Is Sentiment Changing?? Oil Heads Towards $120/Try the Apple Pie and Ice Cream

Kenny Polcari Uncategorized

Free illustrations of Memorial day

Things you need to know 

  • Stocks march higher – 5 days in a row!
  • Oil pierces resistance and heads towards $120/barrel at the start of the summer driving season
  • Is the turmoil over?  The latest retailers reporting strong numbers
  • The most beaten-up names are now the biggest beneficiaries
  • Try the Apple Pie and Ice Cream

Wait!  What did we hear yesterday…..American shoppers ARE spending like drunken sailors at both dept stores and discount chains – JWN, M, DGN, DLTR, – all reporting strong sales increases – suggesting that not everybody is doing poorly…….this in contrast to what we heard last week from the likes of WMT, TGT, TJX, GPS etc.…….So maybe consumers are going out to update their wardrobes and find bargains at some of the discount players to help offset rising food and energy prices.  But before you go out and celebrate – Macy’s and the dollar chains did say that are feeling the same pressures as some of the other retailers and warned that those same concerns and forces will begin to show up in their performance.  In any event – stocks did well yesterday rise once again as the tone appears to be a bit calmer….

Yes, all the concerns are the same, nothing has really changed, the FED is still on track to hike, (the pace of those hikes are still in question),  Inflation is still running at 8.5% at the consumer level and 11% at the producer level, the war is still going on in Ukraine, and a recession is coming….but none of those concerns played a role in the market action yesterday.  We have had 5 up days and today starts the summer season with the long Memorial Day weekend upon us.  We are expecting lots of trains, planes, and automobiles….as demand for travel and experiences hits a new high…suggesting that people are tired of being told to sit down and shut up.  

By the closing bell yesterday – the Dow added 520 pts or 1.6%, the S&P rose 80 pts or 2%, the Nasdaq rallied 370 pts or 2.7%, the Russell added 40 pts or 2.1% and the Transports gained 400 pts or 2.9%.

10 yr. bond yields are now yielding 2.74% as investors are pricing in a slowdown that is supposed to come as the FED tightens…. It is also telling you that the market expects to see inflation subside sometime in 2023 (so that is at least another 12 months of this – at least) …… Remember that US treasuries usually perform better in a slow economic environment as investors move into the safety trade.  So many of the talking heads are now moving to more of the ‘soft landing’ narrative again…. saying that the FED has already done enough to cool the economy….

My friend Ron Insana penned this piece yesterday – and in it – he makes some valid points and while I respect Ron, I am still in the camp that the FED has not done enough yet, they must and will take rates higher in order to tame inflation.  I am thinking we may already be in a recession…. just go out and ask Joe Q Public – see what they think and what they are doing to manage their way through this economic cycle.

Oil continues to trade higher……as supply concerns remain front and center…. supported by the EU ban on Russian oil and, rising demand around the globe and the start of the summer season in the US.  Yesterday morning oil was churning at the $111/$112 a barrel.  Resistance was still at $112.80.  Remember I told you that if we test and pierce that level that then watch oil test the March highs of $120/barrel just as the summer driving season kicks off.   Wednesday, we learned that US crude and gasoline stockpiles DECLINED – and that was only going to add to the upside pressure. Well – guess what?  Yesterday – oil did exactly that… 9:55 am – it tested and pierced $112.80 and then exploded higher…closing the day at $114.26…..Overnight it tested as high as $114.99 and has since backed off just a bit…and at 6:30 am this morning – oil is trading at $113.90….but either way – we  have pierced it and $120 is in the bullseye.  And the traffic has already begun…. the long weekend exodus started on Thursday evening and will pick up all day today. Strap in…. gasoline prices are going higher.

Yesterday saw the most strength in Consumer Discretionary – (you can credit the solid reports yesterday and the sense that last weeks beating may have been a bit overdone) the XLY rose 5%!  – but remember that sector was down 32% ytd coming into yesterday…….Behind that we saw investors go after Communications – XLC and Tech – XLK sending those sectors up 2.5% as well….(again both of those sectors were down 26% and 24% ytd), Financials – XLF and Industrials – XLI both up 2%, Consumer Staples – XLP, Energy – XLE and Basic Materials – XLB all up just over 1% with Utilities carrying up the rear up 0.3%.

