Things you need to know
- The Death Cross takes the S&P
- China covid cases surge (conveniently)
- Chinese Tech continues to get slaughtered – Analysts now saying China is ‘un investable’ – which is very different than what they told you last year
- PPI today – and FED tomorrow….
- Try the Marinated Pork Loin
Last week I warned you of the Death Cross that was about to hit the S&P…. a cross that hit the Russell on January 16th, Nasdaq on February 16 and the Dow on March 8th. Yesterday it hit the S&P and the Transports are only days away from their turn. Recall the Death Cross is a technical formation that dictates that when the short term trendline (50 DMA) crosses down and thru the long term trendline (200 DMA) it typically suggests even more weakness ahead…… and that was clearly true for the Russell, Nasdaq and Dow and now it is most likely true for the broader S&P as well.
Stocks continued to push lower after an early morning rally that supposedly saw Russia say that they would come to the table to hold constructive discussions fell on deaf ears… As the day wore on, it became clear (yet again) that Vlad has zero interest in talking – at least until he manages to destroy a country and light the place on fire, throw out their citizens and take control, then maybe he’ll talk and at that point – why would anyone want to talk to him? And as if that wasn’t enough – guess what else just ‘happened’ to happen? Covid is apparently rearing its ugly head again in China…5000 new cases/day…. (vs. the 50 –100 that was the norm recently). Doesn’t that feel the least bit curious to anyone? And they are quick to go into ‘lockdown’ mode again in Shenzhen and Changchun – 2 KEY manufacturing centers of the country and this raises fresh concerns about energy demand (thus the pullback in oil -which was most likely overdone anyway on the upside – at least in the short term) and the SUPPLY chain all over again…. Add in the complete collapse of China tech names that should ‘delisted’ from US exchanges because they don’t want to play by any of the rules – and you have every reason to hit the sell button…. but should you? Well, on the obvious losers – you should have done weeks ago, but on the big, boring, cash rich, dividend payer Americana names – I would say -don’t be so quick to sell vs. buy. Remember – as Warren Buffet says – you want to buy when others are fearful and sell when others are greedy.
And while it still feels a bit fearful – what we need to signal a bottom is a complete washout, a capitulation….defined as the act of surrendering – that’s when the algo’s go into a frenzied sell mode – unable to recognize what they have done, fed by mathematical formulas that dictate how they react – as selling begets more selling which in the end begets even more selling (Call me to discuss the crash of ’87 if you want to understand how that works). We all know it; we have experienced it…. it’s ugly, its uncomfortable, but in the clouds, there is always a silver lining – if you stick to the plan.
In any event – the Dow ended the day flat…. the S&P fell 32 pts, the Nasdaq off 265 pts, the Russell down 38 and the Transports down 102 pts. Energy – 3%, Tech down 1.8%, Consumer Discretionary down 1.6%, while Healthcare rose 0.7%, Industrials + 0.3% and Financials +1.24%. The value trade beating growth as Value is only down 5% while growth is tanking down 19%.
The minute the ‘lockdown’ talk starts then the algo’s hit everything…including the big mega cap tech names – think Apple – 2.7%, Amazon – 2.5%, Google – 3%. Look between the war in Ukraine, the Russia BS, the Fed, the lack of clarity around interest rates, the reduction of the $9 trillion balance sheet, a slowing economy, possibility of a recession, new covid outbreaks in China, talk of ‘lockdowns’ out of control inflation it doesn’t feel like a bed of roses at all…in fact – it feels pretty ugly.
Today brings us the February PPI report and we have been talking about his for days now. Expect it to be hot and that will suggest that CPI will get hotter in the months to come…. The estimates have today’s report coming in with a 10 handle on it…. a 10 handle! (Just fyi – that’s not good, a 10 handle means that inflation at the producer level is running at 10%….a good 8% above the FED’s target range of 2%) – but who’s counting….Apparently NOT the FED……in the end, they caused this, they stuck around for way too long and missed all of the RED flags…..telling us not to worry, they have this under control…..How’s that working for you? And, I wouldn’t mind – but it’s not like this wasn’t a topic of discussion – in fact, it started back in June 2021…that the pressure was building….signs started to appear all over the place, housing, basic materials, construction materials, food and energy…..economists all offering their opinions, backing up their analysis with hard facts – yet the FED seemed to ignore those same facts – and so now, we have what we have…and the FED is going to be forced to act aggressively.
