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Things you need to know

  • The mood goes from buoyant to sour and to buoyant again this morning
  • Oil did test trendline support yesterday and is now moving up
  • More eco data today to support the narrative
  • Vaccinations are beginning to become requirements if you want to go back to work in some parts of the country
  •  Try the Chicken Pieces with Hot Italian Sausage and Cherry Peppers

Stocks started the day stronger – Asian and European markets were all higher, US futures pointing to an up day…. It was all very exciting…. the bell rang and stocks advanced on the first trading day of August.

It has been an amazing quarter – 88% of reported companies have beat EPS, they beat gross top line revenues and net bottom line profits, margins have been strong, its been a crazy quarter…but yesterday – of the 13 companies that reported only 9 beat – resulting in a 70% rate and that is dragging down the overall quarter percentage….and then we got some conflicting economic data – Markit US Manufacturing PMI came in at 63.4 – in line and strong, while ISM Manufacturing PMI came in at 59.5 – strong, but now trending lower (not good), Construction spending in at +0.1% vs. the expected +0.4%….Now none of this was horrible at all, but it was enough to cause the angst meter to rise….The VIX shot up 7%, the 10 yr. treasury yield plummeted ending the day at 1.15%…suggesting that the pace of the ‘recovery’ is slowing….

By the end of the day – the Dow gave back 97 pts after swinging 384 pts from high to low to close, the S&P lost 8 after swinging 38 pts, the Nasdaq – bucking the trend – gained 8 pts (think weaker recovery, more FED support, lower rates, and a need for growth) after swinging 105 pts and the Russell ended the day down 11 pts after a 44-pt. swing.

But look – we know the pace of the recovery is slowing….it can’t keep up at the current pace, companies have all expressed that in their reports, yet markets marched higher, oblivious to how out of whack it has all become…so anytime anything of the slightest weakness pokes its head up, the market’s reaction is to sell off and while it doesn’t sell off hard, that is just a matter of time….before it does….  Now I’m not wishing for a crash by any stretch, but I would like it to shake the trees a bit, I would like the market to rebalance itself….and we may now be in the time of year when that happens….

The usual suspects yesterday caused the nervousness…….the surging delta variant that is now causing some states to re-impose the mask mandate whether you’re vaccinated or not, NY’s Governor Cuomo now asking all private businesses to be ‘vaccinated ONLY’ businesses – prove your vaccinated or else you can’ t go in, telling us that ‘he thinks it’s a good idea for your business’ – leaving some to ask – ‘What does he know about running a business?  He’s never done it.  Yet, what we are seeing is a whole host of publicly traded companies demand that employees be vaccinated or else you can’t come back to work….and Davis Polk – one of the nation’s largest law firms will be turning off access to anyone that is not vaccinated at the firm….so you can see, the pressure is building on holdouts to get vaccinated or else risk being unemployed. And this too is causing some angst for the economy and then by default investors and this is far from over.

Next – falling yields suggesting that a slowdown is imminent, and a still uncertain FED move is leaving some investors on the edge of their seats…. wanting to be the first one out the door if the mood and tone changes…. but also wants to be in the room if it doesn’t….

Oil – as I noted in yesterday’s blog – was under pressure due to the weaker China data and it closed down 3.3% at $71.49 after testing the trendline at $70.60 – a level I did not think it would test, but when traders and the media accentuate the negatives it is what it is…..This morning, it is up 30 cts at $71.82 in what looks like a move back up to the mid 70’s.

Look – there is a ton of buying momentum, that it is hard to bet against it, but we are in a seasonally weak time of year so investors should be prepared for more volatility in the weeks ahead……and while the FED will surely NOT identify a specific timeline for the start of tapering in the middle of all this, investors need to understand that it is coming…..more likely in the November – January time frame….this is not a secret, but since Jay was very coy on it last week – it does still leave some to wonder if it is happening….as I said on Monday – expect to hear all kinds of speculation over the month –  ahead of the Jackson Hole boondoggle about what the FED is expected or not expected to do.  And that is what will cause the volatility in the weeks ahead.  In addition – expect to hear differing points of view from the FED members – as they try to float a range of ideas, testing the water and investor sentiment.

