Rising global tensions cause market volatility, Oil, Gold

• VIX spikes – were you surprised?

• Bonds, rally, Oil surges, gold rallies, while Stocks decline.

• Mid-East Conflict creates opportunities in Energy, Defense and the Contra-trades.

• VP debate – Yawn!

• Try the Chicken Scarpariello.

This is how I ended yesterday morning’s note….and remember – it was October 1st….

“The VIX (fear index) remains between the trendlines….15 is support with 18.30 resistance. This morning it is up 10 cts at 16.83 – just 8% away from trendline resistance…..…..Yesterday we tested 17.80 – so stay awake…I can feel it building….Again, if we break up and thru resistance, then we could see us test the September high of 23.75….a 30% move up and that will cause stocks to move down”.

And stocks moved DOWN…. the VIX surged up and thru resistance at 18.30 and in fact tested as high as 20.60 before closing at 19.26 up 15.1% – as nervousness rippled thru the markets…. Nervousness caused by the barrage of missiles  launched by Tehran into Israel, nervousness caused by an uncertain US economy, nervousness caused by a conflicted FED, nervousness caused by the port shutdowns and the labor strike that can cost the US economy nearly $5 billion/day,  nervousness over who is moving into the WH in January in the middle of all this drama…

And that caused oil to rally by 3.8% kissing $72-barrel mid-day before settling in at $70.76.- think supply disruption and a wider conflict.  It caused gold to add $25.40 /oz ending the day at $2684 – think ‘safety trade’…It caused bonds to surge…the TLT and TLH up 0.4% and 0.25% respectively while the US Treasury Total Return Index added 0.3%. Again, think safety trade and it sent the Contra Trades higher think hedging your portfolio or taking advantage of an ‘opportunity’.

All while stocks fell as ‘some’ investors/traders and algo’s ran for the door…. …. The Dow lost 174 pts or 0.4%, the S&P down 54 pts or 0.9%, the Nasdaq down 280 pts or 1.5%, the Russell gave up 33 pts or 1.5%, the Transports lost 190 pts or 1.2% while the Equal Weighted S&P gave up 42 pts or 0.6%.   

It is now the upgraded conflict in the middle-east that is driving the action….investors/traders and algo’s were no longer in a rush to ‘get in’…and in fact – some were in a rush to ‘get out’ – sellers becoming more aggressive causing the buyers to step back – leaving a void in prices and that means lower prices….The next 24 – 48 hours are now critical.  If the situation in the middle east escalates, then expect investors to continue to seek the safety of treasuries and gold….and that will continue to put some pressure on stocks. But if the conflict blows over – then we could see stocks recover…. but right now, it is not blowing over…. European markets are down, and US futures are pointing lower.

But,  as you can imagine – it was not all negative for equity investors….we saw Energy - XLE surge by 2.3%, Nat Gas & Exploration – XOP + 1.7%,  Aerospace & Defense ETF - XAR added 1% all while individual names did even better…RTX + 2.7%, LMT + 3.6%, CW + 2.5%, NOC + 3%. 

We saw the contra trades pop higher…the PSQ + 1.4%, the SH + 1% while the DOG + 0.4%.  The Triple Levered S&P Short – SPXS gained 2.9%, while the VIXY rallied by 7.8% - all of these moves a direct result the conflict in the middle east.

On the economic front – we saw the expected weakness in the data…US Manufacturing PMI remains in contractionary territory…Construction Spending came in weaker than expected and the JOLTS Job Openings ROSE and that stands at odds with other labor market indicators.  And that longshoreman’s strike is stirring up the angst among Americans, but also within the Democratic party….as we move into the final phase of the election…

Speaking of the election – we also had the VP debate last night….and while I think Nora and Margaret did an excellent job of controlling the ‘crowd’ and asking the questions…. NEITHER of the candidates addressed THE questions that were asked. They answered the way they ALL do; they ignore the question and ramble about something else…. irrespective of the question….it is beyond frustrating and in my opinion makes a mockery of the process. It did though, give JD a chance to show a softer side of his personality, while Timmy appeared to be nervous and a bit erratic as they fought over taxes, immigration, climate, economic policy and the Supreme Court. I do not expect that debate to influence investor reaction at all.  Early voting has started in some states and for the rest of us, I think everyone has picked a side, I am not sure there is room for either of the candidates to sway public opinion at this point.  All we can do now is wait. The polls are tight, that is if you believe the polls.

