Things you need to know 

• 1^st quarter of 2022 – was one of the worst in memory – yet stocks managed to rally in March
• Oil trades lower as Joey promises to help and China goes into lockdown again
• NFP due out – but will it really change the course of monetary policy?
• Inflation continues to surge, and the bond market teases with inversion
• Crypto’s under a bit of pressure
• Try the Grilled Shrimp on a bed of Orzo

Thank God the quarter is over!  And what a quarter it was…. we continued to deal with bouts of Omicron, we watched inflation surge, we listened as the FED proclaimed to have it all under control as they promised ‘gentle’ rate increases so as not to upset the apple cart…. We watched as some of the largest investment banks – GS and JPM both started to step over each other suggesting not 4 or 5 rate increases but 7 or 8 and then they started upping the ante calling for 50 bps hikes rather than the gentle 25 bps hikes…. and then we watched as FOMC committee started to splinter – with Jimmy B leading the pack….calling for aggressive action to stop the bleed (the bleed being surging inflation) that some on the committee chose to ignore -reminding us that ignorance is bliss.….We watched the Nasdaq and Russell enter bear market territory while the Dow, S&P and Transports tumbled well into correction territory.  We watched as Xi Xi and Vlad cozied up at the Olympics and then we watched as Vlad Putin threatened a sovereign nation – lining up tanks along the Eastern border of Russia and Ukraine, telling the world that it was nothing more than a ‘military exercise’ that turned into a war against Ukraine on February 24^th.

Here at home we had to recognize that inflation had suddenly (or not so suddenly) become a hot topic…..While Americans have been warning of higher prices for one year now, FED officials appeared tone deaf – continuing to stimulate and keep interest rates at zero……until they realized they couldn’t….which by the way was back in the late summer, early fall of 2021 – yet they did nothing….Why?  Because the market was having a banner year and the fear was that the talk of withdrawal would send the markets into a tailspin….so they kept going…. suggesting that in the new year – policy would change -but NOT TO WORRY…we got this!

And change it did on January 4^th ….While the S&P notched its all time high of 4804,  talk of a 3 pronged approach to battle inflation hit the tape….stop the bond buying, raise interest rates AND reduce the $9 trillion balance sheet all in unison – something they told us would never happen…stocks began their descent – but not to worry – the gains of 2021 were locked in, no one could take those away…..By January 24^th – just 13 trading days later – the S&P had fallen 12% while the Nasdaq lost 17% and talk of a slowing economy and possible recession became the topic dujour….

We found a bottom at 4220 on the S&P, rallied thru the Olympics and then took another leg lower on the possibility of the Russian invasion…. the threat became real on the 24^th of February and the algo’s hit the sell button sending the markets into a tailspin. The Nasdaq getting hit the hardest – and that should be no surprise – sending that index now into BEAR market territory…. down 21% on the year and down 24% from its November high. It was an anxious time…. And like I have been saying all along – while geo-political drama can cause chaos in the markets – rarely does its price stocks in the long term.  By March 14^th we tested the February 24^th lows for a third time and held – typically a sign that a bottom has been reached at least for now.  Stocks began to rally as investors began to shuffle the deck and put the pieces into place.  In the final weeks of March – all of the indexes gained – taking back much of the damage created yet unable to erase the negative performance.

Talk of yield curve inversion began to dominate the narrative and fears of a coming recession did little to stop the advance and in fact over the past week we have seen the curve invert – if only for a brief moment – and that inversion happened again yesterday – on the final day of the quarter helping to send stocks lower and by 4 pm – the Dow fell 550 pts or 1.5%, the S&P gave back 72 pts or 1.6%, the Nasdaq lost 222 pts or 1.5%, the Russell fell by 21 pts or 1% and the Transports lost 265 pts or 1.6%.

For the quarter – the Dow lost 4.5%, the S&P down 4.95%, the Nasdaq down 9% the Russel down 7.8% and the Transports – the best performer only down 1%.
The Value trade – SPYV ended the quarter down only 0.6% while the Growth trade – SPYG is off 9%.  Energy- XLE is the clear winner up 38%, while Utilities gained 4% – every other sector in the S&P ended lower – with Communications  – XLC down 11%, Consumer Discretionary off by 9.5%, Tech – XLK off by 8.5%, Real Estate down 7%, Healthcare – XLV, Industrials – XLI  and Basic Materials – XLB all down 2.7%, with Financials – XLF and Consumer Staples – XLP off by a mere 1.5%.

On the sub-sectors – Retail – XRT down 16% while Housing – XHB lost 26%, Semi-conductors – SOXX down 13%, Metals and Mining – XME UP 36%, Cybersecurity – HACK down 4% (which makes zero sense to me), Artificial Intelligence/Robotics – BOTZ lost 20%.  Innovation Tech – ARKK gave up 30% the way to win was to have played them all from the short side!  SH up 3.5%, PSQ up 7%, DOG up 3.2%, VIXY gained 9%.
Commodities did well – with OIL up 40%, Gold up 8%, Copper up 8%, Silver +10%, and the Bloomberg Commodity Index which includes this plus food was up 25%.  Let’s not even talk about the price of Olive Oil!

