Rates, Rates, Rates….Which Rate Will You Focus on? – Try the Chicken Pizzaiola

Kenny Polcari Uncategorized Leave a Comment

Things you need to know.

  • Rate surge caused market to stumble – Stocks took turns getting hit.
  • Reassurance by central banks is helping yields to back off – Stocks around the globe rally and – Goldy says ‘don’t be ridiculous.’
  • CDC approves the J&J vaccine, and the House passes a $1.9 trillion relief bill.
  • CPAC votes for Donny in 2024….oh boy…
  • Dollar rallies as yields fall and oil jumps as demand rises.
  • Try the Chicken Pizzaiola

Rates, Rates, Rates!  We go from one set of rates to the more traditional set of rates and that sent markets into a bit of turmoil……Nasdaq gets slammed on Monday thru Thursday only to recover a bit on Friday…. while the Industrials and broader market held tight during the week only to get slammed on Friday…………and so the sun rises and the sun sets……

The focus is all still about rates – just not the rates you think……. We have gone from increasing to decreasing virus rates, infection rates, death rates, and the histrionics of the election rates to focus squarely on interest rates and valuation rates….….and so we are beginning to see what that means.  10 year treasury rates surged last week – going from 1.31% to more than 1.6% on Thursday….only to back off a bit and end the week at 1.41% and with that – the high growth stocks took it on the chin –   The Nasdaq backing of more than 8% during the week , before finding a bid and ending the week only down 6% off the highs…..Again – individual ‘growth’ names getting hit more than others as investors/traders attempt to figure it out.  And that presents a bit of an opportunity as investors go looking for bargains……but you must ask – are these the bargains or are there more to come?  (A:  more to come…. but we can discuss that later…)

By the time, the 4 pm bell rang on Friday – the Dow Industrials were off 470 pts or 1.5%, the Dow Transports lost 41 pts or 0.3%, the S&P lost 18 pts or 0.5% while the Nasdaq gained 73 pts or 0.56% and the Russell ended the day flat.  Just to put this all-in perspective….10 yr. rates went from 0.5% in the fall – to 1.25% by mid-February and the S&P went from 3269 to 3950 ish…. a 21% gain…. while rates were rising……. It was all good, rates were rising slowly and were still artificially low, so they did not pose that much of a risk to stocks…. then in late January – there was a swift spike in rates that caused the markets to tremble just a tiny bit and then it all settled down again…. Rates held steady, and the markets continued to advance…. but talk of increasing rates started to dominate the chat rooms and the cable business channels…. suddenly – questions were being asked – what rate would be the tipping point?  What rate would cause investors to stop and re-think valuations……

As you know – there has been a lot of chatter about this…. I (like many others)  – stated that I thought it would begin at 1.5%, cause some volatility and then as we approached 2%, we would hit more of a wall…. others – told us that they would not worry until rates hit 3%…. Hmmmmm – would you like to re-think that?

Over the weekend – Goldman’s Davey Kostin tells us ‘not to worry’ – It is all good.  Investors asking whether the current level of rates is a threat to the equity markets and his answer is an ‘emphatic no’…. the summation here (after all their analysis) is that rates would have to go to 4.6% before there was any real threat to the markets…. (if we have a constant P/E of 22 x that would produce an EPS yield of 4.6%). Suggesting that the current 1.45% yield is more like 325 bps below any threat…. So, it is off to the races!  4.6%?  is that what they think will derail markets?  Oh boy…. this is going to be exciting.

Look – the massive federal stimulus programs and the FED’s easy monetary policy have driven stocks and other assets – to new record highs – but that is exactly what the problem is becoming – massive stimulus and easy money are now fueling the inflation monster – all while Fed Chair Jay Powell tells us ‘Don’t be crazy – there is no inflation.’

Mmmmm – not so sure about that – last week we went thru the commodity complex and I detailed how the prices of everything is up….precious metals, corn, wheat, soybeans, hogs, oil, housing, lumber, etc.….and how those price increases were making their way through the food chain…. but – I must be mistaken – the charts must be wrong and the govt stats must be incorrect as well.

Ground beef – something everyone uses averaged $4.12/lb. in 2020 and so far in 2021 it is averaging $5.69/lb. – a 38% increase but they will tell you that 60-inch TV’s have come down in price – Oh, that is good – How would you like me to serve it to you?  And gasoline?  That’s on the rise as well…up 25% in the past 2 months alone and most likely to go higher as the world re-opens and demand for oil (gasoline) surges….Remember –two weeks ago Goldy raised their estimates for oil to $75/barrel – which is up another $15 from current levels (which is up from $35 in November)..so think about what that will do to gas prices, jet fuel prices, diesel prices – think planes, trains and automobiles!  (Because I am guessing that we will not be flying planes or driving ships or running locomotives on solar/wind power just yet…) And this is where many are saying we will see inflation percolate through the system… Just sayin’.

In any event – over the weekend – we heard from the CPAC gang – and they overwhelmingly cast their 2024 votes for Donny – with Florida’s Ronny Desantis coming in second…Nikki Haley was 3rd on the list with Teddy Cruz carrying up the rear…. In addition to hinting that he ‘might be back in 2024’ he slammed the Supreme Court for not having any ‘guts’….and here we go….

Over the weekend – Iran rejected the EU’s attempt to bring them to the table to sit down and talk to the Biden Administration.  The CDC approved the use of Johnson & Johnson’s single dose vaccine for Covid-19, the House passed the $1.9 trillion relief package – that has about $1.3 trillion of ‘nothing to do with Covid-19’ and now it is up to the Senate to either accept or reject – all while I say – put it out there – publish the actual line by line items that add up to $1.9 trillion so that we ‘the people’ can see what ‘we’ are voting on……FYI – most of the main street media is mostly ‘mum’ on the subject…while other outlets have identified about $600 billion going directly for Covid-19 relief while the $1.3 is all about ‘pork’.   I say – publish the bill in its entirety…. tell Congress to stop playing ‘I’ve got a secret’!

