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Things you need to know

  • Stocks march higher as part 1 of the deal appears to be in the works
  • Part 2 is another issue
  • Every sector in the green yesterday and this morning too
  • European eco data is strong – even as they ‘lockdown’ again
  • US eco data today includes – Retail Sales and PMI’s
  • Gold Up, Bitcoin Up and Oil flat
  • Try the Veal Cacciatore

Stocks rallied hard yesterday – wiping away the smaller losses of the past 3 or 4 days…. expectations of deal are now solidly in the minds of investors and apparently pre-programmed into the algo’s.  The media defines yesterday’s move as ‘enthusiastic, excited even robust’…. suggesting the angst of late is absolutely nothing to be concerned about.  Yesterday a bi-partisan group of ‘lawmakers’ came together and urged congressional leaders to stop the bickering and the antics and pass part 1 of Sunday’s 2-part aid package.  The part 2 part is the one that is dealing with the prickly issues holding up this whole package…it is the part that is trying to define limits of liability protections for employers and aid to state and local gov’ts.  Democrats want no protections while Republicans want robust protections – leaving us to wonder who is being driven by the legal industry’s lobbying efforts.  Let’s not go there right now.

Part 1 of the package – is the $750 billion piece – increasing unemployment benefits by $300/wk while also adding in more PPP (Payroll Protection) – issues that neither side has a problem with.   By the end of the day – the Dow gained 337 pts or 1.13%, the S&P added 48 pts or 1.3%, the Nasdaq jumped by 156 pts or 1.25% while the Russell ‘heaved’ higher rising 46 pts or a stunning 2.4% – sending this index up 17.5% ytd – now outpacing both the S&P and the Dow by 3% and 12% respectively.

(**The move in the Russell speaks directly to the health of the US economy – because small and midcap stocks tend to be US centric – they are not typically defined by investors as ‘multi-nationals’ at all…and so this advance by the Russell small/mid-caps – also known as ‘smids’ suggests that the future for the US economy is bright).

Now – this is all happening (markets making new highs) as a second wave of the corona virus washes across the globe.  Markets are marching higher even as whole countries in Europe and some states here in the US are once again in ‘lockdown’ mode.  Global infections now number 73 million cases with 1.6 million deaths…. In March global infections were just 500,000 with global deaths nearing 10,000….and investors are going gangbusters for stocks now? This is a complete opposite reaction to what investors did to the markets in March 2020 when the pandemic slammed the world in round 1.  Panic ensued, investors hit the sell button, stocks plummeted more than 30% over 4 weeks as the bottom fell out….….and today – investors are apparently not that concerned anymore about the explosion in cases because we have come such a long way in therapeutics and we now have one vaccine that is being distributed with at least 2 or 3 more on the horizon – giving HHS (Health and Human Services) Secretary Alex Azar a reason to be optimistic – telling us that we should enough vaccines available by spring to begin vaccinating the general public.  So – what this tells us is that if you are a long-term investor – it’s time to put the virus on the back burner and concentrate on the recovery – because the recovery is alive and well.  (Essentially – if you stayed the course and did not panic in March – You’d be better off now…Which btw is a lesson that gets repeated and repeated and repeated…. but that’s another story….).

Every sector in the green yesterday – including Utes (utilities) which were up 2% on the day – putting it in 3rd place – behind Retail + 2.6% and Home builders + 2.1%.  And that sends a mixed message – right, Utes usually do better when there are some concerns for the economy…. (think safe haven) – they are not typically defined as ‘sexy growth plays’, rather they are the foundation of stability, boring?  Yes, but they are an essential part of your portfolio.  Energy which got slammed on Tuesday rebounded by 1.97% as investors took advantage of the sale created by OPEC when they slashed demand forecasts on Monday eve/Tuesday morning going into 2021…. a move I think was a bit premature and I have been saying that for months now.  The XLE (Energy ETF) has risen by 46% since November 1 and closed at $40.46 – attempting to fill the gaps created in March 2020, and again in June 2020.  Once these gaps are filled – and the global economy comes back – we will see energy demand surge, oil prices rise, and the energy ETF challenge the early 2020 levels of $55 – $60/share.

Financials – XLF rallied by 1.7%, while basic materials and industrials advanced by 1.8% and 1.4% respectively. Communications (XLC) rose 0.82%, Healthcare (XLV) advanced by 1.08%, Consumer Discretionary (XLY) rose by 1.35% while Consumer Staples (XLP) advanced by 0.24%.

This morning – futures are up again  as the excitement builds in a buy the rumor move…..Dow futures are +80 pts, the S&P’s +10 pts, the Nasdaq +30 pts and the Russell is ahead by another 17 pts…..Both the vaccine news and the stimulus news driving the action…and that’s good – In fact Mitchy McConnell said that he is ‘optimistic that we’re gonna be able to complete an understanding sometime soon’……while Chucky Schumer chimed in that ‘leaders are making progress and will hopefully reach an agreement soon.’  (Think an 11th deal…)  Great!  It’s about time….

But I remain a bit cautious in the short term.  I would not be chasing stocks here right now.  If you’re invested – no worries, you’re participating, if you are not invested then…………… ooops, oh well….!  But not to worry, it’s never too late at all… just means you have to pick a point and ‘start’ to put money to work – Don’t go all in on any one day…..Talk to your advisor, design your plan and stick to it….Remember – it is year end, investors will make year end decisions based on a range of personal factors and stocks will come under year-end tax planning pressures – which does not define what the markets will do in the new year.

