Things you need to know.
– ADP suggests that the labor market may not be in distress.
– And that suggests that maybe we don’t need aggressive cuts.
– Oil spikes higher on a ‘hot’ middle east.
– Gold holds steady, bonds sell off and the dollar rises.
– The VIX is now up 35% in 4 days. Capisce?
– Try the Rigatoni w/Sausage & Broccoli
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Guess what?
ADP comes out and reports that the job market is not ‘breaking’ at all….in fact it showed that we created MORE jobs then expected and they revised last month’s higher as well. And that throws the whole “labor market is weakening’ argument into a tizzy…..The dollar strengthened – rising 0.5% – on the idea that we WON’T be getting as many of or any more rate cuts (vs. the 50 + that they have been floating)…..Bonds sold off on that news as well…All while stocks struggled to find their way even as the middle-east appears to be ready to boil over….
The Dow rose by 40 pts or 0.1%, the S&Ps ended the day flat, the Nasdaq added 15 pts or 0.1%, while the Russell lost 2 pts or a 0.1%, the Transports gave up 132 pts or 0.8% and the Equal Weighted S&P gave back 8 pts or 0.1%.
The 10 yr. treasury yield shot up to 3.79% – 10 bps higher than where they were trading on Monday while the 2 yr. treasury yield ended at 3.64% up from 3.59% on Monday.
The VIX (fear index) did advance by 5.5% by 10 am as the anxiety was building. The index is now up 35% since September 26th….and this continues to suggest that we can expect more volatility in the days ahead – This morning the VIX is up 1.10 or 5.8% and the sun has not even appeared on the horizon….
Oil is up $1.60 or 2.2% at $71.65 this morning – now there are three things going on here. The first is short covering…all those guys that bet against oil are now getting their heads handed to them as oil has advanced 6% in this week and 10.5% since early September. The second issue – the middle east and the third story is demand. Forget the China weakness story and the declining demand story…China is good and global demand remains strong.
Gold continues to churn in the $2650/$2700 range. This morning gold is trading at $2667 and if the middle east starts to boil over then watch as gold pierces up and thru $2700.
Next up is Friday’s NFP report and many are hoping that it will close the door on the labor argument and any near-term confusion around the FED’s next move. The report is expected to show a gain of 150k jobs….but recall what I told you earlier this week- the WHISPER number is lower…~100k which would support the idea of a labor market under stress….Yesterday’s ‘surprise’ in the ADP number though, now suggests that the whisper number could be wrong…and that is rattling markets.
Marc Rowan- CEO at Apollo Global told Bloomberg that –
“It is not clear we need more rate cuts” citing available ‘ready to go’ financing and rising real estate prices.
Rising real estate prices? Oh boy, that is not what JJ wants to hear and it is not part of the Harris playbook. But he is correct – home prices are rising…Experts are expecting 2024 prices to rise between 4.5% -6%. And aggressively lower rates coupled with a ‘soft landing’? Yeah, That is only going to fuel those advances.
Remember, what I have been saying – IF they really want prices (of everything) to decline -they need to let the cycle happen…. It’s called the Business Cycle – aka. ‘Boom/Bust Cycle’ something you also learn about in Econ 101 (if you actually went to class) – just like the basic supply/demand equation.
The cycle has 4 distinct parts:
Boom – credit is easy to obtain…. (think all about zero rates for 16 yrs.)
Peak – Prices and economic indicators are at their best.
Bust – Rates rise, and goods begin depreciating in value and prices actually begin to FALL (think HARD landing not SOFT)
Trough – The economy bottoms out (think recession)
So, the question is – what does the economy really NEED? A hard or soft landing? You decide.
All this happening as the mid-east is set to explode. Benny has ‘vowed to retaliate’ on Iran after they sent 175+ missiles into Israel leaving JoJo and Kammy dumbfounded. While the US has promised to support Israel – JoJo does not support an overly ‘aggressive’ response and apparently neither do the other G7 members….…. Overnight – Israel attacked central Beirut as the incursion continues…. The G7 plan to head off further escalation by imposing more sanctions on Iran. Maybe JoJo should have left the prior ‘Iran’ manuscript alone (the way many ‘moderate’ advisors suggested) and none of this would have happened…. but you can’t go back now.
