CPI is ‘Cooler”, Investors Fearing an Economic Slowdown, Stocks Get Hit – Try the Egg Fettuccine w/Lemon Cream

Kenny Polcari Uncategorized

Us Capitol, Government, Washington Dc, Monument

Things you need to know 

  • CPI is ‘cool’ or just not as ‘hot’ as expected
  • This gives the FED more cover….mkts expects no announcement
  • Investors though are growing more concerned about a slowdown
  • The seasonal volatility is alive and well.
  • Try the Egg Fettuccine with a Lemon Cream Sauce

The CPI (Consumer Price Index) revealed that inflation is NOT running out of control….it is HOT, but it is not overheating – yet (if you even believe it).  It’s tough to believe considering all the other information suggests exactly the opposite and prices in the real world are not coming down at all….at least for the stuff you need every day like food and energy – I think the WSJ article on the front page of today’s issue says it all –

“Inflation Eased in August, Though Prices Stayed High – Consumer price index rose 5.3% from the year before as supplies and labor continue to drive up prices.”

The article goes onto say that used car prices came down (sharply) as did airfare and hotel rates…which I would argue is baloney…what markets are they referring to -because the Florida to NYC market has not seen any relief at all…in fact – as the summer turns to fall – the rates back and forth are up…..the Holiday Garden Inn in FIDI in NYC is quoting $1k for 3 nights….that’s $333/night just in case you were trying to figure it out and it’s a Holiday Garden Inn – have you ever been to one?  You’re lucky if you get one bar (sliver) of soap and a towel never mind a bed with sheets and if you choose to ‘step up one level’ the Marriott at the World Trade Center will run you $1200 for 3 nights….….…. but I’m sure the Pittsburgh, PA to Columbus, OH route must be seeing some relief….so that’s good.

Gas prices, restaurant prices and grocery prices and housing prices all rose and those are the prices that matter to the average American…. I mean how many times are you buying a used car or flying around the country every week? In any event – it is what they say it is, no matter what we are all experiencing.
When the news hit the tape – stocks which were down in the pre-market – as the expectation was for a surge in the CPI – suddenly shot higher and as the bell rang and investors digested this ‘unexpected weaker report’.  You see, this ‘weak’ report now gives the FED just another reason to sit back and do nothing…so the idea was that the expectation of any announcement related to tapering was not happening….and those sent stocks surging…until it didn’t……

Because then the focus turned to a slowing economy, and the massive tax and spend plans that the Democrats are attempting to push through congress via reconciliation….and how the FED will handle all of this….they are between a rock and hard place – on the one hand – they need to normalize, but on the other hand they keep telling us that they can’t – which is nonsense…..they can, they just choose not to….for fear of an unravelling  – an unravelling that will happen at some point and the longer they kick the can down the road, the bigger the unravelling will be…..so, in my opinion – you have to start ….which doesn’t mean you take it all away on day one …it just means you begin to wean the economy and investors off the bottle…..and let the markets reprice – because right now – they are overvalued based on forward looking projections and estimates if the FED were to start tapering.

Atlanta’s GDP now has taken 3rd Qtr. GDP down to 3.7% – this is down from the 6.4% rate seen in the 2nd Qtr. – and this was not unexpected at all – we knew this, but the issue now is, will they take it even lower in the weeks ahead and if it does, what does that mean for the economy looking out?  Earnings which start in one month – are also expected to be up (24%) but down from the 2nd Qtr. pace of nearly 65% – recall that 87% of S&P companies beat across all lines – which is 20% above the long-term average.  Forward 12-month P/E for the S&P is 21 x which is 16% above the 5 yr. avg of 18 x and is 23% above the 10 yr. average of 16.3 x.  Now those valuations make sense if the FED continues down this road, but if the FED should change the rules, then those rates will have to come in and all that means is that stocks will reprice lower…. not a disaster, but it’s not all a bed of roses.

So, by the end of the day – the markets struggled and ended lower…the Dow fell by 292 pts, the S&P off 26 pts, the Nasdaq fell 67 pts, the Russell lost 30 pts and the Transports fell 163 pts.  Every sector lower…. Energy which led the market high on Monday – led the market lower on Tuesday…the XLE fell 1.4%, Basic Materials fell 1.1%, Industrials fell 1.2% and the list goes on.

In the end – we are at a crossroads….and the usual September/October anxiety is alive and well, and no one should be surprised – how long have we been talking about this?  How long have I been telling you to be patient – not to worry – lower prices are coming, and I still think they have lower to go.  Unless of course Jay Powell stays the course, remains dovish and pushes any idea of a tapering out into 2022…. Look – Jay will take it to his grave – this inflation story is transitory; period and the concerns are rising that the economy is slowing and that means the FED has more work to do…. or risk a swift market meltdown and correction….

