Stocks tumble amid economic concerns and rising geopolitical tensions, as volatility looms large

• Investors got a chance to reflect on the data and the global mess.

• Short term Bonds are paying you 4.4% & 4.6%, the 10 yr. is now above 4%.

• Oil surges on fears over an Israeli ‘hit’ on Iranian energy assets.

• Gold traders ‘lock in’ profits

• Try the Tuscan Soup.

Stocks rallied hard on Friday and they sold off hard on Monday….the Dow lost 400 pts or 0.95%, the S&P – 55 pts or 0.95%, the Nasdaq gave up 214 pts or 1.2%, the Russell down 20 pts or 0.9%, the Transports lost 32 pts or 0.2% while the Equal Weighted S&P gave up 58 pts or 0.8%.

All this after that much ‘stronger than expected’ September jobs report – you know the one that saw us create 254k jobs when only 150k was expected.  The sell off yesterday being credited to the realization that IF the report is correct then the FED will opt for (or be forced into) a smaller rate cut in November…rather than another ‘jumbo cut’ that many were hoping for and that the market was pricing in. 

You can also point to the mid-east conflict – and the one-year anniversary of that attack – as another reason for markets to be on the edge.  And then look at what happened to bonds, and you quickly realize that a 3-month bill that is paying you 4.6%, or a 6-month bill that is paying you 4.4% suddenly becomes an attractive option for those investors that are becoming a bit more nervous over what’s next.  What’s next for the FED, what’s next for the country and Who is moving into the WH?

The TLT lost 0.75% while the TLH gave back 0.6%...The 2 yr. yield ended the day up 7 bps at 3.99% and the 10 yr. closed up 5 bps to yield 4.025% - just another headwind for stocks as investors lock in those higher rates. Remember – it was just 2 weeks ago when the 10 yr. bond was yielding 3.60%....so yesterday’s close represents an 11.8% jump in the 10 yr. yield moving up and thru resistance at 3.83% and is about to kiss and test the intermediate trendline at 4.07%.  Long term resistance is at 4.16% and if we pierce that – next stop is 4.27%. and if treasury yields go there, then expect stocks to reprice – lower. Capisce?

The market is also concerned about and how much devastation Hurricane Milton is going to inflict on the state of Florida – as its winds are now topping 180 mph – putting it squarely in a Cat 5 bucket. The majority of the west coast of Florida is now within the cone as it is expected to move across central Florida and exit by Jacksonville …Gov DeSantis already called for a state of emergency – urging everyone to get out of the way. And this is only 10 days after Hurricane Helene devastated Ashville, NC.

And that just might be the message that the market is giving as well. October is a volatile month – 35% more volatile than any other month – so if you are not committed or you get anxious, then move out of the way…and if you are committed, then patience will be your saving grace – because my sense is that lower prices are coming…  which doesn’t mean you don’t take advantage of weaker days to add to segments of your portfolio when they happen.

Of the 11 S&P sectors only, Energy closed up by 0.35% while the other 10 sectors declined.  Utilities got clobbered – down 2.3% - which makes some sense, because investors, trader and algo’s took this group higher on the idea that rates were coming down substantially before year end….and apparently that is no longer the case.  But don’t be dismayed – the sector is still up 25.5% ytd…. Behind that – we saw more weakness in Consumer Discretionary – 1.6%, Communications – 1.35% and Financials – down 1.2%. Consumer Staples next – down 1%, Real Estate down 0.75%, Tech down 0.7%, Healthcare down 0.45%, Basic Materials down 0.3% and Industrials – 0.25%,  

The VIX (Fear Index) shot higher by 17.8% to end the day at 22.64 – 30 cts above the closing high on Sept 6th…The VIXY ETF gained 8.7%, and if you bought some as protection like we talked about last week, it would have helped to blunt any declines in your long portfolio.  In fact, all of the contra trades would have helped to blunt any losses…. the DOG + 0.9%, the SH + .9% and the PSQ +1.15%.

Oil marches on….up 3.9% to end the day at $77.29….now up 18% in 7 days…..the catalyst yesterday was the idea that Israel is going to hit Iran’s energy infrastructure….which would threaten to drag other middle-eastern nations into a wider war…..and that would threaten Persian gulf supplies…Recall yesterday I told you that the options market is pricing in $100 oil in November…- which represents a 30% increase from here….and that would make the Saudi’s very happy….Just sayin’. 

