Things you need to know.
– The meltdown appears to be here.
– Global stock markets under pressure – Japan -12%. Europe down 2.5%
– US futures down another 2+ percent.
– More panic because the FED is expected to call an emergency meeting – suggesting that they missed the mark with rates.
– W Buffet – sells some AAPL, TSLA and NVDA…and that alone causes more angst…Investors saying, ‘What does he know?”
– Try the Chicken Soup.
Stocks started last week – weak and ended the week even weaker…. On Friday (if you haven’t heard) stocks got pummeled…. The Dow lost 610 pts or 1.5%, the S&P gave up 100 pts or 1.8%, the Nasdaq gave up 418 pts or 2.4%, the Russell lost 75 pts or 3.5%, the Transports gave up 430 pts or 2.7% while the Equal Weight S&P gave up 120 pts or 1.7%.
Just for reference the Dow is down 4.6% off the July high, the S&P down 6%, the Nasdaq is down 11.2% (putting that index officially into ‘correction territory), the Russell – 9%, the Transports down 6% while the Equal Weight S&P is down 4%.
So, all of the indexes are still within the ‘normal trading band’ except for the Nasdaq…But like I said – this isn’t the end of the story by any stretch. But back to Friday…
Oh it was ugly…..but don’t’ be surprised if it gets a bit uglier in the weeks ahead – in fact take a look at what happened overnight in the across Asia……Japan – 12%, Hong Kong – 1.5%, China – 1.2%, Australia – 3.7%, Taiwan (think Tech/Chips) – 8.3% and South Korea – 8.7%.
And this morning the European markets are under pressure again – The UK (FTSE 100) -1.5%, France (CAC 40) -2.2%, .Germany (DAX) – 2.4%, Spain (IBEX 35) -2.7%, .and Italy (FTSE MIB) -3.1%, this after the beating they too took on Friday….down 1.5% – 2.7% across the board.
US futures are not getting any relief either…Dow futures – 770 pts, S&P – 150 pts, the Nasdaq – 750 pts and the Russell is lower by 100 pts.
Ok, so why? First we are now in a ‘seasonally weak’ time of year…. Something we have been discussing for a couple of weeks now, two because the economic data, three because we’ve been talking about a correction for months now and four because the Mid East is on the verge of another crisis… (some thinking Iran will move on Israel today).
Whatever it is – All we needed was an event or a headline that didn’t agree with the narrative….that we were getting that soft landing…Because the economy was fine, inflation was taming and the job market was robust…with unemployment below 4% for months – even as the data was pointing to a weakening economy….Friday’s NFP report was that event….unemployment jumped to 4.3% and we only created 114k new jobs….Wages fell, both hourly both m/m and y/y and Durable goods weaker….
The consumer was beyond stretched, Wages were not keeping up, PMI’s in the Manufacturing sector were in contractionary territory, housing was weakening across Existing Home Sales, Pending Home Sales and New Home Sales… this only scratching the surface of ‘signs of the weakening’ They were convinced that the FED had this under control….and was able to navigate that soft landing that they kept telling us they could, telling us to be patient – Huh! The same way they kept rates a zero – because inflation was transitory….…. How’s that working out?
Remember the first rule of investing – and that is the ‘PENDULUM ALWAYS SWINGS TOO FAR TO THE RIGHT AND THEN TOO FAR TO THE LEFT” as it looks for the middle – which it never really finds. Now – we went too far to the right so get ready to go too far to the left…And so for the long-term investor this once again speaks to having a plan. Not panicking Capisce? Do not make emotional decisions – as long as you own quality names across a range of sectors with PRISTINE balance sheets and ongoing growth.
Now some of them are not going to be ‘sexy’ right? This is where boring is beautiful… and right now think CASH – can’t get any more boring that that…. but if you want to continue to put money to work – then think Utilities, Consumer Staples, Basic Materials, Financials, Energy, Pharma etc. You can also consider tech names that have gotten unnecessarily beaten up…. great names that are down 15%+, but again if that’s the plan…do so very cautiously and over time…
Using the contra trades works well here to help offset you your ‘long losses’ by going short the different parts of the market – so again the DOG (DOW), PSQ (Nasdaq), SH (S&P), VIXY (Fear Index) are just a few names to consider. But again remember – those are not long-term plays – they are strategic.
