Things you need to know.
– Futures are up, European stocks higher as well – all ahead of key data points this week.
– AAPL is stabilizing – quoted up $1.25 in the pre-mkt, While NVDA is up 3 pts as well.
– Did someone say Aristocrats? NOBL etf is up 4.5% ytd.
– Investors await KEY data this week – Expect lots of FED comments before they go into lockdown mode.
– Try the Chicken & Sausage with Vinegar Peppers and Artichoke Hearts
**On this day we remember those horrific events of September 11, 2001. We pray for those souls we lost and will never forget. For those of you who never heard it- here is my account of that day
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The Dow Industrials, S&P and Nasdaq all rose on Friday – while the Russell and the Transports lost ground…. Yet – all of the indexes lost ground for the week – ended September 8th. Mixed eco data, mixed comments from different FED heads, coupled with the China shot at Apple and a retreat in NVDA all causing some investors to begin to question the sustainability of the tech rally (and then the broader rally) all playing right into the chaotic action for the week.
Apple – while up small on Friday – lost 6% on the week – when Xi Xi demanded that gov’t officials stop using their iPhones at work – the fear being that this declaration spreads to an even wider audience in China (and it is). Now, it is important that you understand what is happening….Huawei – (you remember that name, right?) is a Chinese technology company that was subject to US sanctions in 2019 because their telecommunications networks and phones had the capability of spying for the Chinese gov’t (as if Apple doesn’t do the same for the US gov’t!) – well, they just introduced a new phone that will compete with the iPhone. It contains technology that the US tried to ban – suggesting that China overcame our sanctions and came back as a rival to the iPhone in China and other parts of the world.
And NVDA? Well, that’s another story….it was down 1.45% on Friday and lost 6.1% on the week (but is still up 211% ytd) – on nothing ‘specific’ but rather on some profit taking just because of the nervousness building around valuation and this week’s eco data. Some did point to the building concerns about Chinese export curbs remaining a key risk to the US semiconductor industry…. but that is not new news…my sense is that some investors are just locking in profits ahead of what could be a rocky September/October.
Look, the tech sector is trading at 25.6 x’s projected earnings….- that is up from the 20 x’s earlier this year…..and well above the longer term 10 yr. avg of 18.5 x’s – and that is suggesting that no matter how exciting AI is – it can be a bit ahead of itself. The broader S&P is trading at 20.1 x’s this year’s earnings – also ahead of the longer term average of 16 x’s which suggests it could be a bit ahead of itself, considering that longer term (10 yr.) yields are now pushing 4.3% and likely to go a bit higher as a reason for caution in the upcoming weeks.
On the week – it was only energy and utilities that managed to make any gains – the other 9 major sectors ended the week in the minus column. Utilities (defensive) which have been the underperformer all year managed to rally 3% leaving it down 10% ytd….by far the worst performing sector. Consumer Staples and Healthcare – also defensive plays are off 3.8% and 2.7% respectively. Communications – XLC has now taken the lead up 39.5% ytd, followed by Tech – XLK + 38.8% and then Consumer Discretionary – XLY up 30.6%. Industrials – XLI +7%, Energy – XLE +5.5%, Basic Materials – XLB +5.3%, Financials XLF +0.3%, leaving Real Estate down 0.8% ytd.
Moving beyond the 11 major sectors – we have The value trade – SPYV +10.8%, the growth trade – SPYG + 21.7%, Home builders – XHB + 34%, Airlines – JETS + 7%, Disruptive Tech – ARKK +40%, Semi’s – SOXX +42%, Cybersecurity – CIBR +34%, Small Cap Growth – IJT + 4.7% while Mid Cap Value – IJJ +3.7%. Aerospace and Defense – ITA which is flat on the year – makes no sense to me – considering what is going on in the world. I continue to believe this is a sector that is completely misunderstood and undervalued at the moment (but that’s me!).
Industries that act like bond proxies – Utilities -10% ytd, Healthcare – 2.7% ytd and Consumer Staples – 3.8% ytd have stocks that continue to grow their dividends and the ones that do that for at least 25 straight years are known as the Aristocrats and they are beginning to see some interest from investors as some stocks in these sectors are on sale (think ytd performance). Remember – the surge in treasury yields this year has caused these industries to suffer a bit…. But now may be a good time to consider building this into your portfolio – if you don’t already have them. (We have been discussing this). These sectors will do well if (or when) we start to see bigger cracks in the economy that could happen in early 2024…. You can find these names in the Proshares NOBL etf which is up 4.5% ytd.
Now, the two most important economic data points are set to be released on Wednesday and Thursday. – the CPI and PPI – both reflective of what inflation is doing….
Wednesday’s release of the August CPI figures is expected to show an INCREASE in the y/y inflation rate – a fear that I have been warning about for months – (higher energy prices are expected to the culprit…but remember – higher energy prices cause nearly everything to go up) – yet the y/y figure EX food and energy is expected to show a decline – going from +4.7% to +4.3% – but remember – that is without food and energy….which isn’t really honest – because tell me – who lives without?
