Things you need to know.

–         Relief rally – don’t go out dancing just yet.

–         More FED speak – what will the message be today?

–         OIL falls 5%…. they floated a ‘demand destruction’ story again….

–         Bonds rally – on the idea that the FED is done hiking… (oh boy)

–         Try the Angry Lobster

Stocks ROSE!!! 

The headlines say it all.

“Stocks Rose AS Bond Selloff Eases” – wsj

“Tech Giants Fuel End of Day Climb as Yields Slide” – bb

Some saying that stocks took back their Tuesday losses on Wednesday putting in their best day since……whenever….and to that I say – great – what about the losses from Monday, last Friday, Thursday or last month…. When are stocks going to take back those losses?  I mean, don’t get me wrong…I’m happy that stocks ended higher, but let’s not make this out to be the second coming….

Now eco data was mixed, so there wasn’t really any reason to point to that as a reason for the move up…..Mortgage Apps plummeted – falling 6 full percentage points……that should not surprise anyone since mortgage rates are now rubbing up against 7.5% for conforming money…..and that’s only if you have a 740 credit score….or higher….anything below – will see you paying upwards of 7.75%….and prices are not coming down yet – so it’s a stalemate…..and the people that might like a larger home – are deciding that their 3% mortgage is much better than a 7.5% mortgage….so, they will make due with what they got…..

The ADP employment report did come in weaker than expected – only creating 89k new jobs vs. the expectation of +150k…Ok – that’s good…. but it is direct contrast what Tuesday’s JOLTS report revealed….so which is it?  Is the job market weakening or not….?

Services PMI’s remain in expansionary territory – that was expected, so we can’t point to that, Factory orders though, did surprise to the upside – rising by 1.2% vs. the expected +0.3% – so that is a plus, as it suggests factories are humming along, orders remain robust – is that good?  Or does that point to an economy that is still not responding to the Fed moves?  Doesn’t the Fed want to see factory orders decline? And then we found out that Durable Goods Orders only rose by 0.1% below the 0.2% expectation and that would suggest that you are keeping that old fridge or washing machine or car….(those are what we define as Durable Goods – items that last 3+ yrs. or longer….they are ‘durable’ – that is vs non-durable – which are things that we use and dispose of on a daily basis – so think of diapers, paper and plastics, detergents, clothing, shoes, Dunkin Donuts coffee cups….….Capisce?)….again – yesterday’s report was not a market mover by any stretch of the imagination……So, then – What caused stocks to rally?

Well, we can point to the story that the FED – while not excited about what inflation is doing – may again decide to do nothing at the next meeting and that would hold the terminal rates at current levels of 5.25% -5.5%…..Now pay attn today….we will hear from not 1 but 3 FED heads….Mester, Barkin and Daly – (I won’t be paying much attn to what Daly has to say though, she was the one that was sound asleep during the whole Silicon Valley Bank debacle..– so I’m not sure that she even has a clue….but you do you.)  Will they reiterate their commitment to hold them higher for longer – suggesting that ‘unless the bottom falls out’ no one should expect a rate CUT anytime soon?  Well, that was at least the rumor……and that caused the ‘out of control – anxious’ bond sellers – who have been panicking over the last month –  to rethink their strategy of throwing everything out the window including the kitchen sink – which allowed treasury yields to retreat…..the 2 yr. yield fell 10 bps to end the day yielding 5.05%, the 10 yr. yield also fell, just not as much – losing on 6 bps to end the day yielding 4.73% while the 30 yr. – which kissed 5% overnight Tuesday/Wednesday ended the day yielding 4.85%.  

Recall – what I told you yesterday about how who is in charge when stocks or bonds come under pressure – it is not the sellers, it is the buyers….and the buyers have been having their way with those bond sellers for a month now – as it appeared the sellers were panicking (causing the buyers to lick their chops)….….and then yesterday, the selling pressure eased.  They pulled their offers, they weren’t so anxious – they must have taken Lexapro or Zoloft….…..and that caused the buyers to become more aggressive… and you can see that in the TLT (20 yr. T-bond ETF) & the TLH (10-20 yr. T-bond ETF) – both have been under pressure – down 15% and 12% respectively ytd coming into yesterday morning….getting clobbered day after day after day….but yesterday – some of the anxiety eased and boom bonds went up…….the TLT gaining 1.4% while the TLH added 1%.   Now look – anything that appears to stabilize rates will also help stabilize stocks….

And so, stocks went up…. The Dow gained 127 pts, The S&P added 35 pts, the Nasdaq added 177 pts, the Russell gained a whopping 2 pts, while the Transports added 44 pts.    

The dollar which also was surging day after day as bonds plummeted – eased a bit as well…. falling 25 cts to end the day at $106.77. A look at the chart reveals the speed at which the gains happened….and so, get ready, because if the FED can jawbone the markets and convince them that pausing and holding for longer is the correct answer, then we could see the dollar pull back substantially….and if that happens, stocks (and commodities) should rally.

Speaking of commodities – let’s look at the what they did to Gold over the past month/year….they have crushed it… – Gold has declined by 8% since September 1st – again putting it into an oversold position and leaving it down 3% ytd (which is actually not so bad) – and it feels to me that it is just ripe for a rally…..This morning – gold is up $3 at $1837/oz…..and if the 3 FED heads today suggest that the mindset is ‘pause vs. hike’ then watch gold rally towards $1900…..if that is not what the market hears or not what they say, then watch bonds, gold and stocks do a 180 and push lower yet again.

