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Things you need to know:

  • It’s all about the debate tonight – Politics driving the action
  • Biden economic plan/tax plan will be front and center
  • Nancy and Chucky attempt to compromise, Stevey still out
  • Will Trump taxes really make a difference to voters? 50% yes, 50% no!
  • Try the Chicken Thighs w/Pancetta and Balsamic Vinegar

Stocks surged out of the gate on Monday morning… seemingly forgetting all of the angst that has caused it to ‘convulse’ over the month of September – and remember – it is end of month and end of quarter window dressing – and because there has been such a big (down) move over the month – there are plenty of opportunities for investors and traders to ‘pick up’ some names that were on sale. Tech was a clear winner, but so were industrials, banks, autos, communication services and energy… (think about the ‘value’ play we discussed yesterday. By the end of the day – the Dow surged by 410 pts or 1.5%, the S&P raced ahead by 54 pts o r1.6%, the Nasdaq rose by 204 pts or 1.8% and the Russell surged by 35 pts or 2.4%. The gains were broad – with 90% of the Dow names (27 out of 30) rising along with ALL 11 S&P major sectors.

Word that Speaker of the House Nancy (Pelosi) and Senator Chucky (Schumer) want to play nice in the sandbox with Treasury Secretary Stevey (Mnuchin) sent stocks surging in the pre-mkt and then even more once the bell rang. A strong Dallas Fed survey released at 10:30 gave an extra boost and the stronger economic data out of China was also noted as a market mover – but I would say – not so much because you can’t really believe what they say – but when the market remains ‘so sensitive’ to any positive or negative data/news – you could have said “The sun is rising’ and the algo’s would have responded…

It was just that the market got into a short-term oversold condition – 4 straight week of losses – sending the indexes lower as they all breached their short term trendline support (known as the 50 dma) to test intermediate trendline support (known as the 100 dma) – and a quick look at all of the charts reveals an uncanny duplication from all 4 indexes… each one of them reacted exactly the same – testing but not breaching intermediate support before bouncing on Friday and then again yesterday… and this confirms that the latest move is much more technical vs. fundamental and it also suggests that ‘end of month/end of quarter’ window dressing is alive and well. Note that the best performing S&P sectors yesterday were Financials +2,4% and Energy +2.4%… two sectors that have clearly underperformed this year. (Which puts them solidly in the ‘value’ category). Financials – XLF are down 21% ytd and Energy – XLE is down 47% ytd… so it is not hard to imagine that as we close out the quarter – many fund managers that are looking for value go straight to the source. Bingo! (CVX +3%, XOM +2%, SU +3.8%, CVE + 6.5%, JPM +2.8%, MS + 2.8%, C +3.1%, BAC +2.5% – capisce?)

Look – cyclical stocks tend to outperform during recoveries so that’s where you’re gonna find real value and opportunity – in the names that have been left for dead… Now that doesn’t mean you give up on some of the growth names – of course not – but if you are looking for diversity and opportunity – it’s time to add some value to your portfolio… call you advisor to discuss and remain focused.

The froth that we have all been talking about has been mostly squeezed out – they shook the branches this month and the weaklings fell out of the trees… leaving the longer term investor/asset manager to pick up the bargains strewn across the street and while no one expects that the volatility to slow right now – they are much more comfortable with where we are vs. where we were. The Nasdaq which was up nearly 34% ytd is now up 24%… after having shed more than 15% before taking some of it back during the last two sessions. The broader S&P which was up nearly 9% is now up 1.6% ytd… and both indexes finding plenty of support and plenty of buyers at key technical levels. And don’t discount the algo’s that respond to either breaches of or support at key technical levels… When investors/traders forced a breach of the 50 dma trendline – then the algo’s went into ‘sell’ mode… resulting in more downward pressure… but the bounce off the intermediate trendline sent the message to the algo’s that the buyers are alive and well… and are prepared to defend the position – and so the logic goes – if there are buyers there then there is demand and if there is demand – then we need to go into ‘buy’ mode… and BOOMMMMM – up we go. That is until we hit resistance at 3355 – which we hit, breached and then backed off as demand faded… closing just below at 3351.

Now the VIX (fear index) has calmed down a bit and that makes sense – right? It jumps up when there is fear and it calms down when that fear subsides – so when markets advance with such gusto – that sends the message that investors are not fearful – thus they SELL the VIX and BUY the MARKET – and conversely when they are afraid they BUY the VIX and SELL the MARKET… and so at 26.77 – it sits solidly between trendline support 25.20 and trendline resistance 29.45…

Now tonight could change the tone completely when the circus comes to town… Joey and Donny are set to meet in Cleveland, Ohio for the first Presidential debate and there is a lot riding on this… Chris Wallace set to direct the conversation – and the latest Trump Tax story – published by the left leaning NYTimes is sure to be an additional topic that gets some air time… Hopefully though, not much – because voters want to get to the real issues… Now as I have noted in prior notes – the futures on the VIX are suggesting increased volatility thru December… and that would suggest that we are going to have an ‘extended’ election result… and while Trump will still be President on November 4th – the question will be – is he a lame duck president or not? What will happen across the open seats of Congress – Will the Dems continue to control the house? (YES) Will the Dems take control of the Senate (not sure… my gut says they might and if Joey takes the WH – then it becomes a whole new story) thus the potential volatility thru December.

