Fed eyes aggressive rate cuts as Consumer Sentiment tanks, markets hold steady

• Stocks continue to push higher on lower rates.

• But don’t worry- It’s all good.

• Oil surged on China news and ongoing conflict in the Mid-East.

• Gold also kisses and makes a new high.

• Try the Veal Capriccioso.

So, the Dow and S&P made another new even high after the Conference Board reported that consumer sentiment FELL by the largest drop since August 2021 and manufacturing data (Richmond Fed manufacturing data) also came in weaker than expected at -21 vs. the expected -12 and even below last month’s read of -19.

The weaker data suggesting what we already know…. more cuts ARE on the table…in fact – the Fed Fund Futures traders are now betting that we will get an additional 75 bps worth of cuts BEFORE the ball drops in Times Square….Which means – we have to get one more ‘crisis level’ 50 bps cut in November and then a 25 bps  cut in December to round it out…. Let me reiterate – if that happens then we will have gotten a full 125 bp worth of cuts in the rate in just three meetings – and you are telling us that no one (at the FED) is worried?  Again, we were at 5.25% not 10.25%.

At the end of the day – the Dow added 84 pts or 0.2%, the S&P up 15 pts or 0.25%, the Nasdaq added 100 pts or 0.6%, (thank you NVDA),  the Russell up 3  pts or 0.2%, the Transports gained back 265 pts or 1.7%, while the Equal Weight S&P added 12 pts or 0.2%.

All this as inflation is supposedly in decline, (I would argue that inflationary risks remain) and the labor market is not in distress. (Unemployment is 4.2%, not 6.2%) Remember that Fed Governor Mishy Bowman was the ONLY one to vote against the 50 bps move for exactly those reasons…But it fell on deaf ears and in fact – Chicago Fed President Austan Goolsbee told us on Monday that they (the FED) still need to cut rates ‘significantly’.  Not sure about you, but that doesn’t scream confidence to me.

And that leads me to the next comment – we are in the final stages of the 3rd qtr.…. we only have 4 more trading days until they close the books on performance for the July – September time frame.  So, you don’t think they are going to let disaster strike right before the marking period ends, do you?  And then we move into October- Do I need to say anything else?

Which is why JJ tried very hard to justify the move, making sure to tell us that a 50 bps move (or a 10% cut in rates) was nothing to be concerned about, in fact, he tried to convince us that it was a positive and that further rate cuts over the next 3 months- is also nothing to be concerned about….The economy remains strong and the labor market is not in distress – Which begs the question…Then why are we slashing rates so aggressively?  Can you say – Presidential Election?

Now, China pulled a fast one overnight Monday into Tuesday…. they unleashed a massive stimulus program to help boost the economy…. the PBoC (Peoples Bank of China) cut short term interest rates and announced a reduction in the reserve requirement to levels not seen since 2018. They also lowered borrowing costs on $5.3 trillion of mortgages as well as eased the rules for second home purchases. Governor Gongsheng also said that the bank will unleash $113 billion of liquidity to the markets while acknowledging that they are also considering launching a ‘stabilization fund’ – meaning that they will set up a ‘specialized re-lending facility for listed companies and major shareholders to buy back shares and raise their holdings’.  That caused both the Chinese and Hong Kong markets to surge by 4+%.  It also buoyed the European markets and energy markets yesterday as well.

Bonds didn’t do much really…. the TLT and TLH both ended the day flat…. The 2 yr. is yield fell by 6 bps after a $69 billion auction of 2 yr. notes was well received…. (strong demand = lower yields).  The 10 yr. yield also fell and ended the day down 4 bps at 3.72%.   

Oil ‘popped’ yesterday – rising by 1.7% to end the day at $71.54 – after trading as high as $72.48 as the ‘China stimulus story’ raised hopes that demand in China will surge after these stimulus measures take root.  This morning though, there is not any carry thru…oil is trading at $71.39/barrel – down 16 cts.   The conflict in the mid-east is doing little to raise concerns about any disruption in supplies that would cause a price increase …and in fact – oil analysts suggest that there is less than $2 worth of a geo-political risk premium attached to oil. These same analysts point to demand (or lack of) out of China as the real driver of price.  So if XiXi succeeds then oil prices will rise and if he doesn’t then oil will continue to come under pressure.  We remain in the $65/$72.50 trading range.