And on Thursday – we will get the August PPI report and too is expected to jump on the y/y figure – going from +0.8% to +1.3% – again the report EX food and energy is expected to fall – which only causes me again to ask – which is the more important number to watch? I mean they are both important – but the one that includes food and energy is the one that affects consumers the most – period. Yet – it appears as if the committee has already made their decision….they paraded most of them around all week last week to make sure to tell us that – a pause is likely but the door remains wide open….To be clear – not one of them suggested that we are done….they all intimated that ‘potentially’ rates could rise in November and/or December…. My question is – with inflation ticking up – (again) – why not rise in September and then let the data drive the November move? Why are they going to ignore an uptick in inflation now? On the other hand, y/y numbers EX food and energy are coming down – so that’s the confusion…. which data point will the FED focus on? It appears as if it is the latter – and that – in my opinion – will be a mistake and one that they come to regret.
Other data points to watch this week – include Retail Sales m/m – expected to be lower, Business inventories, Empire Manufacturing, Industrial Production, Capacity Utilization, and the U of Mich Sentiment surveys…. but again – the focus will be on CPI and PPI.
The FED goes into ‘lockdown’ on Saturday the 16th….so expect to hear more this week ahead of that quiet period -as the FED will try to assure markets that they will not be surprised and that rates will remain steady….But listen to what the analysts and strategists have to say once those data points are released.
A number that is stronger than the estimate will leave the FED confused…. Now what? We just told everyone that we are going to hold steady, but inflation is stronger than what even we expected…. So how do we walk this back???? – Expect markets to sell off while a number that is not as strong as expected will confirm that a pause is the right thing to do….and watch the market advance. Which is why I say – have a strategy, do not try to pick tops and bottoms…. stick to the plan, reinvest your divy’s and don’t make emotional decisions and only change your mind if the fundamentals that drove the original buy signal suddenly change themselves.
This morning US futures are up in what feels like more of a ‘dead cat bounce’ than any real conviction – Dow futures up 100, the S&P up 16, Nasdaq is up 85 and the Russell is up 8. Not a huge surprise at all…. after the angst we saw last week and ahead of the key inflation data. While it is now assumed that next week’s FOMC meeting will be a pause – future moves remain unclear but whenever they do stop – they are expected to hold rates at those higher levels for longer. That has been made very clear…there should be no misunderstanding. In the end – analysts will be trying to place bets on when the economy will slow, when will we enter a recession and when will the FED CUT rates?
On her flight home from the G20 over the weekend – Treasury Secretary Yellen told us that she is ‘increasingly confident that the US will be able to contain inflation without doing major damage to the job market’. Of course, she does, did you expect her to say it’s going to be a sh*tshow?
European markets are higher as well – all up by 0.3% across the board. Germany is predicted to be the only major euro economy in the zone that is contracting as it teases with a recession – this as investors in Europe gear up for the ECB’s rate decision on Thursday – where futures are pricing in a 40% chance of a 25-bps hike that would take ECB rates to 4%. Tomorrow brings UK jobless claims, Wednesday is Eurozone & UK Industrial Production and Friday brings us Chinese property prices, retail sales and industrial production as well.
Oil is trading $87 – down 50 cts, Gold is trading at $1950 up $8, while the Dollar index retreated a bit and is now trading at 104.67 down 42 cts.
The S&P ended the day at 4457 up 6 pts….…This morning futures are suggesting that we may test trendline resistance at 4478 – where I suspect it will fail at least until we get Wednesday’s CPI report. That along with the PPI will create volatility ahead of the FOMC meeting next week. so, proceed with caution for now…. Rising prices will cause investors to question whether or not a pause is appropriate at this time…. You know how I feel – I think they need to hike in September and then reevaluate for November…. In my opinion at this point a 25-bps hike now would not be as disruptive as much as a pause and then a hike would be.
Don’t stress – stay focused, give me a buzz…. Remember – this is a long game and there is always an opportunity somewhere.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any
financial product, or an official statement or endorsement of Kace Capital Advisors.
Chicken, Sausages and Sweet Vinegar Peppers
You will need: Thighs (bone in/skin on), s&p, olive oil, sweet Italian sausage, Vinegar peppers, butter, garlic, white wine, chicken broth, marinated artichoke hearts and flour. Total time 1 hr… start to finish….
Preheat oven to 375 degrees – Preheat grill for cooking the sausages.
Season chicken pieces with s&p – heat up oil in frying pan – when hot – reduce heat to med/hi – now add chicken and brown on all sides – maybe 10 mins total. Now remove and place in a baking dish and put in the oven and continue to cook for about 30 mins….
Next – cook the sausage on the grill – careful not to burn…. maybe like 10 mins total…. remove from grill and let rest for 3 or 4 mins then cut into bite size pieces.
In the meantime – add the chopped garlic to frying pan (that still has the juices and oil from chicken) along with sliced vinegar peppers – sauté. Now add the sausage, a bit of butter and some white wine and reduce (5 mins) – next add chicken broth and the artichoke hearts…. sauté for another 5 – 8 mins…
Remove the chicken from the oven and re-introduce the chicken to the frying pan and allow to simmer for 2 or 3 more mins.
Now serve on a large, warmed platter family style. Accompany with a large mixed salad and a green vegetable – maybe some sautéed broccolini.
Buon Appetito