So what happened to Oil yesterday…it got clobbered…falling 5% to end the day at $84.44….it is now down $10 from its recent high….the story yesterday was a made up story….suddenly the market is worried about ‘uncertain demand’ – (the shorts needed a win, considering they have gotten their heads handed to them over the past 7 weeks as oil rallied by 23%) so, they float the story that the ‘bleaker macroeconomic outlook and fuel demand destruction’ are now reason for caution (they point to the Eurozone for this data point as the EZ economy shrank last qtr.)….this is funny after OPEC+ confirms their production cuts into year end and after the EIA (Energy Info Admin) reported that US crude inventories FELL by 2.2 million barrels week to week…..leaving us about 5.5% below the average for this time of year….and that would suggest that demand is strong and supply is tight….So where is the ‘demand destruction’?  In any event – there was also a bit of buyer exhaustion, so that bleaker story was enough to cause the buyers to retreat and that has caused oil to go from $95/barrel to $84/barrel over the past 4 days….a 12% decline –  and this morning the pressure on oil continues – it is down $1.50 at $82.75…..where it should start to find some support…..

But in the end – all of the markets are reacting the exact same way…. When the sellers are anxious – buyer take control and markets fall…. see stocks, bonds, and gold recent action and when the buyers are anxious – sellers take control – see oil.  And yesterday saw that equation reverse…stocks, bonds and gold were higher, and oil was lower.

This morning – the story has once again turned on its head…. futures in the US are lower…. (after being higher overnight) …. Dow futures -85, the S&P’s down 9, the Nasdaq -20 and the Russell off by 4.  Tomorrow’s NFP report is now the focus…. will good news be bad news, or will good news be good news?  Watch unemployment, watch avg hourly wages both m/m and y/y…. but even before that – listen to what the Fed heads say today…. Remember – Mester is the one calling for a 6% terminal rate (up 50 bps from here), Barkin wants to pause and Daly?  Who cares?  I still think we test lower…and I think it has to be S&P 4200…because that is the long term trendline and if there is ANY support – that is where it should be…..Again, if we test it and fail – then expect a wave of sell orders that could take the S&P down swiftly to anywhere between 4050/4150….

You should be earning at least 5% in your money market account – and that is completely liquid, no penalty for early withdrawal….and that is in line with what you are getting by tying your money up for 12 – 24 months….so why would you do that?  Remember – No one gets fired for holding cash when you can collect 5%…….and if you are nervous – that 5% will offer stability to your portfolio….so keep putting it in that part of your account…ready to pounce when the flush comes…Tomorrow’s NFP report will be key to the next move…..If it’s perceived as a ‘good number’ we could see stocks rally hard….conversely, if it suggests that the FED has to do more – we could….well, you know what……

If you have a well thought out plan and portfolio all you need is a strong stomach….delete the noise, watch what happens and when stocks you own become dislocated ONLY because of anxiety (not because of a fundamental change) – then swoop in…..be strategic, put money to work….

We are now just 4 weeks away from the next FOMC meeting…. Next week brings us both the CPI and the PPI – and that will be key to the ongoing inflation conversation….

The S&P ended the day at 4263 up 34 pts…. We are still closer to 4200 (support) than we are 4385 (resistance).  The chaos in DC appears to be calming down….Scalese and Jordan appear to be frontrunners but do not discount Byron Donalds – no matter what though, my sense is that we can expect a gov’t shutdown in November – when the latest CR expires at Thanksgiving and before the holiday season…just because the GOP will be forced to shut it down to drive home the point that something needs to change, that the Speaker debacle was not in vain ….and that Jo Jo and the Democrats need to be reigned in…

Remember – as a long-term investor you need to eliminate the noise and stick to the plan – even when it feels uncomfortable …. the most important thing you can do now – is not panic….

Take good care.

Chief Market Strategist
kpolcari@slatestone.com

Sources:  Bloomberg, CNBC, Reuters, Wall Street Journal

Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. 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 Kenny Polcari or SlateStone Wealth.

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, which may not necessarily align with our firm’s standpoint.

While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.

Kenny Polcari is the Chief Market Strategist for SlateStone Wealth.  Neither Kenny nor the partners of SlateStone Wealth are compensated in any manner by the issuers of any securities mentioned in the publication.

Angry Lobster – seems appropriate, no?

For this you need: 1 (2 pounds) whole Maine lobster, cup olive oil, minced garlic, chopped fresh basil, lemon zest, red chili flakes, minced red onion, and lemon juice.

You have to prepare the lobster for marinating – so to do so you will need to break the claws off the body and crack them open.  Then slit the underside of the body.  Mix all of the ingredients together to make a nice marinade…. put the lobster in a large bowl and pour the marinade and let sit in the fridge for at least 4 hrs.

Light the grill…. let it get nice and hot.

Now when ready – remove the lobster – and place on the grill – allow to cook for 3 mins…. turn all of the pieces just once…claws and body…. cook for about another 4 mins…. just an fyi…a good rule of thumb for grilling lobster – is about 7 min/lb.  So, a 2 pounder would cook for 6 mins and then 8 mins.

Serve this with drawn butter on the table…. use your bib – it can be messy….….

Buon Appetito