Investors Got Hit Upside The Head

Investors/traders/algos all got hit upside the head yesterday. Trump, over in Europe for the 70th anniversary of NATO, made some “passing comments” on trade. By now you are well aware it wasn’t well received in the equity markets. Stocks tumbled on the news that Trump is in “no rush” to make a deal with China and that it may be better to wait until after the 2020 election, suggesting that the Dec. 15 D-Day is in jeopardy. Was the Phase One conversation alive and well or was it DOA?

The reaction by algos was “shoot first, ask questions later” and stocks fell out of bed. At one point seeing the Dow down by nearly 500 pts or 2%, while the S&P gave up 40 pts or 1.2% by 10 am, Nasdaq taking it on the chin, falling 110 pts or 1.3% by 10 am, as the headline was dissected and digested. But stocks found support at the lows as talk of “more of the same” began to permeate the street, leaving investors to consider whether or not this was just another Trump tactic to draw the Chinese to the table.  By the end of the day, stocks rallied well off their intraday lows (was something brewing?) but still ending in negative territory.

The Dow gave up 280 points, the S&P lost 20 points, the Nasdaq fell by 47 points, and the Russell lost 4 points.

And then they put Wilbur Ross on TV to try and soothe investor angst, saying that “Trump would be willing to leave tariffs in effect if he doesn’t get the deal he wants,” adding that “NO” high level talks were scheduled. Remember that the US is due to impose additional tariffs on China on the 15th. This is in addition to the latest news out of Europe where Trump suggested hitting France with 100% tariffs on some of their products as well as imposing tariffs on imported European automobiles. Moving to South America, as if all of this wasn’t enough, Trump announces steel tariffs on Brazil and Argentina. So in terms of trade, it was NOT a good day and both European and US stocks reacted as expected; they fell.  And that was the story. Period. (But stocks did rally into the bell, interestingly enough)

And this morning, guess what? YUP, Bloomberg runs with the headline.

“US, China Move Closer to Trade Deal Despite Heated Rhetoric – Negotiators Getting Closer on Amount of Tariff Relief; Trumps Comments Not Indicative of Talks Falling Apart”

US futures which were lower in the early hours suddenly did what? Dow futures which were down 100 points spiked higher on that headline moving up from -100 points to +125 points in several minutes. The S&P went from -10 to +12 as hope is alive! People (not identified) said that Donny’s comments yesterday should NOT be understood to mean that talks had failed; “he was speaking off the cuff.” Really? Then someone should shove a sock in his mouth and while they are at it, Wilbur’s too. (I mean he said that there were NO high level talks scheduled, which apparently was not true) US negotiators, that would be Stevey and Bobby, said that they expect a Phase One trade deal to completed before the Dec. 15 deadline. Although no one from either office chose to respond to request for comments.

So what is the lesson? Stay the course. While the trade headlines cause angst and emotional reactions, stocks ultimately trade on fundamentals and NOT geo-political headlines. And remember, we are 23 months into this, with headlines that have continued to confuse global investors. Yet in the end, the markets focus on what matters: earnings, revenues, and profits.

The move lower yesterday did shake the branches a bit and cause some of the weaker, non-committed traders to jump ship and that will prove to be a mistake. The XLI (Industrials) lost 1%, XLK (Tech) lost 0.9%, XLF (financials) lost 1.4%, XRT (retail) gave up 1.3%. And that makes sense. Take money out of sectors that will get hit the hardest. Now look, if the Phase One deal gets done, expect the markets to take back all of the recent losses. If we don’t get a deal this year, then expect that stocks could get hit with another 2% – 3% move lower, with those sectors getting hit a bit harder. And even if that happens, the move off the highs (3151 on the S&P) would only be 4.7%, hardly anything to write home about. In the end, the lesson is clear: do your homework, stay the course, and take advantage of the outsized moves that create opportunity.

Asian markets which did not have a chance to react to Trump’s comments yesterday (because they had already closed) did move lower overnight. This does not make sense considering the latest Bloomberg headline. But it was the same story: profit taking ahead of “who knows.” Australian GDP showed that that economy grew at 1.7%, which is below the long run average. That sent the algos into SELL mode. The ASX lost 1.5%. The rest of Asia was responding to trade headlines, which by now we know do nothing but create angst and opportunity.