Gold got a boost after the weaker eco data suggests MORE rate cuts and that caused gold to rise by 1.1% or $30/oz to end the day at $2677…. Another new closing high…  Recall – lower interest rates = weaker dollar = higher commodity prices.  To that point – the dollar index FELL by 0.5% to end the day at 100.36.  The dollar index is now down 5.4% since the July high of 106…. while Gold is up 13.3% during that same time. Recall on Monday, I suggested that you could draw a trendline that identified resistance at the $2725 level…That’s only $40 from here…. Trendline support is at $2523 or 5% lower.

US futures are down - Dow futures are -35 pts, the S&P’s -8, the Nasdaq -75 pts, while the Russell is -4.  Anticipation over what Friday’s PCE report will say is now building…. Don’t stress over it…. It is expected to show that inflation remains in decline…I guess the question is- Will it decline MORE than the estimates?  Is it possible for us to see it rise?  Sure, but don’t go betting the ranch – it doesn’t fit their narrative.

In specific stock news…NVDA popped yesterday rising 4% after news broke that CEO Huang is done selling stock for now…. (he sold $713 million worth) so the pressure is off, and Uncle Warren has taken his holdings in BAC down to 10.6% - selling another $865 million worth of stock…~22.1 million shares. And Visa – oh yes…Paulie conveniently sold all of his VISA weeks ahead of the news that the DOJ is suing them over ‘Antitrust concerns’.  NY Post reports that Nancy’s husband just happened to sell $500k worth of stock 2 ½ months ‘before’ the credit card giant got ‘slapped with federal charges.  It’s amazing how that works, no?

European markets are a bit weaker after surging higher yesterday on the China news…Sweden cut rates by 25 bps taking their rate down to 3.25% while suggesting there is more to come.   

The S&P closed at 5732 – up 14 pts all on the idea that more rate cuts are coming as well as all of the window dressing happening as we move into end of quarter.  I continue to expect more FED heads come out and support further cuts in the weeks ahead of the election….as they try to keep markets calm.  Next Tuesday (Oct.1st) starts the 4th qtr. and with that, do not be surprised if we see volatility rise…Earnings officially begin on the 11th with JPM….and we already heard them tell street analysts to ‘revise’ their estimates lower.  So, sit tight.  

Don’t let your emotions get the best of you in either direction.   Building a strong, well diversified portfolio takes time and commitment.  

It is that time of year when the NYC charitable fundraisers kick off…As you know, The Headstrong Project is dear to me.  I am chairman of the ‘advisory board’ that seeks to raise awareness of the work we do on behalf of our veterans that suffer form PTS.    (getheadstrong.org).  Our NYC Gala takes place on Thursday, November 7th at Cipriani’s Wall St.  General Jim Mattis is our keynote and I expect that we will raise ~$4 mil that evening.  If you are considering supporting a charity this year – please consider our Veterans and The Headstrong Project. 

Veal cutlet capriccioso

This dish takes about 40 mins from start to finish so no excuses.

Veal cutlets, homemade Italian style breadcrumbs, arugula, tomatoes, red onion, bocconcini.

You begin with pounded veal cutlets.  rinse under cold water and pat dry with a paper towel.  dredge the cutlet in flour, then dip in egg wash, then cover in the homemade Italian style breadcrumbs and set aside.

When completed - heat up olive oil in a baking dish under the broiler... (. being careful to watch as the oil will ignite if it gets too hot before you begin cooking.)   Dip one side of the breaded veal cutlet in the hot oil and flip to the other side and broil - 3 to 4 mins.  While broiling prepare the Capriccioso salad for the finishing touch.

You can use whatever works for you - arugula, spinach, romaine etc.  chopped red onion, diced tomatoes and quartered pieces of bocconcini (small mozzarella balls).  season with s&p & oregano - refrigerate.

Flip the cutlet and broil the other side. When done remove from oven and place on center of warmed plate.  Remove salad from fridge - drizzle with olive oil and fresh lemon juice and toss.  Using tongs - "dress the cutlet" with the Capriccioso salad and serve. Outstanding.