Things you need to know.
– It’s been a brutal week – on a number of fronts.
– The Dow is the only index not in correction territory.
– Bond yields continue to cause an issue for stocks.
– Are earnings telling the whole story?
– Janet Tells us that surging rates are good.
– Gold UP, Oil Up
– Try the Chicken Saltimbocca
Ok – I’m back….and here is one update…. I was in NYC last week – to attend the Headstrong Project Gala –and we raised $3 million on behalf of our veterans that suffer from PTS. It was a wonderful event, and I am proud to be associated with it. You can learn more about it here…. (theheadstrongproject.org) or see some of the pictures on my X page…
Ok – now to the markets….mamma mia – what a couple of weeks it has been….words like brutal, harsh, ruthless, vicious all come to mind when describing the recent market action….stocks have gotten hammered as the conflict in the middle east heats up, as oil prices surge, gold prices surge, as the 2’s, 5’s, 10’s and 30 yr. bond yields surge, inflation remains a problem and some ‘key’ – think magnificent 7 names (GOOG comes to mind) fail to excite investors or algo’s. We saw weakness in some of the FED reports while we also saw strength in others – which continues to cause confusion for investors, FED members and the markets.
New Home Sales on Wednesday surged by 12.3% – which is a head scratcher – considering that 30 yr. conventional mortgages are 8% – although home builders with financing arms can ‘buy those rates down’ as part of the sales pitch…., but let’s be honest – you’re still paying for it – who is kidding who? 5/1 yr. ARMS now becoming the financing option of choice – (for those who qualify) because they are offering rates as LOW as 7%! GDP for the 3rd qtr. came in stronger than expected at +4.9 vs. the expected +4.5% and well ahead of the 2nd qtr. of 2.1%. Manufacturing and Services PMI – both piercing 50 – taking us from contractionary territory to expansionary territory….and that is causing all kinds of double talk at the FED and among street analysts….
Earnings – while appearing to be ‘better than expected’ are not telling us the whole truth….Richard Bernstein Advisors tells us that ‘29% of the S&P 500 companies that have reported third quarter results so far, earnings are up 11%…….BUT without the contributions of the ‘Magnificent 7’ stocks, index EPS growth would drop to -8.6%..’ all while my good friend Liz Ann Sonders of Charlie Schwab fame – reports that ‘equal weighted S&P 500 stocks have decisively broken through its March low and has wiped out gains since October 2022…’…and with that we saw more losses across the board.
At 4 pm yesterday the Dow lost 251 pts or 0.8%, the S&P down 50 pts or 1.2%, the Nasdaq continues to get banged over the head – losing 225 pts or 1.8%, the Russell bucked the trend rising 6 pts or 0.3% (but it is also down 17.5% off the July high) while the Transports gave back 235 pts or 1.7%. This now puts all of the indexes – except the Dow in official correction territory…. In fact – when the S&P pierced 4180 – what did we see? Wave after wave of sell orders – (initiated by the algo’s) washed over the markets, buyers who had been waiting to see what would happen if it didn’t hold….stepped aside and boom – down we went….testing a low of 4127….just kissing the level I identified to you last week when I said that IF we failed to hold 4180 – we would see the S&P move swiftly into the 4100/4125 range…In fact – we pierced it at 9:36 am and then found ourselves at 4155 within 60 mins….only to attempt a rally – fail and then test 4127 at 1:30….
