Things you need to know 

• The weekend came and went and the crisis in Ukraine continues
• Oil – comes under pressure this morning as the demand destruction story gains steam
• Treasury’s yields pushing higher ahead of KEY economic data this shortened week
• The VIX up 24% last week and going up
• Lonnie Musk is NOT joining the board of Twitter – Oh boy…
• Try the Leg of Lamb

So, the markets continue to be confused…. confused over FED policy – the pace and increments of the tightening…not if there will be a tightening…. along with the ongoing crisis in Ukraine – helping to send investors scrambling yet again as the week ended.  By 4 pm on Friday we saw a mixed reaction in the market…. the Dow gained 137 pts or 0.4% while the S&P gave up 12 pts or 0.3%, the Nasdaq declined by 187 pts or 1.3%, the Russell fell 16 pts or 0.8% and the Transports lost 195 pts or 1%.

This morning we see the 10 yr. treasury yield jumping to 2.75% sending bond prices lower.  The 5 yr. is yielding 2.80% while the 30 yr. yield also pushing higher – yielding 2.755% – bringing 30 yr. mortgages to their highest levels in years.  Conforming loans now have a 5.1% rate while Jumbo’s are better than 5.5%.  This leaves the 5’s & 10’s, the 5’s & 30’s still inverted.

Oil – which has been all over the place – settled up 2.3% to end the day at $98.26/barrel.  Well below the most recent highs of $130/barrel only 3 weeks ago.  Recall – Joey announced that the US will release 1 million barrels/day for 6 months (180 million barrels) from the strategic petroleum reserve (SPR) and the countries in the IEA (Int’l Energy Agency) are said to release another 60 million barrels over the same time period and that has caused the price of oil to be pushed artificially lower and while it might feel good right now – it has done nothing to the prices at the pump.  

Now this morning – oil has done a 180 and has given up all of Friday’s gains as negative economic news and ongoing covid ‘lockdowns’ in China hits the markets….both Producer Prices and Consumer Prices rose more than expected and that sent investors running for the door – stocks fell by 3% in China, 3.2% in Hong Kong overnight….add in the latest news that covid cases in Shanghai soar to a new record highs while schools are closed in Guangzhou are only added to the angst. Gov’t authorities ‘warning’ citizens to not even ‘think about leaving the city.’   The idea that China’s economy will once again go into reverse is fueling the demand destruction story for energy.  This morning oil is down $1.50 or 1.6% at $96.74 as it tries to hold onto the trendline.

Last week – we saw the VIX begin to lift its head again – up 24% as the angst in the markets heats up again…much of this being credited to the latest move out of the FED – all members lining up to push for swifter and more decisive moves in rates and balance sheet reduction, the ongoing crisis in Ukraine and now the re-emergence of covid cases across China that is causing widespread lockdowns in 2 key port and manufacturing cities – Shanghai and Guangzhou –  suggesting that new supply chain issues will emerge.  Continued nervousness could see the VIX spike higher once again – and that would put renewed pressure on stocks which might then cause money to move to US treasuries –forcing prices higher and yields lower…. Or not. This is not the time to fall asleep.

This morning – we wake up to see global markets under pressure.  Stocks in Asia lower – for all of the reasons I stated plus new regulatory drama in the tech space.  Tech stocks in Taiwan taking it upside the head with the Taiwan index down by 1.4%.

European stocks are also down across the board.  The Presidential election in France is at the top of the agenda – the first round of voting does have Manny Macron with a very narrow lead over REPEAT nationalist challenger – Marie Le Pen.  Now remember – the fear is that if Le Pen should win (unlikely) – she would make France ‘less business friendly – never mind that she is a Euroskeptic…. meaning that she is OPPOSED to increasing the powers of the European Union and continued European integration. In addition, the ECB (European Central Bank) is set to meet in Frankfurt on Thursday to discuss the next policy move.  Remember – Chrissy Lagarde – ECB President – made it clear that she would defer to Fed Chair Jay Powell to make the first move – and he has – so let’s see what the ECB has up their sleeve.  At 5 am – European markets are all down about 0.5%.

