Things you need to know.

–         The 10 yr. bond auction went off a bit weaker than expected – today is the 30 yr. auction.

–         Are investors expecting a Harder landing or not?

–         Nothing on the economic calendar that will drive the action.

–         JJ to speak about Challenges for Monetary Policy.

–         Barking & Logan to play JJ” s ‘wingman/wing woman.’

–         Try the Thighs bathed in herbs and White Wine.

Yesterday morning I said that the market was back onto the ‘FED is Done’ narrative……as stocks rallied on Tuesday……and then yesterday happened….nothing bad, nothing dramatic….but stocks struggled to find direction…The Dow lost 40 pts, the S&P gained 4, the Nasdaq gained 10, the Russell lost 20 and the Transports gave up 10….again nothing dramatic.

The $40 billion – 10 yr. bond auction – did not create the kind of angst that I thought it might…..(which leaves me to ask – who was really buying them?) – although the auction produced a slightly ‘higher’ than anticipated rate of 4.519% – and that means that buyers were not aggressive, they were bidding lower – which is what produced the slightly higher yield….Capisce?  Essentially demand fell SHORT of expectations…

Now in the secondary treasury market bond prices rose yesterday as investors are opting for more stability – or are they choosing to buy bonds because they expect the economy to ‘careen out of control’ as we come in for a ‘landing’ – (if that happens – bond prices will surge – making for a ‘great trade’).  The 10 yr. ended the day yielding 4.52%, down from 4.57% –  and if you are concerned about instability over the course of the next decade – then you’ll buy bonds……or if you think bonds have bottomed out and can only go higher – then you’ll buy bonds and maybe flip them out as prices continue to rise, IF prices continue to rise, or if you just want some diversity – then you’ll add bonds, I mean there are so many reasons that an investor would buy anything – so your decision is based on what your profile is….this isn’t rocket science, it is though investing science………..and so bond prices rose…the TLT – the 20 yr. bond etf gained 1.7% while the TLH – the 10-20 yr. bond etf gained 1.2%…..The AGG – the iShares core US Aggregate Bond ETF which included a wider range of bond options – including treasuries, corporates, MBS, ABA and CMBS’s rose by 0.4%. 

What I think is really funny is the idea that investors are relieved that Janet is ONLY bringing $112 billion worth of bonds this week and not the $114 billion that was expected – and so, the pundits tell us that markets are relieved because Janet is being ‘less aggressive’ with her borrowing plans…..Yeah, ok….let’s run with that….I just don’t see who is going to be buying up all the coming supply at current prices – since the 3 biggest buyers (FED, China & Japan) are now supposedly net sellers….which leaves another set of buyers – but ones that might be more price sensitive – as evidenced yesterday at the auction….….Now, who will be in the audience to scoop up $24 billion of long term bonds today? We are just hours away from finding out….

The eco data yesterday did little to excite anyone – although we did see an increase in mortgage apps for the week – rising by 2.5% – breaking the negative cycle of the past 6 weeks.  Today we will get initial and continuing jobless claims and they are both expected to be slightly higher….But what will be more important is what we hear from JJ today…..as he is speaking on a panel about ‘monetary policy challenges’….expect the market to be all ears….We will also hear from 2 FED Presidents – Atlanta’s Raffi Bostic and Richmond’s Tommy Barkin…..  Recall the other day we heard from 3 FED members – 2 presidents and 1 governor and they all suggested that the FED ‘may’ not be done raising rates just yet….so listen closely to what these guys say today and how they say it….  My sense is that they won’t be definitive – it doesn’t pay for them to be definitive – they are better off leaving it vague but hinting that they can play on both sides of the fence – which is exactly what FED Governor Chrissy Waller did – so no matter what happens they can point to the commentary that supports the unfolding drama…..

Friday brings ECB President Christine Lagarde and Dallas Fed President Lorie Logan and a repeat appearance by Atlanta’s Bostic. And the only eco data is the U of Michigan portfolio of data points…. Consumer Sentiment and 1 yr. and 5 – 10 yr. inflation expectations….and recall that last month – both of those inflation reads were adjusted – UP. 

Are we topping out here? Are we beginning to see some buyer exhaustion?  Listen to see if JJ says anything about the move in longer term rates today…..if he does – and the market interprets it as being more hawkish – then we could see stocks retreat (a bit) but if the market thinks he is more dovish – then step aside – the buy side algo’s will go into overdrive sending stocks higher…and as long as you in it – you’ll go for the ride…Now – you’re gonna go for the ride either way…the difference is that if the market moves lower – then you’ll be able to add to your portfolio at cheaper prices – Capisce?  This assumes that you have a plan, you have good quality names, and you have a goal.   Which again supports my argument – you have long term money, and you have ‘mad money’ – the two should never meet….

