Markets are discounting the angst

Stocks began Monday weaker, following in the footsteps of Asia and Europe as those markets began the week in the RED. The S&P falling 20 points on the opening trade, testing the 3214 level, right smack in the middle of the range where I have been saying stocks should find support. In fact, In yesterday’s note I said:

“…as the rhetoric continues to create angst and the headlines remain concerning. The path of least resistance is lower… (I still think we find support in the 3200/3225 range).”

Bingo!

And the path of least resistance was lower, until it wasn’t. The lows of the day were the opening trades of the day for three of the indexes, and then cooler heads prevailed and even though the rhetoric remained a bit elevated. Investors are not convinced just yet that this will spin out of control, at least not yet.

By the end of the day, we went from RED to GREEN, with the Dow up 68 points, or a 285-point swing from low to high. The S&P added 11 points, or a 32-point swing from low to high. The Nasdaq ended up 50 points, experiencing a 128-point swing from low to high. The Russell closed up 2 points, having an 18-point swing from low to high. It was all very dramatic, especially as you have every analyst/strategist opining on the outcome of this latest crisis, while we heard from a list of ally countries calling for restraint. So let’s see how this unfolds. Will cooler political heads prevail or not?

Gold and Oil back off

And as you might expect, we saw Gold retreat from the early morning highs of $1590 to close up $15 at $1567, still UP but off its high of the day while Oil fell 20 cents to $62.85/barrel. Now don’t be fooled, while this is all fairly good news, let’s not discount the most recent FED action. They are pumping money into this market “like nobody’s business,” but this is a whole other story for sure. The balance sheet is approaching and about to eclipse the highs of the GFC (Great Financial Crisis), yet NO ONE is talking about this. Currently we are at $4.2 trillion, as the FED has added nearly $400 billion in the last quarter to keep the credit markets calm bringing the total balance sheet close to the $4.5 trillion seen at the height of the GFC, clearly why the market just doesn’t go down! Don’t fight the FED. The issue will be what happens when they STOP??? Oh boy, do we really want to discuss that NOW? (We could talk for hours about what is going on.)

This morning and overnight we have seen a rebound in the global markets, as the fears about escalating tensions in the middle east subside. Now, just so that you don’t get too comfortable. The markets were roiled just as the Europeans were getting ready to ring their bell for the opening trades.

A news headline featuring the newest Iranian talking head, Ali Shamkhani, head of Iran’s national security council, was quoted as saying that they (Iran) continue to assess the appropriate response to the killing of Soleimani, citing 13 possible scenarios of which even the weakest of those options “would be an historic nightmare for the US.” This did cause US futures to back off, for just a bit, once again suggesting nervousness, only to recover and trend higher after a couple of minutes. But do not misinterpret this latest rebound, the geo-political situation remains tense. The next headline could once again raise the temperature in the room causing global markets to come under pressure swiftly. Security at US embassies across the region have been tightened in anticipation of any kind of retaliation. So let’s move on. You get the picture.

As expected, Treasuries, Gold and Oil halt their moves higher as investors take some profits off the table as the level of tension subsides…

Asian markets jumped overnight and are jumping this morning as investors turn to fundamentals versus politics, after the recent selloff has created new opportunities. Most sectors were up but Tech leading the way.

Japan +1.6%, Hong Kong +0.34%, and China +0.75%, ASX +1.35%.

European markets are decidedly higher. Spanish Socialist leader Pedro Sanchez is now expected to gain enough support in Parliament to form a left wing government. Additionally, look for December inflation figures out of Switzerland, Italy, and the whole Eurozone. Look for November retail sales figures for the Eurozone as well. While these macro data figures are important, none of them are expected to be out of line. And while it appears that things are calming down, tread lightly. As I said on Monday, you have to let this play out a bit, before you make any significant decisions. Otherwise, stick to the plan. Remember, geo-political decisions do not in the long run price stocks.

US futures action suggests a mixed opening. Dow futures are lower by 10 points, S&Ps are flat, Nasdaq futures are up 25 points and the Russell is flat. Economic data yesterday showed that US Markit Services PMI was better than expected (that’s good) at 52.8 vs. exp of 52.2 and today’s economic data includes:  ISM Non-manufacturing (Services) PMI – exp of 54.5 (expansionary). Factory orders of -0.8%, Durable goods of -2% (not so good, but not unexpected). Remember, Friday’s big number – Non Farm Payroll – exp +160k will keep the economists on the edge of their seats as they opine on the health of the US economy.

The S&P has now tested the 3200/3225 range for two days in row and found plenty of support. Long term investors are not shy about putting money to work in a nervous market, taking advantage of mispricing due to mindless algorithmic behavior. While the rhetoric is calmer today than yesterday, remember it is just the NEXT headline that can change the tone dramatically. That headline can go in either direction. While we don’t expect any real positive headline right now, the risk remains to the downside. So just stay the course. We are solidly in the 3200/3250 trading range with support found in the 3200/3225 range. Remember, the markets today are driven by supposedly “smart algos” (we can debate that too for most of the day), so the moves can be swift. BUT, there is plenty of support for equities, this is not a time to abandon the plan.

Oil is off 50 cents a barrel at $62.78, down nearly 4% from the most recent high of $64.72 as the tone subsides. Expect oil to remain a bit erratic as this story unfolds and speculation builds over what the next move is for the Iranians. Recall, I still do not think this spike lasts. As a trader, I love the volatility. But as an investor, I suspect we will see oil come back to the $60/$62 range. Continued talk of threats and retaliation will keep oil on edge, but not to worry, the world is awash in oil.

Gold remains in line, hovering at $1569/oz. On Monday I suggested that gold would test the September highs of $1570/oz. it did and it pierced it momentarily only to fall back. As long as the rhetoric remains less charged, then I expect gold to trade in the $1530/1570 range.

Take good care

Kp


Pasta Faggioli

Pasta Faggioli (Pasta and Beans)

So I’m featuring this classic recipe today because one of my readers mentioned it yesterday… and I love this dish… so easy to make and so good for you…

This was always considered a peasant dish – although you would never know it by the prices on the menu – today it is featured as a “specialty dish” – so pay attention and you can make this classic Sicilian dish your own…

It is a great healthy vegetarian dish and you can make it GF (gluten free) so that all can enjoy. It is full of protein, fiber and low in calories.

In a saucepan – Olive oil – 2 tablespoons – heat. Add 1 clove of crush garlic, finely chopped (1) onion, (2) celery stalks and (2) Lg carrots – sauté until tender – about 15 min or so. When soft add 1 can of cannelloni beans, one can of crushed plum tomatoes, s&p, and 3 cans of water. Bring to a boil… then reduce heat to simmer and cook uncovered for 20 mins… you may have to add a bit more water to keep it a bit soupy.

In separate pot – boil a pound of elbow macaroni in salted water… when almost done – strain – reserving 1 mugful of pasta water – then add pasta to the tomato and bean mixture. Add 2 handfuls of grated cheese – Parmegiana or Romano – adorn with chopped Italian parsley – stir to heat through and serve.    Great winter dish and very hearty.

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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