S&P 500 faces heaviest loss since 2023, August-October weakness kicks in

• Stocks got whacked last week, but futures are up this morning.

• Bond market finally UN-INVERTS – is the recession upon us?

• Oil tries to steady – Morgan Stanley cuts oil price forecast again.

• Gold is expecting a 25-bps cut.

• Try the Pork Loin.

Stocks closed out the week on a down note…S&P 500 suffers it worst weekly loss since 2023……. the rout in the stock market coinciding with the start of the worst month for hurricanes along the eastern seaboard as well as that ‘seasonally weak’ August – October time frame.  By the end of the day the Dow lost 410 pts or 1%, the S&P down 95 pts or 1.7%, the Nasdaq lost 440 pts or 2.5%, the Russell lost 41 pts or 1.9%, the Transports down 190 pts or 1.2% while the Equal Weighted S&P gave back 80 pts or 1.1%.   For the week – the Dow lost 3%, the S&P lost 4.3%, the Nasdaq lost 5.8% while the Russell gave up 5.1%. 

The weakness coming after a week of mixed eco data that was punctuated by Friday’s NFP report…. which revealed that nonfarm payrolls only grew by 142k new jobs….20k LESS than expected……while the prior two months reports were also revised downward – something that should surprise no one…. Why?  Because just go back and look at the reports – every month they revise the prior months down – it’s been happening every month…so this month was no surprise either….to which I would say - So much for all that strong job growth that the B/H administration keeps telling us about.  The jobs created as originally reported were not the jobs created at all…. But that’s another subject all together. 

Now, the bond market ‘un-inverted’ meaning that 2 yr. rates (3.66%) are now less than 10 yr. rates (3.73%) …. which is really a return to normal for the bond mkt….

Remember what happened when the yield curve inverted in the late winter of 2022…. Do you remember how every pundit on TV was calling for a recession 12 – 16 months out? Because an inverted yield curve meant that the economy would slow (within 12 – 16 months) to the point that the FED would need to slash rates (thus un-inverting the yield) curve to avoid a recession….  Because an inverted yield curve ALWAYS preceded a recession - Well, that 12 – 16 months out was April 2023 – July 2023….and what happened exactly?  Nothing….no recession, no nothing and you can point to the unprecedented liquidity injections and massive fiscal stimulus for that.  In fact – the yield curve remained inverted until last week….28 months….and then on Thursday last week – it flipped…the 2 yr. is now yielding LESS than the 10 yr.  on the expectation of sharply lower rates  - which I guess means that the recession is supposedly knocking on our door….. and if that’s the case – then maybe we can expect the FED to slash rates by more than 25 bps….as they try to avoid a recession (hard landing) and come in for a soft landing….

But again – here is what I said on Friday…. The FED is stuck between a rock and hard place and that has become evident since everyone got back from the Labor Day Holiday…..Stocks have sold off, the market is betting on a big cut, while the FED is trying to steady the ship with a smaller cut….But again, JJ can’t win here….no matter what he does now won’t matter (in the near term) for stocks. 

If he cuts by 25 bps while traders are screaming for 50 bps – the mkt will sell off and if he fronts loads the coming cuts by cutting by 50 bps – when the market is expecting 25 bps – then the mkt will sell off. – the mkt will sell off for 2 very different reasons….the first one will be because the traders are throwing a temper tantrum because they didn’t get their way…..….while the second one will be because an unexpected  50 bps cut – would be seen as a panic move and will suggest that the FED has completely misread the data and is now behind the 8 ball….(vs. being in front of the 8 ball).   

In any event – if a recession is coming – it is now incumbent upon the FED to try and manage a mild  recession – that will shake the branches a bit, unemployment will pick up a bit, prices will come DOWN (vs. continuing to go up), and the economy will suffer but reset….. that’s what recessions do…. they reset the economy…. Let’s just hope that the FED has not completely missed it. Don’t forget - we have been experiencing a slew of ‘rolling recessions’ hitting different sectors over the past 2 yrs.…. So, is everyone overreacting or are we going to get stuck in that ‘herd’ mentality, where we just follow like sheep, and the prediction becomes a reality?    

And so now is where we have to pay attention……Every member of the FOMC is now in ‘quiet mode’ (ahead of the next meeting) so we will not hear from any one of the committee members, but we could hear from the FED non FOMC members – who will or could ‘test’ the markets reaction to a possible 50 bps cut….How?  By talking to the media, by strongly suggesting that a 50-bps cut is nothing to panic about and will normalize rates faster than a 25-bps cut….  We could also hear from one of the ‘Deep Throats’ – in this case – Goldman Sachs or the WSJ’s Nicky T…. Because this is another way the FED tests the markets’ reaction – by having these two put out a ‘research piece’ or a WSJ headline story any day now…. So, stay tuned.

