Markets waver as Fed signals further moves – MU earnings ignite tech surge

• The rally stalled yesterday, but NOT today.

• MU stuns the markets – Quoted up 15% in the pre-market.

• Bonds fall, yields rise.

• Oil down, Gold up.

• Try the Pasta Faggioli w/Sausage and Pancetta.

Wow!  Stocks fell on Wednesday! This after wavering for much of the day as investors/traders and algo’s continue to ‘ponder’ the latest move by the FED as well as the latest comments by different FED heads… Trader types are looking for the next catalyst that will either confirm or deny another ‘big’ move in November.

The Dow lost 295 pts or 0.7%, the S&P down 11 pts or 0.2%, the Nasdaq held on and added 8 pts or less than 0.1%, the Russell gave up 27 pts or 1.2%, the Transports lost 133 pts or 0.8% while the Equal Weighted S&P gave up 47 pts or

The only 2 sectors higher were Utilities +0.5% and Tech +0.3%...which makes sense – lower rates will send Utilities higher while this ‘tech revolution’ will continue to push Tech higher…. It was also the anticipation of the MU earnings that came out after the close…. (see below).

Yesterday also brought us a couple of new data points…Mortgage apps surged by 11% - of course they did - 30 yr. rates fell to a low of 6.15%- this is down from 7.5% only months ago…and this represents an 18% decline in rates…so anyone that has been patient is now being rewarded. 

New Home Sales were - 4.7% which is a huge turnaround from last month’s read of +10.3% (14-point reversal) ....and that is curious to me – since rates are in decline. My sense is that buyers must think that new home prices are still too high and are turning to Existing Homes Sales -which was reported last week at -2.5% (or a 3 pt reversal from the prior month) -so, you can say it was a weak number but ‘less’ weak than NEW….as existing home sellers may be more willing to negotiate if they think prices are weakening.  If in fact prices are weakening, then watch how fast the homebuilders start to ‘throw in upgrades and landscaping’ to make it more desirable for buyers.  Homebuilders can easily throw in these ‘freebies’ because their prices and margins allow for that.

You can also point to the time of year, as a reason for the declines in those numbers…but the surge in mortgage apps kind of negates that, right…. I mean if the market is slowing down (seasonal) then why are mortgage apps rising?  Well, you could say that applications are rising because buyers are preparing themselves to jump on a home when they find one…that they want the commitment from the bank, because when they do find ‘that house’, they want to know that there isn’t an issue with financing.  In any event – neither of those reads managed to keep the market from falling (just a bit). 

In addition the massive stimulus measures announced by China also did very little to stimulate the US markets…it stimulated China’s and Hong Kong markets and did ripple thru other markets in the region but US investors do not seem to be that enthused….It’s China – the data and news is always suspect as far as I am concerned, and the rules change too quickly – which is why I stay away from directly investing in China – as there are plenty of other places to put investment dollars to work that respect the process. But that’s a different conversation.

In any event – many are now suggesting that the ‘crisis level move’ last week means that the FED is showing a willingness to move faster, to become ‘more accommodative’.  The focus is now clearly on the labor market – JJ made that very clear and comments from Chicago Fed President Goolsbee, Minneapolis President Kashkhari and Fed Governor Waller supported that narrative.  And if the labor market shows any distress, then the message is that the FED will respond sooner rather than later….

So, in my opinion, the FED is worried that the labor market IS about to show real distress – thus the move and the hint at another ‘crisis level’ 50 bps move at the next meeting on November 6/7th.  In the end, while they want a soft landing, a soft landing is not going to fix higher prices. A recession would do that, but that is not what they want…. So, get used to these higher prices. And the unrest/potential strike in the dockworkers unions only supports that. These guys can’t make ends meet because everything is more expensive…so they will fight for higher wages and better ‘bennies’ and that costs money….and if you think those companies are going to eat those costs – you better get your head examined…They are going to pass those higher costs right onto you (and me). 

Ok – let’s move on…. Micron…MU reported last night and they ‘blew the place apart’….EPS of $1.18 beating expectations of $1.13 Revenue of $7.75B beating expectations of $7.64B. CEO Sanjay Mehrota telling investors that.

 "Our mix of data center revenue is on track to reach record levels in fiscal 2024 and to grow significantly from there in fiscal 2025. Robust AI-driven demand for data center products is causing tightness on our leading-edge nodes. Consequently, we expect continued price increases throughout calendar 2024 despite only steady near-term demand in PCs and smartphones. As we look ahead to 2025, demand for AI PCs and AI smartphones and continued growth of AI in the data center creates a favorable setup that gives us confidence that we can deliver a substantial revenue record in fiscal 2025, with significantly improved profitability underpinned by our ongoing portfolio shift to higher-margin products."

On a side note - Micron is also a beneficiary of the US CHIPS Act – WE gave them $6.1 billion – this after they reported these blowout numbers.  I wonder, who is in charge here….MU just killed it, and we gave them $6.1 billion dollars?  Maybe I’m the one that needs his head examined!  

