Things you need to know.
– Stocks continue Churn in a tight range.
– 10 yr bond yields test 4.05%.
– Oil declines, Gold declines and the VIX declines
– FOMC mins due at 2 pm
– Try the Pumpkin Risotto
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Stocks sold off hard on Monday and then did a 180 – surging on Tuesday – just ahead of the start of earnings season and the September CPI and PPI reports…. Investors/traders and algo’s growing more confident that the FED has succeeded in taming inflation without destroying the economy.
And technology stocks took the lead. The concern over the labor market, or the conflict in the middle east or the possible inflation we could see if oil prices continue to rise doing nothing to slow the advance. By the end of the day – the Dow gained 126 pts, the S&P up 55 pts (exactly what it lost on Monday), the Nasdaq up 260 pts, the Russell gained 2 pts, the Transports added 80 pts, while the Equal Weighted S&P added 18 pts.
Tech – which has been a bit of an underperformer (of late) stole the show – rising by 1.9%. Chipmakers surging – NVDA +4%, AVGO +3% & INTC + 4.2%. The Magnificent 7 (index) up 1.7% – taking it up 43% ytd. Next in line was Consumer Discretionary +1%, Communications +0.9%, Financials, Healthcare, Consumer Staples all up 0.5%, Real Estate +0.3%, Industrials +0.2%, Utilities flat, while Energy and Basic Materials gave up 2.5% and 0.5% respectively.
Naturally the contra trades did not work yesterday…all moving lower as stocks advanced.
The VIX (fear index) which was up 52% in the last 10 trading days lost 5.5% yesterday – giving fuel to the rise in stocks. Less fear = more confidence, sellers become more deliberate while buyers’ trip over each other to buy stock. The VIXY ETF – one of my favorites ‘contra trades’ gave up 4.5%.
Bonds prices have been under pressure for two weeks now (ever since the FED cut rates) and that has forced yields to rise. – the TLT down 7%, the TLH down 5% while the AGG is down 2%. 10 yr. treasuries yielding 3.6% on September 17th have advanced swiftly…. piercing short term resistance at 3.81% and then piercing 4% on Monday, testing a high of 4.055% yesterday before closing at 4.011%.
This morning the 10 yr. is up yielding 4.019%. Intermediate trendline resistance is at 4.068% – a push up and thru will put 4.16% clearly in focus and that will send stocks lower. Look, the bond market has been pricing in another jumbo rate cut, until it doesn’t – the move up in yields now suggesting that the FED will do nothing at the November FOMC meeting – an idea I floated in yesterday’s note.
The US data continues to cause confusion – thus the churn in both stocks and bonds… some analysts think it is strong but not strong enough to stop the FED from cutting, while others are happy to take a balanced approach and not rush to push rates lower as fast as the market was pricing in. In the end though, while I do think they want lower rates, I am not in the camp that we need 200 bps worth of cuts – unless of course the data changes dramatically in the months ahead.
Oil traders finally decided to hit the SELL Button on the idea that there might be a ceasefire in the mid-east. Prices fell by 4% ($3.25) on Tuesday…ending the day at $73.90. The decline in oil coming after last week’s 8% gain – caused by Iran’s attack on Israel. But do not celebrate just yet, while Hezbollah did come to the table, they are not so quick to sign any ceasefire agreement. So, we can expect ongoing volatility here as well until it is clear that Israel is not targeting Iranian oil assets and moves to end the conflict appear to be more definite. Remember – a move to ‘take out’ Iran’s oil infrastructure will only exacerbate tensions in the region causing a wider war and would threaten Persian Gulf supplies…sending oil higher.
Gold plunged by $24 (1%) on Tuesday ending the day at $2640/oz, but not before testing a low of $2623 as the idea of smaller rate cuts caused some of the trader types to ring the cash register. Remember – Gold is up 24% this year on that very idea of aggressive rate cuts, foreign central bank purchases and global geo-political tensions. The idea that rate cuts will slow and that hostilities in the mid-east may quiet down are now reasons to take some money off the table for gold bugs. Should mid-east tensions rise again – then I would expect money to move back into the ‘safe haven’ asset.
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US futures are lower this morning at 6 am. Dow futures -32 pts, the S&P’s -7, the Nasdaq -40 pts while the Russell is down 4 pts.
Eco data today includes Mortgage Apps and the release of the September FOMC min…. Neither of which I think are going to change the narrative. But, yesterday we did hear from Boston Fed President Susie Collins telling the markets that monetary easing ‘should be careful and data based’ (suggesting slow and steady)….Today’s release of the FOMC mins may give more insight into how the individual members of the committee feel about the next move and while that’s all good, I am not expecting it to change the course of history.
We will also hear from other Fed heads – Lorie Logan, Raffi Bostic, Austan Goolsbee, and Mary Daly (of SVB fame). Tomorrow features Johnny Williams and Tommy Barkin.
Thursday brings us the Sept CPI and Friday brings us Sept PPI and the start of earnings season…So, lots to consider in the weeks ahead.
The S&P closed at 5751 – up 55 pts. Leaving us in this tight trading range….5688/5755. It feels like we are topping out right here….so the move would be to test last week’s low at 5674…. Which is KEY for investor psyche and algorithmic performance. If we test it and hold then we’re good for another day…but if we test it and fail – then that will trigger a wave of selling that could test trendline support at 5558. A 2% move lower for the S&P.
In the end –Successful investing is a marathon, not a sprint, Remain focused on the plan. Talk to your advisor. Click on the link to send me a message – I’m happy to discuss.
https://slatestone.com/contact-us/
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.
Pumpkin Risotto
It’s that time of year again and you see pumpkins all over the place, the air is brisk so try this great hearty dish. Easy to make because you BAKE this one and it is delicious to eat……
You will need: Chicken Broth, Arborio rice, Butternut squash, 1 1/2 cups of pumpkin puree (not the pie filling that you buy in the store – you need real pumpkin puree), large diced onion, chopped fresh basil, plenty of fresh grated Parmegaina Cheese, olive oil – and the kicker – 3 tblspn of Mascarpone Cheese. – (Mascarpone is a soft white cream cheese from the Lombardy region of Southern Italy. It is the result of the culture being added to the cream skimmed off the milk used in the production of Parmegiana. It has the consistency of soft cream cheese and is used in a variety of Italian dishes including deserts)
Preheat the oven to 400 degrees.
In a baking dish – combine the rice, cut up butternut squash, the pumpkin puree, diced onion and the chicken broth. Season it with a bit of s&p and mix well. Cover it tightly with a lid or with tin foil and place in the middle rack in the oven. Re-visit it in 10 mins intervals and stir. It will be done when most of the broth has been absorbed and the rice is no longer hard. This should not cook any longer than 40 mins max.
Remove from the oven and add – the Parmegiana, the Mascarpone and the chopped basil – mix well (but do not smash the butternut squash) and serve immediately in warmed bowls.
Buon Appetito.
