Investors reconsider rates – Political uncertainty amid mixed earnings

• It’s exhaustion.

• 10 yr. bond mkt is telling us that it ain’t over.

• Oil holding steady, Gold making new highs.

• “All Roads Lead to Inflation” – PTJones.

• Try the Root Beer Ice Cream Float (Think KO earnings!).

Stocks churned as investors/traders and algo’s reconsider the FED’s rate cut narrative along with the changing political landscape.  We got earnings from 30 S&P companies of which 6 out of 30 missed the estimates and gave weaker guidance, which means 24 beat the estimates and gave more upbeat guidance…that’s an 80% beat rate…. Not so bad…. And then we go eco data from both the Philly and Richmond FED Reserve Banks that spoke to business conditions and Services activity – which came in a bit stronger.

But then – the IMF (Int’l Monetary Fund) came out and lowered their global growth forecast for next year and warned of accelerating risks from wars in the mid-east, wars in Ukraine and expected trade wars to come….and while anything the IMF says is never really a catalyst for stocks, it only adds to the weakness when the announcement is negative and the level of negativity (angst) in the markets is rising.

 In the end – the Nasdaq and the Transports ended the day higher – up 34 and 60 pts respectively. All while the Dow lost 7 pts, the S&Ps lost 3 pts, the Russell lost 8 pts, while the Equal Weight S&P lost 32 pts.    

And look – it’s not difficult – This is about price exhaustion….this is about election exhaustion, it’s about campaign exhaustion, it’s about FED exhaustion, it’s policy exhaustion, it’s about geo-political exhaustion,  it’s about how stocks are stretched and it’s about the need for stocks to retreat, test lower, shake the branches, see who falls out and then move on. 

It’s about that blockbuster Goldman Sachs research report…… Did you see their call?  Goldman came out and told us that they think the markets have so outperformed over the past 10 years that all we can expect from the S&P for the next decade is ‘at best’ 3% returns…. Emphasis on ‘At Best’.  (Just to remind you - The S&P is up 22.6% ytd) -   All that tells me is that Goldman must need to ramp up Sales and Trading revenues… Because a report like that is meant to cause angst and angst causes selling and Goldman stands ready to help all of these institutions to ‘sell’ their positions.

Now are they suggesting that this is going to happen because inflation is ready to rear its ugly head again?  Are they preparing us for more ‘out of control’ gov’t spending?  I mean both sides have promised to spend money we don’t have, the CBO has come out and to tell us that all of this spending is inflationary, and the bond market is telling to get ready.

And what did the 10 yr. do?  Well, prices are falling, and yields are rising…. Yesterday, the 10 yr. ended the day yielding 4.22% and this morning it is yielding 4.235%.... - inching ever closer to that 4.3% level…that we discussed earlier in the week.  Look – higher yields are starting to create an issue for stocks – leaving us to wonder – exactly what yield will cause investors to really hit the sell button.  I think it is going to be 4.5% that causes many to retreat….5% will cause many MORE to retreat…. We’ve already seen that! 

In any event – the narrative that JJ gave us in September – is no longer the same narrative. The idea of another jumbo rate cut is all but gone…. Many now wondering if we are gonna get ANY rate cut at all…considering the strong economic data that is the US economy. The next FED meeting is only 2 weeks away (November 6th & 7th) – 2 days after the election (and the ‘swing states’ of  PA, MI and WI have already told us that they won’t be able to count all of those mail in ballots by November 6th, so get ready for more drama)….so, the odds are rising that they do nothing – again, watch for the next Nicky T article in the WSJ….when these guys go into ‘blackout mode’ – that will be the signal.

Most (not all) FED Heads that spoke this week – have signaled that they favor a slower pace of reductions after the data reveals that the labor market is not deteriorating as much as JJ suggested on September 17th. The idea of 3% rates anytime soon is nothing but a pipe dream and the market is going to have to recognize that….and I think it is starting to recognize that….……Just watch what the bond market says…..at the moment – it is suggesting that rates are going up, not down – and that will be because of all the give aways, all the spending – because Janet will have no choice but to bring massive amounts of bonds to the market to pay for all of this – unless of course they start taxing us to death – and speaking of death – the inheritance tax exclusion is set to be cut in half in 2025…..going from $13,600,000 to $7,000,000.  Just think of all THAT new money DC gets to spend.   

Oil – pushed higher once again…..rising 1.8% or $1.30 share….this even after the API reported that US crude stockpiles ROSE last week…..Now rising stockpiles would normally put pressure on the price of oil….but yesterday it did not…..and that is because of the ongoing tensions in the mid-east - ….Israel has yet to respond to the barrage of missiles that Iran launched on them 2 weeks ago…but they promise us that it is coming….Now, this morning oil is down 60 cts at $71.06….leaving it sitting on the trendline….Today, They are blaming the move on those elevated levels of crude supply – whatever!  According to the RSI trendline – oil is neither overbought nor oversold…it is smack in the middle…so it could go either way – depending on the headline.

Gold – is advancing…it broke thru the $2750 level – to end the day at $2759…this morning it is up $11 at $2770…. reaching yet another record high as the level of geo-political tension drives investors into the safety trade.  Famed billionaire investor Paul Tudor Jones – (an 80’s and 90’s icon) came out yesterday to warn investors to get long – Bitcoin ($67,000) and Gold as a KEY INFLATION HEDGE STRATEGY – saying that ‘All Roads Lead to Inflation’ – and the only way to get us out of this mess is to ‘inflate our way out’…..inflating our way out means that the gov’t intentionally causes inflation in order to reduce the value of its debt over time…and this can be costly.

And so, don’t expect futures to be up…because they are not…. Dow futures are down 160 pts, S&P’s down 7, the Nasdaq down 45 and the Russell is down 9.

Eco data is all about housing…. Mortgage apps at 7 and then Existing Home Sales – expected to be up 0.5% - but let’s see.  At 2 pm – we will get the FED’s Beige Book and those details what is happening in each of the 12 Federal Reserve zones in the country.

Earnings will continue to dominate the day…..Before the bell – it’s about BA, ODFL, T, GD, TMO, KO, HLT,  but it is after the bell that will cause all kinds of action…TSLA, LVS, IBM, TER, MOH, NOW, NEW, LRCX, RJF…..All in – we will get nearly 50 reports – will we repeat the 80/20 results?

European markets are mixed…noting dramatic either way…. Spain up 0.1% while the UK is down 0.2%.

The S&P closed at 5851 – down 3 pts….   There is no FED speak today…. but there is the ongoing drama of the election.

Now look –I repeat -  a pullback is imminent….we know that…..Trendline support is at 5662 – down 3.5% from here….hardly anything to get nervous about….but expect some to get nervous anyway….In any event – I would like to see us shake the branches a bit…..Why? Because it’s healthy for the markets to retreat to test lower, to test investor commitment. 

In the end though, as a long-term investor - have a plan, be diversified, and have some cash on the side to take advantage of any weakness – and then don’t panic…be patient…  Do not go and change your portfolio based on what you think might happen – politics do not in the long term set prices….it does though create short term chaos, which creates long term opportunity.  

Successful investing is a marathon not a sprint.

Root beer float

Coca-Cola reported earnings this morning…and they BEAT…. blah, blah, blah….so I think we should make a Barq’s Root Beer Float (KO owns Barq’s).

This is one of my favorites…. reminds me of being a kid….and it reminds me of my father…. who loves these.

For you this you need:  Cold Root Beer and Haagen Daz Vanilla Ice Cream.

Put the ice cream in a big glass and then pour the root beer over it.

That’s it…Simple…but delish.