Dem's take senate, house in Limbo, PPI and housing numbers this week

• The Senate goes to the Dems, the House is still in limbo.

• Joey is in Bali at the G20 – Expected to meet face to face with Xi Xi.

• Oil is under a bit of pressure – Rise in Covid cases in China and demand cut outlook by OPEC (ridiculous).

• PPI due out tomorrow – will it mimic the CPI? If so, what will the algo’s do?

• Try the Ravioli’s for your first Thanksgiving course.

Stocks rallied into the end of the week…..The election having taken place on Tuesday remains unresolved causing some anxiety for the markets and for both parties….. – although some of it has since been called – the Dems now in control of the Senate while the House remains in flux…. -  and then we have the FTX / Binance Drama …...the news that FTX was circling the drain after running into ‘a bit of accounting trouble’ and how Binance would not step into stop the bleed only sent the crypto markets into a tailspin…..resulting in more questions than answers…Anything crypto plunging as the drama unfolded and then on Saturday  – news that FTX got ‘hacked’ – somehow losing control of millions of investor dollars only adds to the angst……

So many of the crypto enthusiasts – the smart money types have to now explain how they didn’t know what was going on…..I guess the words ‘due diligence’ doesn’t apply here as SBF pulled the wool over so many eyes……. And as this story unfolds – it gets more and more complex….as the web of lies and relationships comes to light……….SBF – somewhere in the Bahama’s while both his parents – professors at Stanford University and both intimately involved in the scam appear to be off limits at least for now – never mind other relatives that are members of the WEF that helped to push FTX into the spotlight….All now somehow responsible for the ‘Enron’ like SCAM…..  Never mind some of the supposed smartest names in the venture capital world that apparently had NO idea what was going on either…..…..  and all this news did cause some angst across the equity markets as some crypto investors turned to their stock portfolio’s to manage cash……and then on Wednesday we got a better than expected CPI (inflation) report  - which suggested that maybe the aggressive rate hikes taken by the FED might just be working their way through the system to combat rising prices….

Remember – one data point does not make a trend, but it could be the start of one….so while the data point is positive – it is still very much in its infancy….so expect more and more attention to be paid to the upcoming inflationary data points to come.  And this week – it will be tomorrow’s PPI report….what will that detail  inflation at the producer level….?  Are input prices still elevated? Will the PPI tell us something different than the CPI?  Expectations for this data point are expected to be up m/m but down slightly y/y – which would mimic what we saw in the CPI…. So, sit tight….

And all of this drama saw shares of big tech zoom higher…..Big mega cap tech names that have been unnecessarily punished found plenty of buy interest….AAPL +11% for the week, AMZN +11% for the week, Semi-conductors – NVDA +20%, AMD +20%, & INTC up 11%  for the week while the Semi ETF – SOXX or SMH were both up 14%.  Disruptive Tech – ARKK +13%. Cyber Security – CIBR is up 8%, The SPYV – Value trade is now up 15% since the low of October while the SPYFG – Growth trade is up 12%.  Energy and the Oil Service stocks continue surging……and Energy is still on fire…..the XLE up 35% since early October (and up 68% ytd) while the OIH – Oil Services ETF is ahead by 61% since October 1st (and up 77% ytd).  Names in this sector include – SLB, HAL, BKR, CHX & HP.

Friday also saw money move into the Communications – XLC, Consumer Discretionary – XLY, Retail – XRT and Basic Materials.  

Treasuries also benefitted from investor dollars – as prices rose – yields fell…. the 2 yr. yield falling to 4.35% down from 4.7% earlier in the week.  The 10 yr. ended the week yielding 3.82% down from 4.25% earlier in the week.
By the end of the day – the Dow gained 33 pts, the S&P up 36 pts, the Nasdaq up a whopping 210 pts, the Russell up 15 pts and the Transports up 300 pts.

It was – all very exciting….and expect the excitement and opportunity to continue this week… as we hopefully get a resolution to the House votes bringing that chapter to a close…Remember though, it ain’t over till it’s’ over and the Georgia senate race won’t be over until December 6th….although no matter how this turns out – the GOP will not take control….so it’s really a non-event in terms of control, but it is an event in terms of what the voters in GA want.

In Sydney last night – Fed Governor Chrissy Waller told us that the markets and the algo’s overreacted to the latest CPI report and that policy makers have a ‘ways to go’ before ENDING interest rate hikes – so all of this ongoing speculation about a FED pivot (anytime soon) is nothing but noise…something that I’ve said over and over again….And while the December and January moves might be at a slower pace – it is NOT a pivot…. We have to get the terminal rate to 5.25% - 5.5% before we even consider pausing, not pivoting…. Which doesn’t mean you don’t invest – remember – the market is a discounting mechanism….it looks out 6 – 12 months….so if you want to be in the game – you have to stop trying to time the market and create and stick to a plan….taking advantage of both the highs and the lows – making sure you have a plan that reflects who you are and  where you are on the time and risk scale.  In the end you can’t read too much into any single data print at all….so while the latest CPI report suggests that inflation has slowed, it is not SLOW…it remains at 7.7%  - near 40 yr. highs….Slow is when it is back at the 2% target…which isn’t happening anytime soon.

