Things you need to know
- The FED sends Jimmy B to deliver the news – CPI was HOTTER than even Jay Jay expected. Don’t kid yourself – Jimmy IS a voting member.
- PPI is due out on Tuesday…will that be a 10% print?
- Treasury’s surge up and thru 2%…say goodbye to a 1% handle – 2’s/10’s suggesting more potholes ahead
- Try the Lemon Roasted Feta Chicken Thighs
Oh boy….my head hurts……but let’s recap…yesterday I told you this:
“If the number is stronger than the expectation, then I expect stocks to back off, because the conversation will turn once again to why the FED needs to be more aggressive, I would expect 10 yields to kiss and pierce 2% – setting the stage for 2+% yields going forward….Say goodbye to a 10 yr. with a 1 handle on it. Growth stocks will come under fire again, while value names will retreat but not fall out of bed. Big Americana multinationals that have solid divvies and pricing power will benefit.”
Ok – so CPI came in at 7.5% above the expected 7.3%, the 10 Yr. kissed and pierced 2% – never to look back and stocks took a dive in the pre-mkt and then fell at 9:30 when regular trading began…. only to bounce fairly quickly – attempting to find balance…. attempting to find its ‘CHI’.
(Your CHI is the essence of who you are. Now you know when you found your CHI when – you have learned to listen to and trust your feelings. When you feel connected, when you ‘flow’, when you experience inner strength and when you feel like your life has a sense of purpose.)
And then as the day progressed – as if there wasn’t enough to consider – guess who we heard from? Hint – he is a FED voting member, he loves to hear himself talk, he was used as ‘deep throat’ when he was NOT a voting member, and he lives in St Louis! Bingo…. Jimmy B! go figure…as if we needed him at this moment…. The headline hit the tape – Jimmy B was prognosticating – in his Bloomberg Interview – the headline read:
“Fed’s Bullard Backs Supersized Hike, Seek Full Point by July 1”
(now I’m sure that Andy Sorkin is not happy that he was not the one to ‘break the news’). In this interview- Jimmy said that he supports raising rates by 1 full percentage point by July 1st. – including a possible 50 bps hike to kick it of in March. He then added that it was also possible for him to consider an ‘emergency’ move in between meetings….and that was all the algo’s needed to hear….
Stocks went from being mildly lower to significantly lower mid-day to close on their lows by the end of the day. At 4 pm the Dow lost 526 pts or 1.4%., the S&P’s off 85 pts or 1.8%, the Nasdaq lower by 340 pts or 2.1%, the Russell down 32 pts or 1.5% and the transports off 268 pts or 1.7%………and so it goes…what should have been a methodical, logical transition – had it started in mid-2021 (when it should have) is now going to be an uncontrolled illogical transition as we watch all of the talking heads now opine on what they would have done had they been in control…..Fed Funds are now pricing in 7 rate hikes over the year….and since none of the FED officials (yet) are proposing (or supporting Bullard currently) in calling for a 50 bps hike, – the call for 7 – 25 bps hikes is the default. But that could change – and I suspect it will – so buckle up and strap in – we are likely to get an increase of 1.75% with less hikes but bigger moves.
Now, should anyone really be surprised? Of course not, but algo’s are not humans, they operate on numbers, they don’t understand the context of the conversation, they are unable to understand the tone of the conversation and why do I say this, because none of this information is new at all. We have been talking about it, we have been expecting it, yet the algo’s operate on moment-to-moment basis – so we are in the middle of earnings, and they have been good, and guidance has been good, so the algo’s go all in, unable to read between the lines sending stocks up. Anyone that has been following me is well aware of how I have been positioning this conversation. I have been warning of turbulence in the first half of this year….(as many others have as well). I have been putting new money into value- NOT chasing anything TECH, but not blowing it out either…..It’s about balance.
Inflation at 7.5+% IS a problem, especially if it is expected to move higher – which it is – Just wait for Tuesday’s PPI report……. Bullard’s comments yesterday scream of concern, they suggest that he does not believe that inflation is about to abate, and that is obvious in the tone of his comments. Calling for such aggressive action – swifter moves up, bigger increments, immediate end to taper, emergency inter-month meetings and the beginning of a balance sheet reduction all at one time (after the FED has assured us that they have it under control) screams FIRE! Period. Who is kidding who? Get control of yourself…. the FED has lost control – and while many of us have known this- the algo’s do not…. Which is why, you saw the visceral reaction yesterday and this morning.
