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Things you need to know:

  • Joey has a George Bush Moment – “Read my lips…”
  • The WHO warns of a ‘dangerous moment’ for the northern hemisphere
  • Countries across Europe imposing new lockdowns – Is the US next?
  • Marky Meadows tells CNN’s Jake Tapper that the US can’t control the pandemic
  • China imposes sanctions on BA, LMT, and RTN
  • Markets around the world are under pressure – S&P 3407 is KEY
  • Try the Cavatappi w/ Basil/Pecan Pesto

Stocks ticked higher on Friday – with the exception of the Dow – although Dow Transports continue to surge (+132 pts or 1.1%) which suggests an improving economy – as investors  are being driven by what’s hot at the moment – first it’s the election and the idea that a Blue Wave is coming (and then it’s not), then it’s the on again, off again stimulus package, then it’s the resurging global virus and the potential list of  vaccines (Oxford/AstraZeneca in the news this morning) that are on the edge of approval (or so it seems), then it’s the macro data (which was better on Friday) and finally it’s earnings news… and while there is NO definitive answer on any of these issues investors must attempt to handicap each of the outcomes… as we count down to official election day – as of today more than 58 million ballots have already been cast with millions more expected to be cast by next Tuesday… which leaves everyone asking – “Will we have a President on Wednesday, November 4th or will it be contested?” For now – that answer appears to be ‘Maybe or Maybe not’… and THAT is causing the latest round of angst for investors and the markets. As of 4 pm on Friday – the Dow ended down 28 pts or 0.1%, while the S&P added 12 pts or 0.34%, the Nasdaq rallied 43 pts or 0.37% and the Russell tacked on 10 pts or 0.63%.

Stimulus – forget it – not happening prior to next week, no matter that that is critical to maintaining the recovery – both sides digging in their heels playing the political game… Mnuchin planning on a Trump win, while Pelosi is banking on a Biden win and a blue wave – well – let’s see… but here is my question – of the 58 million ballots cast so far – which way is it leaning? I mean – yesterday my wife and I went to vote – we signed in, verified who we were, where we lived, answered some questions and verified our signatures. Then we were given a 4-page paper ballot and sent into the voting booth. After filling in the ballot – we each had to insert the ballot into the vote counting machine – and when the bell went off – I got a “I Voted Today’ sticker for me to proudly display…

So my question is simple – Before I got my ballot – the poll worker printed out a receipt of my information… that included: Name, address, DOB and Party affiliation… which she made me sign – she then put it into a box – so at the very least – she has a sense of who I MIGHT have voted for – so by the end of the day – someone had to take these boxes and put them somewhere (are you following me?) My vote is now recorded and tallied but it is not known yet (or so they tell us). My vote won’t be counted until Election Day… What happens if the machine malfunctions today? What happens to all of those votes yesterday? BTW – I asked that question to the poll worker and she couldn’t answer the question – said she ‘had no clue’. In any event – everyone is playing ‘I’ve got a secret’… just sayin’…

So the action on Friday – suggests that a fiscal stimulus plan IS coming and it is – just after we find out who wins – because then it will either be a $1.8 trillion package or a $3+ Trillion package… which then suggests the extent of the next rally… And earnings? They are well ahead of the norm… so far of the 140 or so of reported earnings… 84% are beating the estimates by a whopping 17%… (the norm would be a 70% beat and by a mere 3%) – So something is going on… but what is it? Is the bar so low? Is it really an improving economy that isn’t paying attention to a world that is about to get hit with a second round of a ‘killer virus’? Is it the expectation of a huge fiscal stimulus package? Is it the expectation of a Trump win? Is it the expectation of a Biden win? We don’t know yet – which is causing the rise in volatility and anxiety.  Right now – the VIX is about to kiss resistance at 30.82, if it does and pierces it then we can expect to see the VIX possibly surge to the early September highs of 38.60… or up 26% – which could then cause stocks to fall by 5% – 8% depending on the story line… and even further if the story becomes more dramatic… and if we recognize anything – the story – much  like a pendulum – can swing too far to the left causing short term damage before attempting to ‘right itself’.

Over the weekend – we learned that the WHO (World Health Organization) said that some countries in the northern hemisphere are facing a ‘dangerous moment’ as European and US infections hit records… In addition – White House Chief of Staff – Mark Meadows tells CNN’s Jakey Tapper (State of the Union) that the White House is no longer trying to ‘control the pandemic’ – a statement that is now ricocheting around the country (and the globe). What he did say was that the White House is focused on therapeutics and vaccines… (and those will control the pandemic). Joey and Kamala trying to capitalize on this gaffe (or was it a gaffe?) In any event – expect this to grab the headlines – especially since 5 people on Mikey Pence’s staff have all been diagnosed with the virus… Pence has not and is continuing to campaign… and that sent Jakey over the edge… screaming that the CDC now requires him to quarantine for 14 days… even though he has tested negative.