This morning US futures are UP – Dow futures up 143 pts, the S&Ps up 15 pts, the Nasdaq up 16 pts and the Russell up 13 pts…. Again, the worries of yesterday are not the concerns of today…Eco data today includes Factory Orders – exp of +1%, Durable Goods of +0.8%, Cap Goods Orders and Cap Goods Shipped – as well as Wards Total Vehicle Sales of 15.25 million.

The 10 Yr. Treasury yield is back up this morning yielding 1.19% after yesterday’s plunge and the VIX (fear index) is down by 3%.  Oil is up and Gold is hovering at $1,813/oz.

European stocks are also slightly higher – better earnings and expected better than expected Eurozone inflation data.  The delta variant – like here – is not causing any angst today.  Regional markets are all up about 0.25% across the board.

Tomorrow brings up the ADP employment report – expectations are for an increase of 690k new jobs to have been created…again the surprise will be if it declines rather than if it rises beyond the estimate….a decline will then cause investors to celebrate continued stimulus from the FED while a surprise to the upside will then ignite the ‘when’ conversation all over again…but it is really Friday’s NFP report that will drive the next move…the ADP report is just a teaser – the FED will pay much more attention to the official NFP report on Friday which is expected to show an increase of 875k new jobs….In any event – there are more than 9 million jobs available but jobless claims remain elevated – which makes no sense….unless of course you count enhanced unemployment benefits as the culprit. But that is a conversation for another day…

Bitcoin is trading at $38k, and Ethereum is trading at $2400.

The S&P closed at 4,387 and this morning it appears as if it wants to kiss 4400 again…. but remember – the tune can change on a dime – like it did yesterday.….so get ready….

I am still thinking (hoping) we get a 7 – 10% correction over the next 2 months….

In any event – stick to the plan…remember – investing is dynamic…keep some cash ready to deploy, but don’t be so quick on the trigger just yet…

Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss the markets or a plan.  You can now get a video version of this note on my YouTube Channel.

You can follow me on Twitter – @kennypolcari
Take Good Care

Chief Market Strategist, Consultant

Chicken Pieces w/Hot Italian Sausage

Great party dish…. 

You will need: Thighs & legs, (bone in/skin on), s&p, olive oil, hot Italian sausage, Cherry peppers, garlic, white wine, chicken broth, marinated artichoke hearts, thin sliced potatoes, s&p, and flour.   Total time 1 hr… start to finish....

Preheat oven to 375 degrees – Preheat grill for cooking the sausages

Season chicken pieces with s&p – heat up oil in frying pan – when hot – reduce heat to med/hi – now add chicken and brown on all sides – maybe 10 mins total.  While this is cooking – place the sliced potatoes in the baking dish – season with s&p – add a splash of oil.   Now remove the chicken from the frying pan and place in the baking dish and put in the oven and continue to cook for about 30 mins….

Next – cook the sausage on the grill – careful not to burn…. maybe like 10 mins total…. remove from grill and let rest for 3 or 4 mins then cut into bite size pieces.  In the meantime – add the chopped garlic to frying pan (that still has the juices and oil from chicken) along with sliced cherry peppers – sauté. Now add the sausage and  some white wine and reduce (5 mins) – next add chicken broth and the artichoke hearts….sauté for another 5 – 8 mins…

In a separate bowl – whisk together some flour and milk (you can use water) and add to the frying pan – allowing it to cook and thicken a bit….do not let it get too thick – you can add a bit of broth if you need to.  Re-introduce the chicken/potatoes to the frying pan and allow to simmer for 2 or 3 more mins.

Now serve on a large, warmed platter family style.

Buon Appetito