Tech which was and still is a crowded trade will continue to come under pressure as the Big Rotation continues – which doesn’t mean jump ship – it just means you might- not must take some profits (money) off the table and then let it go, do not put more money into that trade just yet….Here is where patience is a virtue. …The best time to put new money to work is when they start tossing it all out the kitchen window – Dramatic moves like these suggest we are getting close to capitulation and while it is not comfortable for the long-term investor – it does create new opportunities.
And that rotation out of equities includes rotation into BONDS! Did you see what happened in the bond market last week? The TLT which was down nearly 6% on Monday is now flat and the TLH was down by 4% and is now UP 0.8% while the AGG was down 0.8% is now up 1.10%. Those are tremendous moves in the bond market…. The 2 yr. is now yielding 3.80% down from 4.4% or a massive 14% decline in one week. The 10 yr is now yielding 3.73% down from 4.17% or an11% decline. The 10 yr. has now broken the 3.79% yield seen on December 27th, 2023. And mortgage rates are now 6.375% as of Friday…. but after today – it is likely to go lower….
Why? Because now the bond mkt is convinced that both the Biden Administration and the FED SCREWED it up – putting us on the verge of a recession (that’s comical since so many of us think the recession has already begun). They are not convinced that inflation is a non-event, and that growth will stall…. So, the FED must do something now. And guess what? Now the bets are gearing up for a 50-bps cut in September – unless they decide to call an emergency FED meeting and make a cut prior to that date (rumor has it (60%) that that meeting is going to happen this week) …. …. which would really create panic amongst the algo paparazzi because that would suggest panic behind the Iron Curtain. In my mind if they do nothing now – the algo’s won’t stop selling as they look to put pressure on JJ – forcing him into a corner….this is when it gets really interesting…because if they cave – then they admit that they ‘messed it up’ (I have other words I could use, but it is what it is.) In addition, it puts pressure on the gov’t to slow or stop this OUT-OF-CONTROL spending……
In the end the moves up and up only amplified the pain that was to come once we got hit with news that no longer told the story. The further we got away from the trendlines with no pullback means the quicker and more painful it will be once we do…and now it looks like we are there.
Over the last couple of weeks I reminded you that even the slightest sign of weakness will cause trader types and algo’s to hit the sell button – I identified levels to watch – the 50 day moving average at 5449 was the first, 5307 is the next – a level we will pierce at 9.30 am…and the 200 is at 5000 – a level that takes us back to the April lows and represents a 13% move…putting us in official correction territory for the S&P. Now look – moves like these create a lot of technical damage as we break trendlines. In the end – all it means is that the moves up were overdone….
The news over the weekend that Uncle Warren sold half his Apple holdings, some TSLA and some NVDA is not helping…. For many that only suggests another reason to bail 0- causing many to ask – If WB is bailing then what am I doing? And so, watch as the panic builds.
Oil continues to come under pressure – trading at $72.06…remember last week I told you that it has now broken its long term trendline at $76.72 – leaving it struggling for stability. We could now easily test the $72 – $74 range before finding stability and bang…that’s where we are. The next stop is the Dec/Jan lows of $70.
On Monday July 29th the S&P closed at 5463 on Friday August 2nd the S&P closed at 5346 In any event – the selloff that we have been expecting is here…the move is more that the shakeout that many preferred…In times like this it is best to remain level headed – remembering that the moves down are being exacerbated by the very technology that is supposed to create efficiency….in time like this – it creates havoc…..
Now so far none of the 4 indexes – Dow, S&P, Naz and Russell have yet to pierce their RSI index on the downside…which suggests we have a bit further to go…
Talk to your advisor if you have one and if you don’t feel free to call me.
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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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 Soup
So as your mother always says: “Have some chicken soup – it’s good for you”.
For this I use; 5 thighs (skin on), (you can use breasts if you prefer), chopped onions, carrots, celery, water, s&p, and one chicken bouillon cube. You can add in a can of cecci beans at the end (if you want).
Rinse the chicken pieces -place in the pot and fill with water. Now add the chopped veggies. Season with s&p, add the bullion, and bring to a boil. Once it boils – turn the heat to med low and let it simmer for about 1 1/2 hrs. – adding water as you go – as much of it will steam off. After it’s done, Turn heats off – remove the meat and allow to cool. (Add in a can of the beans of your choice.) – optional.
When cool – remove the skin and debone the chicken. Slice into chunky pieces and return to the soup. Now – place the pot in the fridge and allow to cool overnight – the fat from the chicken will rise to the top and form a ‘skin’.
Remove from the fridge and take the fat off and discard. Re-heat and serve alone or with rice or with elbow macaroni. Have plenty of fresh grated Parmegiana cheese.
Buon Appetito.
