Retail earnings, Retail Sales and more hawkish Fed comments keep the lid on stocks

• Continued mixed messages in the Retail Space.

• All kinds of celebrities getting dragged into the SBFraud drama.

• Zelensky insists that the missile came from Russia, NATO & G20 just want this to go away.

• More FED speak confirms further rate hikes.

• Try the Penne w/Pumpkin Cream & Sausage.

Stocks went into pause mode (again) – more retail sales reports, macro retail spending reports, the angst over a Russian missile that landed in Poland killing two people and the resulting analysis by the G20 and NATO allies, more hawkish FED head commentary, the ongoing fallout of FTX, celebrities now getting sued and Sam Bankman-FRAUD attempting to pass the hat while DJT announces a 3rd run for the Presidency all weighed on investor psyche.  And while DJT will tell you that he has tremendous support – I would argue – not so much…even his daughter Ivanka is choosing to sit this one out…Now we haven’t heard yet from DJT Jr., Eric or Jared and you know Melania has absolutely ZERO interest in being 1st lady again….I’m thinking the country will suffer from ‘Trump Fatigue’ by the end of the this year…See my commentary yesterday on Mornings with Maria.

We then heard that the GOP members of the Senate – re-elected Mitch McConnell as Minority leader…. Which leads me to ask – ‘What are you all thinking’?  Mitch McConnell……when are you guys gonna figure it out and move on from what is NOT working?   That decision – along with the DJT announcement screams to me that we definitely need both AGE and TERM limits….but that’s another story for another day.

At the end of the day – the Dow lost 40 pts, the S&P gave back 32 pts or 0.8%, the Nasdaq gave back 175 pts or 1.5%, the Russell lost 36 pts or 2% and the Transports gave back a whopping 310 pts or 2.1%.

Retail stocks got slammed yesterday….TGT -13% reported disappointing numbers, warned of weak holiday sales and offered muted guidance going forward, is planning to offer ‘deep discounts’ in the months ahead to clear out unwanted inventory and they also made a point of saying that shoplifting at their stores is up 50% - something that is not usually part of the ‘earnings conference call’ to analysts – which suggests that we are in a different place completely…… ‘shoplifting’?  Welcome to the new world.

CSCO -1% and TJX +5% also reported and they beat their numbers and offered mixed forward guidance…..and then we got the latest Retail Sales numbers…..and they were ‘stronger’ than expected – now, I’m not saying ‘better than expected’ because that would send the wrong message….you see – the number m/m was expected to be +1% and it came in at +1.3%, Ex autos and gas was supposed to be +0.2% and it came in at +0.9%.  And this means 2 things….the first is that these numbers were not inflation adjusted – so you could argue the higher number is because things are more expensive – that we were forced to pay more but bought less or you could argue that demand is still strong and that the FED needs to do more work.

And that was the message that Mary Daly, Johnny Williams, Esther George made clear (again).  While inflation is only starting to ease and US Retail Sales rising at the fastest rate in 8 months – the message remans clear – the FED has further to go and any idea that the FED was going to pause is off the table.  Johnny Williams went further saying that ‘the bank should avoid incorporating financial stability risks into its considerations.’  Did you get that?  He said that the FED should NOT be concerned about what the stock market does or doesn’t do…. based on what the FED should do…..Hmmmm – now there’s a new twist…and that is laughable.

Oh and by the way – Goldman – you know them right – the FED’s canary in the coal mine – well – Deep Throat at the FED (known as Neely Kashkari) whispered the plan to Goldy and then they came out yesterday too and ‘increased their forecast’ taking the terminal rate to 5.25% (by March) up from the 4.75% - 5% range that they were in…..So, now it’s official….look for the FED to hike rates until we get to at least 5.25% - which is 1.25% higher from where we are now….and like I pointed out last week – there are a number of ways to get there from here…..75 & 50?  50 50 & 25? 50, 25 & 50? 25, 50 & 50?  You get it right? No matter how you make it – we are going to 5.25%.  So stop the drama…..pause, pivot – not happening yet at all.   

