Things you need to know.
– “I feel the earth move under my feet; I feel the sky falling down…. I feel my heart start to trembling…..” Carole King – I Feel the Earth Move – April 1971 (https://www.youtube.com/watch?v=42YeDHaUOvA)
– Watch the eco data this morning at 9:45 and 10.
– Trump threatens to impose new tariffs on the Eurozone
– Try the Penne.
And feel the Earth move we did! Stocks got clocked yesterday…. falling nearly 2% across the board as the fear of a slowing US economy gains momentum. By the end of the day – the Dow lost 494 pts or 1.8%, the S&P lost 52 pts or 1.8%, the Nasdaq gave up 123 pts or 1.5% and the Russell fell by 13 pts or 0.92%. Now, one that we occasionally discuss are the Dow Transports…they lost 235 pts or 2.3% – taking this index to the cusp of ‘correction territory’ (defined as a loss of >10%..) – as of yesterday – this index has lost just over 9%.
Slowing global manufacturing PMI’s ignited the fire as investors brace for what feels like a repeat performance of October 2018 – when the major averages fell off the cliff as a result of mixed macro data and a FED that promised to begin RAISING rates as we tried to ‘normalize’. Between October 3rd and October 10th last year – the mkts lost 5% of its value as investors pulled back and the algo’s went wild…..and Between October 1st and 2nd this year – the mkts have lost 3.5% – and if we look what we’ve lost since the September highs – the mkts are off closer to 6%…. (All considered very normal – just fyi)
This week – the angst got ignited by a perceived weaker ADP Payroll report along with the sub 50 ISM (Institute of Supply Management) manufacturing report – that is suggesting a slowdown in manufacturing. Recall – the Markit/IHS PMI report contradicted the ISM report – showing manufacturing holding steady at 51.1 – so there is a question about which data point is correct? They both address the EXACT SAME ISSUE….so why focus on the negative one? Because, it’s easier to focus on the negatives WHEN you are looking for a reason to sell! When you believe that the mkts are overvalued but you don’t want to be the first one out the door – so what do you do? You wait until you get a datapoint that causes a lot of people to run for the exits – and then what you find is that there is only ONE door out….so the trampling begins….
And here is what I love to hear when this happens…. Media pundits will say that ‘Investors are De-Risking’ – selling stocks and moving into a safety trade – think Treasuries, Utilities, Gold, CASH – whatever…but here is the failure of that argument……Yes, while some investors are selling stocks and moving to a safety trade – there are others who are buying stocks – Remember – for every seller there is a buyer…so it is exactly paired off – now it may be paired off at lower prices – but the fact is the prices today or yesterday reflect the equilibrium of supply and demand at THIS moment. Look – when you SELL your house – you are de-risking your real estate exposure – but the buyer is increasing his risk to real estate exposure – it is paired off…..what is different is at what price does that pair off happen? Sometimes its higher and sometimes its lower – and stocks paired off lower yesterday – Period, the end.
Now while you may understand that – it still causes some people to become a bit anxious – and it those people that make emotional decisions vs. investment decisions. So, I would suggest that you sit back (unless you need the money today) and consider where you can allocate new monies in the days ahead. Look – I am NOT saying go all in at all…I am saying that when this happens you should perk up and look for where the opportunities are….Because the algo’s indiscriminate selling does create a silver lining – you just need to look for it (or have your broker look for it!).
Now as you might imagine – stocks in Asia – picked up from where we left off and continued to move lower as investors there continue to worry about trade and the lingering effects….Japan and Australia losing over 2% -Retailers and conglomerates getting whacked in Japan while banks got slammed in Australia….China Closed for the ongoing celebration while Hong Kong bucked the trend rising by 0.26% even as retail sales fell to their lowest on record as the ongoing protests in the city drag on. In addition – Trump has promised to impose new tariffs on European Union goods on October 18th and that is also being complicating global trade even more.
