End of Qtr Shuffle Benefits Tech; Joe Presents his Plan – Try the Gemelli

Kenny Polcari Uncategorized Leave a Comment

Things you need to know.

  • End of quarter shuffle – Tech’s benefit
  • 10 yr. yield rises to 1.77% yet stocks rise…are they getting comfortable?
  • Joey makes the presentation – we did not hear anything new – big spending, bigger taxes.
  • Pending Home Sales plunge – as mortgage rates rise and inventory remains low.
  • Try the Gemelli.

It was the last day of the 1st quarter….and investors/traders and algo’s went on a shopping spree…and this is exactly what I referred to in yesterday’s note…. The value trade which is up more than 10% on the quarter came under pressure while the growth trade which was only up 1.4% found plenty of bargain hunting buyers…….

So much for higher yields causing investors to sell stocks……10 Yr. yields went to 1.77% and stocks took off…… Joey presents his $2 trillion PLUS economic plan and investors go all in on the beaten down tech sector (growth) while hitting the sell button on the cyclical (value) sectors…..The macro data delivered yesterday – revealed two sides of the argument….ADP employment surged to 517k new jobs (below the expectation) but well ahead of the trend seen in the prior months, Chicago PMI – surged to 66.3 better than the expected 61- then we saw a drop in mortgage apps of 2.2% and a big drop in pending home sales of 10.6% m/m…..which does make some sense, right?  Prices have gone bonkers, people buying houses sight unseen, bids going thru the offering price by significant amounts and mortgage rates remained low and now mortgage rates are beginning to tick up and that is causing the cost of carrying a house to surge while everyone is telling is that there is NO supply on the market and that people who are considering selling their homes wonder if they will find another home to buy….and that is causing many to just sit tight…..and do nothing…..and if the expectation is for yields to rise – then we can expect mortgage rates to rise as well…and that is adding to the mad rush…..because as the cost of carrying that new house rises – demand will surely slow….(or maybe not…..)

By the end of the day – the Dow Industrials lost 85 pts as investors/traders took some money off the table in a trade that has done very well this quarter….it ended up 7.8% this quarter, the S&P rose 14 pts – after teasing the next century of S&P 4000 – to end the quarter up 5.8%, the Nasdaq spiked higher – rising 201 pts or 1.5% leaving it only up 1.2% for the quarter – did you see that – prior to yesterday’s action – the Nasdaq was actually off 0.3% and the Russell- was by far the quarters most valuable player –  gaining 24 pts or 1.13% leaving it up 12% for the first 3 months of the year.

So, what happened yesterday……?   The tech ETF – XLK rose 1.5%, Utilities – XLU up 0.74%, Communications – XLC up 0.4%, Consumer Discretionary – XLY rose 0.8% and the S&P Growth ETF – SPYG rose 1.2%…. while Industrials – XLI fell 0.3%, Energy – XLE fell 0.7%, Financials XLF – fell 0.7%, and the S&P Value ETF – SPYV fell 0.5%.

Besides being the end of the quarter – it was also all about the Biden economic plan…and here is the kicker – yesterday morning the headlines were screaming about Joey’s $2 trillion plan….(clearly steering the conversation away a $3 trillion headline….) and then he comes out and takes to the podium in Pittsburgh – a city that has been re-born thanks to the healthcare and technology industries to announce Part 1 of his two part economic plan – he goes off and tells us what we already knew – new roads, bridges, airports and new control towers that are apparently running on technology that is more than 20 yrs. old, new marine ports, etc.…..and the list goes on…..but – the progressive end of the party is NOT happy with that- they want more and will mostly get it – because they can jam it through without any GOP support and this morning’s headlines details it like this…the “$2 Trillion PLUS” economic plan…..and when you read the story – the language reiterates it and speaks about it as unveiling his ‘more than $2 trillion infrastructure and economic recovery package’….now, NOT that this is a surprise at all…it isn’t’ but it just goes to show how they try to sell it…..for weeks it was all about the $3 trillion plan – so suddenly it becomes a $2 trillion plan and we’re all supposed to go WOW – look at that!  They cut $1 trillion – let us go…. Clearly the journalist did not get the memo from the WH….

And then he outlined how he intends on paying for it – raising corporate taxes – Period.   Nothing more to say.  But here is the funny part about all of this….it makes no difference – because big corporations do not pay that rate anyway…. after all the deductions and tax loopholes – the rate is more like the high teens….so it is all smoke and mirrors.   And when part 2 of the plan comes out – that is when we will hear that they intend on raising personal taxes – so do not worry…. you are about to get hit as well. That plan is due out later this spring so sit tight ……as the new tag line is ‘we can’t afford NOT to do it’…. Now look – in the end – it is a proposal, there could be lots of debate about it, and then maybe not.

