Rotation drives SMID and transports to all-time highs, tech takes a backseat

• Stocks pulled a fast one…SMIDS and Transports hit all-time highs.

• The big rotation continues….

• Oil struggles, but GOLD enters a new century!

• 10 yr. bond yields remain above 4%.

• JoJo forgives another $4.7 billion of student debt and shifts the burden to us.

• Try the Fried Chicken Cutlet – an Italian staple.

**I am on my way to Orlando to speak at the Money Show today and tomorrow. Next week I am in NYC all week – coming to you live from the Big Apple. Reach out, say hello…. Stay focused, stick to your plan. **

Ok – so maybe we weren’t ready for that pullback that I keep saying is going to happen…. while one day does not make a trend – we can always hope!  Stocks bucked the Tuesday selloff ending the day higher once again…  SMIDS (Small Cap/Mid-Caps) and Transports surging now as investors/traders and algo’s drive the rotation out of the ‘sexy’ names that have done much of the work into other corners of the market… – taking both those groups to all-time highs….I mean you can’t make this up….It is what it is -which once again just reminds us that you ‘gotta be in it to win it’!

The Dow added 338 pts or 0.8%, the S&P +22 pts or 0.5%, The Nasdaq added 52 pts or 0.3%, the Russell gained 37 pts or 1.7%, while the Transports added 315 pts or 2% and the Equal Weight S&P added 49 pts or 0.6%.  Now, notice what happened…. the Equal Weight index - where every stock in it carries the same weight vs. the S&P that is defined by market capitalization which favors the mega boys - was up 0.7% vs. the S&P which was up only 0.5%....and that tells you that money is going to other places – Capisce?

Now the SMIDs are very US economically sensitive companies – sensitive to interest rates and clearly sensitive to what is happening at home (think little to no international exposure). 

Transports are also ‘sensitive’ to the state of our union as well….it speaks to how much we are ‘transporting’ around the nation…and apparently, we are transporting a lot – as this sector continues to just crush it.  The IYT – iShares Transportation ETF up 1.5% for the day is now up 10.5% ytd – as it makes a new ALL time high, not a 52-week high, but rather and ALL time high.  That’s been happening under the sheets, not a lot of people have had that on their radar – partly because their transportation names – there isn’t anything ‘exciting’ about them…. I mean CSX, UNP, ODFL, NSC, UBER (I mean really, is it ‘exciting’ to get in an UBER?). But it is what it is and that is why you also need a well-diversified portfolio…. you can’t forget these guys…. they power the economy, and they speak to the overall health of it as well.

In the end – long term investors are looking to either ‘rotate out of’ the overcrowded trade (think mega tech) or at least not put more money to work in the sector as they see new opportunities all around them.  Remember, by putting new money to work in other sectors, you automatically ‘rebalance’ the weightings in the portfolio.  So, I for one am NOT selling my tech names (AAPL, AMZN, MSFT, IBM, NVDA……) but I am adding new money into the value trade (SPYV) as well as Energy, Consumer Staples, Aerospace & Defense (think widespread global unrest) and those SMID’s!   

And who else had a great day?  Utilities – XLU +2%.... now up 30% ytd…. think about that – Utilities! (I think ‘boring’ when I hear someone say Utilities – but boring is GOOD!).  Financials also jumped by 1.25%, Real Estate +1% and all of these moves tied directly to what the market is expecting on interest rates…Each of these sectors is more reactive to the direction of rates…and these groups continue to say that rates are going lower….

Basic Materials and Industrials both up 0.8%, Consumer Discretionary & Energy +0.5%, Tech added 0.3% (see – no excitement there), Healthcare +0.3%, with Consumer Staples and Communications both lost less than 0.1%. 

Now for all of your guys that got unnerved by Tuesday’s NVDA performance and sold stock – you acted to soon – although the guys who bought it when it was down 7% made out well…….NVDA took back 3.1% of the 4.6% it lost on Tuesday….all while investors are still raging mad at ASML – which lost another 6% - taking its 2 day losses to 22%!  Ouch…. but I have to say – I think it is a buying opportunity…. the largest European Tech name is on SALE – now down 35% off the June high…. – Yeah, the guidance was weaker than many expected but for me – the STORY has not changed concerning their role in the whole AI/Tech space at all…they are a KEY player…

You have to look at it on the chart…..you want to see it hold the September – December 2023 lows of $580/$620….it closed last night at $683…so while I like it, I am willing to wait a bit longer to see if it does what I think it should do…..So as you say -It is on my BUY list….but after the move it made in 2 days….you have to give it some time to settle down….It’s still a bit sore…let it heal.

Ok – let’s move on…. Eco data…Mortgage apps fell by 17 % (it is that time of year – let’s be honest), and NY Fed Services Business Activity also fell by 2.2%.

Today brings us Retail Sales – and that will be one of today’s catalysts…. They are expected to be up so let’s see.  Philly Fed Business Survey is also expected to be up as well. Industrial Production and Capacity Utilization both a bit lower.

