Things you need to know ~
- It’s the end of the year and moves will continue to be exaggerated
- MS revises outlook and calls for a 20% drop from here
- Treasuries remain inverted….
- Eco data is all about housing.
- Try the Stuffed Butterflied Branzino
So, the story remains the same – Where is Santa??? Stocks continued to come under fire….the Dow falling 162 pts or 0.5%, the S&P down 35 or 0.9%, the Nasdaq lower by 160 or 1.5%, the Russell off by 25 or 1.4% and the Transports lower by 172 pts or 1.25%.
Morgan Stanley jumps in bed with Goldman calling for a further 20% decline for the S&P before this is over…..which is a ‘slight’ change of heart from where he was only one month ago….
Talk of a deep recession now filling all the airwaves….Morgan Stanley’s Mikey Wilson – a stalwart bear – making all kinds of noise…. – putting out a research piece on Sunday evening so that it hit the tape on Monday morning (to get maximum effect and press) …. that said – US equities are headed for their worst year since 2008/2009…..The headline sums it up….
“US Profits Drop Could Rival 2008 Era’ and that price action will be worse than it was during the GFC (Great Financial Crisis). He now joins Goldman calling for S&P 3000 sometime in 2023……. doesn’t really give you a warm and fuzzy feeling now, does it? But his is very coy….in his presentation….after telling you the world is coming to an end – he says “but don’t assume the market is pricing this kind of outcome in UNTIL it actually happens”. So now, you’re paralyzed…. not sure what to do….
So, that means what? It might not happen. So, don’t go lighting you hair on fire? Instead go long exactly what I have been telling you all year….If you want in on the market but are concerned about where it is going – then buy the STPN – the Stuff that People Need…. Utilities, Consumer Staples and Healthcare Stocks….(I would add energy, but that’s me…).
He goes onto note that while inflation appears to have peaked, the weakening macro data is worrying….and that 2023 S&P earnings of $230/sh – will be more like $180/sh – a 21% difference than the current narrative and if that is the case – we can expect equities to drop another 22% from HERE! (Which takes you to S&P 3000). He then gives you something to hold onto by saying that he doesn’t see ‘systemic financial risk or signs of distress in the housing market and therefore doesn’t expect 50% downside for stocks, as in 2008” Well, thank goodness for that! But if we drop another 20% from here – then the S&P would be down by 40% from the January 2022 high…now 40% is not 50% – so he isn’t telling you an untruth….
Let’s get technical……
If you draw the trendline from the highs of January 2022 – 4818 ish…and hit the subsequent highs throughout the year – that would take you to the April high of 4637 (a 3.7% drop), the August high of 4325 (a 10% drop) and now the November high of 4080 (a 15% drop)– you would see a very clear DOWNTREND… Did you notice that? 4818 to 4080…..and each time the market tries to challenge that downward sloping trendline – it fails…..which now leaves us in the 3490 (Oct low)/4055 (trendline resistance) range. – Last night the S&P ended the day at 3818 (down 20% ytd) – smack in the middle of the range. So, As I have been saying – IF we get that Santa rally – it would take us to the 4000/4100 range…….but with the trendline right now at 4055 – that appears to be the best we could hope for.
In the end – even if we get any kind of Santa rally into year-end – don’t expect it to last in the new year…as I have also been saying – I expect the first qtr. (at least) of 2023 to continue to be volatile as we digest the coming macro data (which is expected to remain weak) and we assess the damage that the recent rate hikes have created…..Remember – JJ along with a host of other central bankers told us all last week that rates will go higher and remain higher for longer than what many expect….and so it is what it is….. We allowed the FED (and the administration) to way overstimulate and now we are about to pay the price for all of this insanity.
Treasuries remain inverted, and that is all you need to know….but if you are looking for opportunities outside the stock market – then look at 3 month T-Bills – yielding 4.125% (just keep rolling them over) or 2 yr. treasuries that are now yielding 4.27%….and the banks are beginning to offer attractive 12 month CD rates…Goldman is at 4.125%, BMO Harris Bank is at 4.5%, CIT Bank is offering a whopping 4.75% on an 18 month CD!