Semis – SOXX rose 4%, Cybersecurity names – CIBR rose 2.6%, Disruptive Tech – ARKK rose 4% – leaving that sector still down 55% ytd!  Coal, Natural Gas and Steel mining sectors also finding love with the buyers – rising nearly 5%.

NVDA – which reported on Wednesday evening leaving the trader types angry like a rabid dog – as they took it down 11% in the afterhours session – not only took that 11% back yesterday but then added another 7% higher to end the day at $178/sh.  This is one of the ‘tech names’ that I am hot on….as it has gotten so beaten up (39% ytd) but is clearly looking a bit more interesting…. not to chase, but to put on your shopping list on any further weakness.

US futures are up again as the sun rises over the Atlantic – Dow futures up 35 pts, the S&P’s up 12 pts, the Nasdaq gaining 55 pts and the Russell up 6 pts.  Is this ‘dip buying’ or has there been a ‘change in investor psychology’?    My guess is that it is a bit of both…. the trader types buying the dip, while the longer-term investors are identifying opportunities that have been created in this mess…. Weakness in the big names – names that form the foundation of a solid portfolio.

Eco data today includes the FED biggest and favorite inflation gauge – the PCE deflator and it is expected to show a 0.2% m/m increase and a 6.2% y/y increase…..yes, this metric is below the CPI report which is why the FED likes it….because it fits their story….In any event the risk here is to the upside…If it comes in stronger then the FED will be forced to do more, and if it comes in at 6.2% or less (not sure how that could happen) then look for markets to rally hard – as that would suggest that maybe Raffi Bostic is correct and a pause in in the offing….We will also get Personal Inc and Personal Spending at +0.5% and +0.8%….spending up due to much higher prices for food and energy – Capisce?

Bitcoin and Ethereum remain under pressure – both continue to trade lower and this morning – we see Bitcoin at $28,800 and Ethereum at $1,750 – down significantly off their highs of late last year.  JPM comes out with a piece this morning saying that the recent slide ‘has created significant upside’ for crypto investors.  Now that view comes from one of the analysts at JPM – Nikolaos Panigirtzoglou – which is in complete contrast to how CEO Jamie Dimon feels. (He thinks its worthless) But in either case – it is what it is and JPM has given clients access to this asset class – Look – it is a risky investment and not for the faint of heart.  My guess is that it goes lower still before it finds any support – and where might that be?  Well – it has broken all inline supports – the most recent was $29,500…. next stop could be $20,000…. just sayin’ I do not think there is any reason at all to ‘chase any of them.’  If you want to be in the space – let it come to you…. expect further weakness before you expect any significant rally.

The S&P closed at 4057 and it looks like it wants to test and kiss 4100…and will most likely do so this morning if futures remain higher.  The PCE comes out at 8:30 am – so yes, we will know before the opening bell, what the read is and what the market will do…. yesterday I said that we were in the 3800/4100 range…. If we pierce 4100 – I would expect to see investors ‘sell into it’.  Just not convinced yet that the turmoil is over – but I am warming up to the idea that we are closer to the bottom then not.  The action will continue to be driven by the Fed, by the pace of inflation and the looming threat of the recession.
Take Good Care

Chief Market Strategist

Apple Pie and Ice Cream

Who does not love Apple Pie and Vanilla Ice Cream?  It is great for your Memorial Day BBQ

For this you need – 2 tablespoons all-purpose flour, plus more for dusting, Pillsbury readymade pie crust, 2 Granny Smith apples, peeled, cored, and sliced, 3/4 cup sugar, plus additional for pie top, Zest, and juice of 1 lemon, 1 1/2 teaspoons cinnamon, 1/2 teaspoon nutmeg,2 tablespoons unsalted butter, 1 large egg, beaten

Preheat your oven to 375 degrees.

Roll out the pie crust – on a floured surface.   – lightly butter the pie dish – and then place one of the doughs into the pie plate.

In a large bowl – mix apples, sugar, lemon zest and juice, spices, and flour. Toss well. Pout the mix into pie pan. – always add a bit of butter….and then take the other half of the pie crust and cover the pie.  Using your thumb and forefinger – make a ‘ribbon’ by crimping the edge.  Using a butter knife – cut 2 or 3 vents into the top.

Brush the top with the beaten egg, and finish by sprinkling a bit of sugar on top.

Place in oven and bake for about 45 mins or so…. You want a nice golden-brown crust – remove and let cool.  Serve with your favorite vanilla ice cream.

Buon Appetito.