Eco data today includes Retail Inventories – exp of +1.1%. Wholesale Inventories – exp of -0.1% and Consumer Confidence which is expected to show an increase of 5 pts from 84.8 to 90. And a reading of 90 suggests very highly that consumers are confident in the future.

This morning US futures are churning in place… Dow futures are -23, S&P’s are down 3, the Nasdaq -24 and the Russell is +3 – and this makes sense… after the surge over the last two days and ahead of tonight’s debate… The sense is that we are in sideways trend for now… and until there is some clarity on the direction of the election. Asset managers that raised cash over the month are waiting it out… sitting on the sidelines unsure of the next move – they want to have cash available if the market retreats and if not – then they will be forced to put that money back to work… which will serve as a new source of demand.

A clear victory for Joey could cause investors/asset managers/traders and algo’s to hit the SELL button as a first reaction – as the street will pull apart the Biden economic plan and what it means to the country, the economy, and the markets. A clear Trump win will most likely cause those same players to hit the BUY button as talk of easing restrictions, lower taxes, and new fiscal stimulus takes center stage. In any event – it is sure to be must-see TV.

This morning the Democrats announce a new $2.2 trillion stimulus package… this is down from $2.4 trillion last week – now it is still more than the $1.5 trillion that the GOP wants – but Nancy is taking the opportunity to show how the Democrats are compromising. Suddenly there is not talk of the Supreme Court, nor is there talk of Trumps taxes… the focus today is solidly on the debate and the stimulus plan.

European markets are all lower… BREXIT negotiations between the UK and the EU remain far apart and that is causing some angst. Additionally – the Europeans are also awaiting the circus tonight – and many will be sure to tune in if for no other reason than to see the show… Investors remain concerned about the rising virus cases not only in Europe but around the world. As of this morning 1 million people have died while 33 million have been exposed, confirmed and recovered… that’s a 97% recovery rate. News of a vaccine remain a bit elusive – but global pharmaceutical/bio-tech companies remain committed. At 7 am – the FTSE -0.39%, CAC 40 – 0.08%, DAX – 0.42%, EUROSTOXX – 0.17%, SPAIN -0.17% and ITALY +0.20%.

Oil is lower today – down 26 cts at $40.34. It’s the same story – demand destruction due to rising virus cases…We will hear from the American Petroleum Institute (API) today and the Energy Information Admin (EIA) on Wednesday. Oil remains with the trendline bands… 39.60/40.50.

The S&P closed at 3351 – just below trendline resistance at 3355 – this morning is suggesting that we will churn – talk of the debate will consume the day… concerns over a chaotic election are top of mind… as the fight rages on over mail in ballots. States have their own rules… they count the mail in ballots after the polls close and this year that will be exacerbated by the recent Supreme court ruling that says mail in ballots postmarked by Election day (November 3rd) must be counted no matter when they arrive. The theory here is that ballots can still be coming in 2 and 3 days post the election and it is possible that those ballots could ‘throw’ the election one way or the other. The only way this is not an issue is if there is a clear winner (think landslide) for either candidate. And so – I continue to believe that the markets will remain confined to a range of 3210/3355. Stay tuned… and talk to your advisor if you get anxious… a well-defined plan will do you good.

Take good care –

Kenneth Polcari
Chief Market Strategist, Consultant

Chicken Thighs w/Pancetta and Balsamic Vinegar

For this you need:  Olive Oil, Diced Pancetta (Or Bacon),  8 Medium Sized Skinless Chicken Thighs,  Onion, Diced, Garlic Cloves, Peeled & Minced, Dry Red Wine, 1 Can Diced Tomatoes, Tomato Paste, Water, Chopped Rosemary, Chopped Thyme, S &  P,  Red Hot Pepper Flakes (Optional), Balsamic Vinegar, Chopped Fresh Parsley

In a large heavy skillet, heat the oil over medium heat and cook the pancetta until cooked through and lightly browned, about 5 minutes.  Remove the pancetta to a plate, set aside, and brown the thighs well on all sides, about 10 minutes. Remove the chicken to the plate and cook the onions until translucent and soft, stirring often, about 5 minutes.

Add the garlic and sauté for 3 mins or so, Add the wine, (about ½ cup) increase heat to medium high heat, and cook just until the wine is reduced by half.

Now add the tomatoes, tomato paste, water, rosemary, thyme, salt, pepper, and red pepper flakes if  you are using.

Bring to a boil, then reduce to a simmer and return the chicken and pancetta to the pot. Cover the pan, and simmer for 20 mins, or until the sauce has thickened, adding additional water as needed if the sauce thickens too much. Taste the sauce and adjust s&p as needed. Now stir in about 1 tblsp of balsamic vinegar – mix well and place the chicken on a platter.

Top with the sauce, then sprinkle with the chopped fresh parsley.

Buon Appetito.