Oil continues to trade on the headlines….one day we’re good, the next day it’s a disaster…so keeping that theme….oil is back up today….and guess why? It’s 2 things…The first is the China covid story all over again….today it’s about the ‘growing optimism’ surrounding the relaxation of restrictions….and that is outweighing any concerns over the coming recession that Mikey Wilson spoke about….. Remember – China is the world’s top oil IMPORTER – so it is easy to craft a story around how demand can be affected by whether or not China is open for business or not….but in the end – China is NOT closed for business and the gov’t has vowed to ‘do what it takes to boost economic growth’….and there we have it….those same words that other gov’ts have uttered…they will ‘do what it takes..’.
The second is the weaker dollar – At 5:30 am –WTI is trading up 80 cts at $76/barrel….right in the $70/$83 range….In the end – while China will remain the biggest importer of oil, the reality is that the fear of a recession is real and actual occurrence of a recession is real…so expect oil (like stocks) to remain fairly volatile….In the end, though, I am bullish on oil.
GOLD – has been moving higher ever since the FED confirmed further tightening….Last week I identified $1815 as trendline resistance and suggested that once we moved up and thru $1800 – then traders would try and challenge that resistance level – yesterday we failed to do so and ended the day at $1796/oz, but today is a different story….Gold is up $20 trading at $1816 – after the BoJ’s unexpected reversal on its YCC policy….(Yield Curve Control) and that sent the dollar lower which then causes commodities to trade higher….recall that commodities are prices in dollars – so weaker dollar – stronger commodities, stronger dollar – weaker commodities. The dollar is down 10% since the September high but should find support right here at 103.97.
And this morning futures are once again in negative territory… Dow futures down 20 pts, S&P’s -10 pts, the Nasdaq down by 45 pts and the Russell is off 1. Eco data today is all about housing….Housing starts expected to be down 1.8% while Building Permits are expected to be off by 2.1% . No one should be surprised…and later on in the week we are due for more housing data….Existing homes sales and new home sales on the docket.
European markets are also lower… At 5:45 am – European markets are off anywhere from 0.2% – 0.7%. Investors there still reeling from the latest ECB, BoE, SNB and NCB bank statement. Add in the FED’s aggressive stance and it spells lower prices for now….remember – the path of least resistance is always down when the headlines reflect uncertainty.
The S&P closed the day at 3817 down 34 pts….after testing 3800 on the charts….Yesterday I told you that if we didn’t retake the trendline at 3863 then the algo’s would kick in and go into sell mode while the buyers stepped aside and bingo….that’s what happened…down we went…..
A look at the charts reveals that It has now broken all 3 trendlines – leaving the next stop – should it go lower at about 3720 ish….We are now in the 3720/3930 range…..We are now in the final two weeks of the year….market moves will be exaggerated….in both directions….Any attempt to move higher in the Santa Claus type rally will most likely take us to S&P 4000 now (if we are lucky). Continued declines could see us retest the October low of 3490..
Remember – have a plan, stick to your goals, take advantage of DCA (Dollar Cost Averaging) in your long term account over time.
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
Butterflied Branzino – stuffed with Lemon and Red Onions
So, I made this on Saturday – simple to make and delicious to eat…you can find the pictures on my twitter – @kennypolcari.
For this you need – butterflied branzino – no head, tail ok and sliced open, deboned and ready to stuff.
Lemons – sliced into rounds, red onion, s&p, and olive oil, cherry tomatoes sliced in half and chopped dill. (slice the tomatoes in half – season with a touch of s&p and a splash of olive oil – set aside.
For the Sauce you need: ¼ c fresh squeezed lemon juice, 1.2 c olive oil, 1 tsp Dijon mustard, 1 tsp dried oregano, and s&p. This is good for 2 dishes. So, do the math….4 dishes? Double this recipe…and btw…you can make a jar of this and just leave it in the fridge….to use on salads, or chicken etc.
Preheat your oven to 400 degrees.
Begin by rinsing the fish and patting dry with paper towels. Season inside and out with s&p… (I used kosher salt). Now stuff the fish with 3 thin slices of fresh lemon and sliced red onion. Close – repeat until you have them all stuffed.
Now place them in a baking dish – do not crowd and put them in the oven for 5 mins. Then flip – (carefully) – cook for another 5 mins…. Now – turn the oven to broil and cook for another 3 – 4 mins…or until the skin becomes just a bit charred. Remove.
Plate the fish – and adorn with the sliced tomatoes and dill. Pour some of the lemon sauce over the entire plate. Do not drown! Serve with your favorite white wine. See my pics on twitter.
Buon Appetito