Oil appears to be trying to steady after piercing the December 2023 low…. trading as low at $67.27 last Friday……. Ongoing worries over a slowdown in Chinese demand and the possibility of a US economic slowdown coupled with plentiful supplies all weighing on oil.  This morning, we learned that Morgan Stanley cut its oil forecast again (2nd time in as many weeks) as those concerns grow louder.  They now expect Brent to average $75 during the 4th qtr. vs. the $80 they had predicted. And if that’s the case – then WTI should trade in the $70/$72 range. This morning WTI is trading at $68.40.

Gold continues to thrash around in the $2500/$2550 range…as it too awaits the final decision…. a bigger cut (50 bps) will help support gold while a 25-bps cut could see gold sell off…. Why?  Because that is already the expectation…. that move is already priced into the asset and that appears to be what the market is telling you………so a 25-bps move would be a ‘sell the fact’ reaction. Trendline support is at $2480, no not really a huge deal….

The VIX – Fear Index – continues to tell us to stay awake…. It went up 40% last week as stocks sold off…to end the week at 22.38.  This morning the VIX is down 1.23 at 21.15 and stocks are up……

Dow futures +230, S&P’s up 40, the Nasdaq is ahead by 165 while the Russell is up 7…..and that does makes some sense after the beating stocks have taken in the last 6 trading days….A bounce is not and should not be unexpected…..Investors now pricing in a 70% chance of a 25 bps rate cut while 30% are betting on a 50 bps rate cut. So, if, they can just relax and let the 25-bps cut happen, maybe we can stop the ‘panic’…. but in the end – does it really matter if rates are 4.75% - 5% or 5% - 5.25%?  No, it does not matter as far as your cost of living is concerned…. because a 25 or 50 bps cut is not changing your life…it is not causing the price of food, insurance or utility bills to come down… what would cause THAT to happen?  You guessed it – a recession…

This week – brings the all-important CPI And PPI….and while the expectation is for both to come in a bit better than expected (slowing the pace of rising prices) – it will not move the needle; it will not change JJ’s mind. 

In the end – do not discount the role that the Presidential election is having on the markets – the lack of clarity on the issues as well as on the polls are just another reason for the weakness.  If they create panic in the markets just weeks ahead of the election, then that will put even more pressure on JJ to make a bigger cut…. or at least that is what they think will happen….and remember – the FED is supposed to be independent (think NON-Partisan).

Remember -you can hedge yourself by playing the contra trades…..the DOG, SH and PSQ all get you ‘short’ different parts of the market….the Dow, the S&P and the Nasdaq respectively…as the indexes fall, those contra trades rise (thus the hedge)….…or you can consider the VIXY – which allows you to play the volatility….as the VIX rises the VIXY rises….And if you are really negative then you can play the triple levered SPXS – which just levers up the exposure…But remember – these are NOT long term plays – if you use them they are strategic and short term in nature….Because if the mkt turns – these hedges turn quickly….Capisce?  Now if you suddenly get bullish – the triple levered long SPXL is a way to play it to give your portfolio an added boost - but again remember – if it goes against you, it cuts like a sharp knife.

European markets are all a bit higher this morning…. markets across the region are all up about 0.8% paring back on last week’s 3.5% loss…apparently shrugging off all the negative sentiment. There are no major announcements today, so markets are getting a chance to breathe. 

The S&P closed at 5408 – down 95 pts…..no need to rehash why, by now you realize what is going on…..September/October are weak months historically – we discussed this and the eco data is only confirming what we all know….the US economy is slowing but NOT crashing…..Long term investors need to remain focused and balanced. Building a strong, well diversified portfolio takes time and commitment….  Give me a call to discuss.

Roast pork loin w/peaches and honey

This is a simple dish and presents beautifully on a platter.

For this you need:  1 3lb boneless pork loin, canned peaches, honey, fresh lemon juice, brown sugar, s&p.

Preheat the oven to 400 degrees.

Season the loin with s&p – nothing more…massage the s&p into the loin and then place the loin in a baking dish – and place in the oven – uncovered and let it roast for 30 mins….

Now - in a pan – add the canned peaches with the juice, the juice of 2 fresh lemons, 2 tblsp of honey and ½ c of brown sugar.  Bring to a boil and then crush the peaches with the back of a spoon – cook for maybe 4 – 5 mins…then remove and let cool.

After 30 mins – add the peaches to the baking dish – pouring the peaches over the whole loin.  Return to the oven and cook for 30 more mins…. You can turn the loin if you want to – when done – let rest for 5 mins.  Slice and then place on a serving platter – spoon the peaches and juice over the top and serve with garlic herb rice pilaf and a large mixed salad.