Things you need to know

• It was more than just the variant! I have a laundry list of items
• Global stocks got slammed as stocks prices fell and treasury prices rose
• Oil traders were disappointed with the OPEC+ deal and sold oil off 7%
• Bitcoin breaches $30,000 overnight and is now trading at $29,600
• European markets and US futures signal a change in psyche – Buyers scouring the landscape
• Try the New England Clam Chow-Dah!

Tuesday, July 20, 2021 – the headlines say it all….

“Dow Tumbles 700 points for its worst drop since October as investors fear a covid resurgence” ….  CNBC

‘Dow Slides about 700 points on Virus Worries’ – WSJ

‘Stocks Slump as Virus Jitters Fuel Rush into Bonds’- Bloomberg

Good morning …. It was Sunday evening in America – which is Monday morning in Asia …. investors suddenly all worked up…. the delta variant causing investors in Asia to become a bit unsettled as it spreads across the region, then the day dawned in Europe, stock futures were under pressure it seemed that talk of the variant was all anyone could focus on.  In the UK citizens were out celebrating the end of mask wearing all while the new variant was catching fire……talk of a third round of the virus disrupting the global economy took root and stocks fell……investors suddenly focusing on all the negatives surrounding another round that the virus would create….…….Before you knew it – European indexes were down more than 3% and the sun started to rise over the Atlantic and the streets of NYC came to ‘post covid’ life and stock futures were under pressure….investors braced for what appeared to be a brewing storm……

By the end of the day – US stocks were down but NOT out……the Dow lost 725 pts or 2%, the S&Ps gave back 69 pts or 1.6%, the Nasdaq choked losing 153 pts or 1%, the Russell lost 32 pts or 1.5% and the Transports gave back 227 pts or 1.6%.  The VIX surged by 22%, Oil fell by 7% – taking it back into the mid 60’s, and 10 yr. treasury yields plummeted to 1.17%!  Every sector of the S&P in the RED…. It was a MESS – not a disaster at all.

But let us be honest – there is so much more to this story –

Think about it – we have inflation concerns and now deflation concerns, stretched valuations,  huge supply chain issues, very easy central bank policy at home and abroad that is running out of options, infrastructure and government stimulus issues, domestic taxation, global corporate taxation, a new welfare state in America, an OPEC+ production agreement (that was less than expected), a US oil industry that is being choked by the current administration helping to send oil prices higher, and Press Secretary Jen Psaki revealing that the WH is monitoring and ‘flagging problematic posts for FB that spread disinformation’ as they work together with social media companies to identify misinformation about the Delta virus and the vaccines.  (Think China anyone?)

And then we have earnings which while expected to be stellar this quarter and so far, have not disappointed – are also expected to be the peak – stocks that ‘beat the number’ are being met with aggressive sellers causing buyers to sit back and let it rip…. I mean why pay $50, when sellers are willing to sell it to you at $47? As they say at TJ Maxx – ‘Why pay full price?’

And to boot – Random House is paying Prince Harry $20 million for his ‘tell all’ Book…. Oh boy…. here we go….

And THIS is what is causing money to pour into treasuries from all corners of the world sending prices up and yields down, all casting a pall over the economic recovery that we have been celebrating – because falling yields suggest a faltering economy – or does it?  So, let me ask you again – Was the clobbering we took yesterday due to the Delta variant alone? Is the delta virus the only thing going on around here?  Nothing else to sow any seeds of angst or caution?  Nothing?

And while I understand that that virus is an issue, I am not buying into the fact that is THE issue……

So, what is an investor supposed to do?  

Well – the first thing you do is DON’T panic…. do not go running for the door. Do not go calling your buddy and say – WTF? If you have been listening to the voice of reason – you have been prepared for this…and prepared for more to come…. there is still volatility on the horizon…. So – sit back, the last thing you want to do is panic….

“And while it is a bit ‘uncomfortable’, it’s transitory, nothing to see here and nothing to worry about….and while it might go on a bit longer – it’s still transitory….”

Who does that sound like?

I mean that seems to work for him….but it also doesn’t mean you just sit back and do nothing….but it also doesn’t mean that you hit the SELL button on everything you got….in fact, I would argue (depending on where you are in the life cycle) that you go shopping, put your list together (if you haven’t already done so) and get ready to back up the truck.

