RISK ON!, CPI could dent psyche – Are We Playing – I’ve Got a Secret? – Try the Mac & Cheese

Kenny Polcari Uncategorized

Things you need to know.

  • Headlines say it all
  • Was the TECH investor reaction in fact another ‘over-reaction’?
  • CPI today will dominate the conversation – will the gov’t play “I’ve got a secret’?
  • 3’s 10’s and 30’s coming to market – How will investors respond and where will yields go?
  • Open states are Booming….It’s time to get going…
  • Not your Kids Mac & Cheese

The headlines say it all…

“Nasdaq Roars Back; S&P Not Far Behind”

“Nasdaq Jumps Most in 4 Months in a Risk on Reversal.”

“Back in Vogue – Investors Pour into Tech Stocks.”

“Tech Shares Bounce Back with Biggest Advance of the Year.”

Palooza – the dictionary defines this word as a ‘wild and crazy extravagant party’ ….and yesterday was a Palooza for anything Nasdaq, anything tech, anything considered ‘growth’.  I mean look corrections always create opportunities – always…. you just must be sure that the correction is over…. – right?  Tepper telling us that it is impossible to be bearish on stocks, Yellen telling us that there is NO inflation whatsoever and Cathie Wood – doubling down in her ARKK ETF telling us that the overreaction to the rise in rates is ridiculous and that the broadening out of the market will – in the end prove to be her saving grace… We can only hope….

And so – investors, traders and algo’s go all in….taking the Nasdaq up 3.7% to end the day up 465 pts….leaving that index only 7% off its all time high…..bringing it once again back into the ‘normal trading band’….all while the Dow adds 30 pts or 0.1%,  the S&P rallies back 55 pts or 1.4%, the Russell tacks on 42 pts or 1.9% and the Transports moves higher by 66 pts or 0.5% – and that makes sense because it was really only the Nasdaq that got clobbered hard in the prior 2 weeks….

Just a note – yesterday’s move in the Nasdaq caused many of the ‘growth’ names in the ARKK ETF to surge sending that ETF up 10.4% after Cathie’s plea for investors to stop the histrionics…. (see my note from yesterday.)

10 yr. bond yields stabilized at 1.54% – which was down from Monday’s 1.59% after Treasury Secretary ‘Grandma’ Yellen assured us that the $1.9 trillion relief package will surely NOT cause inflation to spike – no, not happening…. now go back to the table and eat your dinner….

All while commodities soar and oil tests levels not seen since October 8, 2018…..and likely to go higher in the months ahead as the world awakens and the spring/summer driving season heats up……and like I pointed out last Friday – gas at the pump has risen by 43%,  Live cattle up 7%, lean hogs up 22%,  Corn up 14%, Sugar up 9%, Lumber up 15%,  ever since Joey moved into 1600 Pennsylvania Ave, in Washington DC.  But Janet tells us ‘there is nothing to see here.’

But here is what they are not saying – at least out loud.   In an article published by National Affairs – John Cochrane makes this point clearly saying:

“The key reason serious inflation often accompanies serious economic difficulties is straightforward: Inflation is a form of sovereign default. Paying off bonds with currency that is worth half as much as it used to be is like defaulting on half of the debt. And sovereign default happens not in boom times but when economies and governments are in trouble.”

And today we are going to get a read on just that………….Today at 8:30 we will get the CPI report – The consumer price index report…..and by now you’ve heard me tell you about the consensus estimates….+0.4% composite and +0.2% ex food and energy m/m and 1.7% and 1.4% y/y….If we don’t see an increase in these reports vs. the estimates then all I have to say is that someone is playing ‘I’ve got a secret’!  Recall that the PPI two weeks ago suggested building inflationary pressures – producer prices rose much faster than the expectations….so it must trickle down to the consumer level unless of course all those producers are going to ‘eat the costs’ – and you know that ain’t happening….  So pay attention.

As expected the House is expected to pass the revised version of the $1.9 trillion relief bill – and send it over to the WH (via Fed-Ex) for Joey’s signature….and as you can imagine the debate rages on about what we just spent $1.9 trillion on…..states and pension systems are big beneficiaries……and as noted yesterday – 50% of the 25 – 35 yr. old crowd has every intention of taking their check and putting it into stocks….Hmmmm…..Which really means – who are we sending checks to?