The new year will be met with an immediate Senate election that will determine what the executive branch will look like for at least the next two years….and this is the next ‘event’ that will also determine where stock prices go in the short term…  As discussed – a Democratic sweep will cause stocks to pause, even back off as investors then price in what a left leaning executive branch will mean….and don’t kid yourself – it will lean left and some think that will impact tax, regulatory, energy, financial, and fiscal policies  in a negative way causing stocks to re-price quickly…..…..and if the GOP retains those two seats then all of those concerns are muted and the left will be neutralized leaving those same policy decisions less negatively impacted and so stocks should not re-price as much.  Notice – I still think there is volatility ahead and that prices will retreat a bit – but the depth of that retracement will be driven specifically by what happens in Georgia on January 5th.  And therein lies the opportunity…. So, patience is a virtue.  I still remain very optimistic about what the balance of 2021 will look like.  Estimates from the street range from +5% to +25% for the S&P….as the world awakens, and business gets back to the ‘new usual’.  I repeat – I am bullish on America and on the global recovery.

In Europe this morning – stocks are rising…. local economic data – PMI’s across the region came in strong!  Service PMI’s strong, Manufacturing PMI’s strong and while the composite EZ (Euro Zone) PMI data came in at 49.8 (below the magic 50 mark) it was up from November’s reading of 45.3 – so while some will say that the EU data is still in contractionary mode (by definition it is) – it is moving up and in the right direction….and this is happening as new lockdowns rise.   In addition – the UK is also making progress with the EU over the divorce settlement and new trade agreement.  EU commission President Ursula von der Leyen telling us that the next few days will be ‘decisive’ (Wink, Wink – read an 11th hour deal…….)  at 7:15 – the FTSE +0.86%, CAC 40 + 0.64%, DAX +1.34%, EUROSTOXX +0.75%, SPAIN +0.35% and ITALY +0.76%

Eco data today includes: Mortgage Apps of 1.1%, Retail Sales – exp of -0.3% m/m (makes zero sense to me – so let’s see), Ex autos and gas of +0.1% m/m.  Markit US Manufacturing PMI of 55.8 (bullish), Markit US Services PMI of 55.9 (bullish) and the all important FOMC (Federal Open Market Committee) rate decision……drum roll please…….NO CHANGE IN RATES.  (Why, did you expect anything different?) – but there will be plenty of discussion about what is in the ‘notes’ and what the group thought is (was).

Gold is up again this morning…. +$6 trading at $1,860/oz.  Markets are craving for a stimulus package – for anything that will potentially create some inflation which would benefit gold.  We remain within the $1828/$1880 range…… (trendline support and trendline resistance). Bitcoin is up $440 at $19,860.

Oil is flat even after the API (American Petroleum Inst) reported a build in inventories…saying that they ‘swelled’ by 2 mil barrels last week to 495 million barrels.  This would usually cause some pullback – as they will try to tell you that demand is weakening…. (it’s exhausting….) because analysts were expecting the report to show a decrease of 1.9 mil barrels…. but either way – investors are looking beyond this week and next – they are concentrating on what is about to happen in the new year…. WTI remains in the $45-$50 trading range.  Remember – you can make a $55 argument for oil in the weeks ahead – much will depend upon the headlines.

The S&P closed at 3694 – right on the highs and once again kissing the magic 3700 mark…. I said I thought 3700 would be the high for the year and that the markets will churn into year end and I continue to believe that.  If futures remain up into the bell – the S&P will surge and open at 3704 ish….and possibly test the most recent high of 3712…. or maybe not…. Look for more churn and look for volumes to decline as we get closer to Christmas.  European markets will essentially ‘close down’ beginning next week – as will the US markets….and that is the time when we could see dramatic swings in the market because there will be less participants.  Remember – many still expect a January re-pricing – the depth of which will be dependent on the GA Senate race.  Markets are stretched and valuations are rich – yes, the vaccination is here, and some will get it, and some will not…. Stimulus is alive and well…. we will hear that today from the FED for sure….it is what it is…. but that does not mean that we shouldn’t shake the trees a bit to see who falls out….

Stay the course and talk to your advisor.

Take good care.

Kenneth Polcari
Consultant, Market Strategist

Veal Cacciatore (Great winter dish)

Literally means Veal prepared hunter style (cacciatore).  In Italian – the cacciatore is the hunter and the hunter prepared his meals with braised chicken or rabbit, garlic, tomatoes, onions, bell peppers, mushrooms, peas seasoned with oregano, basil, wine and S&P.  In today’s recipe I have substituted the chicken with veal.

You brown the veal and then cook it in the sauce and serve it over fusilli.  If you make it on a Sunday and let it sit overnight – it is always better the next day…. *** you want veal top round cut into 1-inch cubes….

Start by sautéing crushed garlic in olive oil…add the seasoned veal pieces (s&p) – Just brown the veal – no need to cook all the way through as it will cook in the sauce.

Once you have browned the meat – remove and place on a platter.  Next add sliced onions, and bell peppers – use 2 lg onions and 1 green and 1 red bell pepper – if you like the orange/yellow ones then feel free to use that also. Sauté the onion and peppers and until soft – about 10 mins…. season with s&p.   Remove from the pot – now add two cans of kitchen ready crushed tomatoes – not puree – just crushed tomatoes.  Then add one can of water (and 1 cup of red wine – optional).

Season with s&p, oregano, and fresh basil…bring to a boil and then turn heat down to simmer.  Add back the veal, onions & peppers.  Now (optional) add one can of sliced mushrooms (draining the water first) and one bag of frozen peas.  Let simmer for 45 mins – stirring occasionally.  At this point it is done – but like I said – the longer it simmers the better it is and if you let it cool and refrigerate until the next day – it is like you died and went to heaven.