Markets reel as bond yields flirt with 5%, Gold hits record $3,597

• Oh boy…stocks take it on the chin.
• VIX surges, Gold pierced $3600 and bond yields are on the rise.
• Eco data – mixed at best, today is another big day.
• S&P is trading at 22 x’s forward earnings – a bit frothy?
• Try Fresh Spaghetti with Spinach & Ricotta Cream.

Don’t say I didn’t warn you! Stocks went into REVERSE yesterday as 30-yr bond yields kissed 5%, gold surged 2.3% (up $81/oz) to close at a fresh all-time high of $3,597, and the VIX — the so-called “Fear Index” — jumped 8.75% after spiking as much as 21% earlier in the day.

All this as investors returned to their desks staring down a laundry list of concerns — shaky economic data, monetary policy shifts, questions over Fed independence, the legality of tariffs, and the ongoing geopolitical conflict between Russia and Ukraine.

The economic data? Mixed at best. S&P Manufacturing PMI came in at 53 (bullish), while ISM Manufacturing PMI disappointed at 48.7 (bearish). The one bright spot? ISM Prices Paid — easing to 63.7 from 65 — which tells us that purchasing managers are paying less for raw materials. Translation: a little less upward pressure on prices, and that’s a good thing.

Now, as we talked about in yesterday’s note — where did the pain show up? Tech -1%, Industrials -1%, Consumer Discretionary -0.75%, and Financials -0.75% — the very sectors that are up double-digits YTD. Real Estate also got hit, down 1.7%, despite being up only 3.9% on the year. What didn’t get hit? The contra trades – the DOG + 0.6%, the PSQ + 0.8%, the SH + 0.75%, the VIXY + 3.1% while the SPXS gained 2.4%.

And while stocks did close lower, they were well off their intraday lows as the ‘buy the dippers’ came to the rescue. The Dow slipped 250 points (-0.6%), the S&P fell 44 (-0.7%), the Nasdaq lost 175 (-0.8% — actually not terrible), the Russell gave up 14 (-0.6%), and the Transports dropped 125 (-0.8%). The Equal Weight S&P was barely down 10 points (-0.15%). Meanwhile, the Mag 7 confirmed what the Nasdaq was already flashing — the “sexy” names shed 320 points, or 1.1%.

Corporate bond fever! Yesterday saw a record 27 investment-grade issuers tap the market with 58 bonds worth $43.3 billion. That tops last year’s pace by $25 million, when 29 firms brought 53 different issues. Year-to-date, that brings investment-grade corporate issuance to $1.122 trillion!

But all that supply came at a cost — investors demanded higher yields. Yesterday’s auction saw rates ranging from ~4.8% to ~5.4%, and that pressure spilled right over into Treasuries. The TLT lost 0.7%, the TLH gave back 0.6%, the 10-yr yield rose 4 bps to 4.27%, and the 30-yr climbed 4 bps to 4.96% — after briefly kissing 4.996% intraday.

(Remember what I said yesterday? “The 30-yr closed at 4.93% and is inching ever closer to the 5% mark, a level that’s bound to rattle stocks if and when it breaks.” Well, it flirted with it — and yes, it rattled stocks.)

Overnight, the global bond market came under renewed pressure as investors wrestled with concerns over global inflation, massive debt loads, and a lack of fiscal discipline. The Bloomberg Global Bond Index slipped 0.4%, its biggest drop since June 6th.

Yields moved higher across the board — 10-yr bonds in Australia, 20-yr bonds in Japan, 30-yr bonds in the UK and here in the U.S. all came under pressure. On their own, the moves might not raise alarm bells — but taken together, the narrative becomes a bit more of a concern of heavy government spending and the very real risk of global inflation rearing its ugly head again.

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Trump made the headlines when he said that he was taking the recent tariff decision to the Supreme Court – something that the markets expected – but he wants an ‘expedited’ ruling to make sure this does not drag on and on….He reconciled the sell off to the idea that the ‘stock market needs the tariffs, they want the tariffs’.

In the end — if the tariffs are deemed illegal and Trump is forced to return all that money — it simply means we’ll need to lean even harder on the Treasury markets to fund the deficit. And if that happens, you can expect “demand to become demanding” — with investors insisting on higher yields to compensate for the risk. (see my comments above).

And while Treasuries are often called “risk-free,” that won’t be the perception when the government floods the market with billions in new supply. Investors will demand higher yields — the 10-yr piercing 5% and the 30-yr approaching 6% — and that will prove to be a real issue for stocks.

Look — how long have we been talking about this? How long have we been warning that the market feels a bit overvalued? That trees don’t grow to the sky.

S&P is now trading at 22x forward earnings — a rich valuation given the current environment. History tells the story: there have only been two times when the market was more expensive. First, in 1999/2000 — does the Dot-com bubble ring a bell? And second, in 2020, as we emerged from the depths of the Covid collapse. The fact is we are overvalued if the eco data begins to weaken – yesterdays data was not a barn burner – let’s see what today’s data reveals.

Today will be all about the JOLTS report – Job Openings and Labor Turnover Survey – The Job Openings rate is expected to be slightly higher, Quits Level – slightly lower while the Layoff level is slightly higher. This will be a KEY data point – especially now when the labor market is under pressure.

