Growth vs. Value

Good morning… It’s a new week – earnings are basically done and so it’s back to the macro data as the end of August approaches along with more talk of vaccines, therapies and new infection rates… Most of Europe is on vacation (although not that they’re going anywhere) and Americans too will begin the annual rite of end of summer vacations… again – where are we really going?

Non-Farm Payroll report shows that we added 1.8 mil jobs in the last month… as unemployment falls to 10.2%… suggesting that the economy is continuing to be on the mend… according to the stats – we still have 13 million fewer jobs since the lockdown was imposed back in March… and the unemployment rate is well above the rate of 3.5% prior to this crisis. And while all that sounds a bit concerning – remember – the downturn (recession) that was created was very deep and it is not going to resolve itself in 4 or 5 months – in fact – some suggest that it will be 4 or 5 years before the country returns to what we know as ‘normal’.

Markets struggled for most of the day on Friday… as concerns over US/China tensions rose and investors awaited news out of DC as both sides worked towards a resolution to the next stimulus package – which never formally happened, but which markets saw as happening via executive order on Saturday. That in itself causing all kinds of drama and angst among the ‘paparazzi’… both Nancy and Chucky – screaming about how Trump by-passed the process… threatening to go so far as to sue the gov’t over those orders which puts the party in an interesting position. Are the Dems going to sue to block the gov’t from giving aid to the country? The message that all of this is sending is simple – Term limits for everyone in DC – that will surely stop this madness.

As the day wore on and it became clear that an executive order was in the works that caused investors/traders and algos to buy the market – causing the Dow to add 46 pts, the S&P gained 2 pts, the Nasdaq gave up 97 pts (no surprise) and the Russell added 25 pts.

Now I say that the weakness in the Nasdaq is not a surprise because it has so outperformed and the markets tend to become ‘a bit irrational’ at times (do you think?) And yes – we can all argue that some of the tech names have contributed to changing the world and will continue to do so and should have a place in any portfolio  – but we can also argue that they are ahead of themselves considering the amount of uncertainty that continues to exist around the state of the economy as well as the upcoming election and the platform put forth by the Democratic party. Any sense of more trouble ahead will cause asset managers to raise some cash and rebalance portfolios to reflect the imbalances created by some of the surging tech names – thus the weakness in tech and strength in the industrials and cyclicals. A good way to see this is in the S&P Growth vs Value ETF… the SPYG fell by 0.63% while the SPYV gained 1.08% as asset managers build a more defensive posture. And that is not a statement of concern as much as it is a statement about managing risk on behalf of investors everywhere. As we have been discussing – Growth names have gotten way out of whack vs. the broader market and it may be time to consider some value names to help balance out your portfolio. Thus, the pressure on Tech does make sense.

(See this weekend’s Barrons – “Trump Vs. Biden: Comparing Their Economic Platforms” pg 21 and “How the Results Could Affect Your Family’s Tax Bill and Estate Plan” pg 23)

Politics are now front and center…

We waited all week last week for the Dems to announce who will be joining Joey on the ticket… and alas – we got a big ‘nothing done’  and so we wait… the Sunday morning news programs were all about narrowing the field and discussing the amount of ‘opposition research’ the GOP is doing on all of the candidates… and I assume that the Dems have done the same research so that NOTHING that is said catches anyone by surprise once the name is revealed. (And if it does – shame on them – politics is a dirty game – so get ready…)

Meet the Press has Kamala in front, with both Susan (Rice) and Gretchen (Whitmer) in a close second position… My guess – Whitmer is out and while I think Susan is in the top position – the media is pushing hard for Kamala, while at the same time – big Democratic donors are supposedly pushing back on Kamala… I guess it all comes down to who can they defend the best… I mean we can expect to hear all about Benghazi again if Susan Rice is the choice, but what will they focus on if Kamala is the choice? Guns? Healthcare? Brett Kavanaugh? Loyalty? Joey once again promised us that he will reveal his running mate this week… so let’s see – recall that Obama never revealed Joey’s name until August 25th of the that year – so if that’s the case – we have a good 15 more days to wait.

The news programs also spent Sunday dissecting the 4 executive orders that Trump signed on Saturday… Larry Kudlow defending the plan on CNN – while Dana Bash tried to confuse the conversation in an attempt to discredit Kudlow… expect to see him on CNBC later today…

Overnight – the headline hits the tape – raising the temperature between the US and China

“Jimmy Lai:  Hong Kong Media Tycoon Arrested Under Security Law” (BBC)

“Hong Kong Media Tycoon Jimmy Lai Arrested Under National Security Law” (Wash Post)

Essentially the story goes onto say that China arrested Lai and his sons and several executives of the publishing company Next Media – a pro-democracy news outlet which has been quite critical of Beijing – for ‘allegedly colluding with foreign forces (think US), a crime punishable by life in prison as China imposes a ‘sweeping national security law’ on Hong Kong. And so it begins…