Gold lost $6 on Monday – ending the day at $2661…as the idea of smaller rate cuts caused some of the trader types to ring the cash register – locking in some of those substantial gains we have seen in gold over the last couple of months….Gold is up 13.7% since July 1st all on the idea of swiftly moving lower rates….and while we got one jumbo cut, the sense is now that we can expect a 25 bps cut IF we even get a cut at the November meeting….Yes, I said it – get ready, because if the data continues to suggest that inflation is trending lower (which it is) and the job market is not collapsing as some would have you believe, then there is NO reason to cut rates any further.

US futures are once again mixed…. (it is 4 am on the east coast – I just could NOT sleep) …. Dow futures -19 pts, the S&P’s up 2 pts, the Nasdaq up 9 pts while the Russell is down 4 pts. Now I recognize that this could and most likely will change by the time the sun rises – but I’m here now and that is what futures are doing.   

Look, I already told you that the NO rate cut idea has to be back ON the table, while a 50 bps rate cut has to come OFF the table – if the economic data continues to show a resilient labor market and a slowing pace of inflation…Because those are the two FED mandates…..

Now - Do not discount rising geo-political tension as a reason that could re-ignite a ‘Risk Off’ mentality…that would see growth names come under pressure while value names outperform. You see, the Risk Off trade usually causes investors to move into defensive stocks, stocks in industries that produce goods and services that are essential no matter what the economy is doing. Think the Utility sector +25%, Consumer Staples + 12%, Financials + 20%, Energy + 11.5% and Healthcare + 10.7%. But a ‘Risk Off’ trade could also mean everything goes on sale….and if that happens – you just need to make your list and watch for the sectors and the stocks that get unduly punished for no other reason than ‘panic.’ Remember – in a time of panic - people (or institutions) will sell what they can vs. what they should – and trust me, there is a difference.

There is no eco data today that is going to change the tone…tomorrow we’ll get Mortgage Apps (non-event) and the September FOMC mins…. will they tell us something we don’t know?  Nah…. Is it the data on Thursday and Friday that will drive the next part of the narrative? Now, CPI and PPI and both are expected to trend lower….so my guess is THAT isn’t really going to drive the narrative – We are hovering around the 3% level…m/m below while y/y reads remain slightly above, and ‘everyone’ seems to be ok with that. 

But Friday brings us the start of earnings season….and as you know it starts with the Big Banks…and the expectations are generally positive. While NII (net interest income) and loan growth may be lower (recall Jamie’s comments 2 weeks ago), Investment Banking, M&A, credit quality,  and equity underwriting and trading are expected to be higher….JPM kicks it off  - it is up 24% ytd, and a look at the charts suggests that investors/traders and algos reaction could go either way…. My guess is that IF Jamie – blows the roof off (which he always does) the stock will rise, just because there has NOT been a ‘buy the rumor’ chart pattern. (Buy the Rumor/Sell the News) The stock is flat over the past moth…and down off the highs of August…So, that’s my bet. (Now to be fair - I do own it, so I might be my bias as well!). You make your own decisions. Now, should he disappoint then all bets are off. (LOL!)

European markets are all lower…. down between 0.75% and 1% across the board. Overnight – China’s pledge to support their economy did little to excite investors that were hoping for a BAZOOKA…. Recall – last week – the news was all about the massive stimulus…. but upon further examination – investors are disappointed with XiXi’s definition of massive. Analysts are all now saying that the next move for Asian and European markets will be all about the next stimulus package.  

The S&P closed at 5695 – down 55 pts. And that puts us closer to testing last week’s low at 5674…. Which is KEY for investor psyche and algorithmic performance. If we test it and hold then we’re good for another day…but if we test it and fail – then that will trigger a wave of selling that could test trendline support at 5558.  A 2% move lower for the S&P.

Tuscan soup

So delicious and great for the cool fall days….

For this you need – 1 lb. sweet sausage, 4 slices of thick cut bacon, 1 large Vidalia onion, 2 cloves of chopped garlic, about 8 cups of chicken broth, red potatoes – thinly sliced – use a mandolin for the perfect slice.  1 cup of heavy cream and a bag of fresh spinach.  (you can substitute Kale if you like).

Begin by browning the sausage meat in a heavy pot. Season with s&p – once it’s all browned – remove and set aside.

Next in the same pot – crisp up the bacon. When all crisped remove and set aside. If there is a lot of bacon fat – remove most of it leaving only about 2 tblspn in the pot.

 Next add the chopped onion and chopped garlic. Stir until soft – maybe 6 – 8 mins.  

Now – add the chicken broth to the onions and garlic – add back the bacon – bring to a boil – next add the sliced potatoes and cook until fork tender – maybe like 15- or 20-mins max.  

Reduce the heat to med low and add back the sausage and pour in the heavy cream – stir to combine and heat through. Add the spinach right before you’re ready to serve – this way it doesn’t completely wilt and stays bright green.   

Serve immediately. So good.