Energy ends the 1st half up 42%! Value beats Growth – Try the Summer Pasta

Kenny Polcari Uncategorized

Light Bulb, Idea, Creativity, Socket

Things you need to know.

  • Value stocks end the quarter on a plus tick, while growth stocks end on a minus tick.
  • Energy ends the 1st half up 42% while Utilities eke out a 1% gain.
  • Treasuries at 1.48%, DXY at 92.49, Oil at $74.50 while gold sits at $1,776
  • Eco data today and tomorrow will drive the action.
  • Try the Summer Pasta

So, stocks closed out the quarter and the 1st half of the year making new records…The ADP reports showed that we created more jobs than expected and pending home sales rose by an astonishing 8% vs. the expected -1%…. the Dow added 200 pts ended the 1st half of the year up 12.7% leaving it just 200 points shy of the closing record. The S&P closed 5 pts higher – setting another record close for 2021 and ending the day just a hair below 4300!  The Nasdaq lost 24 pts as some money moved out of tech and into the recovery, cyclical, reflationary trade – (thus the surge in the Dow) leaving it sitting at 14,503 while the Russell treaded water – adding 2 pts to end the day leaving it just 50 pts or 2% below its all time closing high.

And in a move that should cause some concern – the Transports which ended the quarter and 1st half up 19% is off 8% from its early May high….and what is now seen as a split among the Dow indexes – causing Dow theorists to begin to wonder which index is telling the next part of the story…..You see, there is a split – the Industrials going higher while the Transports have turned south – and if order for the theory to work – both those averages must move in the same direction and while broadly they are both higher on the year – recently they are beginning to diverge – with the Industrials continuing to go higher while the transports have turned lower….and this is now the conundrum for true Dow theorists.

The Industrials broke short term support in June but has since taken it back and is sitting right on it, the Transports broke the short term support also back in June but has failed to take it back, and in fact has continued to move lower and is now trying to stabilize at the intermediate term trendline…a failure here could see a change of heart not only for the transports but for the broader market as well….So sit tight because earnings season is about to begin and expectations are running hot and high.

And remember – the third quarter (July – Sept) tends to be a volatile quarter and by historical standards is usually the worst performing quarter of the year…. which does not necessarily mean a big sell off per se, but rather more volatility which will test the investor psyche.  I suspect that this is what we will see again this year…. July and August are typically summer vacation months, volumes tend to be lower, allowing volatility to be higher….and with earnings season about to begin its anybody’s guess….so all I will say is – hunker down and do not let the noise disrupt your plan.

Of the 11 S&P sectors – Energy XLE – was the clear winner + 42% ytd….Financials – XLF up 24%, Real Estate – XLRE + 21%, Communications up 20%, Industrials – XLI + 15.6%, Basic Materials – XLB +13%, (yet the homebuilder sub-sector – XHB is up 27%),  Tech – XLK +13%, Consumer Discretionary + 11%, (yet the retail sub-sector XRT is up 51%),  Healthcare – XLV +11%, Consumer Staples – XLP + 3.7% and Utilities up 1%. And that makes sense for Utilities – right?  Utilities will do better when rates rise – they are boring and defensive, and they are the last to participate especially if the investment psyche is as bullish as it is.   Value is outperforming growth at 15% vs. 13.8% while the 10 yr. treasury ended the 1st half yielding 1.46%.  – well below what many had imagined when it was teasing 1.8% back in March putting pressure on stocks. But that was then, and this is now, and low yields are offering continued support for equities.  The VIX – (fear index) supporting that thesis by ending June at 15.83 – a level that suggest complete complacency – which usually means – trouble ahead (at some point).   Gold ended the quarter up 5%, while Oil surged by 27%,

So, let us just put the yield question on the table…. If inflation is up why are yields down?  That is illogical (under normal circumstances – which this is not…)  So first – the sense is that the CPI and PPI data is not real, rather it is what Jay says it is – Transitory – and here is his reasoning….In May 53% of the rise in core prices was for used cars, auto insurance and airfares and that is down from 64% in April – so the trend is lower for those three items…Great….What about the stuff that we actually need on a daily basis like food, energy, housing?  No comment.Next – let’s not kid ourselves…the FED is buying $120 billion a month in it ‘asset purchase program’ and until this stops those purchases of short and longer dated bonds will continue to flood the markets – essentially they have capped rates by being the buyer of last resort….which is why the taper conversation will create the angst that many fear…because once the FED steps back and is no longer the buyer of last resort – watch what happens then….prices will fall because buyers won’t be forced to compete with the FED in the open market sending yields higher….Just sayin’.  Not trying to create anxiety – just telling it like it is….

