Markets on edge: Hotter PPI, JJ caution's on rate cuts, and sector shake-ups spark sell-off

• PPI is ‘hot, hot, hot.’

• JJ says – ‘Wait – What’s the Rush?’

• The algo’s are not happy – stocks sell off.

• Healthcare stocks got whacked – Think RFK.

• PLTR Pulls a fast one and says Good-Bye to the NYSE.

• Try my Classic Mashed Potatoes.

8:30 am – the gov’t reported the latest PPI report and while it was already expected to be ‘hot’ it came in even ‘hotter’ than that….PPI – Ex food and energy rose 0.3% m/m (vs. the expectation of +0.2%) and PPI final demand y/y came in at 2.4% up from last month’s revised +1.9% and above the expectation of +2.3%. PPI Ex food and energy y/y came in at +3.1% up from the revised +2.9% last month and the 3% expectation this month.

And then in the afternoon.-

JJ says Wait, what’s the rush?  There is NO NEED to HURRY UP and cut rates…. The economy is strong!  The economy is ‘remarkably good’ – giving the bankers some wiggle room.  He went onto say that.

“The economy is not sending any signals that we need to be in a hurry to lower rates…”

Ok – then why did we hurry? Why did we make a jumbo rate cut in September – when the data then was telling us to go slow? 

Now recall what I told you yesterday.

Minneapolis’s Fed President Neely Kashkari at the Yahoo Invest Conference essentially told the crowd that a December cut was NOT a given…. That investors need to realize that they are data dependent (something we are all well aware of) …. but in the end, it appears to me that a December cut is not guaranteed….and that the markets are going to have to reconsider the odds. 

In addition, JJ expressed some concern over what exactly the neutral is – the level that neither stimulates nor dampens growth – there are a range of opinions of what that is and so it is better to be careful than not.  In addition – the uncertainty surrounding the possible Trump campaign promises (think tax, tariff, regulatory policies) only adds to the angst and that is contributing to the sudden caution.   

And as a result of both of those headlines – stocks continued to trend lower as the sun moved across the sky…The Dow lost 208 pts or 0.5%, the S&P lost 37 pts or 0.6%, the Nasdaq gave up 123 pts or 0.6%, the Russell lost 33 pts or 1.4%, the Transports lose 115 pts or 0.6% while the Equal Weighted S&P gained 3 pts or 0.04%. 

Of the 11 sectors – only Energy gained ground….rising 0.4% - the other 10 sectors were lower – led by Industrials – 1.7%, Consumer Discretionary – 1.4%, Real Estate – 0.9%, Basic Materials – 0.8%, Utilities – 0.35%, Tech down 0.35%, Financials – 0.25%, and Communications down 0.1%.

Now – Healthcare got whacked… – 1.6% (think RFK nomination as Health Secretary) Vaccine names feeling the brunt of it – BioNTech -7%, Moderna – 6%, PFE – 3%, Novavax down 7%. But they weren’t the only ones…LLY – 3%, MRK – 0.2%, JNJ – 0.9%

The contra trades all did a bit better with the Dog + 0.6%, the PSQ + 0.8% and the SH +0.7%.  The SPXS (triple levered short) gained 2%.  Interestingly though, fear is not surging at all…. The VIX did rise by 2% but ended the day at 14.31 – a level that suggests no fear at all.

Bonds rallied just a bit – the TLT and TLH up 0.6% and 0.3%, leaving them down 8.6% and 5.9% ytd respectively.  The 2 yr is now yielding 4.31% while the 10 yr is yielding 4.43%.

The dollar continues its advance – now hitting a 12-month high at 107.06…. …. up 5.6% ytd…. now the September 2023 high of 107.236 is the level to watch…. If we pierce that then the door is open to test the September 2022 high of 114.77.  And if JJ slows or stops the pace of rate cuts – then a stronger dollar is the result. 

Gold has a tough time of it- it is off more than 10% from the November high….……it traded lower yesterday and is set for its worst week in a long time.  It closed down $18 at $2573 and this morning it is up $1 at $2574. 