Friday’s U of Mich inflation survey revealed that expectations for 1 yr. and 5 – 10 inflation expectations are UP…..5.1% next year while they remain at 3% for the extended period.  So, I expect that the FED will change their ‘target’ 2% rate to 3% by this time next year….

Yesterday – Joey went to Bali to join in on the G20 meeting where he is expected to meet Chinese President Xi Jinping for the first time since his presidency began….Although, no one expects any strength or resolve in this meeting – especially around the Taiwan issue. the origins of Covid 19 and nuclear aspirations by China. – So do not expect any of this to drive market action, but it will drive the news cycle.

This morning oil is trading down 80 cts at $88.16/barrel.  Guess why?  Apparently there is another surge in Covid across parts of major Chinese cities…threatening yet more lockdowns and that would mean ‘less demand’ by China for oil….Remember – they are the world’s biggest importer of oil so the day to day price of oil will be impacted by what they say….but the long term price of oil will be determined by global supply and demand and while demand is strong, OPEC will keep supply tight enough to force oil prices higher….I am still in the camp that we will see $100 before we see $60.  Currently we are stuck between 2 trendlines…. $85/ $90.  If they can convince markets that demand is waning – the look for oil to test the low $80’s….and if not, then look for oil to test $95…
This morning OPEC cut demand outlook as they begin to slow production…..

The dollar index – collapsing on the back of that better than expected CPI report – ending the day at 108.45 and this morning is lower again – falling 90 cts at $107.35.  The reaction by the dollar telling you that the expectation now is for the FED to ‘pause’ and possibly ‘pivot’ sooner than expected.

Remember – this rumor came out last week and was quickly denied, well, it came out again today and in fact is being actively discussed in the media….Expect oil to rally on global demand….

The dollar index – DXY – which has fallen 5% in the last 2 weeks might test long term support at $104.85….although with talk of continued higher rates, the dollar is finding support right here at $107. 

This morning – stock futures are down -which shouldn’t be a surprise…...Dow futures are down 60 pts, S&P’s down 12 pts, the Nasdaq down 75 and the Russell down 6.  The G20 will be in focus along with economic comments from NY Fed President Johnny Williams.  Tomorrow Donny plans to make a ‘major announcement’ – which is also exhausting…..

Economic data this week – Tuesday – Empire Manufacturing and the all important PPI reading and that will be the focus tomorrow.  Wednesday will bring us Retail Sales, Industrial Production and Capacity Utilization.  Thursday will bring us Housing Starts and Building Permits – both expected to be down big.  Friday’s Existing Home Sales on Friday is also expected to be down by 7.2% m/m….  a reflection of what higher mortgage rates are doing to the industry.  Current 30 yr. rates are 7.25% - soon to be 7.75% by year end.  

European markets are up by about 0.3%. 

The S&P closed at 3992 – UP 36 pts as it kissed S&P 4000….We are now up and through 2 trendlines and appear to want to test the down trending long term trendline at 4080.  If tomorrow’s PPI report is better than expected – then expect the algo’s to take us that trendlines in one swift move….but also expect lots of analysis and then listen to what the different FED members have to say….Will the narrative change or will they mimic what Chris Waller told us last night?  In the end – the story won’t change until we hit a terminal rate of at least 5.25%.  Which is 1.25% HIGHER from here.

Again – stick to the plan – Talk to your advisor and tweak where necessary.  Look at the mega cap, multinationals that generate good cash flow, pay nice dividends, and can weather the storm. (Well balanced).

Raviolis and meat sauce

You can try this for your first Thanksgiving course as well -
Meat sauce - you need:  4 chicken thighs with the skin, 4 country style pork ribs, onions, garlic, olive oil s&p. 4 cans crushed tomatoes (NOT PUREE) Fresh basil.

And you need the fresh made Ravioli’s.

Now - slice 3 large white onions, chop 4 gloves of garlic and sauté (med/hi) in a heavy bottom pot.  After about 5 mins...add the chicken thighs and brown for about 15 mins....remove the thighs and set aside. (when it cools you can remove the skin if you prefer) .

Now add the ribs to the pot....brown these for about 15 mins... Remove and set aside.   Now add - 4 cans of kitchen ready crushed tomatoes....if you cannot find then buy the plum tomatoes and run them thru the food processor - add  1 1/2 cans of water - stir - bring heat up to high until it boils then reduce to simmer....season with s&p, add the fresh chopped basil - like 6 / 8 leaves.  Add back the meat - chicken, pork, and meatballs. Add in the oil and bits from the fried meatballs.    Let simmer for at least 45 mins - stirring occasionally....at this point it is all done.  Make this on Wednesday so it sits overnight.  

Now on Thanksgiving take your fresh made Ravioli’s that you bought at your nearest Italian grocer.

Bring a pot of salted water to a rolling boil – put the rav’s in the water and when the all come floating to the top – they are done.  Using a slotted spoon – make individual dishes and serve with a ladle of the tomato sauce. Always make sure to have plenty of fresh grated cheese on the table.