News Flash – It’s called managing risk…

Stocks ended mostly unchanged on Friday… wavering as Advanced retail sales showed mixed results… broadly they advanced by 1.2% – missing the estimate of +2.1%, but if you take out autos and gas – then the report was actually better at +1.5% vs. the expected +1%… and Industrial Production and Capacity Utilization? No worries – just as expected… so stocks ended the week about where they began – with the S&P challenging the all-time highs almost every day last week only to fail as the talk turned to some of the headwinds that continue to plague the markets…

Now, besides the virus and vaccine, China tensions, and chaos in DC,  – we have both the DNC and RNC political conventions that will steal the show this week and next… and then all the issues that surround presidential elections from who is speaking to what the platform suggests about the future direction of regulation, taxes, industry shakeups, immigration, healthcare and supreme court nominees to mention just a few… So – from a market perspective – we can expect some short term volatility based on what we hear – and we know that the tech, financials, healthcare and energy are 4 sectors that are sure to be at the top of the DNC hit list – so pay attention as the week progresses…

By the end of the day – the Dow was up 34 pts, the S&P was off 1, the Nasdaq gave back 23 and the Russell lost 2, but for the week – all of the indexes were mostly unchanged as the S&P struggled to get up and thru the 2020 highs of 3,386 – and while it felt like we almost made it – investors are not yet ready to take it up… Over the weekend – Barron’s run with a headline article that tells investors to build up cash…

“It’s Time to Build Cash to Take Advantage of Stocks Coming Tumble” 

Suggesting that the disconnect between the stock market and the real economy remains at odds… and that a ‘correction’ is on the horizon… so it’s time to reconsider your next move –

NEWS FLASH – there is nothing in this article that is new… it’s called managing risk.

OK – let’s make this perfectly clear… be careful what you read – this article might be suitable for someone that may need cash in the near term for expenses such as college, or a home – that’s great. But if you are a long-term investor and are not in need of cash per se, then there is nothing in this article that should cause you concern… because a good money manager/asset manager is always ‘managing risk’ based on market moves etc… they are always tweaking and balancing out a portfolio based on market action anyway… capisce? Yes – I think the market is also a bit ahead of itself – so yes, if you need money in the coming months – then you should manage that and take some out and put it aside to be available to you when you need it, but if you are a long term investor – then you re-allocate (as you should be doing anyway…) taking advantage of outsized moves in one sector and re-allocating to another ‘underperforming’ sector – again as I always say – you don’t want to completely abandon your plan – unless something has so significantly changed that warrants that – but if  your position in tech is now a larger percentage of your total portfolio than it should be – then fix it… peel some off the top – keeping a core position – and then either re-allocate it now or hold it aside for that coming correction… That is always a smart move – so don’t let this article cause you additional angst at all… a correction – if it comes – is always a welcome move – for a couple of reasons… 1. it takes the fluff out and shakes the branches a bit to see who is committed and who is not… and 2. It allows the economy and the market time to recalibrate. And we all know that we need time to recalibrate after all of the stimulus, etc. that has been going on since the start of this pandemic.

Now that being said – we have been discussing the ‘value’ trade… for a while now… and this morning’s WSJ highlights this point…

“Cyclical Stocks Are Leading the Latest Leg of the Market’s Recovery” – small caps, energy and industrials (value) now playing catchup – both surging so far this month suggesting that investors are now looking beyond the big tech companies that dominate the indexes and the conversation. And so to my point about the Barron’s article – this is exactly what we are seeing some investor do – peeling off some of the cash created by surging tech names as well as selling bonds (note the surge in bond yields so far this month – which speaks volumes about where investors see opportunity)  and re-allocating to ‘value’ stocks…

Recall that I brought up the SPYV (S&P Value ETF) last week – it’s a $31 number –  it’s up 43% off the March lows and up 12% since the end of June… and has now pushed up and thru its long term trendline at $31.02 and is holding just above it – so that tells you that investors are building more defensive portfolios for what might be a typical volatile late summer/early fall period. Remember – besides the conventions – we are also at the end of the US gov’t’s fiscal year (Sept 30th) – so there will also be lots of budget and financing talks in the weeks ahead… as the country enters the final phase of the Presidential election cycle.

Treasury yields continued to climb – up 25% in the last week alone – which then suggests that demand for treasuries is waning (could they be a bit extended as well?) as pressure mounts – the 10 yr treasury is now yielding 0.698% up from 0.51% last week and remember – yields go up as prices go down… so someone is selling bonds… and doing what with the money? Think other assets – stocks, gold, silver, real estate etc.

And speaking of gold – that asset which did sell off swiftly last week after that parabolic surge – has now found support at the $1920 level and has once again moved up… (see – think of where the money is going) … This morning gold is up $12 at $1,962/oz  after trading as low as $1939/oz before finding support and moving up. We remain in the $1900/$2000 range.