And so, it was….it is history now – so a new quarter has begun…today is April 1^st – European markets are all higher and US futures are pointing higher as well…. Dow is up 180 pts, the S&P’s up 25 pts, the Nasdaq up 63 pts and the Russell is adding back 8 pts.

Oil which came under pressure yesterday on the back of the Biden announcement that he is releasing 1 mil barrels/day of oil from the US strategic petroleum reserve for the next 6 months is down again today trading sub $100 at 5 am.  But do not expect prices at the pump to follow suit…not happening…. for two reasons…. first – much of the gasoline at the stations now was purchased when prices were much higher, so the gas station will not cut the prices yet and two no one really believes that yesterday’s PR announcement will have any long-lasting effects. And if you saw his press conference yesterday – he pinned the blame on Putin and the big US oil companies – while paining himself as the savior……yeah, let’s see how that works out.

Eco data today includes the all-important NFP – Non-Farm Payroll report….and the expectation is for 490k new jobs to be created.  Unemployment to fall to 3.7%, and Avg Hourly Earnings to rise by 5.5% y/y.  Construction spending for Feb is expected to be up 1%, ISM Manufacturing of 59 – solidly in the expansion camp. If this report comes in as expected or even stronger – that will give the FED even more of a reason to get aggressive…. In any event – none of this really makes a significant difference – Why? Because we all know what’s coming NO MATTER what the data tells us right now.  Rates are due to rise by 50 bps, multiple times this year with rates expected to be in the 2.75% range by December. That should cause the 10 yr. to breach 3% and mortgage rates to pierce almost 6% on conforming loans (currently at 4.6% up from 3% in January) and we have had only one 25 bps increase.  Think about what happens when we have 4 – 50 bps increases!

At 5 am European markets are all up about 0.4%…. Nothing has really changed…. from yesterday to today…other than we are in new month and earnings will begin next week. EU leaders will tell China’s President – Xi Xi in a zoom meeting that he risks hurting his global stature if he hands Vlad an economic or military lifeline.  It will be interesting to see how that goes…What will Xi Xi say?  Will he tell the WEST to stuff it?  Will he risk the massive trade that China does with the WEST – trade that by the way brought China into the 20^th century. And speaking of China – they are at it again…total lockdown in Shanghai on a supposed resurgence of covid, pets being euthanized for fear of spreading the virus – which no one really believes any longer…it is seen as gov’t control vs anything else.  Dare I say – it’s BS!  Just think about what we can expect to hear about the supply chain coming into spring…. Oh Boy!

Crypto’s under some pressure Bitcoin is trading at $45k down from $47k and Ethereum is at $3,200 vs. $3400.

The S&P closed at 4530 on the low of the day – down 72 pts closing below the short term trendline….at 4545.  Futures action suggests that we will open strong and trade back above it…. Earnings and taxes are due in 2 weeks and that usually gives the market pause, but the final two weeks of April typically sees a rally…. with April being one of the best months for stocks.  Let’s see if that is the story this year…. Expect to hear more about how inflation is affecting company earnings and guidance and expect to hear more from the FED about what the plan is going forward.  May is expected to deliver a 50-bps increase. What is ahead for June, July and September?

I remain in the camp that the immediate future is not all smooth sailing….I think the recent surge higher is more technical in nature and that once we get more out of the FED in the next couple of weeks – the markets will once again hit some potholes….which means – stay the course…do not light your hair on fire….I continue to be in the value camp – Staples, financials, energy and big US industrials – that provide exposure to the markets, pay decent divvy’s and have global footprint. I own big tech but remain underweighted relative to the benchmark –   younger investors should be more aggressive and should lean into more tech….40 yrs. of growth are a much longer time frame than say 20 years….
Take Good Care

Chief Market Strategist
kpolcari@slatestone.com

Grilled Shrimp on a Bed of Orzo

Spring is here and Summer is coming… so get ready to try the Grilled Shrimp.

For this you will need: about 2 doz. large, clean & deveined shrimp, 10/12 skewers, olive oil, oregano, fresh lemon juice, minced garlic, s&p, feta cheese and some Orzo (Orzo is a rice shaped pasta – used in many types of pasta salads or soups or in this case as a bed for the shrimp).

Now we are going to grill the shrimps’ using skewers

if you are using wooden skewers – you must soak them in water for at least 20 mins so that they do not light on fire and burn.

Now – pierce the shrimps onto the skewers – maybe 4 at most per. Set aside in a deep pyrex dish.

Next mix the olive oil, garlic, oregano, some lemon juice, s&p – shake well and then pour 1/2 over the shrimps. Place in fridge and let marinate.

Heat the grill – using a grill brush –clean the grill rack.

Bring a pot of salted water to a rolling boil and add the orzo… cook for about 8 mins or so… do not let it get mushy… keep it a bit aldente. Strain and mix with the feta. Now pour the remaining mix into the pasta with the feta and stir well to coat. Place the orzo in a large family style platter and make a bed.

Next – remove the shrimps from fridge and place on hot grill… be sure to not burn… it should take no more than 5 to 7 mins max. Now place the skewers on top of the orzo and feta. Take a picture to remind yourself of this great and simple dish.

Buon Appetito.