Stocks churn, Oil surges, UAW still out and cart goes public

• Stocks churn ahead of the FOMC meeting.

• ARM continues to pullback after the hype, Instacart IPO’s today.

• Oil keeps going higher…. Hmmm…think about that for a minute.

• The UAW really wants more than 36% and threatens more strikes on Friday.

• Try the Escarole & Beans.

Stocks, bonds, oil, gold, and the dollar all made small moves on Monday – as investors continue to speculate about what we will hear from the FED on Wednesday…. – as it is expected to set the tone for the balance of the year…. The Dow gained 6 pts, the S&P up 3, the Nasdaq up 2, the Russell down 12 and the Transports gave up 86 pts….  The 2 yr. yield rose to 5.05% while the 10 yr. bond yield fell to 4.3%.  Oil rose $1.40 or 1.5%, while Gold rose $9, and the dollar index fell by 23 cts to end the day at $105.08. 

Of the 11 broad sectors – only Tech and Energy were up yesterday…. the other 9 were all lower with Real Estate – 1.6% and Consumer Discretionary – 1.3% in the lead…. Notice that consumer discretionary represents ‘luxury stull’ all those items that have ‘elasticity.

ARM – the latest IPO – lost 4.5% at the end of the day and has now fallen 15.7% off the intra-day high since its debut on the 14th….after rallying nearly 30% off the IPO price, so yes, it is still up 15% but – the early euphoria appears to be waning….Like I said on Varney & Co last Friday morning…..  I think it’s a bit overhyped…. (It is down 9% since this interview).

Apple attempted to rally after the beating it took since their Wunderlust event that saw it lose 7.5% of its value…. after the trader types were less than impressed….and don’t negate the idea that so many asset managers use Apple as a store of value and when they need quick cash – they can liquidate a sizable amount and raise quick cash…..I mean – if they hit the sell button on 1 mil shares they can raise $177 million in seconds….(the stock traded 48 million shares yesterday – 1 million shares is equal to 2% of the volume)….no hassles, no bickering, no nothing….. Just like going to the ATM and taking out $100 bucks.   Try doing that in Bank of Hawaii – where the avg daily volume is 425k shares….in order to raise $177 million dollars they would need to sell 3,520,986 shares (8 days’ worth of volume and that’s if YOU sold every share – which we know is never the case) – and that’s if they could sell them at the last sale $50.27– which would never happen….you’d crush that stock if you tried to sell that many shares in one day….in fact – if you only sold 2% of the avg daily volume as in the Apple example – you’d sell 8500 shares and raise $427,925…..That’s a far cry from $177 million…Capisce? 

And there are a handful of stocks that you can do that with…. many of them you know- the Magnificent 7 perhaps.  META, APPL, AMZN, MSFT, TSLA, NVDA, GOOG.  All of these names are mega cap names that trade millions of shares and allow for easy in and easy out…..Now – while you’ll tell me that you can do that in JNJ or KO as well, I would say – Not so fast….JNJ only trades about 10 million/sh/day….so you’d have to sell 10% of the volume to raise $177 million…and KO – it also trades about 10 million/sh/day…you have to sell 30% of the avg daily volume…That’s a big piece for any asset manager – and while possible, it’s not the norm.

There wasn’t any real eco data to speak of yesterday but today – we are going to get Housing Starts – expected to be -0.9% and Building Permits down 0.2%, but it is the official start of the FOMC meeting….so they are all sequestered now – deep in the belly of the Federal Reserved Building at 1850 K St, NW in DC… You can imagine – they enter the ‘situation room’ and then argue/debate the next move…how will they position it?  Will JJ be left of center (dovish) or right of center (hawkish)?  Will he redefine the length of time that they intend on holding rates higher? Will he suggest a time when rates are to move lower?  (Doubtful…he hasn’t’ finished raising yet, how do you expect him to indicate when he will cut?).

The futures market is suggesting that the first cut will be in May 2024….which is 8 months from now….I think that’s a bit ambitious – considering that we are expecting another hike in November and possibly December….….(but it is a Presidential election year and so many ‘odd’ things can happen….).  To be fair – at the June meeting -  the Dot Plot graph that they produce did forecast 100 bps worth of cuts to begin sometime in the spring of 2024….….but that was 3 months ago….before inflation began to turn UP again….and before oil kissed $93 barrel and before Trump was indicted 4 times and before they launched an impeachment inquiry into Jo Jo.  See how things change? 

In addition to the FED, expect to hear from the Bank of Canada, Reserve Bank of Australia, Bank of England and the Bank of Japan…..I suspect that we will hear the same song….Rates to remain higher for longer…..as officials look to ‘kill’ inflation…..and follow the FED’s lead. 

Energy is the next issue…. oil has done nothing but go up since August 24th, in fact it has gone up by 18%....and that is proving to be an ‘issue’.  Now some of you say that Energy demand is elastic – I’d say, not if your need your car to go to work or go food shopping or expect products to be manufactured and transported around the country and the world….I’d say – energy is not so elastic…in fact I would argue that it is INELASTIC just like electricity, water, natural gas and food – because we rely on these products as necessities and not luxuries….Capisce?  Luxuries are ELASTIC……necessities are INELASTIC. That’s also in Econ 101.