And the Earnings calendar – MTB (beat), ELV (missed), TFC (beat), while we wait for TRV, MMC, KEY, BX all before the bell, while after the bell – we will hear from NFLX, WAL, CCK. 

Bonds rallied a bit – the TLT and TLH up 0.4% and 0.2% and that sent yields down just a bit…the 2 yr. is now yielding 3.94% while the 10 yr. is at 4.03%.... shorter duration 3 month and 6-month notes are yielding 4.6% and 4.43% respectively…. (annualized).

Oil is trying desperately to hold onto $70 – after trading down to $69.70 yesterday before closing at $70.30. This morning it is up 0.40 at $70.70…. Now look, we all know the issues that have been causing oil to spike and then retreat….and again today the oil BEARS are playing out this story…..the global supply glut is going to worsen – oil producers lack restraint – supply will overwhelm demand (or so they think…..).

My gut tells me that the ongoing wars in the middle-east and Russia/Ukraine as well as massive demands for energy and electrification along with a US and global economy that appears to be firing on all cylinders will continue to support oil and energy prices in the years ahead….Fossil fuels are not going anywhere…and if Donny gets elected – the US will once again become the ‘swing producer’….the Saudi’s will stamp their feet and unleash supply on the markets and that will give us an opportunity to RE-STOCK the SPR (Strategic Petroleum Reserve) at lower prices….lower prices will stoke demand…

Let’s be honest – this isn’t COVID 2.0 nor is it the GFC 2.0… Elected leaders are not shutting down the economy and right now – China is not unleashing a new virus on the world…although THAT could change! And if that does happen, then this conversation goes out the window!  Energy is the underperformer this year +7.6% - way behind the other 10 sectors… We are now in the $65/$72 trading range…. September support/Trendline resistance.

Gold – BOOM!  We are now officially in a new century…. Gold is up $12 at $2703… This as gold bugs flock to the commodity as a safe haven trade as the US Presidential election is now only weeks away while ongoing eco data and earnings add to the story.   Last night’s Bret Baier interview of Kamala Harris adding to the surge in gold….he was tough on her, asked her direct questions which she avoided while snapping back accusing all or our ills on Donny…She turned every question into a Donny issue…Everything is Donny’s fault – and considering that the Dems have had control of the place for 12 of the last 16 yrs. – it is hard for anyone with any commonsense to agree with her…but let’s not go there. Gold is surging higher today on a move into the safety zone.  Upside?  $2750 ish according to the trendline….

This morning US futures continue to churn near the top….…. Dow futures are -23, S&P’s + 22, Nasdaq up 160 pts and the Russell is down 2 pts…

European markets are all higher…. France in the lead up 1.2%, Italy in second place +1.1%, Euro-Stoxx +0.9%, Germany +0.75%, the UK +0.4% while Spain is flat.  The ECB is expected to cut rates again today…the 3rd time this year….as inflation risks across the continent ease…Inflation cooled to 1.8% - now below the 2% target….

The S&P closed at 5842 – up 28 pts.  This morning, we learned that the Bidens just cancelled another $4.7 billion worth of student debt….  I am just not sure how this happens…the Supreme Court of the US said that it is illegal…. unconstitutional in fact – yet he continues to defy their guidance with the assistance of the democratic party – I mean have you heard a single one of them argue against this move?  Just one? I didn’t think so….…and let’s be clear – nothing is cancelled – it is just shifted to you and me. 

In the end though, as a long-term investor – I am happy to discuss your concerns. 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…

Fried chicken cutlets – Italian style

These are a basic in any Italian home…. you can always find them tucked away in the fridge because you never know who will know at the door and you want to be prepared….

First you need Italian seasoned breadcrumbs. But don’t buy the ones in the supermarket…. Make your own.  For this you need

Fresh hamburger buns, Fresh grated parmegiana and Romano cheeses, onion powder, garlic powder, s&p and parsley. 

Put the buns in the food processor and chop…. add to a large mixing bowl.  Now add the cheeses, and all the spices.   Go slow on the salt – because the cheese adds salt – capisce?  Now mix well and then smell them……are they cheesy enough? Can you smell the spices?  MMMM….

Now you need 5 scrambled eggs, flour, thin sliced chicken cutlets (if you can’t get them, then pound the regular cutlet with a meat cleaver), the breadcrumbs that you just made and the olive oil. 

Make an assembly line- flour, eggs, and then the breadcrumbs.  Dredge the cutlet in the flour, add to the eggs and then dredge the cutlet in the breadcrumbs.   Once you have 3 or 4 of them – heat up the olive oil in the frying pan…. add the cutlets to the frying pan (med hi).  While they are cooking finish making the cutlets. 

Once one side is crispy, flip the cutlet and cook the other side until crispy.  Remove and set on a plate with a paper towel.  Once they are cooled – you can just pick it up and eat it…. or make a chicken cutlet sandwich with roasted peppers, mozzarella, lettuce on two toasted slices of Italian bread…there are so many ways to eat this staple dish…enjoy.