In Europe – markets there are mixed… they were up in early morning trading but have now reversed and are most on the south side of unchanged. Remember – it is summer holiday time across the continent – so volumes are lower – and that typically causes mkts to quiet down… unless we get hit with a headline that is unexpected… continued geo-political concerns, and virus/vaccine issues will dominate the broader conversations but do not discount the interpretation of investors around the world as they react to both political conventions this week and next. As of 6:45 am –  the FTSE +0.28%, CAC 40 +0.04%, DAX +0.13%  EUROSTOXX is flat,  SPAIN -0.74% and ITALY -0.16%.

US futures are teasing higher and are little changed… Dow is up 50 pts, the S&P is up 3 pts, the Nasdaq is up 40 pts and the Russell is +3 pts. Trump once again creating headlines about the USPS and the funding that the Dems want that he is fighting hard to dismiss… And this will become a story that dominates the conversation about the fairness of the election as so many are expected to vote by mail. Nancy (Pelosi) calling congress to return to DC (as they are all on vacation) to deal with this ‘latest crisis’. Trump putting his son-in-law on all the weekend news programs to suggest that ‘some people’ (read Dems) are using this pandemic to play politics… OMG – really? Seems to me that both sides are playing politics – but it is an election year… it’s tiring.

This week will also bring up a host of retail earnings that represent about 5% of the S&P… HD, LOW, WMT, KSS, EL, BJ, LB etc., just to name a few of them. Tomorrow will bring us some of the bigger high profile names – HD, WMT and LOW –  and with housing as hot as it is – expect HD and LOW to be the focus… the XRT – retail ETF is now trading at new highs (as are many of these stocks) … as investors have taken this group up hard… it is up 96% since March and up 26% since June… as investors expect and have expected this group to do well in the pandemic environment… and they have… Listen to what happens to margins and what they say about guidance… Look – these names have all outperformed – like so much tech – so will the results now cause that short term – ‘sell the news’ reaction? We’re about to find out.

Oil is flat at $42/barrel – News over the weekend reveals that China is expected to import more than 20 mil barrels of oil in August and September (along with farm purchases) as they fulfill their phase one trade deal commitments. This import suggests that demand remains in line and that whole weakening demand story is just that – a story. Last week we discussed the chart and that shows the long term and the short term trendlines about to collide – and if the short term pierces the long term then that will be a ‘golden cross’ – recall we discussed that earlier in the week – and that should be a bullish sign for prices in the future. The triangular pattern on the chart has trendline support at $40.39 and trendline resistance at $43.42 – and we are currently trading at $42 – so at some point its gonna break OUT or break DOWN… My gut says break OUT.

Eco data today includes the Empire Manufacturing Survey – exp of 15 – so let’s see.

This morning the S&P is at 3372 – once again teasing the all-time high of 3386… It doesn’t feel like it today… but so much can turn on a dime – especially when participation is down due to people being in vacation mode –  if that’s you as well – you may consider putting in sell orders just above the market and buy orders below to catch any ‘reactionary’ moves while you are away. Again, support can be found in the 3330 range and if that fails then its 3275… but I am not saying we are going there right now… just laying out the landscape. Resistance is clearly at 3380-ish… My sense is that we could remain in the 3,280/3380… range for now.

Take good care –

Kp


Scallops

Seared Sea Scallops w/Tomato Bruschetta

Ingredients:

Sea Scallops, Dried Porcini Powder, Butter, s&p

For the Bruschetta:
Ripe, Plum Tomatoes, Garlic, Peeled and Sliced, Olive Oil, s&p

Make the bruschetta and let it sit. Dice the tomatoes and place in a bowl.

Add the sliced garlic – maybe 2 cloves, olive oil and then season with s&p. Mix well and set aside

Rinse and pat the scallops dry with a paper towel. Now – sprinkle the scallops with the dried porcini powder on both sides.

In a heavy frying pan – heat the butter – add a drop of oil until it sizzles – do not let it burn!

Add the scallops – maybe 4 at a time – if you add to many – they will cool the pan and not sear properly. Sear on med high heat for about 3 minutes on each side. The scallops will have a light, crisp outer crust. Remove and place on a plate – (Cover with tin foil to keep warm) and repeat the process until finished – placing 4 scallops on each plate.

Once you sear them all finish by spooning a bit of the bruschetta over the scallops and serve immediately.  Serve with your favorite white wine. A simple, yet elegant dish.

Buon Appetito.

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It was an ugly day on the street yesterday… but not completely unexpected. The Dow fell by 710 pts or 2.72%, the S&P gave up 80 pts or 2.6%, the Nasdaq fell by 222 pts or 2.1%, and the Russell gave back 49 pts or 3.5%. And while that was ugly – it was off the lows of the day… if there is any consolation in that.

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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