And then you have the longshoreman who are on strike – affecting ports down the east coast and wrapping around the southern coast – about to bring the US economy to its knees….Everyday they are out, is equal to 5 days to recuperate…so it has been 3 full days now- so even if they went back to work this morning, the disruption in trade would take 15 days to fix itself and they are no where near resolving this issue. Just think about that for a moment.
And as if that is not enough – North Carolina is a disaster and FEMA is nowhere to be found – Harris offered $750 to anyone needing immediate assistance…. (Is it me?) ….and the Presidential election has now entered its final stage. So – there is a lot going on and a lot for the markets to digest….
This morning US futures are pointing lower……You can’t be surprised at all…and the media is suggesting that futures are lower ahead of tomorrow’s report. Really? You think that’s what causing the angst? OK – you run with that. At 5:30 am – Dow futures are down 140 pts, S&P’s down 20, the Nasdaq is lower by 90 while the Russell is lower by 13 pts.
Eco data today – S&P and ISM Services PMI’s and as discussed earlier this week – they are expected to remain in expansionary territory. We are algo going to get Factory Orders +0.1%, Durable Goods Orders – flat and Capital Goods Ordered and Shipped….
Eurozone markets are lower as well. France in the lead – down 0.9%, Germany, Italy, and the Euro Stoxx all down 0.7%. Spain is flat (which is a win, I guess). The UK – not part of the Eurozone is ahead by 0.2%. The issue there? Can you say, ‘the Middle East’ and the rising tensions as the world waits for what happens next…Recall – Israel has neutered both Hamas and Hezbollah…. Iran is now naked as tensions rise all while the Hootie’s sent drones into central Israel overnight.…. The headline says it all.
“Israel Strikes Beirut as World Awaits Its Response Against Iran”
The S&P closed at 5709 up 1 pt…….and this morning futures are 20 pts lower….…. Yesterday we breached the Tuesday low of 5681 making a new low at 5674…. That now becomes the new level to watch today…If we break that, then it further confirms that we could see the S&P test 5620 Ish….
Rember – no one should be surprised at the action…. we have been discussing this since August…. Given the volatility that all of these issue can create – investors need to remain focused, building a strong, diversified portfolio of large cap/mega cap names that can weather the storm. SMID’s are fine as well, but make sure they are an appropriate weighting (based on the economic cycle) in the portfolio.
In the end –I still expect the markets to retreat – 8% – 10% would actually be good…. It would shake the branches a bit, which is never a bad thing…. (it’s part of a regular cycle). It is important to understand the risks facing both the markets and the economy, to effectively navigate this investment environment. Successful investing is a marathon, not a sprint, (Think the Tortoise and the Hare) and even bouts of intense volatility are unlikely to alter a diversified approach set up to meet your long-term investment goals. Click on the link to send me a message – I will give you a call back.
https://slatestone.com/contact-us/
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.
Rigatoni w/Grilled Sausage and Broccoli- Simple, hearty and delicious –
You will need Italian Sweet Sausage (Feel free to use hot sausage if you prefer), broccoli, onion, garlic, olive oil, chicken stock and grated Parmegiana.
Bring a pot of salted water to a boil. Light the grill and get it nice and hot.
While that is heating up – sauté some crushed garlic in olive oil in a large sauté pan… when golden – add in the sliced onion…. sauté that until soft and translucent. Now add the sliced broccoli heads – season with s&p, turn heat to med/med low and cover. Stirring occasionally.
Next place sausage on grill and cook… turning sausage so that you do not burn on any one side. Once cooked – remove and place on cutting board…let rest for 5 mins. Slice sausage into bite size pieces and add to the broccoli and garlic on the stove – now add about 1 cup of stock. Season and let simmer.
Boil pasta – for about 8 /10 mins or until aldente. Strain – always keeping a mugful of pasta water in reserve. Add the pasta to the pan with the sausage and broccoli add back 1/4 of the water…toss and let sit for 2 mins to absorb… now add 2 handfuls of the grated Parmegiana – mix and you are done. Serve immediately in warmed bowls with toasted garlic bread – complement with a nice glass of wine* Always have extra grated cheese on table for your guests.
Buon Appetito.
