Markets surge on JJ’s bold move: Relief rally spurs global optimism as Fed calms recession fears

• Investors celebrate – but is the hangover coming?

• S&P enters another new century.

• Job Market slows but is NOT weak.

• Are Fed Fund Futures Traders the canary in the coal mine?

• Try the Risotto.

Markets can’t get enough of JJ!  Stocks around the world celebrate a ‘relief rally’ on what is being described as a ‘bold move’ by the FED, one where JJ succeeded in allaying any fears of panic as he calmed markets by saying the 50 bps move was necessary in order to keep us in front of the 8 ball vs. behind the 8 ball.. Now – the narrative is that the 50 bps was really the 25 that should have happened in July and 25 in September – OK, lets’ go with that…. because it makes it easier to reconcile the move….  …..and here at home both the Dow and S&P hit new all-time highs, It was an interesting reaction to the 50 bps rate cut we got on Wednesday….….The Dow added 525 pts or 1.25%, the S&P up 95 pts or 1.7%, the Nasdaq up 440 pts or 2.5%, the Russell added 46 pts or 2.1%, the Transports up 260 pts or 1.6% while the Equal Weighted S&P add79 pts or 1.1%....

Investors, traders and algo’s all betting on that soft landing that the FED has promised for years now…..and they are apparently betting on another round of  ‘big’ cuts – even as JJ told the markets that this one cut does NOT mean subsequent cuts will be the same….They are also betting on the fact that JJ can avoid sending the economy into a recession anytime soon….the latest projection is now late 2025…..It’s kind of interesting no? 

When the bond market inverted years ago – analysts told us that it was only a matter of time (12-16 months) before the country entered a recession…..and that never happened and then when the yield curve turned positive (uninverted) then that meant that the recession would knock on the door – and that hasn’t happened yet either….And now – they are betting that the 50 bps cut and another 70 bps cuts this year, as well as another 100 bps cuts in 2025 will keep us in growth mode – pushing out the idea of a recession out until sometime late 2025 (clearly that’s a moving target)…..So in the end, there is absolutely nothing to worry about……

Now I think a number of things happened – One was a short covering rally, one where big hedge funds and traders were betting on a decline in the market post the announcement and that didn’t happen…forcing the shorts to run of cover (think demand)….and then you had all that money on the sidelines that has been waiting for the ‘seasonal’ pullback that also appears to be elusive (for now)…causing them to suddenly throw in the towel  and put money to work…..creating additional demand.

And then you have all of the algo’s that pay no attention to the drama but do pay attention to prices and trends….and just like on the downside -when trendlines are broken, the algo’s get more aggressive selling stocks, they do the same on the upside….when trendlines are ‘pierced’ that causes the algo’s to get more aggressive buying stocks….  Notice I said ‘broken’ on the way down and ‘pierced’ on the way up……Broken has a negative connotation (think Sell) while pierced has a positive connotation (think Buy).  And there you have it…. And it was the clarification by the FED that investors needed to make that decision.

Now look – It was all very exciting….and your portfolio IS up today…and that’s good…. but remember – stick to the plan….do not get caught up in emotion and excitement of it all. (Do you recall how uneasy you felt on August 5th – when the market seemed to be spinning out of control?) Do not become ‘FOMO’ized’. You are NOT missing out…. The most difficult thing is not to become emotional…. Do not change the plan on this one data point….

And then yesterday’s eco data only added to the tone…. but remember – when the tone is positive – everything seems positive and when its negative, everything seems negative (Again, think August 5th) …. Yesterday they ‘accentuated the positive and eliminated the negative’.  At 8:30 am – we learned that Initial Jobless Claims fell by 11k, while Continuing Claims fell by 21k…. suggesting that the labor market remains healthy despite the slowdown in hiring…. It is NOT collapsing…. which is something I have been saying for weeks now…. slowing yes, collapsing no.   Again, which is why I have been calling for 3 – 25 bp cuts this year….

Bonds fell on all this action….as some investors/traders decided to ring the register after the 13% jump in the TLT since July and the 11% jump in the TLH.  This sent bond yields up a bit…. the 2 yr. is yielding 3.57% while the 10 yr. is yielding 3.70%. 

CD rates are beginning to fall as well…those 5.5% or even 6% rates are nothing but a distant memory if you are looking to put money into CD’s now.  Gov’t MM funds are now paying you 4.5% down from 5%....and will go lower as the FED continues to cut rates. And those lower rates will be a tailwind for stocks…. especially good divy paying stocks….

