10 Yr Lower / Nasdaq Higher Big Banks Under Pressure – Try the Bran Muffins

Kenny Polcari Uncategorized

Things you need to know.

  • Dow and S&P lower – Nasdaq higher
  • Treasury rates lower helping to fuel that advance.
  • Big banks still under pressure after last weeks announcement
  • Taxes, Infrastructure, and more taxes at now at the top of the list
  • Oil, Bitcoin and Ethereum all holding steady
  • The S&P about to test short term support at 3862
  • Try the Bran Muffins – if you’re ‘stuck’

Good morning….It’s Monday March 22,  – and US futures are suggesting more weakness in the broader market – think Dow and S&P’s while investors and traders appear to be bargain hunting in the tech space – think Nasdaq….…..10 yr. treasuries are hovering around 1.675% down from last week’s 1.75% –  a rate that sent the trader types running for the hills – sending those high growth names down the drain….but this morning’s reprieve is helping traders to feel a bit more bold – and return to the sector that they pummeled when rates ticked up……..Bank stocks appear to continue to suffer after Friday’s FED announcement that they are eliminating the ‘Emergency Capital Relief Program’ (also known as the SLR – Supplementary Leverage Ratio)  for all of the big banks….a program that they instituted last  year – when they eased capital requirements at the onset of the covid19 crisis….And while this move may have been expected – the industry lobbied hard to get it extended – but apparently failed to impress the decision makers and this sent the banking index and the big banks lower on Friday….and it appears that they are lower again today….

But let us revisit last week – for just a minute – the 10 yr. yield backed off a bit on Friday and this emboldened the exact same people that panicked on Wednesday and Thursday when they hit the SELL button on the high growth names – to go running back into the space that they so hated on two days prior. I mean its comical really – in the end they run themselves over – but that’s what traders do….they are in and out – trying to create bits of alpha – on every headline that in the end add up to be lots of alpha – if they are successful but can be a real game changer if they are not – well let’s not go there….

All while the FED news caused a shift out of the big banks as investors and traders attempt to qualify and quantify what the elimination of the SLR really means…In the end – you have to believe that it is probably better for the banks to have to hold more capital vs. not – no matter what the initial reaction was on Friday……and this could continue to ripple through the markets – much like what happened on Friday where we saw JPM give up 2.25%, GS lost 1.12%, C down 1.2%, MGS -1.17% & BAC gave back 2.7%.  And the S&P Financial Sector ETF – the XLF fell 1.16%.

By the end of the day – the Dow gave up 235 pts or 0.7%, the S&P; s gave back 2 pts or 0.06%, while the Nasdaq gained 100 pts or 0.76% – leaving it still below the 13,325 support I identified last Thursday – more on that later….…. the Russell added 20 pts or 0.88% and the Transports added 35 pts or 0.24%.

Interestingly though, The VIX -which is the FEAR index- declined by 3% to 21.46 – suggesting that investors/traders are not panicking right now….in fact – it remains below all 3 trendlines…but we know how quickly that can change on any headline.

Look – markets will remain choppy, expect volatility to rise and fall in the weeks ahead as investors and traders continue to weigh an improving economy vs. rising interest and inflation rates, more tax talk, more infrastructure talks, more FED policy talks and changes in earnings expectations for the foreseeable future…. Recall that we are once again only 3 weeks away from the start of 1st qtr. earnings season that begins on April 14th.

Now  – on the inflation / interest rate front –  the concern here is that if inflation rises faster and further than expected it will force the FED to change its plan and begin to tighten monetary policy sooner than the expectation….and right now – that expectation is January 2024 – according to FED chair Powell – so investors and markets are pricing in 33 more months of low (zero) interest rates…..so any change to that thinking will cause investors to re-evaluate current markets valuations….which will likely cause stocks to re-price…..Capisce?

And then all the talk of rising taxes across a range of pain points…Capital Gains Taxes, Corporate Taxes, Wealth Taxes, Personal Income Taxes – which we just learned includes ‘households’ making more than $400k vs. individuals which is what Joey ran on – and that changes the narrative significantly….so that will be on investors minds as well. Then there is the massive infrastructure program – rumored to be in the $3 trillion range – and what that will mean for tax policy…because at some point they just cannot issue enough bonds to cover all the spending that the Dems are proposing which means they want to take from you.  And with the Dems in control for at least the next 18 months – expect them to work fast to jam all of this down our throats…. because they do not want to be in the middle of this conversation during the mid-term elections…and the thinking goes – if they push it through now – voters will forget by the time the mid-terms come.  Oh boy….

