• We are entering the final week of the quarter – expect lots of churn.

  • Stocks remain in a downtrend; rates remain higher for longer.

  • UAW enters its 10th day….and still no end in sight.

  • Chaos on Capitol Hill – Kevy’s job is on the line, 5 rouge members defining the narrative – toss out the fringes on both sides and watch what happens.

  • The PCE is out on Friday – Expectations are for it to be UP.

  • Try the Thin Spaghetti w/Ricotta & Spinach – dusted with Lemon Zest and Parmegiana

  • My appearance with Stuart Varney on Varney & Co at Fox Business on Friday morning. 

Stocks dropped for the third straight week….as rising treasury yields take a bite out of investors’ appetites.  The VIX surged by 38% blasting up through the short and medium term trendlines – only to advance and kiss the long term trendline before finding any resistance. Oil continues to move up as demand outstrips supply and JPM’s Chief Energy Equity Research fellow  - Christian Malek -  warns of $100 - $110 brent in 2024 and even higher in 2025 and 2026…..citing capacity shocks, an energy super cycle and of course – the lefts efforts to push the world away from fossil fuels….It’s like the more they push, the more dramatic it gets….I mean, can you think of anything else that is reacting so dramatically to all out efforts to ban it by the left? (Come on, you can say it….). 

Then we have China mining records amounts of coal and importing record volumes of coal from both Australia and Russia and this is sending coal stocks surging (think BTU -12% ytd after a 30% rally off of the March lows, ARCH +10% ytd, CEIX +45% ytd & AMR+61% ytd) ……….

And then we have the UAW - now on its 10th day of strike with little to no end in sight.  Shaun Fain – raising the temperature by calling on workers to strike additional supply chain plants to further disrupt the industry…. The WH tells us that Jo Jo plans to go to Detroit to stand in the picket line in a show of support for the very people he is looking to throw out on the street. (Think EV’s).  I mean – you can’t make this up….

And then we had Chaos on Capitol Hill…. The fractured GOP causing massive migraines for Kevin McCarthy and the party in general– an embarrassing failure for the Speaker and the party.  Now, the DEMS are having a field day…. celebrating the fact that the House republicans are being led around by the nose by 5 rouge congress ‘people’.  In the end – they got nothing done and a gov’t shutdown looks almost inevitable now…. And while this is all very dramatic, it will NOT price stocks in the long run….it could though, provide short term opportunities for the investor in stocks that get arbitrarily dislocated.  

Now remember what I said on Friday morning…..…..each one of the indexes closed on the lows on Thursday evening….and that usually means that they will test lower the next day….the next day was Friday….and while they tried to give the good ‘ol college try’ and rally – it just wasn’t gonna happen……They rallied off the open, only to fail at like 11:45 – losing all of the gains and going negative….until 3 pm…when they tried to push ‘em up into the close….and that failed too…at about 3:30 – exhaustion set in, the weekend was coming, investors and traders had a lot to digest – and the algo’s went into sell mode – pumping all kinds of sell orders into the system while at the same time – cancelling inline bids – leaving a void in prices that sent the indexes into negative territory to end the day…The Dow lost 106 pts, the S&P down 10, the Nasdaq down 12, the Russell down 6 and the Transports lost 70.

The yields on the 2’s and 10’s retreated just a bit, but not by any amount that is significant…. The 2’s are still yielding 5.10% and the 10’s are yielding 4.43%.   Shorter duration 3 and 6 months yield 5.5% and 5.55% respectively.  And my gov’t money mkt fund at Fidelity is paying me 5.1% for just sitting there – completely liquid, no risk…. Capisce? So, at the moment I am not ‘forced’ to do anything…. but I’m always looking…because there is always an opportunity….

Next up on the list of things to be concerned about is the weakness we are seeing in the industrials and small cap space…. those sectors have done an about face and have all started to trade off – in what is usually a sign of a looming recession!  What?  A recession?  Say it ain’t so!  The Industrials are down about 8% since August 1st…. leaving it just 2% away from what we call ‘correction’ territory….as the airlines and other transportation stocks cut their outlook for the 3rd qtr. ending this Friday…. Why?  Think the sudden surge in OIL prices…. Diesel and gas expenses go up, that means profits go down – (that’s also in Econ 101). Small caps ARE in ‘correction territory’ – falling 11% off the high of July 31st. 

The mid-caps are down 9%, the S&P is off 6% during that same time period, while the Nasdaq is off 8% and the Transports are down 9.9%.... So, we are right on the edge of correction territory for all of the indexes.  But it is important to remind you – all of the indexes are still positive on the year right now….the Russell (+1% ytd) and the Industrials (+2.5% ytd) are the two at risk of going negative sooner rather than later.  The other indexes are still up double digits.