Notice that the NOBL ETF – ProShares S&P 500 Dividend Aristocrats – is up 12.5% ytd….as investors look for the ‘safety’ that those names provide.  Utilities as well have been a huge beneficiary of the coming lower rates…. the XLU (Utility ETF) is up 23% ytd…. How’s that for a boring sector?  Not so bad, eh!

Oil continues to churn as it tests and retests resistance at the August lows of $72 ish…. Yesterday trading as high as $72.49 before closing at $71.95.  This morning it is down 25 cts at $71.70. The short-term trendline (in decline) is at $74…. while the intermediate and long term trendlines are converging at $75.80…  -This will keep oil in the $65/$75 range until we get further clarity on demand.  (which I think is just fine).

Gold continues to trade at the highs….the rate cut did cause some profit taking on Wednesday, but yesterday’s embrace of JJ’s move only sent gold up…and this morning it is up again…..+$19 at $2633/oz – a new intraday high….Remember – lower rates will send the dollar lower and commodities higher. 

US futures are taking a breather…. Dow futures are flat, the S&P’s -11, the Nasdaq -65 pts, while the Russell is down 7.  I’m surprised that they are not down even more….but the bell doesn’t ring until 9:30.  FDX shares are down 13% in early trading after they ‘warned’ about the year ahead while reporting ‘worse than expected’ quarterly profit – FDX is seen as a proxy for the US economy….and this ‘bad’ report comes just 2 days after JJ told us ‘it’s all good’.  UPS is down 2.5% this morning as well, in sympathy with its competitor. 

Additionally – fed futures trades are pricing in a more aggressive pace of cuts than what JJ suggested….and this suggests that the market doesn’t really believe what JJ said…. So, if rate cuts accelerate, that just means the economy may not be as strong as JJ is leading us to believe. Now there is an interesting thought….

European markets are all down about 0.8% as the morning after brings some reality to the narrative. UK retail sales were better than expected – European consumer confidence is due out later this morning.  Recall the BoE did not cut rates yesterday and the Bank of Norway did not either….and in Asia – China and Japan left rates unchanged as well.

The S&P closed at 5713 – up 95 pts….taking us into a new century…..That’s 11 centuries this year….January, the S&P traded as low as 4688 and yesterday we traded as high as 5733…..Today is a Triple witching options expiry – so expect volumes to surge on the opening and closing bell trades….It means nothing other than volume…it does not suggest anything about the direction of the economy.  

Next week – is the end of the quarter…so expect lots of window dressing….as portfolio managers ‘dress up’ their portfolios for the marking period.  And then we have October….  Capisce? October is about 35% more volatile than the other months of the year…and then we have the final weeks into the election…So there is a lot just in front of us….

I would say be careful how excited you get.  You have the plan, and you are invested so you are participating…. don’t let your emotions get the best of you.   Building a strong, well diversified portfolio takes time and commitment, but in the end pays off big.

Risotto with cauliflower and truffle butter

This is another great risotto dish that is easy to make and easy to present.  For this you need:

Diced Spanish onion, olive oil, butter, 2 Cups Arborio rice, 1/2 Cup dry white wine, Cauliflower Florets Cut Into bite size pieces, warm chicken broth, s & p, truffle oil or truffle butter and shaved Parmegiana cheese.

Heat the olive oil and butter in a heavy saucepan over medium heat.

Add the onions and cook until tender - maybe 10 mins...then add the risotto and stir until well coated with the oil mixture.  Add the wine and continue to cook until it is almost completely absorbed.

Next - begin by adding one ladle of the hot chicken broth, stirring frequently until it has been almost completely absorbed before adding more.  Continue to cook the risotto in this manner adding the broth one ladle at a time until the rice cooks.

While the risotto is cooking, heat some more olive oil in a frying pan and add the cauliflower.  Cook over medium low heat adding a tablespoon or two of broth until the cauliflower is tender and just beginning to turn a golden brown.   Remove from the heat.

After cooking the risotto for about 25 mins, should be tender to the bite, stir in the cauliflower and butter. Season with s &p to taste.

Once it is well mixed - serve the risotto into individual bowls, drizzling the top with the truffle oil or a spoonful of truffle butter.  Garnish with shaved cheese and serve immediately.