The S&P closed at 2765.31 – So today’s circuit breakers are:
Level 1. 193.57 pts (7%) or 2571.74
Level 2. 359.49 pts (13% total) or 2405.82
Level 3. 553.06 pts (20% total) or 2212.25
8:44 am - Tuesday, March 13th - President Donald Trump (@realdonaldtrump) ‘tweets’:
“Mike Pompeo - Director of the CIA will become our new Secretary of State. He will do a fantastic job! Thank you to Rex Tillerson for your service! Gina Haspel will become the new Director of the CIA and the first woman so chosen. Congratulations to all!
OK...Let’s be clear - this tweet at 8:44 am yesterday was not the reason for the mkt to sell off at all yesterday....it may have caught Americans by surprise, it may have caught Rexy by surprise, and it may be an ‘uncool’ way for the President of the free world to make such announcements - in fact it wasn’t the smartest idea - but this is Donny we are talking about - and nothing he does is ‘by the book’ at all...but that’s another story! (And anyone who signs onto his administration should realize that they are at risk at any moment to hear the words “You’re FIRED!” - Shame on them if they FAIL to understand that risk). But either way - no matter how some in the media set it up - Rex Tillerson’s dismissal or Pompeo/Haspel nominations were NOT the reason for the mkts to back off.... This kind of stuff creates more entertainment value (think SNL or the late-night shows) rather than creating stock prices.
Futures were higher in the pre-open yesterday as we awaited the 8:30 am CPI report - which was right in line - as expected - and even after that blockbuster tweet - 10 mins later - futures remained higher into the opening bell....in fact - the S&P did as I suggested - it challenged the 2800 century mark in the moments after the bell rang and failed again….....it is THIS technical failure that changed the tone of the mkt and you could feel it the moment it happened.....once traders/investors realized that there little to no enthusiasm to take the mkt up and thru this ‘round number’ in a third attempt in nearly as many days - the trader types hit the SELL button and the tone went from ‘RISK ON’ to ‘RISK OFF’. One glance at the chart – reveals this truth.
Look - the mkt suffered a fair amount of technical damage back in February when we had that ‘short vol trade’ implosion - stocks sliced right thru short, intermediate and long term supports in a 4-day period as the bottom fell out...and while we then experienced a ‘V’ type of rebound - one must ask - Was that healthy? Was the shakeout that happened along with the rebound in the next couple of days enough to reset the gauges? My sense is that it was not and I have been saying this all along.... You can’t have a meltdown and then just expect that everyone ‘buys the dip’ and says IT’S ALL GOOD......
Look - Global investors remain bullish on stocks (for the most part) supported by the upbeat global macro data points and most recently by the robust U.S. jobs report last Friday. A report that showed a dramatic increase in the number of jobs created along with a decrease in wage growth. And that is all good.......But the rise in volatility last month along with signs of a pickup in inflation have forced asset managers and retail investors - for the first time in several years - to reconsider their risk tolerance and risk correlations - which then means that many asset managers are raising cash positions by taking some risk off the table (selling stocks) and reconsidering the mix of what their portfolio’s look like. Essentially - they are now wondering aloud if ‘the Goldilocks’ economy is about to meet the 3 bears….
[A Goldilocks economy is an economy that is not too hot or cold, in other words sustains moderate economic growth, and that has low inflation, which allows a market-friendly monetary policy. - Wikipedia]
So, are we about to see the end to this ‘central bank friendly’ global Goldilocks economy that has been defined by rising stock prices and an extremely accommodative Federal Reserve, ECB, BoJ, BoE, PBoC, RBA, etc.... (European Central Bank, Bank of Japan, Bank of England, Peoples Bank of China, Reserve Bank of Australia...)?
I mean while we are now ok with the idea of gently rising interest rates - the recent volatility has raised concerns for many that inflation could surprise us, that a trade war could erupt and that the mkt may not just be able to just ‘go up’ any longer. As normalization sets in - a return to more active investing is taking hold - you can’t just be passive and buy a broad-based ETF and think - “Wow, this is so easy”. IT AIN’T EASY....remember that. You must do your homework, you must know what you are buying, you must understand the risks and anyone out there who is telling you different is NOT doing their job. The problem is that we have a whole generation of people who have NO clue on how to invest and they think that passive investing is the wave of the future - well WAKE UP!
