Yields Retreat/Tech Rallies – Try the Greek Style Chicken

Kenny Polcari Uncategorized Leave a Comment

Things you need to know.

  • Yields retreat sending Tech Stocks surging
  • Talking heads telling everyone ‘not to overthink it’
  • Cathie Woods is the new Warren Buffet – predicting $3000/sh for Tesla
  • Oil under pressure, the Russell under pressure – makes sense as they have so outperformed in recent weeks
  • Try the Greek Style Roasted Chicken.

Good morning America! And Good afternoon to my friends in Europe and Good evening to my friends in Asia – It is Tuesday – March 23rd….and markets are under a bit of pressure after yesterday’s surge…… that saw 10 yr. rates decline – ending the day at 1.645% – something that now seems like a bargain causing the trader types to go all in…..BUY everything…..……when last week – 1.65% sent tech stocks down the drain….funny how that works, right?  Upon the initial surge up and through 1.6% – traders chose to hit the SELL button in a shoot first, ask questions later mentality……– causing all kinds of angst and then yesterday as it was trading at 1.65% it was all a rush to BUY the same names, they all sold only 1 week ago…. And so, it goes….

The logic is at first hard to understand for some, while others know full well what goes on……and what that is – is comfort and new consideration of the economic environment – leaving the talking heads – think FED members, think street analysts and economists all telling investors/traders and algo’s that there is nothing to worry about – rising rates suggest an improving economy and rising inflation and, in the end, an improving economy is what you want.  In addition, the FED is committed to holding rates at zero for the next 33 months, has plenty of tools in their toolbox to address any spike in inflation all while the administration continues to send money to bank accounts around the country…. while promising to hit the wealthy extremely hard and take some more of their money….

So – do not over think it!  Go all in….and they remind us that rates were higher in the months prior to the pandemic….and the market was ok with it….but again – I remind you that when rates were 2% last January – all of the indexes were well below where they are today….- and the only reason the indexes are where they are today – is because the pandemic hit, the FED slashed rates, the 10 yr. fell to 0.4% as the gov’t handed out all kinds of free money after they forced a national shutdown sending the economy into a tailspin.  Stocks sold off nearly 30% in a short period of time and then it started to turn around……. analysts once again telling us that it would be ok and with investor searching for yield – there was NO alternative – so buy stocks….and buy stocks they did – sending the indexes up strongly while sending the tech stocks to heights never imagined……. stretching valuations beyond comprehension…. all while the talking heads told us not to worry.  Stocks surged to new highs and after the angst of last week – stocks pushed higher yesterday…. ending the day in the green.  The Dow adding 103 pts, the S&P up 28 pts, the Nasdaq roaring ahead by 162 pts while the Russell came under attack – falling 20 pts as investors moved out of some of the value plays and back into the growth play….

And then we got hit from left field by the newest voice on the markets and the biggest supporter of disruptive technology….Cathie Woods of Ark Investments…and if you haven’ t heard her name – then you haven’t been paying any attention…..Cathie is the CEO of Ark Investments and she has seen her fund go from $5 bil in 2018 to $50 billion in 2021….her performance absolutely smashing all records as she goes all in on names like TESLA, SHOPIFY, ZOOM, SQUARE, ROKU, ZILLOW, CRISPER – all disruptors…..Her style is ‘thematic disrupting investing’ – think genomics, fintech, electric cars/technology….vs. just a broad swath of investments…she is targeted and she is all in…and yesterday she hit the markets with a new price target for TESLA – $3,000/sh by 2025….and that sent the Cathie followers into a frenzy…..all of her names enjoying the company of buyers as investors hang on her every word – much like many did years ago when Uncle Warren would speak….and I say would speak – because he is speaking a bit less  – he is 90 and his side kick Chucky Munger is 97 yrs. old….so they are napping a bit more leaving a void in a very public space – and Cathie is more than willing fill that void…and she does – very well.  And the media is eating it up….

Economic data though, was not as exciting…. Chicago Fed Index fell 1.09 vs. the expected increase of 0.72….and Existing home sales?  They bombed out…. falling 6.6% vs. the expected fall of 3%….and this all credited to what exactly?  Supposed lack of inventory…. vs. lack of demand….and while I do agree that sellers are wondering what I do if I sell my house – I am taking the stand that buyers are tiring of the monthly price increases that never seem to stop all while rising mortgage rates makes those houses even more expensive.  My sense is that housing prices too have become a bit stretched and like stocks – buyers will re-evaluate what those prices look like as rates rise….