This morning – Oil is up another 3.1% at $72/barrel….as investors now give it a ‘war premium’…. after Israeli PM Benny Netanyahu vows to retaliate against Iran after they fired nearly 200 missiles into Israel – raising the fear of escalation of hostilities that could spiral into a wider world war. In the move up, oil has now pierced short term trendline resistance at $71.80 leaving longer term resistance at $74.50 as the next target.  Any new developments will send us right up and thru $74.50 like a hot knife thru butta especially if Benny targets any of the oil assets in the country.

Gold is down $15 this morning after that rush into the metal as a safe haven asset following the moves yesterday…. this churn will continue until there is more clarity on the risks of escalation.  Remember, Gold has had a great year so far  - up 25% - and nothing says it can’t go higher – but gold traders (like stock traders) will be looking beyond the immediate geo-political drama onto the upcoming economic data points…today’s ADP report is one and Friday’s NFP report is the other. These reports will prove pivotal in the FED’s next move – a 50 bps cut will be well received by gold bugs while a 25-bps cut will cause traders to hit the sell button as that is already priced in. If it sells off – I suspect it will find support at $2600.

The VIX is up another 1.4% at 19.52 as it waits for the sun to rise…. We are now on the north side of trendline resistance, so the September highs of 23.30 Ish….are now the focus…a push up and thru that could see the VIX spike to 30…representing a 30% move from there and that will push stocks lower…Sit tight….the day is young.

US future as noted are down…Dow futures – 120, S&P’s down 9, the Nasdaq -22 while the Russell is down marginally by 1 pt.  Bonds have steadied as investors/traders and algo’s wait for the day to begin amid rising tensions.  Mortgage Apps are due at 7 am (they fell by 1.3%)  while the ADP employment change is due out at 8:15. Tomorrow brings us US Services PMI”s and they are expected to be in expansionary territory and then Friday’s NFP report…..that is the one that all eyes are focused on….What will it reveal and then What will it say about the FED’s next move?

European markets are lower…down between 0.1% - 0.4%.  Same story there…. nervousness over middle east tensions driving the action….as you would expect – Aerospace and Defense stocks across Europe are finding plenty of buyers….

The S&P closed at 5708 – down 54 pts….and this morning futures are pointing lower again…. Yesterday’s low of 5681 is the level to watch today…If we break that, then we could see the S&P test 5620 Ish….

With the start of the 4th qtr. and the Fed’s rate cutting cycle now behind us and the general pace of future cuts now broadly known, focus for the final quarter of 2024 will turn towards economic growth, politics and the middle east conflict. Given the volatile nature of all of these, it’s reasonable to expect periods of elevated volatility over the coming months (but, as we saw in the third quarter, markets can still move higher even amidst increased volatility). 

Now, It’s October - I still expect to see a pullback, somewhere between 5% - 10%.... and while it’s reasonable to expect an increase in short-term volatility, the fundamental underpinnings of this market remain broadly positive.  ….

In the end –it is important to understand the risks facing both the markets and the economy, to effectively navigate this investment environment. Successful investing is a marathon, not a sprint, and even bouts of intense volatility are unlikely to alter a diversified approach set up to meet your long-term investment goals.  Click on the link to send me a message – I will call you back.

Chicken scarpariello 

Chicken/Sausage/Sweet Vinegar Peppers - a bit of a take on the traditional Scarpariello dish - (you can use hot cherry peppers if you prefer - I cannot - I sweat like there's no tomorrow)

You will need: Thighs & legs, (bone in/skin on), s&p, olive oil, sweet Italian sausage, Vinegar peppers, garlic, white wine (Pinot Grigio Santa Margherita), 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 40 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 vinegar 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.  Accompany with a large mixed salad dressed in a balsamic vinaigrette dressing.  Enjoy your favorite chilled White wine.