US futures are also joining in – and are lower this morning…  Dow down 105 pts, the S&P’s down 26, the Nasdaq down 150 and the Russell is down 8.  The weakness in bonds is sending yields higher this morning and that is at the crux of what is happening to US stocks.  Yes – the Asia story and yes, Ukraine story, and yes, the political story out of France are all subplots – but let’s not kid ourselves right now.  The issue here in the US is what the FED is about to do…Many asking if a soft landing is possible – and of course you will get every FED head telling us – ‘Sure it is – no worries’ while you’ll get street analyst’s and strategists saying – ‘Not so fast big boy’….

At this point – I’m in the ‘not so fast’ camp considering that the FED completely dropped the ball on the speed and pace of inflation, leaving them way behind the curve, forcing them to act more aggressively – and that has caused stocks to re-price – aggressively – leaving the Dow down 4.5%, the S&P down 6%, the Nasdaq down 12.4%, the Russell down 11% and the Transports down 12.2% ytd. 

Now tomorrow we will get the latest Consumer Price Index (CPI) report and do not expect it to surprise on the downside….CPI m/m is expected to up 1.2%, Ex food and energy of +0.5%, CPI y/y is expected to show an 8.4% rate (up from 7.9%) and Ex food and energy of 6.6% (up from 6.4%).  Then on Wednesday – we will get the lates PPI – Producer Price Index report and that is expected to surge as well.  PPI m/m/ up 1.1% (up from 0.8%), Ex food and energy of +0.5% (up from 0.2%).  PPI y/y of 10.6% (up from 10%) and ex food and energy of 8.4%.  (unchanged).  On Thursday – we will get Advanced Retail sales – let us see what the latest inflationary reports do to consumer spending…. Remember – it is a short week – markets are closed on Good Friday – and it is also a vacation week – so expect lower volumes and potentially bigger swings in prices.  

This weekend – there was a big blockchain event in Miami – postings all over LinkedIn and Instagram…. but that event is doing nothing for the price of Bitcoin.  This morning we see it trading down 3% at $41,900 while Ethereum is trading at $3,100.

The S&P closed at 4488 on Friday….as it tries to hold onto the trendline….at 4492…. The path of least resistance feels lower….and a test of support at 4430 is not out of the question…. who knows – that could happen today.

Now to be clear – the S&P is nowhere near testing the lows of January (4220) or February (4130) so there is no reason to light the place on fire….take a look at the most recent damage to some of the names you own and if the story remains intact – and you still like the name – then put more money to work, but if you remain a bit anxious – then put it in cash and sit tight – there is always time to deploy it.  Earnings start this week, and we are beginning to hear how FED policy, economic stats and the Russian crisis is affecting bottom lines…Shell the most recent disclosure…. Expect to hear more in the weeks ahead…. None of this should surprise you.  But what we want to see is how these companies intend on dealing with it.

On a side note – Lonnie Musk is NOT joining the Twitter board – so that leaves him in a position to do anything he wants with his money and the stock. Remember that if he joined the board, he would have had to play nice in the sandbox – and cap out his ownership at 14%.  Apparently – he is not so sure that that is the way he wants to play. The stock is quoted down $2 or 5% –

Take Good Care

Chief Market Strategist
kpolcari@slatestone.com

Roasted Leg of Lamb

In my house we make Lamb for Easter – besides the Lasagna, Italian Wedding Soup and all the veggies… followed by the deserts and Limoncello.

So, try this leg of lamb, you need to make the dressing for the lamb and for this you need

Olive oil, Fresh lemon juice, 6 cloves garlic, Fresh rosemary, kosher salt, and black pepper. Now make the marinade. Add the ingredients to a blender or food processor and process until smooth. The marinade should be thick in consistency, so it does not run off the meat while cooking and forms a bit of a crust.

Preheat the oven to 425 degrees.

Next peel and dress the potatoes with olive oil, s&p, fresh lemon juice, garlic powder and oregano. Toss and mix well. Put the potatoes on the bottom of the roasting pan. Now place the lamb on top and put in the oven covered and roast for 25 mins. Now turn the oven down to 350 degrees and continue to cook – uncovered… (rule of thumb – 20 mins per pound is about right).

(Now while this is cooking – you can serve the soup, then the lasagna leaving room for the lamb)

Make sure to baste the potatoes and the roast while cooking. When done, remove, cover, and let rest for 15 mins. You can now broil the potatoes so that they become almost golden brown.

Slice the lamb, arranging nicely on the platter, circle the meat with the roasted potatoes. Make sure to serve with a large mixed salad and enjoy.

Buon Appetito.