Semi's under pressure, pot stocks surge

• Stocks fell out of bed – lots of concern over today’s NFP report.

• Dollar index surges by more than 1%.

• Oil – is now up 20% from last week’s low. 

• AMD warns of a ‘breathtaking drop in demand’ – Oh boy.

• Try the Tuscan Bean Soup.

Stocks got smashed (again) on Thursday as investors and the algo’s go into cautious mode as we await today’s Non-Farm Payroll report…by now you know that the expectation is for us to have restored 260k jobs… And while that number is robust – it would be the smallest number of jobs added in one month since late 2020.  Unemployment at 3.7%, but some are expecting a small increase in that number. Avg hourly earnings m/m +0.3% and y/y of +5%.... Labor Force Participation to remain at 62.4%.... So, what’s the issue?

Well, the issue is what happens if it’s a stronger number – say +300k jobs…. What if unemployment goes to 3.8% or 3.9%?  What if the number is weaker – say only 175k jobs?  What does it really mean?  Well, a stronger number will only confirm the fact that the FED has to remain aggressive….a weaker number – would be expected to send stocks higher – on the assumption that the FED might then hint at changing the narrative – and everyone will celebrate saying ‘see, I told you…’ …..to which I would say.

Stop the madness….it’s done, the FED is moving 75 bps no matter what happens…. If the number is weaker – that would be good, but don’t go betting the ranch that the bottom is in….or that the FED will change course on this ONE data point…….NOT HAPPENING…..and if they do – then watch out…..because they would be moving to prevent panic somewhere else (I am not suggesting that there is any, I am only suggesting that IF they pivot – then we need to be concerned about something else)….Think about the UK – last week….Recall how the BoE (Bank of England) did a 180 (pivot) to stop the chaos in the gilt and currency markets.

At the closing bell – the Dow gave back 346 pts or 1.1%, the S&P gave back 38 pts or 1%, the Nasdaq off by 75 pts or 0.7%, The Russell down 10 pts or 0.6%, and the Transports down 14 pts or 0.1%.

In the end investors found little to be excited about to sustain the charged rally that we saw on both Monday and Tuesday…….the anxiety building as the clocked ticked…and in addition to worrying about the NFP report – we had to digest another round of remarks by 6 different FED heads who all sang the same song…..committing themselves to ‘crushing inflation’ via raising rates at an aggressive pace – as they also tried to kill ANY speculation that there was a pivot somewhere in the future….Chicago’s Chucky Evans saying that he expects the Fed funds rate to be 4.5% - 4.75% by spring – exactly what JJ said (actually he said 4.6%), and then Minneapolis’s Neely Kashkari chimed in saying the ‘central bank is quite a ways away from pausing..’, So, if you are expecting the FED to pivot – you should think again.

On the back of this – the dollar index rose by a full 1% (a big move for the dollar) ending the day up $1.02 to 112.236….and while a stronger dollar should help to push commodity prices down – it did not.

OIL – a commodity- continued to move up…. gaining $1.07 or 1.22% to end the day at $88.83 right at the high…. It has pierced its 50 dma at $87.34 and is about to kiss its intermediate moving average at $89.73…if it is successful there – then the next target is $93.40.   Like I said yesterday – the default (consensus) year-end target is now $104/barrel….with some estimates even higher….but no one is calling for $60 any longer….not since Russia invaded Ukraine and the Saudi’s told Joey to shove it….Overnight – oil continued to rise – as high as $89.37 – just 40 cts away from the next resistance trendline…at 6 am – oil is trading at $88.95.

Nor did it push gold lower – Gold ended the day $1721 – up 30 cts…which is small, but IT is up and not down.  Capisce?  Considering what the dollar did you would have expected gold to be down more, but the strength in gold suggests that traders/investors are moving into the ultimate ‘safety trade.’  This morning – gold is trading at $1720.

Treasuries – sold off – sending yields higher again with the 10 yr. ending the day at 3.815%...the 2 yr. is now yielding 4.23% - marking the 10th week of yield increases and the 16th week of curve inversion.  - and if you are worried over what’s next for stocks – you can take a chunk of money and buy 2 yr. treasuries – and earn 4.23% (guaranteed) that will give you income and some stability (if you hold it full term) in an unstable time.  

So, energy was the only sector in the GREEN – the XLE rose 1.8% leaving it up 48% ytd…. which is a 20% move UP in the last week….…. Everything else in the broad 11 sectors were lower with Utilities down big – 3.3% and that makes sense…. Utilities are extremely sensitive to guess what?  Rising rates…. You see the average dividend yield for utilities which are really considered a boring bond proxy in the equity markets -is about 4%....so when bond yields climb – investors can move out of the ‘risk’ asset and move into the ‘safe’ US treasury for the same yield without the equity risk. (Think the 2 yr. – yielding 4.25%) When the FED kept rates at 0 – then conservative income focused investors flocked to the utility space for the income. Capisce?  But now that rates are providing real competition for utility stocks – we are starting to see that move.