This morning – the first day of the 3rd quarter has US futures rising…. just a bit…. Dow futures up 45 pts, S&P’s up 6, Nasdaq is flat, and the Russell is up 9 pts….  Eco data today is all about Initial Jobless Claims – expectations of 388k claims and Continuing Claims of 3.34 mil…. Markit US Manufacturing PMI of 62.6, ISM Manufacturing of 60.9 (both very strong), Construction Spending of +0.4%.
OPEC + makes its announcement today – sometime after 10 am est…. expectations are for the cartel to slowly increase supply by 500k/barrels/day beginning in August – it could be as much as 1 million/barrels/day…….but do not expect this to put pressure on prices at all….demand is robust, the economy is strong and the world is still waking up…In fact – oil is up 68 cts again this morning trading at $74.16 as the sun begins to rise over east coast.  Surely though, this must be transitory and the prices we are paying for gasoline are not what they appear.

European markets are revving their engines…all higher by about 0.5%.   Lots of data points across the region…. EZ Manufacturing PMI coming in at 63.4 up from the flash estimate of 63.1.  UK Manufacturing PMI at 63.9 all while inflation pressures remain ‘transitory’ as well.

Bitcoin is down 4% at $33,000, Ethereum is trading at $2.100 and doggey coin is trading at .22 cts…  I have a great podcast – sponsored by Weiss Ratings – coming out today…. – in it I speak to Juan Villaverde – an expert at Weiss ratings in the crypto/blockchain world. You can access the podcast here:

https://www.weissinvestor.com/

…and you can find it on Apple podcasts, Stitcher and Spotify.  It is a not to be missed episode.

The S&P closed at 4,297 – kissing 4300 again yesterday -That is the 2nd time…and typically the 3rd time is a charm and if futures are any indication – we are going right up and through today… and if European markets are any guide – we could see the indexes up about 0.5% – 1% today………But much will depend upon what the chatter is surrounding tomorrow’s NFP report…and if yesterday’s ADP report is a guide – we can expect tomorrow’s report to be better than expected as well.

The current S&P channel is 4226/4406….and at ~4300 we are smack in the middle of that channel….so there is plenty of room to ‘play’.

Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss the markets or a plan.  You can now get a video version of this note on my YouTube Channel.

https://www.youtube.com/channel/UCI-MTlH2FdbMNvpZ2b_ELrg

You can follow me on Twitter – @kennypolcari

Take Good Care

 

Chief Market Strategist, Consultant
kpolcari@slatestone.com

Summer Pasta

This is a great summertime dish and easy to make. It can be a main course or a side dish on your 4th of July BBQ.  You can eat it hot, cold or room temp – it is very versatile and looks great when presented on a striking white dish.

You will need fresh garden tomatoes, basil, garlic, red onion, fresh Mozzarella, grated Parmegiana or Locatelli Romano cheese….and a pasta of your choice…. Penne Rigate, Farfalle, Mostaciolli Rigate, or Tortellini’s all do very well…. Take your pick.

Essentially – you are making a summer tomato salad and then putting it over pasta….so Dice the tomatoes, slice the red onion, slice the garlic, add chopped basil, chunks of fresh Mozz, s&p, “splash” of water, and a couple turns of olive oil.   (You can also add a bit of Oregano – but not too much) try it first without….

Prepare and let it sit out and marinate.  It will create its own juice the longer it sits.  You want it to be room temp when you mix it with the pasta.  If you make it the day before then remove from fridge and let warm up for about 30 mins….

Now bring a pot of salted water to a rolling boil – add pasta and cook for 8 / 10 mins…. or until aldente.  Strain – always reserving a mugful of water…. return the pasta to the pot – add back 1/4 mug of water to re-moisten.

Toss – wait a min or two so that the pasta absorbs the water…you do not want a puddle of water in the bottom of the pan.  Now add the tomato salad, 2 or 3 handfuls of grated cheese and toss well.  Serve immediately in warmed bowls.  Again – set the table outside, turn on some relaxing music to set the mood, light the candles and enjoy the setting sun on a great summer eve.   Never rush – enjoy the moment.

Buon Appetito.