The top headlines this morning include Cathie Woods’s latest prediction – and it includes her largest fund holding….TESLA in her view is set to become a $3,000 stock by 2025 (that is not a risky projection at all) ….because as she points out – they will be the first to deliver an all autonomous vehicle and that is exciting….(of course – she is talking her own book and the cult Cathie followers are taking TESLA up $18/sh or 2.7%  in the pre-market)

Now news that China is restricting the use of TESLA vehicles by military and state employees is a non-event….and you ask what is this about – well – China of all places is suggesting that ‘the data collected by the cars could be a source of national security leaks’   considering that the cars KNOW where you go, when you go, who you are with, how the car is being used and the whole contact list of mobile phones that are synced with the car…..present a problem….REALLY?  and you think TESLA cars are the only one collecting data?  Even a Chevy Malibu collects that data – in fact – every car potentially collects all the data – but again – we have embraced that right?  We want the car to connect to everything and that means we give up our privacy – the CEOs of every car company potentially has that depth of detail available to them – and if you think otherwise – you are living in a cave….in fact – any product that is connected to the internet can track you and your data 24/7/365 and then sell that data – because it is worth a lot of money.  And that starts with you cell phone…. but that is another story….

As I began this note – I told you that the broader market futures are lower while Nasdaq futures are higher….…Dow futures down 100 pts, the S&P off 4 pts, the Russell off 6 pts while Tech is up 60 pts…. The 10 yr. treasuries driving the latest action….as many FED officials offer up soothing commentary…. helping to send rates lower….  There are a slate of treasury auctions this week that include 2, 5 and 7 yr. notes so this will give investors another opportunity to see how rates react.

Today – Fed chair Jay Powell is due to speak at the BIS Innovation Summit (Bank of Int’l Settlements) He will be followed by ECB’s Christine Lagarde, BoE’s Andrew Baily and the Central bank chairs from Sweden, Canada, Mexico, and Brazil.  Now while this summit will not be a driver specifically for markets – some investors will pay attention to what these leaders say to see if they can find hidden message. Don’t’ expect one – but Central Bank enthusiasts will be all in.

Eco data today includes – The Chicago Fed Index and Existing Home Sales…. the expectation is for sales to be 2.9% m/m – which is again contra to all the latest data…. but we will see.  Tomorrow brings us New Home Sales and those are expected to show a drop of 5.2% m/m – so is this the beginning of a ‘cooling off’ period?  Are prices spinning so far out of control that someone has finally woken up and said – WTF?

European markets are mixed too mostly lower…. Turkey’s President Erdogan surprises markets and fires the Central bank Chief Naci Agbal after the latest interest rate increase…that brought rates to 19% as he attempted to bring a halt to spiking inflation that is now running near 16%…. See how this works…?  Out of control inflation causes the central bank to raise interest rates to stop the spike – but Erdogan does not want to see higher rates, so he eliminates the problem – or so he thinks…. Away from that – recovery names getting hit again as many countries across the zone experience another spike in new cases causing many of them to go into lockdown mode again…. The newest surge being credited to the slower pace of a vaccine rollout…  At 7 am the FTSE -0.15%, CAC 40 -0.32%, DAX +0.12%, EUROSTOXX -0.04%, SPAIN -1.62% and ITALY +0.11%.

Oil is holding tight at $61.66/barrel even as concerns mount over more European lockdowns…. Demand here in the states remains strong as we re-open.  We remain in the $60/$65 range….

Bitcoin – is trading at $58,000 and Ethereum is at $1800.

The S&P closed at 3913 after breaching support at 3900 – after trading up to 3930 and down to 3886 before finding renewed interest.  Recall that I thought 3900…. would-be short-term support before we continued to see stocks reprice in the weeks ahead… especially if we see another spike in yields…. Short term trendline support is right here at 3862….and my gut tells me that we are about to test it….and if we do – we do….
We remain in the broader 3770/4040 channel – which continues to define a broader trading range that is well within what would be considered normal.  So, no reason to panic right now.

Stick to the plan, do not chase, trim where necessary and put money to work when its right….and that may not be today……and that is ok.

Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss what I can do for you.  You can now get a video version of this note on my IG (Instagram) feed – my handle is Kennyp1961 (https://www.instagram.com/kennyp1961/)
Take Good Care,

Chief Market Strategist, Consultant
kpolcari@slatestone.com

Bran Muffins

This is a classic Kellogg’s recipe – you can find it on the side of the box…. but it is always good when you are feeling a bit ‘stuck’ – and right now – it feels a bit stuck…. So, try the warm bran muffins with a large glass of milk.

For this you need: 1 1/2 c of flour, 2 tsp of baking powder, 1/4 cup of sugar, 1/4 tsp salt, 2 cups of Kellogg’s All Bran, 1 1/4 cup of whole milk, 1 beaten egg, 1/4 cup of veg oil, raisins (you can also mix it up with banana’s & walnuts, and I add in one stick of melted butter…. (of course, I do!).

Preheat oven to 400 degrees.

Combine all the dry ingredients and set aside.

Add milk to the bran cereal and let it sit for a couple of mins…. then add egg and oil.
In the mixer add the cereal and then slowly add the dry ingredients – mixing well.  Now add in the melted butter and continue to mix for another min or so.

Now using a tablespoon – fill the muffin pan (that you have greased).  Bang on the counter to remove any air pockets and then place in oven and bake for 20 mins or so.  Serve these immediately when warm with more butter on the table.  Include a large glass of cold milk……

Buon Appetito.