In the end – investors – both institutional and retail – are still very concerned about the next inflation read – due out on Friday, September 29th…when we get the latest PCE deflator – the FED’s favored inflation metric….and guess what?  It is expected to RISE to +3.5% up from +3.3% y/y while m/m it is expected to rise by +0.5% up from +0.2%.... BUT not so fast – kiddies…why?  Because they want you to focus on the PCE CORE deflator – which eliminates food and energy…. saying that when you take out these two categories – then it’s all a bed of roses…. y/y Core reading is expected to be +3.9% down from +4.2% while m/m is unchanged at +0.2%. And what does this mean for the path forward?  Are we still in pause mode for November…..for that, you’ll have to wait for the September CPI and PPI reads due out on October 11th and 12th…..just ahead of the start of earnings season (again….) which officially kicks off on the 13th – with Dow member JPM taking center stage. 

Tech and energy were the only 2 sectors in the broad S&P that were in the green on Friday – the other 9 sectors were all lower…with Consumer Discretionary being the worst performer of the group. 

The contra trades continuing to show life on the market weakness…. The DOG gained 0.3%, SH + 0.3% and the PSQ added 0.1% while the VIXY added 0.25% and the SPXS – Tripled levered SHORT gained 0.8%.

The economic data also was weaker – S&P Manufacturing coming in at 48.9 – still contractionary while Services PMI came in at 50.1 – below the estimate of 50.4 and sitting right on neutral.

Eco data today includes Chicago and Dallas Fed surveys….

This morning futures were up overnight but at 6 am – they have turned down…. not big, but they are not UP….as we enter the final week of the quarter. At 6 am - Dow futures -4, S&P’s -2, Nasdaq -12 and the Russell is -2 pts. 

Is it just that investors are still trying to digest the swift move in rates?  Investors are now deciding what fair value is under these ‘new’ circumstances (the higher for longer narrative – which by the way isn’t really new……they were just trying to ignore it).  The recent breakout in treasury yields forcing many to ask – ‘Ok, now what?’  How high will yields go? And it is this question that will weigh on investors’ minds causing risk to remain elevated.  And with both the UAW and the clowns on Capitol Hill creating sub-plots on the main stage, the path of least resistance – at the moment – feels a bit lower.  

We did hear from two FED heads – Boston’s Suzie Collins and Governor Mishy Bowman – both indicated that further tightening is ‘not off the table’.  Today we will hear from Minneapolis’ Neely Kashkari – later in the week look for Fed Chair JJ Powell, Richmond’s Tommy Barkin & Chicago’s Austan Goolsbee – all making appearances on Thursday while NY’s Johnny Williams takes the podium on Friday.

European markets are all lower this morning…. the German IFO index – coming in weaker than expected.  The index fell to 85.7, down from 85.8 – making it the fifth consecutive month of decline as companies become less satisfied with the current business environment.  Away from that – investors there are also revisiting the message that was delivered by a host of central banks across the region…. At 6 am – all of the markets are lower by about 0.7%.

Oil is trading at $90.05/barrel, Gold is trading at $1944, and the dollar index is up another 9 cts at 105.68 – this after the short term trendline cut through the long term trendline creating a golden cross – which suggest more upside…. Capisce?

Recall that the VIX traded up and thru two trendlines and kissed its long-term line at 17.61….it backed off a bit as expected but has now tested and pierced it (also as expected) and this this morning it is up 76 cts at 17.96 – which now leaves 20 in the line of sight….and that would be another 16% move up from here.  

The S&P ended the day at 4320 – down 10 more points…. Leaving us even deeper in this new trading range…4190/ 4370….  Today is Yom Kippur – a high holy day for the Jewish community – I expect a slow, uneventful trading day…. Don’t read too much into what happens today.  The end of the week is coming and with that the end of the quarter….While we will get lots of eco data this week – the points I think are most important include – GDP 2Q final of 2.2%, Pending Home Sales – expected to be -1%, Retail Inventories m/m +0.5%, Personal Income and Spending of +0.4% each and then the all-important PCE report – which we already discussed.  

Do not forget the second GOP debate – this Wednesday evening – taking place at the Reagan library and hosted by Fox Business.  Dana Perino, Stuart Varney and Telemundo’s Ilia Calderon.  The field is shrinking…participants to include Christie, Pence, Ramaswamy, Haley, Scott, & DeSantis.

Thin spaghetti with ricotta and spinach

For this you need ½ lb. of the pasta, (using freshly made spaghetti is so much better – but do what you can). Fresh made Ricotta Cheese, Fresh grated Parmegiana, Spinach, Lemon zest, s&p.

Bring a pot of salted water to a rolling boil on the back burner.

In a bowl – mix the ricotta, lemon zest (1 lemon) and some fresh parmegiana cheese.  Season with a bit of s&p.  Mix well and set aside.

Now in a large sauté pan, add some olive oil – 2 times around…turn heat to med hi, add the spinach and some water so that it steams and not cooks.  When done 3 or 4 mins…. remove from heat.  

Cook the pasta.

Return the spinach to the heat right before the pasta is done.  Add the pasta directly to the sauté pan with the spinach.  Now add the ricotta /Parmegiana mix…. add some of the ‘tears of the Gods’ (pasta water) and mix well. 

When serving – twirl it on a big fork and place it in the center of the plate.  Finish with a bit of zest and some fresh grated Cheese.  Spoon some of the sauce over the top.  Enjoy.   OMG – so delicious.

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.

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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.

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