Volatility continues amid confusion: Stocks struggle, treasury auction weak, and recession fears grow

• Stocks remain confused.

• 10 Yr. Treasury auction was weak.

• Markets need to repair the damage caused by Monday’s action.

• Bond yields up, Oil and Gold flat.

• Try the Mussels from Trieste.

“Dead cat bounce”

Recall what I said yesterday…. the rally back on Tuesday was just that…. a Dead Cat Bounce…. is defined as a short term increase in the price of a declining asset. 

They rallied them hard on Tuesday morning (after the debacle on Monday) only to sell them off into the bell – leaving them in positive territory but still off of the day’s highs.  And then again yesterday, the tried to rally them hard on the opening – taking them to the day’s highs by 10 am….and then the rally started to fail….and then we got a much weaker $42 billion sale on 10 yr. treasuries – that drove the yield to 3.954%.  The bid to cover ratio - which measures demand – fell to 2.32 – well below the average of 2.53 x’s demand was weak from both Direct and Indirect bidders.

Direct bidders submit bids directly to the treasury without using a broker – these bidders include smaller banks, large investment funds and other funds that have direct treasury accounts and this was below average while indirect bidders –  are bidders that use a broker to submit bids - includes global central banks, hedge funds, mutual funds, foreign sovereign funds, and other institutional investors was lower as well. 

And this weakness speaks to the volume of treasuries that Janet has to bring to the markets to support the massive deficit…. the more she brings, the lower the prices go and the higher the yields will go.  Lower prices in the treasury market only means that investors are demanding higher yields for their money.

All of this – coupled with the technical damage done on Monday and the JPM revision to the chances of a recession by year end.  They now think we have a 35% chance of a year-end recession up from a 25% chance. And all of this data left the markets lower.  The Dow fell 235 pts or 0.6%, the S&P lost 40 pts or 0.8%, the Nasdaq gave up 171 pts or 1%, the Russell gave up 30 pts or 1.40%, the Trans lost 152 pts or 1. % and the Equal Weight S&P fell 21 pts or 0.8%. 

The events this week have shaken investors and the markets and shows how technology, and emotions can dominate the action. And stocks remain vulnerable – we need to see more evidence that a bottom is building, that stocks have found a floor and I am not sure we found it yet….I don’t’ want to sound like a broken record, but there are a lot of things going on right now….

We are in the ‘seasonally weak time frame (Aug – Oct), we have a Mid-East that is about to explode, we have a very divisive Presidential election, with Kammy defining her campaign as “Joyful Warriors’ vs. the Trump campaign that she defines is full of ‘anger and grievance’ .  Hmmmm – not sure about you, but I wonder what Xi Xi, Vlad, Chubby (Kim Jung Un) and the Ayatollah think about the “Joyful Warriors.

We have a building recession, we have some that think the FED has lost its way, we have Janet that needs to bring massive amounts of debt to the treasury market and we have blue chip corporations also fighting to bring debt to the markets – $31 billion yesterday – and that debt carries a higher yield than treasuries….which presents an issue for Janet and future treasury yields.

We have countries around the world that are also struggling to find their way with interest rates – many also now in a cutting mode – leaving investors to ask why?  Is it because of a weakening economy or is it really because of a strong economy?  Because that is also the question here….and after Monday’s retreat and then a call for an ‘emergency rate cut’ (the very word EMERGENCY creating even more angst) by some well know names – We are left wondering whether or not our economy is going down the drain.  And cutting rates for that reason is very different than cutting rates because our economy remains strong, and inflation has subsided.

And all of this leaves the markets in a state of confusion…and when that happens the path of least resistance is always lower…. Because the market remains erratic when the future path is unclear, but when there is more clarity (good or bad) the market functions better. 

Ok – So far – none of the indexes have breached the ‘oversold line’ on the Relative Strength scale…..they are all sitting just a hair above that it, which leaves us vulnerable to more downside pressure, pressure that many analysts think ends with the S&P testing the Long term Trendline – which right now is at 5020.  Other think Monday’s low of 5119 could be the level.  Whatever it is, it is….so prepare yourself for more volatility. 

Eco data today includes Initial Jobless Claims – expected to be 249k up from 240k last week. Cont. Claims of 1.871 mill down from 1.877 million.  Next week brings us the July CPI and PPI along with Retail Sales.

Oil is trading at $75.10 - and Gold is trading at $2442…nothing major for either commodity.

European markets are weaker this morning.   All indexes down about 1%.  It is the same story….in Europe as it here…. lack of clarity and broken technical that leave investors searching for more. 

US futures are mixed…. Dow futures down 90, the S&P down 3, the Nasdaq up 15 and the Russell is down 6.  LLY – just reported and ‘blew past the estimates and hikes the guidance as Zepbound and Mounjaro sales soar”. 

The S&P closed at 5,199 – down 40 pts. Stay tuned – the chaos is not over……the recent moves are a stark reminder of how quickly it can all change.

Mussels Trieste style

Trieste is a seaport in the Northeastern part of Italy on the Gulf of Trieste.... - way at the top. It borders the Adriatic Sea on one side, the country of Slovenia to the north...its history and culture have been impacted by Austrian, Hungarian, German, and Latin influences.  It is the capital of one of the 20 regions in Italy - Friuli-Venezia Giulia.  At one point it was the 4th largest city of the Austro-Hungarian empire and was known for its contribution to literature and music.  After WW 1 and the collapse of the Austro-Hungarian empire - Trieste partnered up with Italy....and today is capital to one of the richest regions in that country.

Mussels prepared Trieste style are easy to make and easy to eat.   You need:   Mussels....2 doz... thoroughly washed off any sand.  White wine, Clam juice, garlic, slice onion, olive oil, s&p, Fresh Bay Leaves and Toasted Italian seasoned breadcrumbs.

In a pot - heat the olive oil and sauté the garlic, add the onion, and continue to sauté. - do not burn.

Add 1 1/2 c of dry white wine - nothing fruity - stir and let come to a boil.

Add the small bottle of clam juice and fresh bay leaves.  Season with s&p. Turn heat down to simmer.  Now add the mussels to the pot and cover tightly.  Cook until the shells open - should be maybe 5 to 8 mins more.... Discard any mussel that refuses to open.  Now add a couple of handfuls of seasoned breadcrumbs and toss well so that the breadcrumbs mix with the wine and juice to create a thickened sauce.... You do not want too many breadcrumbs - so add one handful and then decide...depends on the quantity of mussels you are making...capisce?

Again - set the outdoor table with place mats, linen napkins, and wine glasses.  - Hopefully there is a full moon to help set the mood.    Present this dish in a large bowl with the mussels bathing in the sauce.  This dish demands toasted garlic bread to dip in the sauce while you feast on the mussels.  Serve this with chilled white wine - maybe a Fallenghina works for you.