This morning – Investopedia reveals that more than 45% of their readers are bullish and see no other place to put their money….and their biggest concern is political uncertainty, next would be some other black swan event…. covid-19 is way down on the list of concerns – so far down it almost did not make the list…. Crypto?  20% now say they are all in….and have or will begin to allocate some percentage to their portfolio….in fact – Cathie Wood (of Ark Investments) told us yesterday that the tradition 60%/40% portfolio (stocks vs. bonds) is now 60%, 20%, 20% – Stocks, bonds, and crypto…  a percentage I do not agree with, but hey – that is what makes a market…buyers and sellers.

Futures are up….as global investors consider the tech action yesterday…. Dow futures are up 120 pts, S&P’s are +10, Nasdaq up 25 pts and the Russell is adding 10 pts…. the focus is squarely on the CPI today….and on the dizzying surge in tech…. Some talking heads suggesting that yesterday’s spike was again an over-reaction (to the upside) and that the pendulum will swing back as it continues to digest all the economic signals being thrown at it.  Remember we are about to get $120 billion of debt auctions beginning today (3’s, 10’s and 30’s) ….and that will create another message about investor psyche – strong demand will cause yields to decline and stocks to rally, while weak demand will force yields to rise and once again cause stocks to decline as we saw in early March…. Currently 10 yields are hovering at 1.56%.

The VIX (Fear Index) has declined again and is now below all 3 trendline supports trading at 23.53…if the eco data remains benign then expect the VIX to continue to decline – suggesting complacency while an increase in the CPI and a weak showing at the debt auctions will surely cause the VIX to surge up and through those trendlines causing unrest in the markets.

Texas is now mask mandate free and business in Texas is BOOMING (remember – while the state is not mandating masks – many are still choosing to wear a mask and that’s fine) ….restaurants are packed (100% capacity), people are out and about, Life is returning to normal….Oklahoma, Nevada  and Florida are all booming….can’t even get a reservation at your favorite local restaurant – businesses are open, office spaces are open, the panic of last year being replaced by a sense of normalcy….Iowa dropped their mandate a month ago and their infection rates are down 90% and business is booming there as well…..but somehow the main street media is choosing not tell this story but rather continue to accentuate the negatives vs. the positives.

European markets are up…as investors consider the action yesterday….and what is coming today.  There is no eco data to drive the action…. there are some earnings that will drive specific stock action – but not the broader market.   At 6:30 am – the FTSE -0.11%, CAC 40 +0.51%, DAX +0.36%, EUROSTOXX +0.38%, SPAIN +0.28% and ITALY +0.26%.

Oil – up small at $64.18.

DXY as predicted – rose to resistance and failed…. Investors waiting patiently to see what happens with the debt auctions.  Sit tight.

Bitcoin – is up $400 at $54,700.

The S&P traded in a 54-pt. range – piercing 3900 once again…before settling in at 3875. It is now once again above all 3 trendlines and will use the short term trendline at 3828 as support while keeping 3960 in the line of sight as the level to pierce….  Notice that we remain in the 3770/4040 channel – it is all good.

The MSFT data breach sent cybersecurity names on a tear and my suggestion that you use HACK to play it saw a move up of 4.4% to end the day at $56.32…the next target is $59.25 with a longer-term test of the February highs of $62.75 ish…. or a 10% move from here.  In the end – Cybersecurity will remain front and center and should be part of what you define as ‘tech’ in your portfolio.

Stick close…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

Not Your Kid’s Mac & Cheese

Just feeling like we need some old-fashioned comfort food that makes you feel good – just thinking about it makes you warm and fuzzy.

For this you need:  2 c of whole milk, 3 ½ c of water, 1 lb of elbow macaroni, 8 oz of American cheese – shredded, butter, 1 tsp of Dijon mustard, 7 oz of gruyere cheese – shredded, 2/3 c of breadcrumbs, olive oil, s&p and fresh grated Parmegiana cheese.

Bring the water and the milk to a boil – Add ½ tblspn of salt to the water.  Now add the macaroni and reduce heat to medium low and cook for about 6 mins…. or until aldente… (You do not want mushy pasta).    The pasta should suck up most of the water as it cooks – if it sucks it all up – then add just a bit more to keep it ‘moist’.

When cooked add the shredded American cheese and mustard – stir constantly until cheese melts – should be no more than 1 min or so…. Take it off the heat and now add in the shredded Gruyere mix just to distribute and then cover the pan and let stand for 5 mins.

In the meantime – add the breadcrumbs to a frying pan and a dollop of butter – cook over med heat and stir until all browned…. now combine the breadcrumbs with the fresh grated parmigiana cheese.  Remove from heat.

Now – go back to the macaroni – stir and transfer to a serving platter.  Sprinkle with the toasted breadcrumbs and serve.  Yum.

Buon Appetito.