A late day (weak) attempt at a rally by the tech giants failed to produce any definitive results…and the stocks closed near their lows for the day….as investors waited anxiously for results from AMZN (they killed it!), INTC (they also killed it and boosted forward guidance – bang!) and F – who reported a miss on profits and withdrew forward guidance as the UAW declares VICTORY in a deal that will end the strike for F – while leaving GM and Stellantis out in the cold. UAW President Shawn Fain did not get everything he wants – but who ever does? What he did get was a 68% increase in starting wages and a 25% increase over the life of the contract – 11% of that in the first year – …He also got a host of other ‘win’s but let’s just say – F workers are due back on the assembly line next week. Fain is now counting the hours until GM and Stellantis throw in the towel…. so, mark your calendars – October 2031 as the next negotiation date…
Let’s not discount the angst that the geo-political developments are putting on some investors as it heats up, Syria now launching missiles across the border while also targeting US military bases (Jo Jo authorized targeted strikes last night to destroy ammunitions held in Syria) ….…Israel claiming to have ‘gotten Hamas’s deputy head of intelligence – as the Head of Intelligence is living in a penthouse in Qatar. The ground invasion – while still on hold is expected to begin soon. Hamas telling Russian media that they will not release any more hostages until there is a ‘ceasefire’…. Hmmm…. who thinks that is happening? And so – this issue will continue to create short term chaos for the markets – some investors will see it as an opportunity to bail while others stand ready to buy.
Onto bond yields…. Treasury Secretary Janet Yellen trying to convince us that the surge in longer term yields is a ‘good thing’ for the markets because it is a ‘reflection of a strong economy’…. Did she forget that those same higher yields caused ‘some’ banks to go belly up in the spring? This morning – the 2’s is yielding 5.04%, the 5’s and 10’s are yielding 4.8% and 4.85% while the 30 yr. is yielding 5.01%.
Oil is trading up 2.25% or $1.90 at $85.07 – this after the US struck 2 Iranian-linked ammunition facilities in Syria and after ANOTHER old man Ali Khamenei (84 yrs. old) – Supreme Leader of Iran – warns Jo Jo that the US won’t escape ‘unaffected if the Hamas-Israel war turns into a broader conflict’….Now, I’m just sayin’……he’s 84, Joey is 80, Vlad is 71, Netanyahu is 74, Xi Xi is 70, Does anyone see a pattern here? I think, it’s time for all of them to go…but that’s me….
Oil is now just above the trendline at $84.92….and is most likely going higher rather than lower…leaving us in the $85/$90 trading range.
Gold which had retreated a bit earlier in the week as it digested the recent surge higher has once again turned higher…and is trading at $1995 – after kissing $2000. This too will remain elevated as the geo-political issues remain on the front burner.
The dollar index remains at $106.56 – well above the trendline at $105.40 and just below the recent high of $107.30….Remember – the dollar will trade off of what it sees interest rates do….higher rates will cause the dollar to surge, lower rates will take some of the juice out of it….
And don’t’ expect to hear anything else from anyone on the FOMC committee – they are now in lockdown mode ahead of next week’s FED announcement….Now, UNLESS the FED either raises rates or cuts rates… no one should be surprised to learn that they are pausing…(which I think is still a mistake, but that’s me and I am not a member of the FED). Look – consumers are spending at the fastest pace in 2 yrs., some will tell us it is because inflation has cooled off and the economy is strong – but let’s be honest – inflation has not gone negative…it is still positive and prices are still rising – albeit at a slower pace – but they are rising….and that to me explains why consumers are spending more….it’s simple – things are more expensive….we are not buying MORE, we are just spending more. But that’s me…. you have your own experience.
Now this morning…US futures are up…. this after AMZN and INTC reported solid numbers…giving investors, traders, and algos’ a reason to find a silver lining…. AMZN quoted up 6% while INTC is quoted up 7%, F on the other hand is quoted down 4%. Look – there has been some significant ‘price adjustments’ on some significant names….and while there is still some risk created by geo-political events – they will be short lived – unless one of those ‘leaders’ does something really stupid…(which could happen) – I suspect that long term investors can find real value in some ‘good names’. Remember – and this is KEY…. even though the market is broadly lower – the buyers are not on strike…. they are just being prudent….
This morning US futures are up – Dow futures + 33, S&P’s +18, The Nasdaq +123 and the Russell is up 3. In addition to the good news out of AMZN and INTC we will hear from SWK (beat), AON (beat), XOM (missed) but its’ free cash flow more than doubled allowing them to raise their dividend payable to 95 cts/share (3.5% yield)….CVX (missed) and declared a dividend of $1.51 (3.9% yield).