The action in gold being driven by a range of factors - think election certainty (meaning that it’s over, no court challenges, no back and forth), subsiding geo-political risks, stronger dollar and fewer rate cuts…..Powell’s comments yesterday only confirming what so many of us have been saying….a strong job market and sticky inflation demand that we do not cut rates to levels that are unrealistic…..

In my view – any further cut in rates would be unrealistic….We are currently in the 4.5%-4.75% range….a range that is not as restrictive as many would have you believe, in fact it is at the lower end of the range of what has been historically normal….and so, considering the strength of the economy and the incoming administration – my sense is that you leave them right where they are – until the data tells you something different.

Intermediate trendline support for gold is $2572 – if we fail to hold it here – then long term trendline support is down at $2446 – and if we test that, it would still be a 13% advance for the metal ytd….

Oil – continues to digest all of the recent data concerning the economy, rates and now what the IEA says will be an oversupply of 1.15 million b/d in 2025…..Recall, yesterday I explained that the non-OPEC producers are expected to raise output next year and that the issue is not waning demand but rather an oversupply of oil.

The oversupply putting pressure on global prices….   And we have not yet even considered what the OPEC producers will do if prices continue to fall….remember the Saudi’s want to see higher prices not lower prices….but if they don’t get what they want – do not be surprised if they flood the markets with oil to punish the non-opec producers whose cost of production is well above the Saudi’s cost of production….Saudi’s can produce a barrel of oil for $9, the US is anywhere in between $30 - $60 depending on location….Capsice?

We are below all 3 trendline supports…and remain in the $65/$70 trading range.  But a test lower is not out of the question and $65 is the level to watch.  

Eco data today includes – Empire Manufacturing, Retail sales – expected to advance by 0.3% - which would be below last months reads, but remember – Retail Sales have surprised us over the past 4 months – coming in stronger than expectations….so let’s see what happens at 8:30.  In addition – Industrial Production and Capacity Utilization will be reported at 9:15. 

US futures are down – all on the idea that JJ appears to be changing his mind about the pace and number of future cuts in front of us…..Dow futures are down 180 pts, S&P’s down 30, the Nasdaq down 159 pts while the Russell is off 6 pts.

PLTR is up again (now up 244% ytd) – after they announced that they are moving their listing to the Nasdaq at month end – this will allow PLTR to be considered to be added to the Nasdaq 100 index  …(something it can’t do if it is listed at the NYSE)– and you can be sure that CEO Adena Freidman dangled that carrot in front of CEO Alex Karp…and that means that anyone who uses the Nasdaq index as their benchmark will have to buy PLTR.  It is now quoted up 3.25% in the pre-mkt at $61.10/$61.20 – essentially telling you that investors fully expect that to happen.

European markets are mixed…. Eurostoxx is down 0.25% while Spain is up 1%. Investors there are reacting to JJ’s recent comments and what that might mean for the ECB and the BoE.  UK GDP came in at +0.1% - and that is below the +0.2% expectation. 

The S&P closed at 5949 – down 36 pts.  Futures this morning are suggesting a test lower….and recall that I said I would not be surprised to see us back fill the gap created on November 6th… (5782/5864) before we move significantly higher…It is Friday going into the weekend – so don’t be surprised if we see the weakness continue today….….yesterday I told you that a weaker than expected PPI number will cause investors to celebrate while a stronger than expected number will cause the algo’s to hit the ‘sell’ button.  Just to remind you – PPI was stronger than the expectation.

My classic mashed potatoes

For this you need – 10 lbs. of potatoes, s&p, butter, cream, shredded mozz and fresh grated parmegiana cheese.

Begin by peeling and cubing the potatoes – set in a pot of salted water and bring to a boil – let them cook until they are fork soft – maybe 25 mins…

Strain and crush in a masher – add in 1 stick of butter (cut into pieces), the warm cream and a handful of the cheeses – mix well. Taste and adjust if needed.