The XRT – retail ETF lost 3.7% on the back of the mixed retail news…and that index includes names like GPS -6%, CHS 3%, VSCO -5%, TJX +5%, DDS -4% to name just a few….. In fact the only groups in the broader S&P that were up were Utilities – XLU +0.9% and Consumer Staples – XLP +0.5%....and what is it about those two sectors?  Oh right – they fall into the STPN category…..Stuff that People Need all the time…..recession or not…. Energy – XLE – which is also part of the STPN group -  took it on the chin – falling 2% on the back of the latest  ‘weak’ demand commentary and rising covid cases in China…..blah, blah, blah…..Tech -XLK – 1.4%, Consumer Discretionary – XLY -1.5%, Communications – XLC down 1%.  The Value Trade fell by 0.5% - leaving it down 6% ytd while the Growth Trade lost 1% - leaving it down 26% ytd…. Capisce?

Disruptive Tech lost 5%, Airlines – JETS lost 2.5%, Metals and Miners – XME lost 2%, Semi’s – SOXX lost 4% (NVDA a fan favorite got clobbered too falling 4.5% on the back of weaker earnings).  The contra trades were up…. DOG +0.6%, SH +0.9% and PSQ +1.4%.

This morning – we see US futures slightly lower…Dow -65, S&P’s -5, Nasdaq -5, and the Russell -6.  We are going to get more retail earnings today…expect to hear from M, ROST, KSS, BJ Wholesale, WSN and GPS.

Economic data is about Housing Starts  - expected to be -2%, Building Permits -3.2%, Philly Fed outlook – 6, Kansas City Fed – 7.  Fed Heads Kashkari and Mester are due to speak later today…..I suspect they will confirm what we heard yesterday.

European Stocks are lower too….not dramatically – all off about 0.5%. Eurozone CPI due out later today…..Europeans (like other developed markets) also remain focused on the latest news concerning that Russian made missile…..Now – Ukraine President Zelensky telling the world that the missile was NOT of Ukrainian origin and wants to be part of the investigation….but as you can imagine – NATO and the G20 want to ‘bury’ this story and convince everyone that this was just a misunderstanding…..IMF Chief Kristalina Georgieva telling CNBC that the war in Ukraine is the ‘single most important negative factor for the global economy.

US treasury yields are up this morning and still inverted.  

Gold is off $11 at $1,764/oz. While the US dollar index – DXY is up 55 cts at $106.84.  Oil is off by $1 at $84.60/barrel.

The S&P closed at 3958 – down 34 pts – leaving us solidly in the 3793/4073 trading range. While I think the worst is over, I am expecting more ongoing volatility with a slight bias to the upside into year-end….but once 2023 begins, it’s a new slate and new drama…Next week’s PCE report is the next macro data point on inflation and then we will get another round of CPI and PPI before the December FED meeting…. Sit tight, stick to the plan – focus on the end game.

Penne with pumpkin cream and sausage

Try this one on for size for your Thanksgiving table.

For this you need: 1 lb. penne (or any pasta of your choice), 4 links Italian sweet sausage, casings removed, 1 cup chopped onion, 2 cloves garlic, olive oil, ½ cup white wine, 1 bay leaf,1 cup chicken broth, ¾ c of pumpkin canned (Libby - not the pie filling!), ¼ c fresh sage (opt), s&p, ground cinnamon to taste, Dash nutmeg, ¼ c heavy cream, ¼ cup fresh parmegiana.

Bring a pot of salted water to a boil and leave it on simmer until you need it.

Brown the sausage in a large frying pan.  Remove. Add the onion and garlic and a splash of olive oil.  Add wine and bay leaf. Bring to a boil. Cook until liquid is reduced by half.

Stir in the pumpkin, half the sage and all the remaining seasonings.  Cook a little longer about 2 minutes.  Add the cream and sausage.  Heat through. Remove the bay leaf.
Now add the pasta to the water…. cook for 8 mins.
Drain pasta -  reserving a mugful of the pasta water - and return to the pot and add the sausage mixture.  Toss to coat.  Add a bit of the pasta water to moisten.  Sprinkle the cheese.  Serve in warmed bowls immediately.