Factory Orders are expected to be -1.3% but that is up from last month’s -4.8% (which I view as positive). Durable Goods Orders remain at -2.8%. At 2 pm – the FED will release their Beige Book - It tells us about current economic trends, such as growth, inflation pressures, labor market conditions, and sector-specific activity. While not a hard data source, it provides context for the Fed’s monetary policy decisions, like interest rate changes. Analysts and strategists use it to gauge the economy’s health and predict Fed actions. Should this show weakness it will embolden the rate cut argument, conversely, if it shows strength (which I do not think it will) it could slow that same argument.

Oil surged $1.60 or 2.5% yesterday to close at $65.60, after touching an intraday high of $66 before backing off. This morning, crude is trading at $65.44, down 16 cents, after testing as low as $65.17 and as high as $65.72 overnight.

Technically, we’re now on the north side of the trendline — with $65.10 acting as support and $70 as resistance.

As noted – Gold was on fire…..Surging $83 to end the day at $3,597 – only after it pierced yet another century mark to trade as high as $3,601. This morning – traders have taken it up and thru $3600 again – now trading at $3,604. Again, consider what this could mean – while the market is betting on only two 25 bps cuts this year, is the action in gold telling us something different?

The VIX ended higher yesterday, +8.7%, and is up another 1.4% this morning after gaining as much as 2% overnight. Remember what I said yesterday — 19 is the KEY level to watch. We pierced it yesterday but quickly backed off and closed below.

My gut says it’ll take two more attempts before we finally break through and hold above it. When that happens, expect the VIX to make a run at the early August high of 21.87.

The good news overnight came from GOOG (+7% pre-mkt) and AAPL (+3% pre-mkt), moves that are helping to calm the negative tone. A federal judge ruled that GOOG can keep its Chrome browser but will not be allowed to strike “exclusive” deals. They must also share their search data — something they had fought hard to avoid. Still, the ruling sidestepped the worst-case scenario for Alphabet.

Meanwhile, AAPL scored a win of its own — they’ll be allowed to continue pre-loading the GOOG search engine on iPhones, a deal they had been fighting to preserve and one that remains highly lucrative.

This morning, U.S. futures are all over the place. Dow -18, S&P +23, Nasdaq +130 (think GOOG and AAPL), and the Russell -6. It is the data that will continue to drive the action….and while the GOOG and AAPL news is good I am not in the camp that it will halt a pullback in the broader market. Keep your eyes on what happens in the Bond Markets – pressure on bonds will send yields even higher and that WILL become an issue for stock investors. Which only means – sit tight – keep you cash warm in a gov’t mm fund paying you 4.25%.

I continue to think we’re in for some volatility, so I’m waiting patiently. Remember — I’m invested in my long-term account. I’m not a seller; I’m a buyer on weakness. If the “buy-the-dippers” manage to halt any selloff, I’m participating, so I’m not worried. When that happens, I’ll reassess — but for now, I’m sticking to my guns.

Your long-term account is just that — long term. If the fundamentals in that account change, then you make changes. If they don’t, then you don’t.

If you have a trading account, then that’s a different story, your actions are driven by short term psychology.

European markets are all higher – even as bond yields rise…. France in the lead up 1%. Spain is the underperformer today only up 0.2%, but they are the winner ytd – up 27%. This morning, we learned that the UK will deliver their budget on November 26^th….and with their long-term borrowing costs on the rise, this is beginning to cause market jitters. The BIG question is, Will Chancellor Rachel Reeves be able to resolve the ‘fiscal conundrum over spending, taxation and borrowing’?

Watches of Switzerland (WOSG.LN) is up 7% after an upgrade by Deutsche Bank even after Trump imposed a shocking tariff rate of 39% on Switzerland last month. Apparently, US sales are not a huge part of their gross profits, so the tariff is a ‘non-event’.

The S&P closed out August at 6,415, down 44 points, leaving us 2.2% lower since last Thursday. A test of 6,200 — a level I’ve been eyeing — would mean just another 2% from here. Recall, we’ve tested that level twice already — June 16th and August 1st. A retest now will do one of two things: confirm that there’s plenty of demand… or not.

If we test and fail, then I’d look for the S&P to move toward 6,000 — about a 7% pullback off the highs. That’s still not a correction, and well within what’s considered a “normal trading band.” The next couple of weeks will likely decide that path.

This morning, futures are pointing to some churn. Uncertainty remains elevated — and when that happens, investors tend to get anxious, trigger-happy, and all too ready to hit the SELL button.

Creamy ricotta and spinach spaghetti

Simple to make and so good, you come back again and again.

For this you need – Fresh made spaghetti, not store bought, Fresh Ricotta Cheese, Fresh grated Parmegiana, lemon zest and lemon juice and of course fresh baby spinach.

Begin by bringing a pot of salted water to a rolling boil on the back burner.

In a large sauté pan – add the spinach with a ½ cup of water and steam.

While that is happening – in a large bowl, mix the ricotta, the parmegiana, the zest and the lemon juice.

Toss the spaghetti into the pot – be careful it will be down within 3 mins. Now add the cooked pasta to the sauté pan with the spinach. Add in the ricotta mix and a ladle of the ‘tears of the Gods’ (pasta water). Mix well to create a creamy delicious sauce.

When serving – twist the pasta onto the place and drizzle some of the creamy mixture on top. Dress with a bit more parmegiana and BOOM!