Of the 11 broad sectors – only Tech and Energy were up yesterday…. the other 9 were all lower with Real Estate – 1.6% and Consumer Discretionary – 1.3% in the lead…. Notice that consumer discretionary represents ‘luxury stuff’ all those items that have ‘price elasticity.’ Airlines also down 1.8% (think higher oil prices and what that will do to fares – price elasticity).

Now they tell us that the consumer is strong and resilient – something I would argue is changing…… and so as oil goes, so goes inflation…. because it will cost more to produce and transport….and where do you think they are gonna get that money?  From the gov’t?  Try again?  Which is why I still think we are going to see a 6% terminal rate before this is over….as they try to slow consumers down…. because ongoing demand only feeds the beast. And those higher rates will continue to present a challenge for the markets…. I mean – the 2 yr. at 5.05%? Gov’t money markets paying you 5.15% - completely risk free and liquid…. come on, in an environment that makes you a bit nervous – that doesn’t sound so bad, does it?

In the end – it makes more sense to continue to be well diversified – do not go chasing those outperformers….and keep your bond purchases to short duration until you get a clearer picture of what is going on….while they may be closer to the top – they have to clearly define ‘higher for longer’ and while they hope that they succeeded in navigating a soft landing – there is always that risk that they have not and the path lower will be full of potholes…making it a rather bumpy, chaotic landing….just fyi – I’m in the bumpy and chaotic camp…which is why I have been building a more defensive tone to the portfolio.

And the UAW – yup – they are still on strike and do not appear to be tiring yet…. Jo Jo – sent a team of negotiators to Detroit to try and manage the process…and bring the two sides together……  Now the automakers may welcome that but the workers – have NO interest in the gov’t fighting their battle….  and they don’t want the Washington elite telling them what to accept or not accept.   Currently the fight is over wages and the work week….…. Fain wants 36% wage and a 32-hr. work week but get paid for 40, Automakers say ‘not happening’ so Fain says ‘no deal’….Now to this I would say – Wake up just a bit…you want a 36% increase in wages and you also want a 4 day work week, but get paid for a 5 day work week, which means you are really asking for much more than a 36% wage increase….no? Do the math.

Example:

40 hr. at $25/hr. = $1000 week; They want a 36% increase. So, $25 x 1.36 = $34/hr.

$34 x 40 hr. = $1360/wk.  But they want a 32-hr. week for the same money – which means they would need $42.50/hr. for 32 hrs. = $1360 – which means they want a 70% increase off of the $25 ($25 x 1.7% = $42.50).  Just pointing it out…. that if they get it, and I am NOT arguing against raising wages, all I said was the 36% increase isn’t really 36%.... – watch what happens to the price of cars…. Oh boy…and with auto loan rates topping 10% - you do the math!  Shaun Fain – UAW president just raised the bar – threatening to strike more plants on Friday at noon if the automakers don’t get serious.

Instacart (Grocery delivery) is today’s ‘hot’ IPO and it will be going live at the Nasdaq under the symbol CART…they priced 22 million shares at $30/sh – but tell us it is oversubscribed….not as much as ARM, but still oversubscribed….so, let’s see how this goes….At this price – it is worth about $9 billion which is down from the $39 billion it was worth during the pandemic.  Now CART trades at 3.5 x’s annual revenue that’s vs. 4.25 x’s for Door Dash and 3 x’s for Uber Eats.  So, they priced it ‘inline’…. but let’s see how investors feel.  Will they also see massive retail buying coming from Fidelity – like they did for ARM?

This morning US futures are mixed…. Dow futures +50, S&P’s up 7, the Nasdaq is up 25 and the Russell up 6……  Oil is up another $1.14 or 1.25% at $92.62….as both the Saudi’s and the Russian’s remain in bed together (all cozy under the sheets) to cut production in a bid to drive prices higher…. News that China’s economy is improving (that depends on the day) is also helping to fuel the latest surge…. In any event - $100/barrel is an 8% move from here and is NO longer out of the question.

Gold is trading up $3 at $1956/oz, this is after the $9 dollar push higher yesterday…. while the dollar index is trading a bit lower at 105.10…that is down from 105.40 two days ago.

European stocks are all slightly higher…. The UK +0.15%, CAC 40 + 0.3%, DAX – FLAT, EUROSTOXX +0.3%, SPAIN +0.5% and ITALY +0.6%.  Yes, we will hear from the BoE on Thursday, but today and tomorrow it will be about what the FED says and does.

The S&P ended the day at 4453 up 3 pts….Last week we busted up and through trendline resistance at 4480 and tested the September high of 4550 and failed…. we are now once again below the trendline at 4483 and remain in the 4367/4483 trading range.   Ok, I still think investors are tiring a bit – so I am not chasing…but I am not selling either…. I’d rather be a buyer lower and will remain patient.  If the market surges, I’m good – why?  Because I’m in and you should be too.  Recall we have 9 trading days left in the quarter… Expect to see some repositioning among asset managers…. selling some of the big winners and adding to the underperformers as we move into yr. end and the new year.  

Escarole and 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.

So, you will need:  Garlic, olive oil, diced Vidalia onion, escarole, chicken broth (homemade is always better), cannelloni 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 s&p.  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.

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 soup and so simple to make.  Enjoy.