Stocks danced around all day, teasing a bit higher only to back off. It traded in a tight 11 point range all day for the S&P (3072/3083) before ending the day lower by 3.65 points at 3,074.62. The Dow advanced by 30 points as it closed at a new high, the Nasdaq advanced by 1 point, and the Russell moved up by 2 points. All of the action just meant that investors sat back and digested all of the latest news to hit the tape: earnings, trade talk, and the latest US and Global macro data points.
Yesterday we got 2 PMI reports. One was the Markit US services PMI (that reading was 50.6, down from 51, but still on the plus side), the other one was the ISM ‘Non-Manufacturing PMI (Non-Manufacturing is another way of saying Services) and that reading was 54.7 UP from 53.5 last month, a very strong report. But do you see how it can cause confusion? Both reports speak to the Service Sector of the economy and they couldn’t have been more different. While both are in expansionary mode, the ISM report was much better and is trending UP vs. the Markit report was a bit weaker and is trending DOWN. So who is right?
Financials, Semi-conductors, Technology, and Energy names are leading the way. The XLF (Financial ETF) broke out four days ago. The Semis (SOX ETF) and the Tech sectors broke out earlier this month and continue to move higher as talk of a partial trade deal heats up. The XLE (Energy ETF) has suddenly woken up, piercing two resistance trend lines in the past week and now just about to kiss the third one at $62.38. If she pierces it, then watch this one break out as well.
Now, like the energy space, we see that OIL has also been waffling around for the better part of the year in the $52-$57 range. Last night it closed at $57.23 after having pierced long term resistance at $57.39 before backing off. It set this one up for a break out rally as well, as the idea that a partial trade deal will be good for the global economy, sending demand surging as the US and China play nice. Now look, we talked about this. Demand is fine (for now), oil has been held down due to oversupply. While the supply will be the same going forward, the idea that a trade deal is coming will relieve pressure on global trade, and that perception will send oil into a new trading range. ($55-$65).
XLU – Utilities – as expected, have backed off and are down 4% in the last week after their spectacular run: UP 27% since January. Remember, these are utilities, they are not sexy by any stretch, but they are solid investments that provide stability and safety in a nervous market. The angst over trade and a slowing economy sent investor dollars into the space. But as the broader market moves higher, the dollar weakens and US macro data remains strong and US interest rates get cut and talk of the “inversion” fades and trade tensions appear to be subsiding. The angst that dominated the conversation most of the year also subsides and this causes money to move from this “boring” sector into something more “exciting.”
Now all of these “breakouts” are clearly dependent on what happens with Trade. Because Trade is both the biggest risk to the market and the biggest supporter of the market. So at this point, the next headline in trade will be the catalyst for the move. If Donny and Xi Xi don’t come together or come up with an excuse to delay the signing of Phase One, then I suspect you will see the market give back the odd 74 points (2.2%) to test 3000 once again. The move from 3000 to 3075 was ignited by the FED rate cut, better than expected earnings, upbeat guidance, and the hope that we will get a partial trade deal. Now, earnings are done, the FED has made its move (cut) while putting to bed any idea of another cut in 2019. The only thing left for the market to react to for now. Besides the holiday shopping season and more Trump impeachment talk, is TRADE.
This morning we wake up to Larry Summers telling CNBC’s Street Signs Asia:
“US/China ‘Phase One’ trade deal won’t lead to ‘economic nirvana.’”
Summers pointed out that there are much deeper and larger issues that need to be addressed and will hold back future global expansion. To that I would say: Thanks Larry, but that’s not new information at all. Unless you’ve been living under a rock, it has been made very clear that Phase One was just the beginning. There are still forced tech transfer, IP protections, etc. that need to be ironed out. His call is meant to halt the surge higher, as he throws cold water into the playground.
Trading in Asia ended the day mixed as investors/traders sit and wait now, having taken the markets higher in anticipation. Xi Xi is still trying to get Trump to remove tariffs on $125 billion worth of Chinese goods before he considers signing his name to the deal saying: “firmer commitments on lifting tariffs are needed.” While that appeared to be all done on Monday, it ain’t over until “the fat lady sings.”
By the end of the day – Japan +0.22, Hong Kong – flat, China lost 0.45%, and the ASX is down 0.55%.
