Things you need to know:

• Fed speak, rising infections, and excerpts from ‘the book’ drive the action
• China closes schools, cancels flights, and tests thousands for a new round of covid19
• Who are the Democrats putting on the ticket?
• Try the Arugula Pesto

Stocks slid on Wednesday – ending a three day ‘winning streak’ –  continued testimony by Fed Chair Jay Powell, rising concerns over rising rates of infection and excerpts from the now famous John Bolton book – ‘The Room Where it Happened’ all contributing to the risk-off mood that permeated the markets all day. And while stocks did open higher – they quickly failed going negative by 10 am… and then spent the rest of the day fighting – not sure whether to rise or fall as the algos tried to interpret the headlines.

What was Powell saying to congress now? Is the FED about to launch a new program? Was it the same as yesterday? Did he reveal something new to the House that he hadn’t said to the Senate? And then what about those surging rates of diagnosed infections – Are they something to be concerned about or not? Look, let’s not misunderstand this – half of the newly diagnosed infections are coming from just 3 states – FL, AZ and TX – and that’s a positive when you consider there are 50 states and a handful of territories. Next – we are making great strides in fighting covid19 – we have more experience now, we have new ways of treating it, we are making real headway on developing a vaccine – and while that may still be a while away, we are making progress. Deaths from covid19 are in decline even though newly diagnosed infections are up! Let’s not lose sight of this. – It’s ok to accentuate some of the positives in this vs. always focusing on the negatives. Just sayin’…

And then there is the book… the book by John Bolton that opens the door to what was going on in the WH during his tenure there. And while this is all very titillating it will not price stocks in the long term at all, but it can add to the angst of the day… depending on which part of the book they choose to focus on (my sense is that the whole book would cause angst for the markets – it is on my summer reading list)… Look – we are in the middle of the Presidential election cycle – a cycle that is sure to get uglier and uglier as the weeks progress and that will cause investors/asset managers to take a look and place their bets on the outcome. Remember – this is not only about the WH, it’s about the whole shebang… the WH, the Senate, and the House… Will the Democrats ‘sweep’, will the GOP retain control of the Senate, who else is on the ticket – because Joey is now 78 years old and if elected would be the oldest elected president in history. And so you HAVE to consider who they pick as the next in line (for obvious reasons). And what does their platform look like, which industries will get slammed (tech, energy, healthcare, housing) and which industries will benefit (???). What will taxes look like?  What will the supreme court look like? What will trade look like?  Etc, etc, etc. So that is why the book is garnering all this attention at the moment – because it is exposing the ugly parts of the current administration and that could sway voters that are sitting on the fence. Now this happens every four years, so it is not new, but this cycle is going to be particularly ugly for sure.

So while stocks struggled all day – the selling gained speed in the final hour of trading… leaving the Dow down 170 pts, the S&P down 11 pts, and the Russell down 25 pts. Now the Nasdaq – as has been the case of late – managed to buck the trend and close higher – adding 14 pts – thanks to the likes of AMZN, NFLX, REGN and a handful of others.

Investors/traders/algos have been weighing in on what it all means… and the result is conflict. While some of the talking heads think this is only the beginning of a continued surge, others are much more cautious and so the battle continues. Are we in a bubble? And if we are – how big is that bubble? Another market maven – Jeremy Grantham – taking to the airwaves telling us that this is the ‘biggest’ bubble he has seen in his whole career with spans 60+ years… (he was born on the backside of the Great Depression) and so he is sounding the alarm bell… much like Warren, Stanley and Davey did last month – the only difference here is that Jeremy waited for the market to surge another 16% before he opened his mouth!

Is the market ahead of itself? Of course it is, but that is always the case – in either direction… the technology coupled with the latest products (leveraged or not) allows for the speed of the moves and the extent of the moves – which is why we see 1800 pt losses and 1500 pt gains all in a day’s work. The trick is to have a portfolio – if you are a long-term investor – that you believe will withstand the volatility that is expected in the weeks and months ahead. Solid names are still solid names and having a plan is the trick.