The 2/10’s spread (which is the 2 yr. note vs. the 10 yr. note) narrowed considerably. with the 2’s now yielding 1.596% and the 10’s yielding 2.02% – leaving it just 42 bps apart…. this vs. what it was in early January when the spread was 90 bps apart. 0.72% vs. 1.62% – this speaks to the flattening of the yield curve and that is not usually good. A flattening yield curve suggests that investors expect near term rate hikes while they are losing confidence in the economic outlook. Capisce? Which is why we are seeing stocks sell off. Now remember – the market can handle rising interest rates if it is for the right reasons and if they are slow, methodical, steady and measured. What we saw and heard yesterday was that Jimmy is pushing for fast, illogical, irregular and haphazard.
The VIX (fear index) shot higher by 26%, the ETF’s that get you short the markets shot higher as well…. the DOG +1.4%, PSQ + 2.6%, and SH +1.9%. And if you went for the leveraged ETF’s, you won even more…. SPXS – the Direxion 3X levered BEAR S&P ETF…. gained 5.3%! And if you used any of these to ‘hedge’ your stock portfolio you don’t feel so bad this morning…. Just sayin’.
And this morning – US futures are down again…. Dow off by 150 pts, the S&P’s down 25, the Nasdaq off by 120 pts and the Russell lower by 12. None of the eco data is important at all and neither are any of the earnings that are due out. The focus today will be all about dissecting Jimmy’s comments, trying to figure out who is in his camp, and what’s next for the FED. Calls for 8 hikes are now on the agenda….and it will be comical to see how all of the investment banks trip over each other now as they try to make the boldest call. Who can make the most outrageous call? Will it be GS? JPM? MS? C?
European markets are all lower…. the headlines only fueling that move.
“European Stocks Slide After RED HOT US Inflation Print, Hawkish FED Comments” ……
and the algos’ in Europe go into ‘sell’ mode as the buyer’s retreat….and why wouldn’t they? In light of the headlines and the analysis, why would you pay $200 for something when you will be able to pick it up for a 10% or 20% discount in just a few days? In the UK- the British economy grew by 7.5% in 2021 – this vs. the -9.4% plunge in 2020……that’s good, no? And German inflation came in at +4.9% y/y…. again, pushing higher as well and this only adds to the global inflation story. At 6:30 am – all of the European markets are down by 1% – 1.4%.
Crypto’s take a hit on the back of the inflation data…. Bitcoin down 0.7% at $43,400 and Ethereum down 0.5% at $3,100 – leaving these assets down 6% and 16% ytd.
The S&P closed at 4504 – down 83 pts…. after testing as low as 4484. This morning we are about to test that low early on…..the level you need to watch is the long term trendline at 4450…..My guess is that if the tone doesn’t change – we could test and fail at that level and if we do – then expect the algo’s to go into a heightened sell mode as we would test the January 24th lows of 4,222…..or there abouts. We have been talking about this….so now it is happening….no one should be surprised. If you are a long only investor – now is the time for patience…. if you play it from both sides, then just make sure you are watching your ‘short’ hedges…the tone can change quickly (although I don’t think its changing today) but this is not the time to fall asleep.
Remember – stick to the plan. Call me to discuss. Have a great weekend.
Take Good Care
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Roasted Lemon Feta Thighs
Start with thighs and legs – they are juicer…you can add breasts …whatever you prefer………
Start with 6 pieces of chicken, 2 cloves crushed garlic, container of ripe cherry tomatoes, 1 lg sliced onion and 3 potatoes that you have either cubed or quartered or sliced…whichever way you prefer works just fine….
Place chicken, garlic, onion and potatoes in a glass baking dish…. season with S&P.
Preheat oven to 400 degrees.
Next whisk together: 1 cup of chicken broth, 1/8 cup of olive oil, about 1/4 cup fresh lemon juice and some dried oregano. Pour over the chicken, cover tightly and let marinate for 20 mins.
Place in oven and roast for about 30 mins – then remove cover add in the cherry tomatoes and roast for 20 more mins …. basting occasionally with the pan juices. Now turn on broiler and …Broil the chicken on each side until nice and golden brown. Careful not to burn the potatoes or tomatoes. (Keep the pan in the middle of the oven not right up against the broiler)
After broiling – add crumbled feta cheese over the chicken and potatoes and return to the broiler for a couple of mins- just so the cheese softens really. Once completed serve on a warmed platter with Chicken in the center surrounded by the potatoes/tomatoes – serve juice on side. Enjoy this dish with a steamed green vegetable- like asparagus. Season with S&P and a dab of butter – always have a tossed green salad on the side.
Buon Appetito.