Dr. Scott Gottlieb – of FDA and CNBC fame – tells us that we are about to enter a third and most difficult phase of this pandemic – suggesting that masks MUST become a US mandate whenever out in public and that you reduce your exposure to going outside… go food shopping once a week and wash your hands and take a shower often because in the end the pandemic will burn itself out… (after this third phase…)

In Europe – the Oxford/AstraZeneca trials are producing a ‘robust response’ in older individuals….(that’s a plus) while the Ely Lilly, JNJ, GILD, RGEN trials are producing positive results in the other demographics… and while the broader market is looking down – I suspect that the Biotechs (XBI) will hold their own…

This morning US futures and European markets are all under pressure… Surging virus cases around the world, attempts at various forms of ‘lockdowns’ in Spain, Italy, France and Germany lead many to speculate about ‘lockdowns’ here in the states.  Zero new stimulus, and only speculation on a vaccine are driving the action today… Dow futures are down 300 pts, the S&P’s are off by 35 pts, the Nasdaq is down by 104 pts and the Russell is off 22 pts.

Eco data today includes: Chicago Fed Survey – exp of +0.6, New Home Sales of +1.3% m/m and the Dallas Fed Survey of +13.3.

It’s a BIG week for earnings… expect more than 150 companies to report – some of the more important TECH names – FB, AAPL, AMZN, TWLO, GOOG, MSFT, NFLX  etc., so there will lots to discuss… and depending on how they report and what they say about the future will help to drive some of the action…but may not be able to drive all of the action.  Expect the tech names to outperform – I don’t see how they can disappoint at all… but what the market does depends on what’s happening all around them… Remember – a SALE is a SALE… and SALES are good as long as the SALE is not being driven by a significant change in fundamentals… Capisce?

China is imposing sanctions on BA, LMT & RTN – for sales of defense equipment to Taiwan. (that’s bearish) And not good for those names especially on a day when the overall tone is negative.

The Senate is due to vote on Amy Coney Barrett today and as expected – she is expected to be confirmed – so now there are 9 justices on the court – will there be 13 if Joey takes over at 1600 Pennsylvania Avenue? My guess is yes… because the left will force him to go back on his word…and btw – did you see 60 minutes last night? In that interview – he said – in a George Bush “Read my Lips” moment – “No one making less than $400k/yr will see an increase in their taxes – NO ONE.”  Oh boy… Anyone care to make a prediction on when that statement comes back to haunt him?

European markets are all lower… France reporting a record daily rise  in new infections… Spain issuing a nationwide curfew and Italy ordering bars to close early and public gyms to close completely… Germany is expected to publish its IFO Institute’s report on the business climate and by the weakness in Germany – I have to suspect it isn’t good. As of 6:50 am – the FTSE -0.33%, CAC 40 -0.50%, DAX -2.15%, EUROSTOXX -1.47%, SPAIN -0.05% and ITALY -0.7%.

Oil – is down – losing all of last Friday’s gains… falling 1.9% today at $39.11/barrel. Rising virus cases being blamed… in addition Libya tells us that the production will reach 1 million barrels/day in 4 weeks – which is quicker than many expected and that is not helping the price of oil… as this additional supply puts pressure on prices. If this continues – then look for OPEC to continue their present level of production cuts beyond December 1st when they are due to hold their next meeting. Russia agreeing to extending cuts as well. And in the US – RIG counts are rising which suggests future increases in supply – another negative at a time when the world is considering more lockdowns… If the pressure builds – then we could see oil trade to the September lows of $37.60-ish.

The S&P closed at 3465 on Friday – up 12 pts and this morning it appears as if it will open down 35 pts or so – bringing us back to 3430-ish… which is just above trendline support at 3407… this is KEY to watch… because my sense is that if we test it and it does not hold then a push to 3300 is next… Remember what I said – a Biden win and sweep will most likely cause a short term correction… (think swinging pendulum) before it produces a rally based on what will most likely be a massive fiscal stimulus bill… Talk to your advisor to get comfortable with your portfolio.

Take good care –

Kenneth Polcari
Chief Market Strategist, Consultant


Cavatappi with a Basil/Pecan Pesto

Start the same way you make Basil Pesto – Rinse the basil leaves and pat dry… let sit. Now in a food processor, add the basil, 2 cloves of garlic, a bit of s&p and olive oil… Pulse to chop. Now add a handful of pecans. Pulse again to chop the pecans and add a bit more oil If you need to.

Now add a couple of handfuls of grated Parmegiana Cheese and blend some more. That’s it… you’re done. Now set aside in a bowl and cover with saran wrap.

Bring a pot of salted water to a rolling boil and add the cavatappi. (You can use any type of pasta you like) Cook the pasta for 8 mins or so – until aldente. Now strain the pasta – reserving a mugful of the pasta water. Return the pasta to the pot and add back about 1/4 cup of the water to re-moisten… stir. (Make sure there is not a puddle of water in the bottom of the pan…) Now add 1/2 of the pesto and stir… coating the cavatappi well. Now serve in warmed bowls. Keep fresh grated cheese on the table for your guests.

Buon Appetito.