The stock closed at $95.77 up 1.9% yesterday and this morning it is quoted UP $15 or 15.7% on this news….and THAT is today’s market mover….and that is the reason that US futures are SCREAMING HIGHER….Dow futures +200 or 0.5%, S&P’s up 45 or 0.8%, Nasdaq is ahead by 275 pts or 1.4% while the Russell is up 18 pts or 0.8%. Expect all kinds of action in the semi space…NVDA quoted up 1.6%, AMD +2%, AVGO +1.7%, QCOM +1.8%....

Bonds also came under some pressure sending yields up…. the TLT lost 0.8% while the TLH fell by 0.6%. The 2 yr. is yield ended the day at 3.56% while the 10 yr. yield rose by 6 bps to end the day at 3.78%.     

On Tuesday oil ‘popped’ and on Wednesday oil ‘pooped’ falling by 2.4% or $1.70/barrel.  Ending the day $69.85.  So, the news is that the Kingdom (Saudi’s) is now ready to ‘abandon it’s $100 price target and send the oil markets lower by increasing output….to punish producers that aren’t playing by the (Saudi) rules.  (good for you and me).  Crown Prince Mohammed bin Salman is mad and no longer willing to continue ceding market share, so they are going to ramp up production and cut prices to regain market share…. oil is down another 1.6% this morning at $68.55…  The September 10th low of $64.60 is now in sight…and is KEY to what happens next…. Oh boy…. now it’s getting interesting…

Gold – just continues to climb…. this morning it is up $7 at $2691 – about to kiss another new century at $2700…. Recall the trendline I drew for you on Monday did suggest that resistance is at $2725 ish.

Eco data today includes the final revision to 2nd qtr. GDP, and it is expected to be unchanged at +2.9%.  Personal Consumption of +2.9%, Durable Goods -2.7%.  Initial Jobless Claims of 223k up small, Cont. Claims of 1.828 million down small.  Pending Home Sales of +1% m/m while y/y numbers show a decline of 5.5%. 

Anticipation over Friday’s PCE report will be part of today’s conversation. It is expected to show that inflation remains in decline…which supports their narrative.

Next weeks’ NFP report will be the next potential catalyst…. What will that say about the labor market.  It is expected to show an increase of 140k new jobs.

European markets are all higher….and up better than 1%.  Now it’s the Swiss who cut rates by 25 bps taking their rate down to 1%...something that was expected.

The S&P closed at 5722 – down 10 pts – but futures are pointing up – ignited by the MU earnings……as the focus once again turns to AI, and AI demand into the new year. 

Again – it is the end of the qtr. – so I expect a push thru Monday….and then it’s October.  Now, while October is the worst month of the year, this year is a chaotic and confrontational Presidential election year… The FED has already signaled that they are ready to cut and cut BIG if necessary….and while there is not another meeting before the election- they can attempt to control market action by pushing the idea of more cuts…unless they call a special meeting to make an ‘inter-meeting’ cut…Oh boy, can you imagine the message that will send? 

In the end – it is what it is…Don’t let your emotions get the best of you during this chaotic time…. Stay focused…’talk to me goose’!  Building a strong, well diversified portfolio takes time and commitment. 

Pasta faggioli with sausage and pancetta

This is a great dish - simple to make and always a favorite. Pasta Faggioli is essentially Pasta & Beans. Anything else is just an addition to the basic dish. Today's version includes Sweet Italian Sausage & pancetta.

For this you will need: ½ box of Elbow Pasta, Cannelloni beans, water, olive oil, garlic, onions, celery, carrots, can have diced tomatoes, Chicken Broth. Italian sweet sausage, pancetta and s&p and a rind of Parmegiana Cheese.

Bring a pot of salted water to a rolling boil. 

Begin by sautéing some crushed garlic in olive oil on med heat – careful not to burn the garlic – Now add in the sausage meat (taken out of casing) and a bit of Pancetta - not too much just enough to give it some flavor. Remove and set aside.

Next add the diced onion, carrots and celery – sauté some more – maybe 15 mins.  Now add back the sausage meat.  

Next - in the same pot add 2 cans of Cannelloni beans – do not strain.  Add chicken broth and 2 cans of water – season with s&p - bring to a boil and then turn heat to simmer. Here is where you toss in the Cheese rind.   Stir occasionally. 

Now – boil the pasta for like 6 mins...it will be undercooked. Then strain and add the pasta directly to the bean and sausage mix. If you need to – add a mug or two of the pasta water to keep it from sucking up all the sauce. It will only need about 3 more mins to cook… as it will continue to cook even when you turn off the heat… so be careful… Serve immediately in warmed bowls with plenty of fresh grated Parmigiana cheese.

You can also make this dish without the sausage and pancetta if you are a vegetarian.