European mkts are holding steady…. Eco data out of France, Germany show weakness, but growth in Italy and Spain were surprisingly positive. Not hugely positive, but they weren’t negative – so that has to be a win…..News that Trump is planning on imposing those new tariffs (blessed by the WTO – World Trade Organization) is keeping a lid on any attempt to move higher while continued weak German data is holding everyone hostage (remember – Germany is the economic driver in the ‘zone’.) FTSE –0.50%, CAC 40 +0.61%, DAX closed, EUROSTOXX +0.35%, SPAIN +0.37% and ITALY +0.38%.
US futs are attempting to rally…..at 6:45 am – Dow futs were up 67, S&P’s up 13, Nasdaq +25 and the Russell +2 but by 7 am – everyone of those indexes flipped from positive to negative as the bets are placed…..Remember – eco data today includes the next potential bomb….besides the Challenger Job Cuts report and Initial Jobless Claims – exp of 215K and Cont Claims of 1.65 mil – we are about to get hit with both the Markit/IHS Services PMI – exp of 50.9 as well as the ISM Services PMI – and that number is expected to be 55 (very strong) – so here is where the explosion could happen…
IF either of these numbers comes in below 50 – then expect to see the algo’s implode – also expect to see liquidity on the buyside of the ledger disappear leaving a void in ‘inline’ demand – causing that trampling sound as the algo’s all run for the same exit…. Now on the other hand – you can argue that the mkt has already sold off ahead of what is expected to be a weak number – so a number that is 50 or above could cause the algo’s to do an about face and rally hard – taking back some of the losses suffered in the past week. It’s all very dramatic…and then tomorrow we will get the monthly Non-Farm Payroll report and that expectation is for +148k new jobs to be created.
Now yesterday’s move took the S&P down and thru 2925 – which was trendline support and when we breached that it caused even more selling by the algo’s as they identified that breach to be significant…we then sliced right thru 2900 – a big round century mark and other than being a round number – it means nothing, but it did cause more selling as the algo’s interpret it as just another failure – and the buyside recognizes this, so as expected they draw their bids and boom – you have another vacuum in prices – now yesterday I did identify the long term trendline support at 2835….If today’s eco data report truly disappoints – then we can expect to test that level as it is only another 60 pts away….. so, stay tuned.
Take good care.
Penne Rigate in a Carrot/Onion and White Wine Sauce
For this you will need: 1 lb. penne rigate, olive oil, thinly sliced Vidalia onion, shredded carrots, chicken broth, 2 large egg yolks, s&p, 4 slices of thick cut bacon cut into small pieces, ½ c white wine, 1 cup of frozen peas, and fresh grated parmegiana cheese.
Bring a pot of salted water to a rolling boil.
In a large skillet, heat up some olive oil then add in the sliced onion and cook – stirring until tender…maybe 5 mins… Add the shredded carrots and chicken broth – cover and bring to a boil – now reduce heat to simmer and let cook for about 10 mins max. Strain thru a sieve – reserving the liquid.
Next add the carrots and onions to the food processor and puree. You will need to add some of the liquid – no more than a ¼ cup. Next – add the egg yolks and a dash of salt and pepper. Blend again. Set aside.
Now back to the skillet. Wipe it clean and now add the bacon and crisp it up – maybe 8 mins or so. Once done, place the bacon on a paper towel and discard the fat. (Do not wipe the skillet!)
Now add the wine to the skillet and simmer – scraping up any browned bit of bacon. Simmer until it reduces to about 3 tblspns. Now add the frozen peas and some of the vegetable liquid. Bring to a simmer and cook the peas until tender….no more than 3 mins – you want them to be a bit crunchy.
Add the pasta to the pot and cook for 8 mins or so until aldente.
Drain the pasta, reserving a mugful of liquid. Toss the pasta with the carrot and onion sauce. add in the peas and bacon and toss. Add a bit of the pasta water to keep it moist. Don’t forget the parmegiana cheese on the table for your guests.