Overnight we heard from a number of people… in Australia – we found out that May unemployment rose to 7% the highest level since 2001 and across the emerging Asian economies – we found out from the ADB (Asian Development Bank) that those developing markets are not expected to grow in 2020 – I think the terminology was ‘barely grow’. The ongoing jump in new infections in Beijing was also weighing on the minds of investors as China cancels flights, closes schools, and blocks off whole neighborhoods again (overnight they did tell us that it’s all under control…) By the end of the day – Japan lost 0.45%, Hong Kong ended flat, China gained 0.67% and the ASX gave back 0.9%.

This morning in European trading – stocks are down across the board. Virus concerns apparently driving the mood… The BoE (Bank of England) is set to announce their policy decision – no rate change is expected, but investors will be listening to the guidance because we are expecting them to add to their stimulus measures by expanding their bond buying program by $125 billion. Investors will also be listening for any hint of radical monetary policies – think negative rates and yield curve control… because like the FED, the BoE has been forced into becoming the buyer of last resort as they too fight the deepest economic slump in more than 300 years… Announcement to come at noon time in London (7 am in NY) . As of 6 am – the FTSE is +0.02%, the CAC 40 -0.36%, DAX -0.13%, EUROSTOXX +0.03%, SPAIN -0.69% and ITALY +0.43%.

Eco data today includes– Philly Fed Survey – exp of -21.4 and that would be up from -43.1 last month.  Initial jobless claims of 1.3 mil and Continuing claims of 19.8 mil.  Leading Eco Index (LEI) of +2.4% vs. last month’s -4.4%.

US futures are up and down all morning… and currently are barely in the red… Dow futures down 130 pts, S&P’s down 17 pts, the Nasdaq is down 23 pts and the Russell is down 12 pts. Jay Powell has completed his two-day testimony and did not reveal anything that we didn’t know. The mood this morning is a bit calmer since the Chinese told us that they have it ‘under control’. (if you believe that). Look, investors have been pricing in all good news and that has taken stocks to levels that are ahead of where the eco data tells us we are – and so the churn continues and will continue until we turn the corner on learning more about the virus and develop new treatments or a vaccine.

Oil is up 23 cents at $38.19 – the rise in crude inventories, doing little to cause that market to come under pressure because the sense is that this is short-lived. Demand will surge and the production cuts will take hold. We remain in the $35.80/$45.50 trading range.

S&P closed at 3113 as it continues to close the gap created last Thursday. I do not expect today’s eco data to move the markets substantially unless of course it is so different than expected. The market is attempting to find stability but expect it to remain volatile until we get more clarity on the virus. The recent upticks in cases is causing some in the medical profession to raise the warning flag, while others remain at ease and this will continue to cause the algos to whipsaw the markets. If infections continue to rise as spring to turns to summer, then the odds of increase about what happens when summer turns to fall and that will drive sentiment. We find support at 3020 and resistance at 3200… anything in between is just normal trading within the band.

Take good care ,

Kenneth Polcari
Chief Market Strategist, Consultant
kpolcari@slatestone.com

Arugula Pesto

So I am giving you this recipe again at the request of a reader… It never goes out of style and is another great summer dish – as you can harvest the arugula from your garden and turn it into a meal in less than 20 mins.

Arugula Pesto

Linguine with Arugula Pesto – Yes – Arugula… a twist on an old classic… try it… gives you a bit of a peppery taste – but in fact is delicious.

Start the same way you make Basil Pesto – Rinse the arugula, and pat dry… let sit. Heat up a sauté pan and toast the pignogli nuts – maybe 4 mins or so… set aside. Now in a food processor – add the Arugula, nuts, 3 cloves of garlic, a bit of salt – no pepper, and olive oil… now puree… Don’t be afraid of adding too much oil… it won’t be wasted at all… Once pureed – add a couple of handfuls of grated Parmegiana Cheese and blend some more. That’s it… you’re done. Now set aside in a bowl and cover with saran wrap.

Bring a pot of salted water to a rolling boil and add the linguine. You can use any type of pasta you like – but linguine makes a more traditional dish. Cook the pasta for 8 mins or so – until aldente. Now strain the pasta – reserving a mugful of the pasta water. Return the pasta to the pot and add back about 1/4 cup of the water to re-moisten… stir. (Make sure there is not a puddle of water in the bottom of the pan…) Now add 1/2 of the Arugula pesto and stir… coating the linguine well.   Now serve in warmed bowls and top with another dollop of the pesto. Keep fresh grated cheese on the table for your guests.

Buon Appetito.