And that brings us back to rates rising….and the expectation is for 10 yr. and the 30 yr. rates to move higher in the weeks ahead vs. lower…but with investors now comfortable with 1.65% – 1.75% – the next pain point will be 2% – the amount of readjustment and volatility clearly dependent upon the speed at which we hit that yield target.  Because – while tech rallied again yesterday – the longer-term outlook is for tech to continue to struggle in a rising rate environment…. which does NOT mean you abandon the group at all……it just means they may not repeat the outsized returns that we saw last year…. which means that asset managers will be looking for opportunities in other sectors…think VALUE.  And while value suffered a bit yesterday – ytd – the value trade is up 10% vs. the growth trade up only 1%….

Now in the end – it was a mixed day yesterday…Tech – XLK +1.75%, was the clear winner…. the next best performer was Communications – XLC +0.66%, followed by Consumer Staples and Discretionary – XLP & XLY up 0.50%.  The value trade saw the Russell small cap/mid cap fall 0.9%, Energy – XLE down 2%, Financials down 1.7% – but the financials still reeling from the elimination of the SLR initiative last week – as investors consider what that outcome means over the long term.  Again – I am not negative on that development at all…I think its good that the FED is forcing the big banks to be better capitalized…. how can anyone really think that is a negative….?

Fed Chair Jay Powell and Treasury Secretary Janet Yellen are to appear on Capitol Hill today…what will they say?  Are you kidding?  Are we really asking that question……he will address rates and the Fed’s mandate while she will speak about full employment and an improving economy, Biden tax policy and fiscal support?   Expect members of congress to question them about congressional oversight of the Treasury and more about the FED’s Pandemic response….

US futures are off a bit today…. Dow futures off 130 pts, the S&P down 15 pts, the Nasdaq off 20 pts and the Russell down another 20 pts…. the 10 yr. yield is down a bit more – hovering around 1.64% but that does not appear to be helping the mood – yet.
Eco data today includes New Home Sales – and they are expected to be down 5.7%, while the Richmond Fed Manufacturing Index is expected to be 16.

The US Treasury is set to auction off 2, 5 and 7 yr. debt today…. let us see how that goes and what happens to rates.

European markets are all lower….as the newest wave of lockdowns sweep across the region…Germany the latest to impose new lockdowns and that follows the latest lockdowns in France, Italy, Portugal, etc.…. The UK unemployment rate fell to 5% in the final qtr. of 2020.  And while this is not Europe per se event, investors across Europe are watching the snap election in Israel….as voters there are trying to oust Benjamin Netanyahu and replace him with Gideon Saar…. the result of this election will have implications for the US as well, but my sense is that it will not force any kind of change in investor psyche in Europe or in the US.

AstraZeneca in the news again…. regulators around the world are once again questioning their trial results and that is causing the stock to be quoted down $3 or 5%.  At 7 am the FTSE -0.45%, CAC 40 -0.67%, DAX -0.56%, EUROSTOXX -0.54%, SPAIN -0.11% and ITALY -0.90%.

Oil came under pressure yesterday and is down another $2 this morning – at $59.37.  as concerns mount over more European lockdowns…. New concerns building around global travel and global business travel…. sending the demand story up on the Reddit scale…. Again, I am not buying it…. I continue to believe that oil is going higher and once the spring/summer driving season kicks in – and vaccinations allow for more travel and socialization – we will see demand surge.  We remain in the $55/$65 range…. Short term support is at $58.48 – where I fully expect it to hold…So sit tight….

Bitcoin – got slammed yesterday…. falling $4k and is now trading at $54,700.  Ethereum lost $100 and is trading at $1690.

The S&P closed at 3940 – taking us comfortably back into the mid-century….  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…. The spike in yields last week – did see us breach 3900 and then bounce back.  Today’s weakness will see us test the 3915/3920 range out of the gate – and depending on what happens with the auctions today could see us test 3900 again.  Remember if we breach 3900 then trendline support is at 3862….and my gut tells me that we will be testing it in the weeks ahead.  Recall that next Wednesday is the end of quarter rebalance….so expect some more volatility in the days ahead.

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

Greek Style Roasted Chicken Parts

Thighs and legs are best for this dish – bone in and skin on.

You need the chicken, s&p, garlic, a splash of vinegar, olive oil, oregano and lemon juice and feta cheese.

Preheat the oven to 400 degrees.

Place the chicken in a large baking dish – add the vinegar and a splash of olive oil – massage the pieces. Now season with s&p and Oregano.  Massage again.  Squeeze a lemon over the chicken and then place in the oven uncovered.

Roast for 30 mins, then turn the chicken. Roast for another 30 mins…. You want the chicken to be nice and golden brown.  Once you get that – take the Feta cheese and crumble it all over the chicken and roast for another 10 mins or so….

Remove – place on a platter and serve family style.  You can serve this with roasted potatoes and a big salad.

Buon Appetito.