Things you need to know.
– NFP comes in better – so think bad news is good news for the markets.
– Traders/investors and Algo’s all betting that the FED is done.
– They are also betting on sooner than expected rate CUTS.
– Stock and Bond prices surge – yields collapse, VIX collapses
– Gold down small, oil is UP as the Saudi’s commit to ongoing lower production thru December.
– Try the Sicilian T-Bone
Wow, what a difference a week makes! What was all doom and gloom on the week ended October 26th turned into a ‘spectacular’ week for the markets for the week ended November 3rd! Stocks rose broadly across the board, as bond yields plummeted……. On Friday, the Dow was up 222 pts or 0.7%, the S&P up 40 pts or 1%, the Nasdaq up 185 pts or 1.4%, the Russell up 47 pts or 2.7% while the Transports gained 228 pts or 1.6%.
For the week – the Dow up 5%, The S&P up 5%, the Nasdaq up 7%, the Russell gained 8% while the Transports rose 7.5%.
Now – what caused all of this excitement? JJ paused, the BoE paused, Janet is ONLY bringing $112 bill in Treasury sales to the market this week (vs. the expectation of $114 bill) and signs of cooling in the labor market (think initial jobless claims and Friday’s better NFP report) and the services sector (think Services PMI’s) helped to ignite they buy algo’s. The market is now betting that JJ will HAVE to cut rates in June of 2024 – that’s a pull forward from late 2024 or even early 2025 – because the sense is that all of his rate hikes are now starting to hit home and the coming slowdown – now projected to hit in the 1st qtr. of 2024 will not be the ‘soft landing’ that many are hoping for but rather a hard, bumpy one.
Friday’s NFP report was ‘better than expected’ (think bad news is good news for the markets) – job creation was BELOW the expectation, last month’s data revised lower, Wages rose less than expected m/m, and unemployment ticked up to 3.9%…again something that the FED wants to see….remember – there are some analysts that tell us unemployment will have to have a 5 handle on it IF the FED really expects to bring inflation back to the 2% level….
As stocks powered ahead – bond prices rose as well, sending yields plummeting…the 2 yr. now yielding 4.87% down from 5.2% or a 6% move lower, the 10 yr. yield ended the week at 4.59% and that is down from 5.01% only 2 weeks ago…. representing an 8% move lower. The 30 yr. ended the week yielding 4.77% – down from 5.17% or 8% as well….the TLT – which is the iShares 20 yr. Treasury ETF gained 8% leaving it down 11% ytd…but igniting new hopes in the investment community that maybe the bond market is coming up for air….Now after the FED news on Wednesday and the cooler NFP report on Friday – we also saw 30 yr. fixed rate mortgages plunge by 54 bps over the week….all while Redfin tells us that sellers are CUTTING prices in order to create interest in their home – as they now appear to be rushing to the market to try and ‘lock in’ the higher values…..and so it begins…..To be fair – this is typically a weaker time of year – the real test will be in February when the spring 2024 selling season kicks into higher gear. Will sellers be cutting then, or will we see prices continue to rise?
The VIX – fear index – plunged – as you would expect – as the rising rate story faded….it ended the week at 15.32 down 32% for the week. It is now below all 3 trendlines and appears ready to test the summer lows of 13.50/14…. which would be another 10% move lower from here which means expect stocks to go higher still!
Gold which has been on a tear since October 7th shot higher on Friday morning as the conflict in Israel continued to heat up….it tested $2011 before ending the day at $1999… Overnight – we saw gold trade down to $1990/oz as the week begins and the markets look forward to JJ’s speech later in the week. It is assumed that we will get more clarity at that time, but if anyone is expecting him to specifically define the next move – I’d say – you’re dreaming…. This morning, gold is down another $4 at $1995.
And OIL? Well it ended the week lower – closing down $1.6 or 1.9% to end the week at $80.89…but over the weekend – the Saudi’s reiterated the fact that they have NO intention of changing their minds (either due to the Israeli/Hamas conflict or the expected growth in demand) and will keep production levels at current lower rates thru December 2024 – before reevaluating to decide what to do next….and while raising production is an option – it is not one that they are willing to commit to at this time…so expect oil prices to hold the $80 line if not test and kiss higher towards $90/barrel as North America enters winter and temperatures drop.