US futures are higher this morning – Dow futures up 42 (but that is down from 90 earlier this morning), S&P’s up 4 (down from +10), the Nasdaq is DOWN 11 pts, and the Russell is up 10.  This as the sun rises over the Atlantic and lights up the east coast…..We are winding down the earnings season…..last night DIS reported and they beat on profits and traders took the stock up 3%…….while there are loyal DIS investors – I am not in that camp…..I went once to DIS – 30 years ago and vowed that I would never go back nor would I buy it…..And I never did….and I have no regrets…..

Gold continues to push a bit lower…this morning it is down $5 to $1953/oz – breaking the trendline support – leaving $1938 as the final trendline support…a failure to hold there could see a swift move to the $1875 range…. Recall – the October low was $1825….

Oil – oh boy…that is NOT doing what I and many others expected….it is now trading at $75.50 barrel….down 18% off the most recent high – the push higher failing to materialize even in the face of all of this geo-political unrest….and Saudi/OPEC+ production cuts….Why, you ask???  They are using the slowing China story and the ‘uncertain’ global economy story to drive the action…..this follows that Barron’s story that I pointed to yesterday…..traders pushing aside the ‘fear driven geo-political story’ in favor of more fundamental data points….Data points that I still don’t believe….because I am in the camp that demand is strong and will remain strong, winter is here, demand is high….But I can’t ignore the broken technical….we are now below all 3 trendlines and that does not suggest strength….the downside appears to be in the low 70’s…something the Saudi’s do not like….so expect them to say something…like ‘we will continue with production cuts in the new year….’  Or better yet – they announce even bigger cuts in the new year…. Just wait……it’s coming.

The VIX – continues to tease in the $13/$15 range….and unless we see a spike UP in the VIX – then I expect the markets to churn – not collapse but not move significantly higher either.

European markets are all higher up about 0.4% across the board.  ‘Robust corporate earnings’ being credited for today’s move…. Astra Zeneca, Arcelor Mittal, Adyen, Coloplast, Deutsche Telekom & Henkel all reporting….

The S&P closed at 4382 – up 4 pts – remaining just on the north side of the trendline….and feeling like it wants to test trendline resistance at 4400…. it will be interesting to see how the market reacts if we do.  Will we pierce it or will it fail once again…. sending the market lower BEFORE we get that yearend rally…year end targets span the centuries…from 4200 to 4600…. Anything sub 4380 would be a decline not a rally – Capisce?  We now have 7 weeks until the ball drops in Times Square……So much can happen….

Remember – this is a long game…investing is dynamic, not static…. stick to your plan…. call me to discuss.

Take good care.

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.

Chicken Thighs Bathed in Herbs and White Wine

This is a simple dish…one pan and that’s it.  No messy clean up at all.  For this you need:  8 thighs – skin on! kosher salt, black pepper, olive oil, 2 med shallots – thinly sliced, 2 tbls sherry vinegar, water, ¾ cup of white wine – Pinot Grigio works well.  Equal amounts – like 1 ½ tspns of finely chopped fresh Marjoram, parsley, and thyme and ¼ + stick of butter.

Preheat your oven to 325 degrees.

Season the chicken pieces with the kosher salt and black pepper – set aside.

On med-hi heat the oil in a large skillet.  Place 4 thighs skin side down in the pan and cook for 5 – 8 mins or until golden brown.  Flip and cook the other side – another 8-10 mins – cook until the juices run clear. Remove and place in the oven – uncovered – repeat with the remaining pieces.

When done – in the same skillet – add the sliced shallots and sauté until softened.  Next add the vinegar and let it deglaze the pan…make sure to scrape up any of the bits that might be stuck to the bottom of the pan.

Now add in the white wine and maybe a ¼ cup of water and simmer for 5 – 7 mins or so.  It will reduce down to about 1/3 to ½ cup of liquid.  Now add in the butter, and the herbs. Stir until the butter is melted.

Remove the chicken from the over and pour this sauce over the chicken pieces and serve family style.  Fresh sautéed spinach works really well with this dish or roasted potatoes too…. maybe do both?   Drink the rest of the white wine you used to cook with.  

Buon Appetito