*****Are we at the point where good news is now bad news for stocks? I mean – think about this for just a minute…..past corrections have usually been about weakening global growth, weakening US fundamentals etc…..but the selloff in February along with rising concerns is NOT about a weakening global (or US) economy – it is in fact – the opposite…the concerns are about an ‘overheating’ economy, about increasing inflation, about rising wage pressures, about extreme valuations, about a possible trade war, about the chaos in the White House and on Capitol Hill, about mid-term elections and what will happen to the “Trump Mandate”. (Note what happened overnight in Pennsylvania – A Democrat, Conor Lamb, won a special election in a very Republican stronghold – is that a preview of what is to come in November? – How old is this kid? Does he even shave yet? – Either way – he got elected – so deal with it).***
So, is it time to rethink those long held beliefs that the mkts can only go up? A strong labor mkt, a shot of fiscal stimulus, rising commodity prices, and upward pressure on wages will all contribute to rising inflation and this will cause Fed Chair Powell to re-think what he needs to do…..and with 10 yr treasuries teasing with 3% - the mkt is trying to re-assess what it all means….because it’s not all bad at all….I mean rising corp earnings around the world and real top line revenue growth are not BAD things and could work to help soften any drop in stock prices. And in the end – I do not believe that the ‘tariffs’ will be the death knell for stocks at all – we can already see that nations are coming to the table to re-write old trade policies – policies written last century – (sounds so dramatic) that need to be revisited and those new trade policies will create new opportunities for us and for the global economy. So, stop panicking…it is not the end of the world….
And so yesterday saw the mkts back off a bit…. now the Dow and S&P ended the day down 2/3rd of 1% (171 pts and 17 pts respectively) – the Nasdaq lost 1% or 77 pts – still not a barn burner – but makes sense since the Nasdaq was acting contra to the other two indices….so to see more pressure on the ‘growth’ names is NOT surprising at all.
In Europe – mkts there have gone from negative to positive after a speech by ECB President – Uncle Mario Draghi! Initial weakness credited to the usual suspects of late…. tariffs, trade and retaliation. News of Rexy Tillerson – is not shaking up the continent by any stretch.
FTSE f+0.24%, CAC 40 + 0.32%, DAX +0.34%, EUROSTOXX +0.30%, SPAIN +0.09% and ITALY + 0.21%.
US Futures are up 8 pts in early trading as the see saw continues….…. Yesterday the S&P traded as low as 2758…. just above support at 2750……I have been saying that we are in a range – 2750/2800….and that is what it feels like this morning…. we bounced off support yesterday and are floating in space – between those support and resistance levels. Eco data will define the day….this morning we get – Mortgage Apps, Advanced Retail Sales – exp of +.3%, ex Autos and Gas of +0.4%, PPI (producer price index) of +0.1% (non-inflationary) and PPI ex food and energy of +0.2%...but here is the kicker….we will also get PPI final demand y/y and the exp is for +2.8% which is UP from last month and PPI Final demand EX food and energy of +2.8% which is UP over last month – and those would be inflationary readings….so strap in….let’s see what traders and investors focus on…will they look at the monthly figures and yawn or will they look at the yearly figures and get anxious? And the plot thickens…. we remain in the 2750/2800 trading range and unless any of these reports are so off the expectation – I just expect more churn.
The VIX (fear index) is down 0.17 cts at 16.18 – just below resistance at 16.71.
Oil – is UP 0.38 cts at $61.09 after getting slammed yesterday but is also still within its trading range of $59.58/$62.01. Chatter about strong Chinese demand is driving the action this morning…. all while US crude inventories rose by 1.2 mil barrels last week….and the show goes on…
The dollar index – DXY – is up 0.11 cts at 89.77 after it too challenged resistance 90.11 yesterday and failed….…. The dollar is also benefitting from a decline in currency volatility which is causing investors to add to positions in the dollar as it attempts to break thru resistance at 90.11…a move up and thru that will cause the greenback to rally towards the next resistance level of 91. 93.. failure here could see the index fall back to March lows of 89.43.
Gold if off by $1.50 at $1,325. The rally yesterday took gold to resistance at $1,332 before it also failed to pierce it. Gold remains solidly in between support and resistance of $1,307 and $1,331/oz.
Take Good Care
Escarole & Bean Soup
If you grew up in a southern Italian household – this was pronounced as (Shka-Rola & Beans). It is a great, simple dish to make and eat. Have plenty of fresh grated Parmegiana cheese on hand.
Now depending on where you are from – Southern Italy, Sicily, Mediterranean side or the Adriatic side will determine how you make this dish…but for me (Neapolitan & Sicilian) – simple is always better.
So, you will need: Garlic, olive oil, diced Vidalia onion, escarole, chicken broth (homemade is always better), cannellini beans, s&p and plenty of fresh grated parmigiana.
Begin by sautéing crushed garlic in some olive oil, now add in the diced onion and sauté until nice and soft – do not burn the onion – so keep the heat at medium and stir often. Sauté for about 15 mins to get them perfect.
Next add the ‘shka-rola’ to the pan and sauté quickly. Season with sap. Now add in the chicken broth – remember you’re making soup – so be generous with the broth. Drop in the cannellini beans right from the can – using the ‘juice’ in the can as well. (yummy!)
Simmer for 15 mins to make sure the beans are all warmed up. Turn off the heat and add a handful of cheese and mix well. Now serve in warmed bowls and have extra cheese on the table for your family. Serve up a side of toasted Italian garlic bread to soak in the soup or just eat on the side. It’s the perfect winter soup and so simple to make. Enjoy.
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. 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 O’Neil Securities, Incorporated or its affiliates.