Now this morning US futures are UP…. not huge – but up is up…. Dow futures +25, S&P’s +8, the Nasdaq +40 and the Russell is up 4 this after the blockbuster rally, we all witnessed last week. – and the story today is a continuation of the global ‘rate CUTTING story’ that permeated the conversation last week. Remember – investors are not just assuming the FED will cut rates, but they are now including both the ECB and the BoE….and those cuts are supposedly sooner than the market originally expected. Futures markets are betting that the FED will have to cut rates by 75 bps by September of 2024. (the cuts to begin in June) while they are betting that the ECB will cut rates by 60 bps and the BoE will cut by 40 bps….Now you know how I feel – I am not sure I see that yet….I mean they just got finished raising them and they have all promised to keep them higher for longer…..and 7 months (in my opinion) is not ‘longer’…..but it is a Presidential election year… In addition – be careful what you wish for – because for all of these central banks to cut rates by then, would only signal an economy that has gone off the rails…. but that’s a conversation for another day.
European markets are not feeling the love this morning….as they are all lower – not a disaster, but lower is lower….as the gains from last week – have failed to follow thru this morning. Markets across the zone are all down about 0.2% with only the mother country (Italy) gaining – it is up 0.15%.
The S&P closed at 4358 – up 40 points on Friday…..leaving it now up and thru both the long term and intermediate term trendline resistance – each move up and thru causing the algo’s to go into BUY mode overdrive…..…..just like when we broke down thru the technical supports – the algo’s went into SELL mode overdrive sending wave after wave of sell orders into the market….and now that we are piercing technical resistance levels – the algo’s will continue to push higher…..so keep your eyes on 4404….this is the FINAL technical level that will cause a renewed surge higher….A move up and thru here would allow the algo’s to focus on 4530 and then the 2023 highs of 4607.
Look – investors are warming up to the idea that the data is cooling and that all of these central banks have succeeded in navigating a softer or softer landing…..add in the ‘better than expected’ US and European earnings season and an assumed peak in rates and you can see how Santa is packing his sleigh rewarding investors with the year-end Santa Claus rally…..
But – we are due to get the next two inflation reads on the 14th and 15th – so let’s not get too ahead of ourselves….higher reads will only cement the idea that inflation remains ‘sticky’ and that has the opportunity to negate all of this ‘FED is done and rates are going lower narrative’ – Just something to consider – not trying to be a party pooper – just trying to keep it real.
And that supports my argument that your retirement/investment portfolios are just that – long term accounts that need to take on a long-term view…. they are not day trading accounts that should get whipped around…. create the plan, execute the plan, and keep the end goal in sight. Keep some mad money in a separate account and use that to make your short-term bets…if that is what makes you happy.
Feel free to reach out – always happy to discuss.
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.
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Sicilian Style T-Bone
1-inch T-bones, crushed garlic, olive oil, Fresh grated Parmegiana Cheese, Oregano, breadcrumbs, and s&p.
Set oven to broil (high). Set the rack on the second level from the broiler. Begin by marinating the steak in garlic and olive oil, making sure to massage the steaks on both sides so that it is well coated. Do not drown the steaks in oil — just enough to massage them.
Next, on a separate plate combine the breadcrumbs, cheese, s&p, and oregano – mix well.
Now dip the T-Bones in the breadcrumbs on both sides and place them on a broiling pan. Place in the oven under the broiler. Depending on how you like it, you want to cook the steaks turning once halfway through — 8 mins for a med rare steak, 12 mins for a medium steak, and 15 mins for well done. Remember – these are only 1 in steaks…if you get thicker ones you need to cook a bit longer.
Remove and place on each plate and serve with a large mixed green salad and either a baked potato or roasted potatoes. Enjoy with a nice Chianti.
Buon Appetito