Eco data includes personal income and spending of 0.4% and 0.3% respectively. We will also get the FED’s favored inflation gauge – the PCE Deflator and that is expected to be up 0.3% m/m (which is better than last month) and +3.4% y/y – again better than last month….the CORE deflator is expected to be up 0.3% m/m which is worse than last month while the CORE deflator is up 3.7% y/y – slightly better than last month – and this is the reason that the FED will pause…Now even if the PCE is worse than expected – we can expect JJ to say that he is not worried and that the trend is your friend…and one blip will not change the picture….(which is what he said in the spring of 2021 – need I remind you? ). In addition – we will get the U of Mich Sentiment numbers…1 and 5 – 10 yr. inflation expectations of 3.8% and 3% respectively…. Hmmmm.
European markets are mixed….France and the Euro Stoxx lower, while the UK, Germany, Spain and Italy are all higher….It’s earnings, US eco data and the ongoing conflict in Israel…notice we don’t even talk about the ongoing conflict in Ukraine…or the brewing conflict in Taiwan (the one that they tell us is NOT happening….).
The S&P closed at 4137 – down 50 pts…. We are now in the 4100/4200 trading range…..4180 ish is more key than 4200, but big round numbers seem to be more exciting….While I do not see a big rally today, I am in the camp that we will churn in here to build a base before the November /December yearend rally…..which might take us back to the 4400 range or 7% higher from here…….There are some out there that think we can close ABOVE this year’s high and that means more than 4607 and that would be a 12% move up from here…… We can only hope…. Now, remember, it’s Friday and the weekend is only hours away and so much can happen in the next 72 hours and that will serve to keep the lid on the markets in what is a risk off mentality as we move into the weekend.
We have a new House Speaker – Mikey Johnson and before you go choosing a side – do yourself a favor and get to know him….do some homework, don’t listen to the noise….
As a long-term investor – you have some homework to do…. look at your portfolio and assess some of the damage, is there opportunity for you to add to some positions that will improve your dollar cost average? Are there new opportunities that you have been watching that need your attention? Remember – investing is dynamic not static…. remain agile, but don’t overdo it. Leaving a larger allocation to ‘cash’ isn’t necessarily a bad thing at all – they are paying you 5+%…but don’t discount the sales that are staring you in the face either….
Which again – only supports my point as a long-term investor…. stick to your plan…don’t try to pick tops and bottoms, build a strong, diversified portfolio.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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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.
Chicken Saltimbocca
A classic yet simple dish to make – For this you need:
4 (6 Ounce) Boneless Thins Sliced Chicken Breasts, Flour Seasoned w/ S&P, Minced Fresh Sage, Thin Slices of Prosciutto, Olive Oil, Dry White Wine, Lemon Juice, S&P and Butter
Chicken should be about 1/4 inch thick. Rinse and drain. Set aside.
Place the seasoned flour in a shallow bowl, and dredge each piece of chicken on both sides, then place on a baking sheet. Sprinkle the top of each cutlet with the chopped sage, then cover with a slice of prosciutto.
Press the prosciutto to help it to adhere to the chicken and then refrigerate for 1 hr. Remove and let rest for 20 mins or so before you cook.
Heat the oil and butter in a heavy skillet over medium high heat until lightly smoking, then place 4 cutlets in the pan prosciutto side down. Cook the cutlet until you can see the edges are beginning to brown, about 3 minutes. Carefully flip the cutlets over and reduce heat to medium and cook until no longer pink inside, about 2 to 3 minutes. Place the cutlets on a warm platter, cover with foil, and cook the remaining cutlets.
Once all the cutlets are cooked and moved to the platter, add the wine and lemon juice to the pan and scrapping up and browned bits, cook over high heat until the liquid has been reduced to about 1/2 cup. Add a bit more butter and season with s&p and stir until blended. Pour the sauce over the chicken and garnish with fresh sage leaves.
You can serve this dish with roasted potatoes and a large salad.
Buon Appetito
