• Stocks rallied (note the past tense) because stocks are in decline this morning.

  • Volatility remains elevated as earning season is set to begin.

  • The dollar index moves up, 10 yr. treasuries yield move up, Oil moves up and PEP is raising prices across the board.

  • 4278 is the level to watch on the S&P – Where are the Buy the Dippers?

  • Try the Pork Arrabiatta.

Well, well, well…. stocks rallied back on Tuesday after the beating on Monday in what felt more like a knee jerk reaction to the sell off – with analysts and strategists telling investors that it’s all good – Buy the Dip!  The Nasdaq – which fell more than 2% on Monday – rallied back – gaining 180 pts or 1.7% on Tuesday – but it was the Transports that stole the day…. rising 251 pts or 1.8%.  The Dow and S&P both rallied 1% while the Russell was the laggard gaining only 11 pts or 0.5%.

The recent volatility should not be a surprise – how long have we have talking about the ‘seasonal weakness’ aka – volatility? Look, while the volatility has been somewhat modest overall – The S&P off 5%, the Nasdaq down 6.5%, the Dow off 4%, the Russell down 5% and the Transports are down 8% off their summer highs… individual names have told a different story.  We’ve seen much more re-pricing in individual names – think BIG TECH – AMZN – 15%, AAPL – 10%, MSFT -7%, INTC – 21%, and the TECH disruptors are down even more….COIN – 18%, SHOP -22%, ARKK – 32% to name just a few…..all as investors reposition their portfolio’s as we move into what will be a new era – Less stimulus, rising rates, rising inflation, massive tax and spend plans in DC along with the Democratic proposal to force American banks to report every transaction greater than $600 in and out of your bank account to the IRS in an attempt to find anyone who might be trying to evade paying taxes….

Oh boy….and what makes this even more unbelievable is that Treasury Secretary Janet Yellen is supporting this asinine proposal – Every $600 transaction – can you even begin to imagine what that would look like?  Grocery shopping costs $600, your car payment costs $600, if you buy 2 pairs of jeans and 3 shirts it costs $600, 2 pairs of shoes?  $600 and if you sell your old couch on FB Marketplace, Poshmark or eBay and deposit $600 into your account – the IRS is going to want a piece of that…. I mean just think of the stupidity in this – and we elected these people? 

Ok – back to the markets…. investors today are more worried about the prospects of rising inflation and rising rates and the effect that will have on the US and global economy…. Watch the bond market…. the 10 yr. yield will tell you where inflation is headed….and yesterday it closed at 1.528% up from 1.48% on Monday….and up from 1.2% only one month ago.  Expectations are for yields to end the year in the 1.8% range…. with some estimates as high as 2%.  Thus, the explanation about why TECH is getting punched in the face…. higher yields affect the price that investors are willing to pay for future profits….and TECH is all about future profits…. Higher yields are also a reason for investors to move money out of the stock market and put it into the bond market…. especially if you are worried about a correction.  A correction that will come BECAUSE rates are moving up…. recall that as rates fell to zero – money came out of bonds and into stocks – well when rates rise the opposite is true.

Mortgage rates are also on the rise….with 30 yr. mortgages now at 3.15% up from 2.75% only a month ago – and the prospects for higher mortgage rates by yr. end 2022 – the industry suggesting that by mid-2022 30 yr. money will be 3.5% and by the end of 2022 you can expect to pay nearly 4% on a 30 yr. mortgage….which should mean that the ongoing rise in home prices will have to slow down…if not go into reverse….and if rates continue to go higher into 2023 – then watch how housing will ‘adjust’.

Meanwhile oil continues to surge higher…..and that also threatens to weigh in on company earnings as well as the consumer….Yesterday West Texas Intermediate rose another 1.7% to end the day at $78.93/barrel – Oil now up 30% since August but don’t worry winter is coming and some are predicting that we could see an ‘off the charts’ spike in oil – with some suggesting that $100/barrel is not out of the question…and if that is true that would be another 25% spike in the price of oil and just think about what that will do for your winter heating bill never mind what it will do at the gas pump.  Remember in August when the talking heads were telling us that covid would destroy demand for oil?  How’s that working out?

And this morning – stocks around the world are under pressure…. Asian stocks were lower by about 0.5%, but European indexes are down more than 2% at 6 am this morning and US futures are weaker as well…. Dow futures off 350 pts or 1.1%, the S&P’s down 53 pts or 1.2%, the Nasdaq is down 210 pts or 1.4% and the Russell is off 34 pts or 1.5%.

The VIX which fell yesterday by 7% is up 12% this morning….as the selling continues.  Gold is down $12, the Dollar index is up 44 cts at 94.42 and is about to pierce the 94.67 level that I identified yesterday  ago and if the dollar breaks up and through then look for it to rally to the 98 level before tiring and if yields continue to move higher – expect the dollar index to follow suit….and that will put pressure on the multinationals – when they report earnings and have to convert foreign currencies back into US$  - because when they do, they will get ‘less’ dollars. 