This headline did little to affect trading across the region yet… but recall – tensions are running high right now between the two countries – Trump is set to ban two Chinese tech/internet/social media companies (TicTok & WeChat) from operating in the US, he has also said that he will impose a new round of sanctions on a dozen individuals including Hong Kong CEO Carrie Lam and the administration is also considering de-listing Chinese companies that trade on US exchanges that fail to meet US auditing requirements. And all of this as Trade 2.0 is ready to kick off on August 15th (via a Zoom type conference). In response China imposed sanctions on 11 US elected officials as well – and so the back and forth continues. China also reported that PPI (Producer Price Index) slowed in July… to 1.6% and that is sure to weaken industrial profits (not good) and this suggests that the PBoC (Peoples Bank of China) will need to do more… Japan was closed for a holiday, Hong Kong -0.63%, China +0.36% and ASX +1.7%.

European markets are off to a mixed start… First – did you see that the UK revised downwards their COVID death count by 10%? Seems that someone was counting heart attacks as COVID deaths months after those people had recovered from the virus… Feels a bit incompetent to me… thoughts? (Could that be happening in the US?) And with no eco data out of the Eurozone today – investors there are focused on the developing drama between the US and China as well the drama between the Dems and the GOP in Washington. After the weekends executive orders event – word has it that House Speaker Nancy (Pelosi) has reached out to Treasury Sec Stevey (Mnuchin) and expressed an ‘interest’ in restarting talks surrounding the stimulus package… Ok – so that’s good – maybe Trumps style will work to get them to come back to the table and reconsider what the next package will look like (or maybe not…) As of 6 am – the FTSE +0.24%, CAC 40 +-0.42%, DAX +0.07%, EUROSTOXX +0.21%, SPAIN +0.45% and ITALY +0.46%.

US Futures are also mixed… The executive orders signed by Donny on Saturday is being considered ‘better than nothing’ at all while providing a stop-gap until Nancy and her sidekick Chucky decide to come back to the table to talk about what the country needs vs. what they want… (there is a difference..) recognizing that we do need a more comprehensive solution… but all of this drama just screams for term limits across the board.

As of 6:00 am Dow futures are +111 pts, the S&P is + 4 pts, the Nasdaq is off 10 pts and the Russell +9 pts.  If the tone should turn more confrontational then look for the markets to come under pressure with even more money coming out of the ‘tech’ names as they will be the first to get hit.

Oil is moving on UP (to the East Side – a reference to The Jefferson’s circa 1975) after the Saudi’s raise demand predictions out of Asia and Iraq agrees to production cuts… Saudi Aramco CEO Amin Nasser said that he sees ‘oil demand rebounding in Asia as economies gradually re-open after the easing of corona lockdowns’… and this set the oil markets ablaze… WTI (West Texas Intermediate) is up 1.2% or 60 cts/barrel at $41.82! Now all of this is good until tomorrow when someone contradicts that statement and raises concerns about falling demand (due to corona) and increased supplies after OPEC+ announced that they are easing back on production cuts and delivering more oil to the markets. We remain in the $35/$45 range.

So – the S&P filled the gap created during the February collapse on Thursday and then on Friday for most of the day it traded lower – in fact as low as 3,328 before they took it back up late in the day. The action this morning suggests that the S&P wants to go higher – but my sense is that it is topped out here at the moment… and may churn as it awaits news out of DC… I suspect that 3,350-ish will provide upside resistance for a while

Take good care –

Kp


steak Pizzaiola

Rib Eye Pizzaiola II  

Another version to experiment with…

I love pizzaiola – steak or pork – and you can use this recipe for either.

For this you need: 2 medium (not to thick or to thin) cut boneless rib-eyes, 1 container of sweet cherry tomatoes – sliced in half, capers, red pepper flakes, garlic – smashed and then chopped, white wine, Kalamata olives, dried oregano, water, olive oil and parsley

Begin by seasoning both sides of the steak with s&p -set aside.

Next – heat up a cast iron skillet – add the olive oil – not a lot just enough to wet the pan.  Heat and then place the steak and brown on both sides – maybe 1 min or so -no remove steaks and set aside.

In the same pan – add just a bit more oil and add in 3 cloves of smashed and chopped garlic, red pepper flakes (to taste) and about 1 tblspn of the dried oregano. Saute it around and then deglaze the pan with ½ c of the white wine (nothing fruity).

Now – add the sliced tomatoes, capers and olives and about ¼ c of water.

Now add the steaks back and let it ‘simmer’ until the tomatoes release their juices and the sauce thickens up a bit.  Remove the steaks and turn off the heat. Slice the steaks and place on a warmed platter. Spoon the sauce over the sliced steak and garnish with parsley.

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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