afternoon only to end the day lower. The Dow lost 142 pts or 0.4%, the S&P down 25 pts or 0.6%, the Nasdaq gave up 86 pts or 0.8%, the Russell lost 12 pts or 0.65% while the Transports managed to eke out a gain – adding 85 pts or 0.6%….
So anyone out there that is still in the ‘Fed will pivot’ camp – must also in the ‘Trump 2024’ camp – Why – Because it isn’t happening…No way, – The FED is not gonna pivot and Donny has NO shot at being the candidate (never mind the president) in any party – not happening (unless of course he creates his own party and names himself the sole candidate).
So, it’s time to move on….
Now some will say that JJ ‘surreptitiously signaled’ that while he was being hawkish, he was really be dovish suggesting that the FED is ‘close’ to reaching its goal and the tightening cycle will end….And why do you think that is? One because that’s what they WANT to hear and two because he said the ‘size of the next rate hike on February 1st’ will depend on the incoming data – leaving the door open to a 25 bps hike vs. the 50 bps that he promised….Which won’t work IF the goal is to get to the terminal range of 4.75% – 5.25%….if he does that…It would only get us to 4.75% – 5%….Not where he wants to be by March 2023….
And he never said he was close to reaching his goal – quite the opposite – (see quote #1 above) and at some point we WILL reach the end of THIS cycle – but that is not happening before the March of 2023….(at the earliest) and if that is true – then it is what he has been saying for 2 months now….March 2023 has always been the goal – that is when he suggested they would ‘pause’ to see the effects the 11 rate hikes produced… So again….what did he say that was new? Absolutely nothing, nada, zilch…..Period.
So stocks cooled off a bit and tried to reconcile the latest chaos created by the algo’s….And that’s it…nothing more….
Treasuries – nothing new to discuss…..they are still inverted. Is there anything else to say other than when will the NBER (National Bureau of Eco Research) call it? Hello! ‘It’ being the recession… JJ is still telling us that he doesn’t know if we will have one or how deep or shallow it will be – saying ‘It’s unknowable’ – which is funny because every single time the yield curve inverts – the result was a recession….and that is public knowledge….just google it. And we have been inverted for 7 months already…capisce?
Oil? Rallied another 2.7% (that’s nearly 9% in 3 days) to end the day at $77.42/barrel…The IEA (Int’l Energy agency) said on Wednesday that oil prices could rally in 2023 as the sanctions squeeze Russian supply…..but our friends at Goldman are not buying it…….suggesting that they expect demand to get weak….. as they sell the economic slowdown and demand destruction story – remember they are calling for the S&P to trade as low as 3000 before this bear market is over… ending 2023 in the 3750 range. So, they need to ‘talk their own book….’
OPEC chimed in as well warning traders that they too expect weak demand – which means what? They (of all people) will CUT production if that happens and that will provide price support – so who are they kidding??? They hold the key – since Joey allowed them to become the world’s largest producer of oil- a badge that the US wore during the prior administration….but let’s not go there…. oil remains in the $70/$83 range with an upward bias.
GOLD – was hugging the trendline resistance at $1818/oz…..fighting hard to remain above it…..As long as it could hold it – then we could see it test $1900 in short order….but alas, it did not hold….Once traders/investors heard that rates are still going higher and that the FED isn’t close to ending this hiking cycle they took profits…remember – gold was up more than 10% in the last month ($1690/$1818), so anytime a trader can create some ‘alpha’ (think short term trading profits) they do… this morning gold is down $26/oz trading at $1791/oz leaving it in the $1740 – $1818 range.
And this morning in Europe – it’s all about the BoE, the ECB, the SNB and a host of others (Mexico, Norway, Philippines, and Taiwan)….In fact at 3:30 am Est – the Swiss National Bank (SNB) announced that they were raising rates by 50 bps to ‘counter the further spread of inflation’…..and their inflation rate is only 3.5% -well ahead of their target of 0% – 2%. Can you imagine? 3.5%! We had that in April of 2021…. The benchmark rate in Zurich is now 1%! Norway is expected to raise by 25 bps (their inflation rate is 5.7%) while both the ECB and BoE are expected to raise rates by 50 bps to ‘counter’ their inflation which is running at +10%. As the sun rose over the continent – stocks came under pressure…falling more than 1% in early trading.
US futures at 4 am – are down and down ‘substantially’. The Dow losing 260 pts, the S&P down 40, the Nasdaq down 150 and the Russell off by 20. Investors digesting and dissecting JJ’s speech -some saying that he just knocked Santa off his sleigh while others say ‘not so fast’…. As discussed – I expected the market to test a bit lower and I still expect it to ‘rally’ into year-end – taking it back to the 4000/4100 range.
The S&P closed the day at 3995, down 24 pts….– after trading as low as 3965 and as high as 4053! We are now in that end of year trading pattern…and while we will continue to get some data points- they mean less and less as investors focus on the holidays and getting together with loved ones…
Moves can be and you should expect them to be exaggerated over the next 11 trading days… – that’s right -there are only 11 days left in 2022….Expect more year end tax loss harvesting during this time….but remember – in case we get an outsized move to the downside – be ready to put more money to work in names you have researched and like. If not, then sit back and enjoy the holidays….Nothing says you have to trade everyday…just remember that.
Make your plan, stick to your goals, take advantage of DCA (Dollar Cost Averaging) in your long term account over time. Overweight the STPN (Stuff that People Need) which tend to be big, boring yet beautiful names that pay decent divvy’s. Staples, Utes, Healthcare & Energy. Complement and underweight that with other sectors that you like but may underperform going into 2023 … Talk to me – Goose! Happy to assist.
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
Mussels Posillipo #8
This is an easy recipe that you can use for both clams or mussels – is great on its own or over linguine. Now I told you it is the Feast of the 7 Fishes…and it is, here is another one to substitute if you want.
You need: Mussels….2 doz… thoroughly washed of any sand. White wine, Clam juice, garlic, onions, olive oil, s&p, 1- 28 oz can of imported Italian Plum tomatoes – (Not in Puree), Fresh Basil
In a pot – heat the olive oil and sauté the garlic – until lightly browned – do not burn. Add in the sliced onion and sauté until translucent.
Add 1 1/2 c of dry white wine – nothing fruity – stir and let come to a boil – after about 2 mins…rough crush the tomatoes and add to pot with the juice.
(When you rough crush – you literally crush them in your hand – over a bowl to catch the juice. – you can also use the blender – but do it quick – do not puree) Add enough of the tomatoes to give it some substance and color – you do not need to add the whole can if you are not serving it over linguine.
Add the small bottle of clam juice and fresh basil leaves. Season with s&p. Turn heat down to simmer and cook for about 15 mins or so. Now add the mussels to the pot and cover tightly. Cook until the shells open – should be maybe 8 to 10 mins more…. Discard any mussel that refuses to open.
Present this dish in a large bowl with the mussels bathing in the Posillipo sauce. This dish demands toasted garlic bread to dip in the sauce while you enjoy the mussels…