And that starts tomorrow when the FED announces their intention…. now while we all expect a 25 bps increase tomorrow – it will be in what he says about future increases and the pace and timing of any balance sheet reduction…. Will he offer clarity, or will he leave it cloudy, open to speculation, allowing others to drive the conversation? Look – it is a two pronged problem……Downward pressure on growth and upward pressure on inflation…..while the FED is supposed to be concerned with both – increases in rates will attempt to cool inflation but it will also put more pressure on the economy…..resulting in what many are now calling – a Recession……And again – I remind you of what Paul Volker had to do to tame inflation that was running at better than 10% back in the early 80’s…..he JACKED rates up to 21% and brought the economy to a halt. Housing prices collapsed……. which is the fear once again….as rates go up, money becomes more expensive, mortgages get more expensive and housing prices come down to adjust for the increase in carrying costs….and so now you have a declining stock market, a declining housing market, continued rising prices and economic malaise – that is not a Win, Win….by any stretch. I am not sounding the alarm bell; I am just laying it out so that you go into this with your eyes wide open.
Overnight – Vlad – hits Kvyv residential neighborhoods with a barrage of missiles, China locks down thousands of people, forcing work closures, Chinese tech names continue to get drawn and quartered. Hong Kong down 5%, China off 4.5%….
European markets all off by 1.5% – 1.7% and US futures were lower but turned up at 7 am…. Dow futures up 15, S&P’s up 5, the Nasdaq is up 45 and the Russell is off 5. The 10 yr. treasury is yielding 2.11%, the 30 yr. is at 2.45%. Oil is under pressure because of the new China covid story……lockdowns there conjure up images of lockdowns sweeping across the world yet again, so oil is suffering.
The talk today will be all about US macro eco data and what the FED will do…. It will also include more in Russia/Ukraine and what the next potential move will be.
The S&P closed at 4,173 – after testing as low as 4,161. We remain in the 4114/4460 trading range.
Remember in the long run – geo-political events do not price stocks……they do though create chaos in the short run…. Stockpile some cash, put your shopping list together, confirm that the reasons for what you own are still the reason for why you should own it. Good stocks on sale are just that – good stocks on sale. Talk to your advisor.
Take good care
Chief Market Strategist
kpolcari@slatestone.com
Marinated Pork Loin, Rosemary and Lemon Zest
Roasted pork loin is an Italian staple. Is plentiful, relatively easy to cook and so good. Try this easy to prepare pork loin that will have your guests drooling for more…The list of ingredients is short – but the pork is long on taste. You need:
3 lb. pork loin, s&p, 5 cloves of garlic, olive oil, 3 tspn chopped fresh rosemary, lemon zest, beef broth, 1 cup of white wine, and 2 tbls of white wine vinegar…. That’s it.
In a mortar and pestle (a tool used to crush/grind and mix – you can find these at Amazon.com, or William Sonoma or any good kitchen store) – add 1 tbls of salt – (Kosher salt preferred) and 3 cloves of peeled garlic, olive oil and rosemary and about 1 tblspn of lemon zest. Mash well and turn into a paste….
Chop the other two garlic cloves and with a knife make a couple of holes in the pork loin and stuff with the chopped garlic. Now rub the loin with the paste making sure to massage it well into the meat. Refrigerate for about 1 hour – then remove from fridge and let stand at room temp for 15/20 mins….
Preheat oven to 385 degrees.
Place pork loin in a roasting pan with some beef broth and place in the oven – after 20 mins – turn the loin and continue cooking for another 20 mins. (Meat thermometer should read 145 degrees in the thickest part) Remove loin and let rest – covered – for 10 mins. In the meantime – add wine and wine vinegar to the roasting pan and place on stove and bring to boil. Then turn down heat – simmer to reduce – making sure to scrape the bottom for any bits. This should only take no more than 5 mins. Slice the roast and present on a warmed serving platter on a bed of fresh Kale and lemon slices. Remember – it is all in the presentation – it needs to be pleasing to the eye as much as the stomach. Serve with the juice (and applesauce – as you wish). This dish can be complemented with a side of roasted potatoes/peas* and a large mixed salad with tomato wedges, red onion, cucumber and hearts of palm dressed in a balsamic vinaigrette dressing.
Buon Appetito.
