Markets under pressure: Exhaustion, rising yields, and bond vigilante take a stand

• Stocks, bonds, Gold all trade lower.

• Yields kiss 4.25%.

• The VIX trades 5% higher.

• Earnings and Eco data send mixed signals.

• Try the Pappardelle Walnut/Basil/Burrata Pesto.

“Oh no Toto – I have a a feeling we are NOT in Kansas anymore” – Dorothy Gale – 1939.

Remember what I told you yesterday…. THE MARKET IS EXHAUSTED. Exhaustion caused by the election, geo-politics, the fed, monetary policy…do I need to go on

Stocks sold off! Markets under pressure, Gold under pressure, bonds under pressure as yields surge. The Dow lost 410 pts or 1%, The S&P lost 54 pts or 0.9% and broke 5800, the Nasdaq gave up 300 pts or 1.6%, the Russell gave up 18 pts or 0.8%, the Transports lost 162 pts or 1% while the Equal Weight S&P only lost 25 pts or 0.4%.

Gold fell $31 or 1.15% as bond yields continued to surge and traders took advantage of the rally that took gold to a new all-time high…..Now, technically – the charts also say it was a ‘bit overdone’ -as its RSI (Relative Strength Index) revealed it was in ‘overbought territory’. It ended the day at $2730 down $40 and this morning is seeing just a bit of a rebound – up $20 at $2750 – all this as investors prepare for another day.

Expect gold to continue to thrash around until we get more clarity……recognizing that a nothing done in November will put pressure on the precious metal…. A sell off would take gold to $2700 with no problem…but if you are a technical trader – then trendline support is at $2620.  Recall, last week I had identified $2750 ish as the level to watch on the upside…. I still think $2750 will prove to be resistance.

Bonds extended their recent losses after investors are now recognizing that the FED will take a more ‘measured approach’ to rate easing. The TLT and TLH both down about 0.3% leaving the TLT down 9% in just the last month while the TLH has lost 7.5%....10 yr. yields ended the day on the high at 4.245% - just 6 bps aways from that 4.3% level that I identified last week.  Now – while bonds have fallen by 7% – 9% over the past month – bond yields have risen by 17% during that same time period and this will eventually take a toll on investor excitement. Yields have now torn thru all 3 trendlines, trendlines that represented resistance have not become supports…and a look at the charts suggests that there is more upside for yields, which means more downside for bonds and stocks.

While earnings have kept up their pace of beats – yesterday 84% of the reports beat on the top and bottom lines…. (34 of 41 beats while 7 missed) that did little to prevent the algo’s from hitting the SELL button as they lock in profits from the recent rally to new all-time highs.

Eco data – yeah, that didn’t help…. The FED’s Beige Book showing declining activity around the country while Existing home sales that were expected to be UP 0.5% were down 1%. Mortgage apps which fell 17% last week were down another 7% yesterday…this as mortgage rates are CLIMBING leaving home buyers in limbo….

Now, remember when mortgage rates fell in anticipation of FED rate cuts…going from nearly 8% to 6.5%....on the idea of cuts….well, those same mortgage rates have started to tick back UP even as JJ tells us that the rate cutting cycle is still alive and well. The rise in mortgage rates causing buyers to step back. …. Hmmmm…something is amiss….and this is where the bond market ‘vigilantes’ take a stand… 

You see, bond mkt vigilantes are traders/investors that SELL bonds to protest the policies of the issuer – in this case the US gov’t/Federal Reserve.  What that usually suggests is that bond investors are NOT BUYING what the FED is SELLING….the FED says rates are going down and bond mkt investors say – ‘Not so fast Big Boy, the data does not support lower rates…’ and so the fight goes on…in any event….yields are UP, bonds and stocks are down…..No matter what JJ tells us. And we haven’t even discussed the clown show known as the Presidential election.

Oil keeps trading around the trendline at $70.69…. - yesterday it traded as low as $70.13 and as high as $71.35 as investors try to sort it all out.  It’s the same story – rising crude stockpiles, demand that is waning one day only to rise the next, the ongoing conflict in the middle-east that does not appear to be anywhere near a settlement and the Saudi’s reporting that their export revenues keep falling…….causing daily machinations in the oil field. 

Today oil is up $1.50 or 2% at $72.40…. Why? Because they are back focusing on that ‘retaliatory strike by Israel on Iran’ – you know, the one that has been coming for nearly 3 weeks now all while the US keeps pushing for Benny and the Ayatollah to agree on a cease-fire. Tony Blinken (you know him, right?  The Secretary of State) is in Riyadh having lunch with the Crown Prince trying to build support for that ceasefire.  Traders in the oil field are holding a record number of options contracts that ‘hedge against a spike in prices’ – just in case this spins more out of control than it already is and that is indicative of what ‘they’ think the next move is….

This morning US futures are mixed…. Dow futures down 50 pts, S&P’s up 25, the Nasdaq +150 (thank Lonnie Musk and TSLA), while the Russell is up 16 pts.

Last night after the bell, TSLA surprised to the upside while IBM disappointed a bit…. yet the market wants to be positive, so it is focused on TSLA and what that says about the earnings next week…

Earnings today include DOW, CBRE, UPS, DAR, KKR, NDAQ, VLO, NOC, AAL, WST, LUV, HAS and the list goes on…. already we have 4 beats, and the sky is still dark.

The S&P closed at 5797 – down 53 pts…. Futures are up this morning…. some of that a direct result of the pullback we saw yesterday…. causing investors with cash to invest to jump in…. To that I say, ok, but go easy…. No need to rush.  Make sure you have a plan…and then stick to it.   

Trendline support is at 5670 – down 2% from here…. hardly anything to get nervous about…. 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. 

Many will say that the market is telling us that it thinks Donny is in the lead, the betting markets are saying that he is in the lead, all while the MSM polls are telling us that it is neck and neck as MSNBC, the View, CNN and Barbara Streisand have daily meltdowns over what a Trump presidency might look like.  Don’t ‘we know what that will look like?  Wasn’t’ he already President? Or was I living somewhere else?  In any event – it is what it is.

Do not go changing your portfolio based on who will live in the WH…. politics do not price stocks in the long term – although it can and does create short term chaos and long-term opportunity.  Let me remind you what Bill Clinton told George Bush in 1992 when he was running for President…… ‘This election is about the economy, stupid’ – It is not any more complicated than that.

The S&P closed at 5797 – down 53 pts…. Futures are up this morning…. some of that a direct result of the pullback we saw yesterday…. causing investors with cash to invest to jump in…. To that I say, ok, but go easy…. No need to rush.  Make sure you have a plan…and then stick to it.    

Trendline support is at 5670 – down 2% from here…. hardly anything to get nervous about…. 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. 

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…  ….it does though create short term chaos, which creates long term opportunity.

Burrata/walnut pesto

MMM…so good.

For this you need:  Basil, walnuts, garlic, Burrata cheese, Parmegiana cheese, s&p, Olive oil and some of the pasta water.  You also need Pappardelle pasta.

Bring a pot of salted water to a rolling boil and put it on the back burner.  Add the pasta.  Cook for 8 mins.

In a blender – add the basil, the walnuts, olive oil, garlic, s&p, and the burrata cheese.  Blend.  Now add in a ladle of the pasta water. 

When the pasta is done – strain, reserving a mugful of the pasta water. 

Heat up a large sauté pan, add the pasta and a bit of the pasta water…Turn the heat off and now add the Walnut pesto…. Stir to coat. Dust with the parmegiana.  If you need a bit more water – add now.  Serve immediately in warmed bowls.