Now from an investing perspective – you must be aware of what another round of the virus and hysteria could do to an already nervous and anxious global economy – never mind the role that all those other issues play….  I would not build my portfolio around this hysteria, but I would be aware of it.  I would position myself to take advantage of names that are getting unnecessarily beaten up, good names that will get slammed in the near term – as some asset managers use them as an ATM to raise quick cash……causing some short-term dislocation in prices and that my friends create an opportunity for you.

And this morning – European stocks and US futures are in rally mode!  Go figure!  What happened to all the hysteria from yesterday?  Suddenly the delta variant is a non-issue?  There is no specific news other than investors wondering if they overreacted yesterday…. were the dramatic moves lower just that – more drama?  And while there is no economic data in Europe today to speak of, investors are finding value among the ‘ruins’…. with indexes across the region all up about 0.75% across the board.

In the US – Dow futures are up 200 pts, S&P’s up 20 pts, the Nasdaq taking back 75 pts and the Russell adding 17 pts. The VIX is down 5%, Oil which traded down to intermediate support at $65.65 yesterday has stabilized and is trading up at $66.84 – on its way back to the mid $70’s.  The 10 yr. is steady at 1.17%….as investors ask is the treasury market suggesting a weakening economy or is it suggesting a re-pricing of risk due to all the factors outlined in paragraph 3.   I am in the camp that falling yields are a direct result of institutions parking money into the safety trade as we meander through what is typically a seasonally volatile period for the markets…I am not in the camp that the economy is slowing at all…but I am in the camp that it is not all smooth sailing directly ahead of us….

Eco data today includes housing starts and building permits…. exp of +1.2% and +0.7% respectively.

And earnings yesterday did not disappoint….and I do not expect that they will disappoint today either….

In any event – the rotation continues.  So, there is no reason to change your whole portfolio at all…. stick to the plan and focus on the goal and not on the short-term noise.

Bitcoin breaks $30,000 (down another 4%) and going lower…. and is trading at $29,500 at 6 am…. Ethereum is trading at $1,738 also down 4% while doggey coin is down 7% at 0.16 cts.

The S&P closed at 4,258 – down 1.6%…..after testing just below intermediate term trendline support 4240 to test as low as 4233 before rebounding….It is now down 3.5% since the all time highs of last week….we could fall another 6% and still be within the normal trading bands…..and that number my friend is 3,936 on the S&P….and while it would be ‘uncomfortable’ it would not be out of the question at all….Below that level we would be in ‘correction territory which is identified as a 10% move off of the latest high….a level I do not believe we will see UNLESS of course we get hit with something unexpected at the August Jackson Hole meeting….

Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss the markets or a plan.  You can now get a video version of this note on my YouTube Channel.

https://www.youtube.com/channel/UCI-MTlH2FdbMNvpZ2b_ELrg

You can follow me on Twitter – @kennypolcari

Take Good Care

Chief Market Strategist, Consultant
kpolcari@slatestone.com

New England Clam Chow-Dah

I am here on Nantucket Island, and we picked fresh clams the other day and I made clam chow-dah…so here you go… (see the picture on my twitter @kennypolcari)

For this you need:  celery, onions, garlic, potatoes (diced into small cubes), minced clams, bacon, flour, 2 c of chicken broth, 2 c of clam juice (I made my own by steaming the clams to get them to open and capturing the juice), butter and heavy cream.  You can also add in red pepper to give it a kick….

Start by cooking the diced bacon in a large pot –until it is all browned up and you have rendered all the fat.  Remove half the bacon and set aside.  Add a dollop of butter to the pot.

Next sauté the chopped onion and celery – for about 10 mins…now add in the cubed potatoes and chopped garlic.  Cook for 5 mins or so, but do not leave the pot…you need to stir so it does not burn.  Now add in 1/3 c of flour and mix.

Next is the chicken broth and clam juice and s&p.  bring to a boil and then reduce to simmer for about 15 mins…. – if it thickens up too much, just add more broth and clam juice in equal parts.  (I tend to add more clam juice – but that is me…).

Now, add the minced clams and 1 c of heavy cream – stir to blend – remove from heat – taste and adjust seasonings.

Serve in bowls with oyster crackers and adorn with the extra bacon.  Welcome to Cape Cod….

Buon Appetito.