The 10 yr. yield fell to 1.26% – this is down from 1.33% only two days ago…. the Dollar index also fell, oil fell, gold fell, and stocks fell.   The VIX rose and the tension in the room rose as well….
This morning stocks around the world are weaker…. news that Beijing is at it again only set the tone…. the Chinese economy showed retail sales slowing – the delta variant taking the blame. And then news that Beijing is cracking down on Casino stocks in Macau – sent casino names plummeting overnight…. Wynn Macau down 30%, Sands China down 32% and Galaxy Entertainment lost 20%…. market across the region all lower.

European stocks are lower too…. investors reacting to the Chinese data and the US CPI data….UK inflation ‘soared’ to a 9 yr. high in August – with prices rising better than 3% y/y on top of the 2% y/y rise in July….and this will leave the BoE stuck between a rock and a hard place as well.   In addition – the Germans are getting ready to hold their elections on September 26th – and the race to replace Angi Merkel is on….and the polls are neck and neck as to who will be the next Chancellor.  At 7 am – European markets are all down about 0.5%.

US futures are struggling to stop the bleed…. Dow futures up 32 pts, S&P’s up 7, the Nasdaq up 35 and the Russell up 3.  Investors need to believe that inflation is not an issue and that the economy is not deteriorating…if the markets are to stabilize…if that is not the case – then look for further weakness ahead…. Can Jay Powell continue to tell his narrative and control investor reaction?  We are about to find out.

Eco data today includes Mortgage Apps which rose by 0.3%, Empire Manufacturing – exp of 17.9, Industrial Production of 0.5% and Capacity Utilization of 76.4.

In California – Governor Newsome kept his job as Democrats came out in force to save him.
Bitcoin has found some stability at the $47k level while Ethereum is happy at $3,400 even as SEC Chair Gensler vows to take on the industry.

Microsoft announces a $60 billion stock buyback while they raise their dividend…expect Bernie and Lizzy to have thoughts on that.

The S&P ended the day at 4443 – we tested near to the 50 dma trendline (4427) which appears to be offering some support…but we will have to really test it to be sure that the buyers are defending that level. Expect to see that again…. which I think may come today.

Remember you can text the word INVEST to 21000 on your cell phone to get my digital business card. Feel free to download it and send me off an email or text. Happy to engage and talk markets, planning, thoughts, concerns, and ideas.

You can follow me on Twitter @kennypolcari and on IG @kennyp1961.

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Take Good Care

Chief Market Strategist, Consultant
kpolcari@slatestone.com

Egg Fettuccine w/ Lemon Cream

So, this was a dish that I cooked on Sunday evening… – this dish came after the Clams al’ Fuoco and was served with the grilled Halibut – recipe and picture tomorrow along with roasted carrot with a honey glaze, roasted fingerling potatoes tossed in olive oil and seasoned with s&p, garlic powder and onion powder…. then roasted in a hot oven.  We included a great big dish of fresh mozz and garden tomatoes along with Green Tomato Bruschetta…. all so good.

For the pasta you will need:  1 lb. of egg fettuccine, 1 qt of heavy cream, 1 stick of butter, 4 lemons for both the zest and the juice (you might only use 3 but have 4 available) and plenty of fresh grated parmigiana cheese.   

Start by bringing a pot of salted water to a rolling boil – then turn to simmer until you need it.
Now in a large sauté pan that will accommodate the cooked pasta – add the stick of butter and melt it slowly on med heat.  When it is melted – slowly add ½ of the qt of heavy cream….and keep heat on med – you don’t want this to boil – but you want it to heat all the way through.  Now – add the zest of two lemons and the juice of one lemon.  Stir to combine.

Now add the other ½ of the qt of heavy cream to the pan and continue to stir.  Taste – You need more lemon…. add the zest of the 3rd lemon and the juice of the second lemon.  Stir and taste…. It probably is not lemony enough yet…. now look – you don’t want it to be overpowering, but you need to know that the lemon is there.  So now you have to slowly add the juice of a third lemon – stir and taste.

Is there the hint of lemon?  If not, add the juice and zest of the 4th lemon…. but add the juice slowly – and taste…it can easily go from just right to too much.

Once you are happy with the taste – add a handful of the cheese and stir to combine…. taste – need more?  Then add another handful….

Add the pasta to the pot of water and cook until aldente.  Be careful because egg fettuccine cooks faster than regular fettuccine…. When done – using a set of tongs – remove the pasta from the water – let it drain some of the water and then add to the sauté pan.  Do this until all the pasta has been transferred.  Mix, careful not to break the pasta –

Serve in warmed bowls – adding a bit of the pasta water to each bowl so that the pasta is moist.  Mix – the pasta will suck up the water…. make sure to add some of the lemon cream sauce on top and dust with chopped parsley for color.   Always have extra cheese on the table for your guests.

Buon Appetito.