Things you need to know
- It is all about the CPI today and PPI tomorrow
- Today’s report should seal the deal for the FED – 4 – 50 bps hikes is the expectation
- Oil – lost 3% yesterday and are up 3% today….as OPEC warns of tight supplies
- Earnings begin tomorrow….
- Try the Easter Ricotta Pie
And the selling gains speed….as we await today’s CPI report…by now you know the drill….it is expected to show an increase in inflation at 1981 rates…. 8.4% is the official estimate – but the window goes as high as 9% (which is a bit aggressive for today but may not be by the summer….). Food, energy, housing costs all at the core of the increase…and to be clear – these are all things that we need on a daily basis- these are not optional items in your daily life…. which is why this is SO significant and concerning….
So, today’s report will most likely put the rest what the next FED move will be – 50 bps is now the expectation for May, June, July and possibly September….Investors are now pricing in a 3% fed funds rate by year end…and after September – we still have 2 more meetings to make that happen – November and December. And if you missed it – everyone of the FOMC committee members is now singing the same song…. they have all moved to the ‘aggressive’ side of the argument – understanding that they chose to ignore all the signs of building inflation….…. Why? Because – we all saw the signs back in mid-2021…..We saw inflation building, we watched as the data kept building, we warned of rising prices everywhere we went – yet the FED was blind to it reminding us of the Great Oz – when he told Dorothy, the cowardly lion, the scarecrow and the tin man to – “Pay no attention to that man behind the curtain”!
The algo’s continue to initiate waves of sell orders…pushing the markets lower and lower – which then leads to more selling as we test and break technical levels…to this point – in yesterday’s note I said
“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?”
And happen it did…. Yesterday, as the market moved lower – many thought it wanted to test 4430 to see if the buyers would defend the position…. At 3:21 pm when the algo’s ‘tested’ that level – it failed…. The S&P breached that support level and then the algo’s went into overdrive and created a wave of new sell orders as a result of that technical breach. By the end of the day – the S&P lost 76 pts or 1.7% leaving it at 4412 – 18 pts BELOW that support level. The Dow fell 415 pts or 1.2%, the Nasdaq continues to get beaten up the most – falling 300 pts or 2.2%, while the Russell lost 15 pts or 0.7% and the Transports – again surprising the markets ROSE 57 pts or 0.4%….
Now recall how the transports lost more than 13% in the past 2 weeks – well ahead of the broader market – so as the algo’s go searching for opportunities – beaten up Transports names are waving the flag…. saying – “Hey, look at me!” For example – FDX which is down 25% since January and down 15% in the last week – rose 1.5% or $2.70/sh and the airlines found buyers as well – even in the face of all the headlines that suggested they were all cutting flights and raising prices as we move into summer…. the JETS ETF rising 1.25%. I guess the algo’s – who do not go on airplanes and do not experience the difficulties that so many of us do – found this news bullish…. or was it just a short-term opportunity to day trade? In any event – the Transports rose on a down day.
Every one of the 11 S&P broad sectors was lower…. Energy – XLE losing 3% (leaving it up 39% ytd!), Tech fell 2.5%, leaving it down 15% ytd, Consumer Discretionary – XLY – off 1.9% leaving it down 14% ytd, Communications – XLC gave up 1.3% leaving it down 13.5% ytd…. and they are the leaders on the downside…. Now – while Utilities XLU lost 1.4% they are UP 6% on the year and Consumer Staples – XLP gave back 0.3% but also remains up on the year rising 1.7% ytd. Healthcare fell 2% but remains flat on the year. Which goes directly to my point – about being in the value/defensive sectors of the market during this turbulent time.
The Value trade – SPYV fell 0.9% but remains flat on the year (which is a win) while the Growth trade – SPYG fell 2.5% and is down 13% on the year. Clearly the contra trades did well yesterday and will do well again today…. DOG rose 1.2%, PSQ up 2.4% and the SH up 1.8%. Disruptive Tech – ARKK fell another 1.4% leaving it down 37% ytd while the contra trade – SARK rose 1.15% leaving it UP 37% ytd. Even some of the strongest trades of late – metals and mining and fertilizer names came under pressure as traders rang the cash register – creating alpha in a down tape.
The VIX – which is the fear trade – spiked higher – also as discussed in yesterday’s note – rising 15% to end the day at 24.34 – suggesting that investors are expecting more potholes ahead.