And Real Estate also came under pressure – for the same reasons…. higher interest rates negatively impact real estate…30 yr. rates for a 740-760 credit score are now kissing 6.9%...a score below 740 pushes you up and thru 7%.  We saw mortgage apps decline by 14.2% this week – and that also makes sense as the cost of money rises.

The Semi’s getting banged over the head again this morning……last night – after the bell – AMD came clean…. the headlines saying it all.

“Chipmakers see ‘breathtaking’ demand drop as recession looms” – BB.

“AMD sinks after early peek at revenue shows STEEP shortfall” – BB.

“AMD Warns of 3rd Q Revenue shortfall on weaker PC demand, along with Supply Chain Issues” – CNBC.

This morning AMD, NVDA and INTC are quoted lower – down 5%, 3% and 2% respectively.  That brings those names down 55%, 56% and 48% respectively. – Tough year for the semi’s….And this goes onto what I have been saying all along – estimates are just ‘too ambitious’….these companies are gonna have to come clean before they actually announce – this way it shows that management is not asleep at the wheel – its about the messaging, right….better to forewarn than to play ‘Mickey the Dunce’!

But if you smoke POT – you’re in luck – Joey pardons ‘almost’ anyone and everyone that has ever gotten ‘convicted’ of having, selling or smoking it….Saying that the legislation ‘never made any sense’….and this morning the POT stocks are on the soaring….….ACB +10%, TLRY +10%, WEED + 38% and if you want to play this space via an ETF – look at MSOS (Advisor Shares Pure US Cannabis) and that is quoted up 11% in the pre-mkt.

This morning – US futures are churning…..swinging just north and south of the unchanged line….at 6 am  Dow futures are +50 pts, the S&P flat, the Nasdaq down 30 pts and the Russell is +3 pts –  We are getting 5 more Fed head speeches today – Atlanta’s  Raffi Bostic, Kansas City’s Ester George, Minneapolis’s Neely Kashkari and Chicago’s Chucky Evans and NY’s Johnny Williams.

European stocks are also mixed…. Italy up 0.5% while Spain is down 0.3% - everything else is somewhere in between down between 0.6% - 1%.  Markets there await US NFP data.  BoE Deputy Governor Davey Ramsden is set to speak at an event this morning.

The S&P closed at 3744 down 38 pts… We remain in the 3585/3960 trading range….It is important that the S&P hold that low created at the end of September as today begins and as we move into earnings season….If it does – that would be positive signal….if it fails to hold onto that low – then brace yourself for even lower low….in that lower high/lower low pattern I described.  

Look – we are now in the final months of 2022…. PMs are certainly going to be going shopping for names that have been completely dislocated (as you should as well) and while I think this rally will stall once earnings start, the mid-terms only add another level of uncertainty….  In any event – I do expect a Christmas rally post the election – yr. end target around 4k ish….…. 2023 expectations will be modified post the election when it is clear what the outcome is.

In the end - it is always best to stick to the plan…. Talk to your advisor.  Be strategic when allocating new money to your long-term portfolio…. Overweight big, boring names that are good divvy payers, while we are in the storm.

Tuscan bean soup 

You will need to start with Celery, Carrots, Onions, and Red Potatoes.

Dice the veggies and sauté in a bit of Olive Oil....keep heat on medium and stir frequently.  After about 5 / 8 mins - add one can of chicken broth, one can of water, season with pepper - no salt needed.... bring to a boil then reduce heat to simmer.  Cook for another 10 mins or so... that veggies are nice and tender.

At this point - take 2 or 3 ladles of the veggies and puree in the food processor and return to pot.  This gives the soup substance and a hearty texture and flavor.

Next add the Cannelloni beans with the juice from the can along with a baby pasta - you can use:  Orzo, Tubettini, Ditalini, or elbows - leave heat on low and cook for about 10 mins.... add fresh washed chopped Escarole and stir...continue cooking for another couple of mins and test the pasta for doneness.  Should be firm to the bite.

This is a hearty and filling meal - serve in warmed bowls with fresh Italian sliced garlic bread that has been toasted ever so gently in the oven.  Enjoy with a bottle of white wine.

 ** Garlic Bread - for those of you who have never attempted:  Melt a stick of butter with crushed/minced garlic and a touch of Olive oil in the microwave.  Using a pastry brush – brush the slices of Italian bread with the butter and garlic.  Toast slices in the oven under the broiler.  Flip the bread and toast the other side until golden brown.