Bank of America warns of 'statistically expensive' markets, but quarter-end rally likely to hold

So again, I have to ask — Are we at a level of irrationality yet?”

Stocks couldn’t hold onto their early morning gains, which to me feels like a sign of exhaustion. Bank America’s Savita Subramian – Head of US Equity & Quant Strategy – tell us this – “that 19 of 20 metrics for the US equity benchmark tell us that we are trading at ‘statistically expensive levels. Hmmm…..isn’t that what JJ told us 2 days ago? I think he used the term – ‘fairly highly valued’ and Alan Greenspan used that now famous quote – ‘irrational exuberance’.

Not sure about you, but words like statistically expensive levels’, fairly highly valued and irrational exuberance – sound kind of the same to me…. I mean it’s not like one of them said ‘stocks are cheap’!

In any event – at the closing bell this is what we saw - the Dow lost 171 pts or 0.4%, the S&P lost 19 pts or 0.3%, the Nasdaq down 75 pts or 0.4%, the Russell gave up 22 pts or 0.9%, the Transports lost 18 pts or 0.1%, the Equal Weight S&P lost 16 pts or 0.2%, while the Mag 7 ‘gained’ 77 pts or 0.25%.

But here’s the thing — we’re only four trading days away from the quarter-end “marking period.” In just seven days, those statements will hit your inbox, and if the market simply holds here, they’ll show outstanding 3^rd Qtr. performance (S&P up 9% this quarter). That’s enough to make everyone smile.

So, here’s the thing - my gut says this: yes, the market looks tired, but I don’t see them letting it back off much before next Tuesday, September 30th. I’ve been calling for some weakness and volatility since mid-August — a healthy 5–8% pullback — but it hasn’t come. And now I’m supposed to believe it’s going to happen in the next four days? At the quarter end? Nah, not buying it. A 2% dip? Sure, maybe. But 5–8%? No way.

Which only means (to me) that come Wednesday, October 1st, the story changes. Why? Because it’s a new quarter, the market will have another three months to back off, reset, and then make a run into year-end. And by “rally,” I don’t mean to the moon — I think it tops out right around here, somewhere in the 6600–6700 range.

Now sure, Oppenheimer and Goldman will push back — one’s calling for 7100, the other 7000. Fine. But here’s the thing: if I’m wrong and we close higher, I’m not missing out. Why? Because I’m not telling you to sell anything. The same way I never told you to sell anything in August or September when I was ‘hoping’ for a pullback.

You might consider a little protection — think the contra trades like DOG, SH, PSQ, VIXY, SPXS — but that’s not the same as hitting the sell button. And if the market does pull back? I’ll do what so many others will do — step in, buy more, and ride the wave. Capisce? Again, it’s about ‘time in the market, not timing the market’.

Bonds lost 0.35% leaving the 10-yr yield up 3 bps at 4.13%, while the 30-yr yield rose 2 bps to end the day at 4.73%. Remember when the FED cut rates bonds did rise (+6%) and yields did fall (-6%). We tested 4% with many calling for 3.5% 10 yields. Recall, I said 4% was the ‘psychological’ level for investors to watch.

OK, so what’s happening? Rates are getting cut, bonds are getting sold and the 10-yr yield is rising – leaving investors to consider what? Rising inflation? Slowing growth? Or too much debt issuance? OR does it mean that investors think that the FED cuts WILL support growth, and they want in – so they SELL bonds (causing yields to rise) but they BUY stocks. Maybe.

But here is the bottom line - When the Fed is cutting but 10-year yields are rising, the market is basically saying: We’re not buying the idea that inflation is dead. We are also not buying the idea that we won’t be issuing more debt. More debt means more supply, which usually means lower prices and higher yields.

Oil rallied 2.2%, closing at $64.90. Now, remember yesterday’s headline — OPEC+ considering holding off on production increases because Chinese demand was “weak”? I called BS! Well, turns out China is buying about 630,000 barrels per day from Indonesia — which in reality means they’re buying crude from Iran, bypassing OPEC.

Xi Xi thinks he’s a brain surgeon: by routing purchases through Indonesia, he assumes no one notices that he’s supporting Iran (which is a No, No – think Hamas and Hezbollah) while simultaneously sending a message to OPEC — we don’t need as much as you think we do. And boom – OPEC thinks demand is waning, so they consider cutting production and then the market reacts to less supply and prices rise. It’s all very orchestrated. Are you tired yet?

Gold continues thrash around…..It is up $24 at $3791.

US futures were lower but are now higher. At 4:30 Dow futures are up 45, S&P is up 3, the Nasdaq is up 15, and the Russell is up 3.

Yesterday – we learned that New Home Sales exploded higher – rising 20.5% vs. the expected -0.3%. Now, I don’t know about you, but I’m not really believing that number…. Last week – Lennar warned us of a soft 4^th qtr., that they weren’t selling houses, that they needed to cut prices and even that wasn’t doing it. Investors hit the SELL button and the stock sold off 14% taking the other homebuilders with it. And now we are to believe that buyers are tripping over each other.

Now, home buyers will become more active as mortgage rates fall, but a 20% rise in new homes sales – when mortgage rates are still 6.4% - just feels a bit ‘iffy’ to me. But, we’ll see – earnings season is only 3 weeks away…..

Eco data today includes final revision to 3q GDP expected to be +3.3% (strong), Personal Consumption of +1.7% (up over last month), Durable goods expected to be -0.3% – but here’s the thing – if new home sales are really that strong, then it should show up in Durable goods because all of those new homes need appliances, bath fixtures, windows, AC/Heat (all durable goods) – capisce? So, homebuilders will have to ORDER these Durable Goods to put in all these new houses…. Which means Durable Goods should also ‘explode higher’. Stay tuned – we’ll find out at 8:30 am.

European markets are lower – all down about 0.4%. Investors there are also wondering if their markets are ‘highly valued’ as well. Spain is up 30% ytd, Italy up 24%, Germany +18%.

S&P closed at 6,637 down 19 pts… a quick look at the chart – suggests that if we back off a bit more – we should find some support at the 6625 level – down 12 pts….and if we fail there, then 6500 is next. Guess what 6500 is? Down 2.4% from last week’s high…. Refer back up to my comments above.

Investing is exciting and frustrating at the same time. It’s about ‘the plan’ – make sure you have one. It’s about time in the markets, discipline, and risk management.

Chicken cutlets capriccioso

Chicken Cutlets Milanese Topped w/Arugula, Chopped Tomatoes and Grana Padano.

This is a ‘simple dish’, easy to make and takes no time at all.......you can also use veal or pork cutlets - as you prefer.

For this you need: Chicken cutlets - pounded thin, homemade Italian breadcrumbs, Arugula, Red Onion and Shaved Grana Padano Cheese, Eggs, flour.

You begin with pounded chicken cutlets, rinse under cold water and pat dry with paper towel. dredge the cutlet in flour, then dip in egg wash (scrambled eggs before you cook them) .... then cover in the homemade Italian style breadcrumbs* and set aside.

When completed - heat up olive oil in a baking dish under the broiler... (being careful to watch as the oil will ignite if it gets too hot before you begin cooking) Dip one side of the breaded cutlet in hot oil and flip to the other side and broil - 3 to 4 mins. While broiling prepare the Arugula for the finishing touch.

Mix the arugula with the chopped tomatoes and red onion - season with s&p and dress with fresh lemon juice and toss.

Flip the cutlet and broil the other side. When done remove from oven and place on center of warmed plate. Now using salad tongs place the Arugula salad on top of the cutlet top with the shaved Grana Padano and drizzle with olive oil.