This morning – as noted it is April 1st, it is a new month and a new quarter, so it is gloves off – let us go.  Futures are up…. Asian markets were higher and European markets are higher and it appears that US markets are going higher as well…. Dow futures up 40 pts, S&P’s up 18 pts, the Nasdaq up 129 more pts and the Russell gaining 25 pts….as it appears that global investors are loving Joey’s plan…. where he qualified it as it is time to rebuild America.

Now in my opinion – it made no sense for the cyclical, value stocks to sell off at all OTHER than it was end of quarter and asset managers took some profits in names and groups that have so outperformed during the quarter.  I would expect that this all turns around today….and if investors are really embracing this – then rising rates should not be an issue – and to that I say – Baloney…. Rising rates will be an issue and rising inflation will be an issue as well but let us not throw cold water on this trade today…. Let us let it settle in and enjoy it for what it is…. Sector rotation remains the KEY…..the value trade is not going away…..Industrials, energy and financials will continue to be the leaders…..especially if all of this spending makes its way through congress….and that is going to have to happen quickly  – Democrats will have to force all of this through without GOP support well ahead of the mid-term elections so that the memory fades….and since they don’t need any GOP support (because they control both houses of congress) they can clearly do it.

Lots of eco data today…. Initial Jobless Claims of 675k and Continuing Claims of 3.7 million, Markit US Manufacturing PMI of 59.2, Construction Spending of -1% (which is an outlier – as housing construction is on tear – at least here in South Florida – they cannot build them fast enough…) so if this is a negative number, I would like to see how they explain it.  ISM Manufacturing exp to be 61.5.

European markets are higher…. Eurozone Manufacturing PMI rose to 62.5 up from 57.9 – putting that region well into expansion mode…. the strength coming from Germany – which rose to 66.6 – however – Germans are not spending much money…because retail sales disappointed and only rose 1.2% – well below the 2.1% one year ago.  Overall – European asset managers are excited, and it is a new quarter….…  At 6 am the FTSE +0.72%, CAC 40 +0.32%, DAX +0.40%, EUROSTOXX -0.35%, SPAIN +0.04% and ITALY +0.31%.

Oil – is up $1 at $60.25 after getting hit on the head yesterday…. falling 2%.  OPEC to meet today and investors and traders expect them to extend their current supply cuts into end of May…. Oil is solidly in the $55/$65 range with even higher prices expected as we go from spring to summer….and the world wakes up…. Trendline support is at $59.25 with resistance at $65.50 for now….

Bitcoin – is trading at $58,800.  Ethereum is trading at $1935.

The S&P closed at 3972 after teasing 4000 – rising as high as 3967 and  trading as low as 3966… In all of this – we are at all-time highs….and that is exciting….It appears as if we are about to break another new century mark and the first one with a 4 handle on it…….Remember – I have identified 4040 as trendline resistance….and we are getting very close to that level….Hold tight…

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

Gemelli with Roasted Butternut Squash

This is easy to make and makes a great dish for the first course dinner party you are going to throw.  It presents beautifully on the plate and would be a surprise to your guests…. – No tomatoes – just garlic, sweet butternut squash, a bit of half and half, chicken or vegetable stock, sage, toasted walnuts, and Parmigiana cheese.

Peel, slice and then cube the squash into like 2-inch chunks (or better yet – just go to your local grocery and buy it already peeled and cubed) …. place in a baking dish and season with S&P, fresh garlic, and dried sage – toss with oil.  Do not drown in oil – just enough to coat the squash.

Roast in the oven on like 375 – 400 degrees – making sure to turn at least once – this part should take about 35 mins…. but use a fork to test the doneness of the squash.   Once cooked – puree in the food processor…add 1 cup of 1/2 & 1/2 (or lite cream) and 1 cup of stock.   Season with a bit more s&p. Taste.

Bring a pot of salted water to a rolling boil…add pasta – cook until aldente – 8/10 mins…. Strain pasta – always reserving a mugful of the pasta water…. return to pot – add back a bit of the pasta water and toss – Now add butternut squash sauce.  Tosses add grated parmigiana toss again.  Serve immediately in warmed bowls adorned with toasted walnuts.

Buon Appetito.