The 10 yr. treasury yield jumped to 2.77% sending bond prices lower. And this morning the 10 yr. pierced 2.83% and will push higher when the CPI report is officially released.
Oil – sold off 3% to end the day at $95.18 on the China demand destruction story…. but this morning oil is up 3.25% at $97.35. More talk of supply disruptions while OPEC warns of ‘tight supply’…saying it was ‘impossible to increase output enough to offset lost Russian supply’…. Well, this might not have been the issue if current US energy policy was not so restrictive…but hey – what do I know….
And later this week – the beauty pageant begins… Tomorrow will bring JPM and BLK in the financial sector….JPM already warned of losses due to Russia exposure – the estimate calls for them to report $2.71/sh…BLK is expected to report $8.90/sh, but has been mum on Russia exposure – but remember – BLK is well entrenched in the administration – Brian Deese (a former BLK employee) is the advisor to Joey, while Mikey Pyle (a former BLK employee) is the economic advisor to Kamala (why does she need an economic advisor anyway?) and BLK is the asset manager that is overseeing the FED’s bond portfolio…. So, my expectation is for BLK to once again report ‘stunning’ numbers (as they do qtr. after qtr.). But even with good numbers will these stocks see a bounce or not? Both these names are down 21% ytd….and below all 3 trendlines…so it is anyone’s guess…. what happens next. From a long term perspective – I like the sector but want to wait to see how the markets react when the numbers are released……I mean I could buy stock down 21% now or potentially buy it down 25% tomorrow…..and if the market likes what it hears and they trade up – ok, then I’ll buy stock down 19% on the year….Put it in perspective, based on your time horizon…Capisce? Rising rates will in the end benefit the big banks…. Once the yield curve ‘un-inverts’!
This morning – US futures were down overnight but have turned slightly higher as the sun rises over the Atlantic. The Dow futures now up 14 pts, the S&P’s up 5, the Nasdaq up 40 pts and the Russell is ahead by 4 pts….Nothing to get that excited about, but markets are trying to stabilize…..Today is all about the CPI and tomorrow will be all about the PPI – which is expected to show wholesale prices rising by 10.6% y/y.
Stocks in Asia ended mixed – with China and Hong Kong both up on the day after getting slammed on Monday….Videos of locked down Chinese citizens screaming from their windows are all over the internet – Xi Xi telling the world that the US is exacerbating the problem by ‘lying’ about what is going on in that country….Right – the same way we are lying about what is going on in Ukraine….which leaves to ask once again – How did we get caught being so dependent on a communist nation for much of our supply chain? What were gov’t and business leaders thinking? (That is a rhetorical question – no need to answer it.)
European markets are under pressure…. German banks getting slammed as an ‘undisclosed’ investor sold massive stakes in both Deutsche Bank and Commerzbank…. Word that Russia is using chemical weapons in Mariupol is raising concern across the continent and the world. UK foreign Secretary Liz Truss working urgently to verify that story. Also, in the UK – inflation continues to surge at a pace not seen since 2014…. Thursday brings the latest ECB policy announcement. at 7 am – markets across the region are down about 0.5%.
Bitcoin is trading at $40k and Ethereum is trading at $3k.
The S&P closed at 4412 – breaking the trendline support at 4430…. We might get a bit of bounce today….but I still think the path of least resistance feels lower…. 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 – but I am not sure that we won’t re-test those levels as we move through earnings season.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Easter Ricotta Pie
This is a classic desert in an Italian house….and so good too.
Today’s recipe comes from a friend of mine. You can find him on Twitter @ItzStockChartz – he always has great insight into stock charts and the markets and always has an opinion!
For the filling you need: 1 ½ c of flour, ½ c of sugar, 2 egg yolks plus one white, 2 pounds of Ricotta, ½ shot of Alchermes Liqueur – a full bodied liquor that is a bit spicy with hints of citrus.
For the crust you need: 1 ½ c of flour, ½ stick of softened butter, ¼ c of whole milk, 1 tblsp of sugar, ½ tsp of Alchermes.
Now – preheat your oven to 325 degrees.
Mix the crust ingredients – knead it and then let it rest for 30 mins. Separate 25% of the dough to use later. Then roll out the crust with a nice rolling pin to fit a 10-inch pie dish.
Next mix the filling – then pour into the crust. Using the balance of the dough – make ‘lattice strips’ and cover the top of the pie.
Bake for 50 mins…check – If you need more time – let it stay for 5 mins more…you want it to have a nice golden color.
Buon Appetito.