Japan -1.05%, Hong Kong – 1.25%, China -0.03%, and China closing nearly unchanged (Capisce?).

European markets greeted the day with excitement over trade and the end of the NATO meeting. Economic data in Europe includes Italian composite PMI, Germany, France, and Eurozone Services PMI figures. And while Trump re-iterated the fact that he has “no deadline” for striking a deal, the market is apparently ignoring this latest commentary. Focus is on trade. Period.

FTSE +0.27%, CAC 40 +1.23%, DAX + 1%, EUROSTOXX +1.23%, SPAIN +1.17% AND ITALY +1%.

US futures are up, taking back half of what they lost yesterday as of 6:40 am. If the US mimics what is happening in Europe, then we can expect the Dow, S&P, Nasdaq, and Russell to be up anywhere from 0.75% – 1.5% as excitement over the possibility of a trade deal controls the conversation. In the end, we have only this week and next for any real move in the markets, as it gets very quiet beginning mid-month…

As noted, the S&P ran into resistance at the 3150 level, tested the 3095 level where it failed, leaving it in the 3030/3125 range. Again, if we get no deal by next week, expect the market to back off somewhere between 2% – 3%. Time to keep your powder dry to take advantage any outsized move created by the algos.

Economic data today includes Mortgage Apps, ADP Employment – exp of +135k, Markit US Services PMI – exp of 51.6 and the ISM Non-Manufacturing (Services) PMI exp of 54.5. Both SOLID numbers.

Oil is up 1.6% ahead of the OPEC and OPEC + meetings tomorrow in Vienna, Austria. Expectations are for them to approve continued production “curbs” the real question is will they approve additional production “cuts?” Iraq’s oil minister, Thamer Ghadhban, has made it clear that deeper cuts are preferred by the “KEY” member states. The API (American Petroleum Institute) reported that crude stockpiles fell by 3.7 million barrels, more than double the expected 1.7 million barrels which is also helping the mood.

Take good care.

Kp


stuffed calamari

Feast of the 7 Fishes – #2 – Stuffed Calamari

This is outstanding… you have to like Calamari because this one is a bit of work… but the result – to die for.

For this you need: Calamari bodies for stuffing – so you want the big ones… (You don’t need or use the tentacles so just specify “bodies for stuffing”), homemade Italian style breadcrumbs (recipe below), wine, olive oil, toothpicks, homemade marinara sauce (same as the lobster sauce w/out the lobster.) s&p.

So here is the deal – you order the calamari from the fish store – “cleaned.” This means that they trim the tentacles, and take out the membrane from the inside… but here is reality… you still to make sure that they are clean – so when you get home – you need to wash them and confirm that the membrane was in fact taken out. If not – you have to turn the calamari inside out – and then rinse well and then turn it back again – this is the trick… you have to be very careful as you do not want to rip the body otherwise, you cannot stuff him. Capisce?

Now take a bowl of breadcrumbs – add enough olive oil to make them moist but not “wet,” now add a splash of your favorite white wine – not a chardonnay. Mix well. Can you make a ball with the breadcrumbs? Do they hold in place? Perfect.

Now – carefully stuff the calamari using a teaspoon and your index finger… careful not to overstuff as they will explode in the sauce when you cook them. You need stuff them just enough so that you can pin them closed with a toothpick… Repeat until you have stuffed all of the calamari… (I usually cook about 6 lbs of them on Christmas Eve so it takes a couple of hours to clean, stuff and cook)

Once you have stuffed them – drop them into the marinara sauce that you have prepared and turn the heat to simmer – DO NOT BOIL the calamari!

They will begin to plump up and turn white then take on the color of the sauce. They will cook in all of about 30 minutes (max). Turn heat off and let rest.

Again – you should make this the day before and let it sit overnight. The next day – take it out of fridge and let warm up to room temp and then heat up on simmer. When you are ready to eat them – serve them in a large bowl with plenty of tomato sauce. You can also make this and serve it over linguine if you prefer. The other option – if you make both the lobster and calamari sauce – then mix a couple of ladles of each and serve that over the linguine…

Buon Appetito.

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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