US futures are higher….as bond yields retreat…….the angst from last week that sent yields rising and stocks reeling seems to be nothing but a distant memory…..……and while the angst caused a spike in the 10 yr. treasury – Fed officials are starting to line up telling everyone that the rise in yields is healthy, no need to worry. Think improving virus data, improving vaccine data and improving economic data and while everyone thinks that the recent surge in rates was a ‘one off’ – we are about to find out later this week when Fed Chair Jay Powell makes an appearance on Thursday leaving everyone on the edge of their seats as they try to ‘read between the lines’  and we get both ADP and NFP (Non-Farm Employment) numbers this week – along with a host of other macro data points.  And while we all welcome a strong recovery – it is for that very reason that we could see more volatility ahead for the stock market as rates rise quicker than expected.

And the poor results from last week’s treasury auctions are not helping the mood…. Demand for 5 and 7 yr. treasuries was weak – and due to that weakness – the 7 yr. sold for a 1.195% yield or 0.43% more than anyone expected….and that is raising a bit of concern about the coming dearth of debt being issued in the months ahead to pay for the $1.9 trillion stimulus package.

It is a new month and Dow futures are up 284 pts, S&P’s are up 37 pts, Nasdaq is pointing up 174 pts and the Russell is ahead by 43 pts…… 10 yr. yields are pulling back and are now trading at 1.4016% this morning…. The VIX which had spiked higher last week is down 2.7 pts or 10% at 25.06 as calm settles over the markets. Central banks from the US to Europe to Asia all attempting to reassure investors that policy support remains firmly in place.

Eco data today includes: Markit US Manufacturing PMI – exp of 58.5 (bullish), Construction Spending m/m of +0.7% ISM Manufacturing of 58.6 (bullish), ISM Prices paid of 80 and ISM new orders of 60 – both a bit weaker than last months but not markedly negative.

The dollar index (DXY) has rallied back through resistance at 90.49 and is now trading at 90.70 Bond yields at 1.40% are helping the dollar tone.

Oil is rallying – up $1.10 or 1.85% as investors celebrate the progress made on the $1.9 trillion stimulus bill.  Although that argument might be short lived in the Senate – or maybe not – as a strict party line vote would lead to a tie that Kamala will break…. suggesting that we are getting $1.9 trillion in new stimulus – of which about $1.3 trillion has nothing to do with COVID-19.  But the recovering global economy is sure to ramp up demand for oil….we remain in a very tight channel of $60/$65 range for now…

European markets are all up – following Monday trading in Asia that saw all those markets higher as well.  Eurozone PMI coming in at 57.9 (bullish) …. while German and Italian inflation figures are due out as well.  At 6:30 am – the FTSE +1.41%, CAC 40 +1.35%, DAX +1.00%, EUROSTOXX +1.23%, SPAIN +1.19% and ITALY +1.30%.

Bitcoin – is +$1900 at $47,600.

The S&P closed at 3811 – after testing as low as 3789 and as high as 3861…. a 71-pts swing from high to low…. Piercing short term support at 3809……. On Friday I said that
‘with futures looking lower again and if nothing changes – the S&P can be expected to pierce that key technical support level and if it does – we could expect to see some support at the 3775 level….’

We came within 14 pts of that and with futures up strongly today – we can expect to see the S&P move well back into the channel of 3770/4040.  But we saw how quickly the tone can change and this will be an interesting week for the markets for sure as we get hit with a slew of economic data, an appearance by the FED chair and official payroll report numbers….Expect all of the sectors that have gotten hit the hardest to be the best performers today….Industrials which took it on the chin will do better and a lot of growth names still have room to run after the beating some of them took in the last two weeks.  If early European action is any guide – we can expect to see the indexes up between 1.5% and 2% today…. unless someone throws cold water on it!

As always, I would advise you to stick to the plan, trim where necessary and put money to work in some of the underperformers….

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

Chicken Pizzaiola

You will need:  Chicken breast and thighs on the bone… Olive oil, Oregano, garlic, onions, red and green bell peppers, sliced mushrooms, can have crushed tomatoes (not puree), some red wine, salt, and pepper…. **crushed red pepper flakes (optional).
Preheat oven to 350.

In a saucepan – heat olive oil and add crushed/sliced garlic and move it around for a couple of mins until it is nice and golden…. add a sliced white onion, sliced mushrooms, and julienned bell peppers – turn heat to medium and cover.  When the onions and peppers are soft (about 8 mins) add the crushed tomatoes, oregano and *red pepper flakes.

Turn heat up and bring to a quick boil then reduce heat to simmer.  Add red wine (about 1/2 cup) salt and pepper and let simmer and thicken up…. about 10 / 12 mins.

Next – rub the chicken pieces with olive oil, salt, and pepper – just enough to massage them and prepare them for the skillet.    Heat skillet (high) and add the pieces (if you have a ribbed skillet this works best) You can sear for about 4 mins then turn over and continue cooking for another 4 mins.

Transfer the pieces to a large baking dish and add in the sauce.  Cover tightly with tin foil and place in the oven for 30 mins.  (you can leave it for longer – and the chicken will fall off the bone).

When done – remove from the oven and let rest for 5 mins uncovered.   Arrange on a plate.     Spoon sauce over the chicken pieces and serve immediately.

This works well with a nice, chopped romaine salad, with chopped red onions, cucumbers, tomatoes and cecci beans.  Dress with fresh lemon juice, olive oil, s&p, and a splash of oregano.  Toss well and serve.

Buon Appetito.