Trading in Europe has gotten off to a positive start. All market centers a bit higher, as investors there consider the latest news. IHS Markit reported Eurozone (EZ) composite PMI at 50.6. A gain in German factory orders attempted to offset the weakness in manufacturing, which was the slowest in 7 years. BoE (Bank of England) is due to announce its monetary decision tomorrow. Expectations are for a “nothing done.” So don’t look for any rate cuts. PM BoJo formally announces that a general election will be held in the UK on December 12 as he still pledges to get BREXIT done in the next few weeks.
FTSE – flat, CAC 40 +0.24%, DAX +0.24%, EUROSTOXX +0.26%, and both SPAIN and ITALY ARE +0.12%.
US futures were down and now are up small. More talk on trade is sure to dominate the story. Economic data today is a non-event. As earnings wind down, we will hear from a few stragglers: CVS, WYNN, QCOM, and EXPE, to name a few.
It still feels like they want to take it to S&P 3100 before they quit…..just to say they did…..Word that the US and China are having trouble finding a place to ‘ink the deal’ will cause some to say that is a stalling tactic – and maybe it is – but if it doesn’t get done pretty soon – then look for the market to back off. Like I said above – Trade is both the biggest risk and the biggest supporter of the market right now….
On a side note, and while this is not a political blog, we must start to pay attention to what is happening in the space. While the presidential election cycle will become an issue in the new year, investors are still discounting it because the field is crowded and anything could happen. While Lizzy is getting a lot of press, we could see an upset in the upcoming Iowa caucuses and that will reset the conversation. Earlier this week, we saw Beto call it quits as he struggled to gain support, leaving 17 candidates still vying for the nomination. Keep your eyes on Petey. He is making steady progress in the Iowa polls and could prove to be the dark horse in the race. Joey has gone quiet and Bernie has enlisted AOC for help. The rest of them seem to be fading into the sunset, but remain active as they vie for a Vice-Presidential spot.
Gold. we haven’t discussed this in a while, but have seen it back off as the market has surged, sending the message that any angst (which cause the safety trade into gold and treasuries and utilities) is subsiding. It is trading at $1488 off the September highs of $1550 and is sitting right on support. Now depending what’s next on trade will drive the next move in Gold. My guess is that it will sit on support until there is more clarity, a move to sign a deal will see gold fall to the $1450 range. Any move to stall it could see gold once again surge toward the highs of $1550 as money will move out of the equity markets and into gold & treasuries.
Take good care.
Spinach Stuffed Chicken Cutlets Wrapped in Pancetta
Stuffed chicken is so versatile – as you can stuff it and roll it with anything you like and it always comes out great. Today – try this one…
For this you will need: 8 Thin sliced Chicken Cutlets, 2 Cups Sautéed Spinach, Grated Pecorino Romano or Parmegiana Cheese, Thinly Sliced Pancetta, s&p, Olive Oil, Garlic, Peeled & sliced, Chicken Broth, Dry White Wine, Butter & Flour.
Sauté your fresh spinach in a bit of garlic and olive oil – seasoned lightly with s&p.
Lay the cutlets out flat on wax paper and lightly season with salt and pepper. Next divide the spinach amongst the eight cutlets, careful not to overstuff – leaving a little space along the sides. Now sprinkle a tbsp. of the cheese on top of the spinach on each of the cutlets.
Starting at one end, tightly roll the cutlets – now wrap the pancetta around the chicken pinch it tight a toothpick. If it is a big cutlet you may need two pieces of Pancetta. (You can also choose to use cooking string to tie it up – but the toothpicks are easier.)
Now – In a large, heavy bottom skillet, add some olive oil over med high heat and add the sliced garlic. Sauté for about 3 mins – now add the chicken and brown on all sides, about 5 – 8 minutes.
Next – Add equal parts of chicken broth and wine and bring to a boil. (Usually a cup of each will do for 8 cutlets).
Reduce the heat to a simmer, partly cover the skillet and cook for 15 minutes.
Now remove the chicken and bring the remaining wine mixture to a boil
Season with s&p, now add dollop of butter and maybe a tsp of flour and allow to thicken just a bit. (if it is not thickening – you can always add a bit more butter and flour) When thickened – add the chicken back to the sauce and coat well. To serve – Place the chicken on a platter and pour the sauce on top. Make sure to have a mixed green salad to accompany. If you want – you can add a side of garlic and herb flavored rice. No need for a veggie – it’s in the cutlet.