I do not expect the recent volatility to subside anytime soon….and expect more turbulence in the weeks ahead…. because we are about to enter the ‘danger zone’ – the reporting season.  So, will it be what so many expect, or will we hear more about supply chain issues, rising input prices and pressure on margins?  (Yes, yes, yes).   Analysts have already made downward revisions to the estimates…the question is - Have they cut them so much that they will all look ‘better than expected’?

Yesterday PEP reported and beat the number – the stock rose by 0.6%…. they also reported that input prices are on the rise, but they have pricing power and expect to raise prices across the board to reflect the changing environment – those price increases taking place today and next week….…. I suspect that we will hear more and more about companies raising prices to offset increased costs…. So, expect the inflation story to remain alive and well.

Eco data today includes – ADP employment - exp of 430k new jobs created, but like I said yesterday- I suspect that we will see an upside surprise…. just my gut feel.

Bitcoin is trading at $51,300 while Ethereum is at $3380.   

The S&P ended the day at 4345 – after a 60 pt. swing from high to low…..It closed just below the trendline -  Again, this is an issue (technically)….and with earnings coming (formerly next week) it is time to brace yourself for some downside surprises….and if futures are any guide – the S&P looks like it will open below 4300….here is the number to keep your eye on….4278…that is the low from Monday….Are the buy the dippers sitting there waiting?  If not – then maybe they will be at 4250…. recall – long term support is at 4145…. or down another 4.5% from here – and if it goes there – then the S&P would be down by 9.5% from the high... a level I have been targeting for months now.    

I still think the path of least resistance is lower in the weeks ahead and that will provide better long-term opportunities for the patient investor.

Pork Arrabiatta 

Arrabiata -means in a "rage", "angry" - appropriate for the last couple of days, no? The good thing about this Arrabiata sauce is that you can use it on pasta, steak, pork, lamb and even chicken.  Penne Arrabiata is a classic pasta dish and can be found on almost any menu in a Southern Italian restaurant.

You begin with the basic marinara sauce - plum tomatoes, garlic, onions, grated carrots & celery, fresh basil, pinch of sugar and salt and pepper.

Add some Olive oil to the pan - with the side of the knife - smash the garlic and then chop - add to the pan and sauté.... next add the diced onion - continue to sauté for about 10 minutes.... heat is med - do not burn the garlic!

Next add the shredded carrots and celery (maybe 2 of each) and continue to sauté for another 15 minutes or so - so that the veggies get soft and almost begin to melt away.  Now add the plum tomatoes.... if you want a chunky sauce then "hand crush" the tomatoes and add to the pot...if you prefer a smoother sauce - then run thru the food processor and blend well.
Once you add to the pot - season with fresh basil, salt and pepper and a pinch of sugar (think this is more psychological - but my grandmother did it - so just do it).  Bring to a boil - then reduce to simmer, stir and cover...returning to stir occasionally.  Should simmer on the stove for 30 minutes or so....

Now the Arrabiata - you need:  Pancetta, crushed red pepper flakes, garlic, and olive oil....
In a large sauté pan - add olive oil (just a bit) - add some smashed/chopped garlic and sauté...now add the pancetta and continue to sauté for about 5 minutes.... introduce the red pepper flakes - the more you add the "angrier" it gets...capisce?  Now add 4 ladles of the marinara sauce and mix.

If you are making the pork - the season the pork chop with salt and pepper and then place on the grill.  Cook for about 3 minutes on each side - then remove from the grill and add to the sauté pan with the Arrabiata sauce and let it simmer for 5 minutes or so.... bathing the chop as it simmers.
When ready - place the chop on a plate and spoon the sauce over the chop.  If you are really in the mood for more Arrabiata the add in a side of pasta with the same sauce and plenty of fresh grated Parmegiana Cheese.

A robust red wine will complement this dish well.

General Disclosures

Information and commentary provided by ButcherJoseph Asset Management, LLC (“BJAM”), are opinions and should not be construed as facts. The market commentary is for informational purposes only and should not be deemed as a solicitation to invest or increase investments in BJAM products or the products of BJAM affiliates. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. There can be no guarantee that any of the described objectives can be achieved. BJAM does not undertake to advise you of any change in its opinions or the information contained in this report. Past performance is not a guarantee of future results. Information provided from third parties was obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness.

Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable. The price of any investment may rise or fall due to changes in the broad markets or changes in a company’s financial condition and may do so unpredictably. BJAM does not make any representation that any strategy will or is likely to achieve returns similar to those shown in any performance results that may be illustrated in this presentation. There is no assurance that a portfolio will achieve its investment objective.

Definitions and Indices

The S&P 500 Index is a stock market index based on the market capitalization of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poor’s.

UNLESS OTHERWISE NOTED, INDEX RETURNS REFLECT THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS, IF ANY, BUT DO NOT REFLECT FEES, BROKERAGE COMMISSIONS OR OTHER EXPENSES OF INVESTING. INVESTORS CAN NOT MAKE DIRECT INVESTMENTS INTO ANY INDEX.

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