Things you need to know
- Investors await ‘the decision’ – Stocks churn
- Other Eco data today includes ADP, Mortgage Apps, and PMI reports
- It’s about combinations (not permutations)
- Oil up 3.5% – as Europe prepares to cut ties with Russia.
- Try the Pan Seared/Oven Roasted Chicken in Orange/Brandy Sauce
Stocks continue to get pushed around….as we all await THE DECISION at 2 pm today….and while we all know that the decision will add 50 bps to the current rate, what we WANT to know is what will he say about ‘forward guidance’! Here is what I think – I think he has to acknowledge that inflation is not peaking and that it is not transitory. I think he will lay out with more clarity on how they expect to reduce the $9 trillion balance sheet (he is expected to say $95 billion/month) – which is an issue itself…..I think he is going to say that he reserves the right to raise rates AT LEAST 50 bps in June and possibly July….did you get that? Do you see how he is going to lay it out….he is telling you to get ready for a 75 bps hike in June….Look – the KEY here is simple – Will Jay Jay surprise the markets with even more hawkish comments (suggesting that they have lost control) that could raise concerns about the threat of recession as the cost of money becomes more expensive?
Now to be clear – while we are not officially in a recession yet…(2 qtrs. of negative growth – we have had only one and that was revealed last week with 1st Qtr. GDP coming in at -1.4%) – there are plenty of analysts/strategists and investors that would argue otherwise (suggesting we are in a recession)– and that is why what he says today will be so important to how investors/traders and algo’s react.
Which is why stocks continue to get pushed around….and by the end of the day the Dow added 70 pts after swinging 427 pts high to low, the S&P +20 after swinging 53 pts, the Nasdaq rose 27 pts after swinging 185 pts, the Russell rose 16 pts after swinging 32 pts and the Transports added 160 pts after swinging 298 pts from high to low.
Now – what happens in June, July, September, November and December? And where will rates be by year end – 2.5%? 3%? 3.5%? As of 2 pm today Fed Funds will be in the 0.75% – 1% range with 4 more meetings to go….so it’s a game of combinations and permutations… (7th grade math). Remember – a permutation is the act of arranging the numbers in order (1,2,3, 4…) while combinations are the act of choosing numbers from the group of numbers and combining them in a way that order does not matter.
So, get ready – because it will be the combination of rate increases that will make a difference here….and not the permutations. Will we get 1 more 50 and then a return to 4 – 25 moves? Or will we get 2 – 75 bps increases and then a pause? Will we get 1 – 75 bps move and then a 50 and then a return to 3 – more 25 bps moves? Do you see the possibilities? The combinations of basis point increases over the next 5 meetings is endless….so do not expect that anything he says today to be ‘final’ – it can’t be, but it will offer some insight into FED thinking, but in the end – it will be the broad macro data along with the inflationary data that will drive policy from here on out….(vs. the pandemic that has driven policy).
So now the question is – Can the FED engineer a soft landing? I say – not possible – which doesn’t mean it’s the end of the world, it just means I don’t think it’s possible – so investors should prepare for a hard landing and be surprised if they manage to engineer a soft landing. I always like to prepare for the worst and then be pleasantly surprised – vs. the other way around!
The 10 yr. also continues to be pushed around – around the 3% line…. Yesterday 10 yr. yields swung from a high of 3.004% to 2.90% – ending the day yielding 2.97%. This morning – the yield is unchanged at 2.97% – something I do not believe can last past the 2 pm announcement. I mean – how can it? Rising rates by the FED will not cause 10 yr. treasury yields to fall…and they certainly won’t cause 30 yr. mortgage rates to fall….so expect to pay more for a mortgage and then expect housing to stall – but that’s another story….
Oil is trading up 3.5% this morning at $105.82 barrel at 5:30 am. As expected, the API (American Petroleum Institute) reported a decline in inventories in both crude and fuel supplies – this on top of the news that the EU is about to cut Russian supplies and impose new sanctions on them that will target the industry. Ursula von der Leyen (European Commission President) is about to lay out those plans. We will get the EIA (Energy Information Administration) supply report and it is expected to show the same declines. So, the issue today will be about supply – and NOT demand – because demand is alive and well.
This morning – US futures are up. Dow futures are up 80 pts, the S&P’s up 11 pts, the Nasdaq up 25 pts, the Russell up 5 pts. 10 yr. treasuries are yields are down a sub-fraction at 2.967% as investors brace for the biggest FED move in 20 yrs. Global bonds prices are under pressure (which is sending those yields higher) – German Bund yields at 1% while UK bond yields are closing in on 2% – higher than their pandemic peak as the BoE (Bank of England) moves to raise rates to combat rising inflation. And not to be left out – the ECB is banging the drum – saying that ‘it is time to policy makers to take action to tame inflation’…. Are we clear on what’s happening?
Eco data today includes Mortgage apps – which have been in decline for 4 weeks now…. what will today’s report show? We will also get the ADP employment report – exp of + 385k new jobs, S&P US Services PMI – exp of 54.7 – (trending closer to 50 than 60 – capisce?) and ISM Services PMI – they are calling for 58.5. And then there is the FED at 2 pm and the presser at 2:30 pm…. Can’t wait to hear someone from MSNBC ask – “Why did you decide to raise rates 50 bps vs. 25 bps?” or “Do you expect to raise rates at the next meeting?” Come on!!! Really? The question should be – “With inflation out of control and FED Funds projecting even higher rates by mid-summer – How exactly does the FED think they can take back control without causing a recession and a hard landing?” Key words are ‘exactly ‘and ‘hard landing’.
Recall what I said yesterday about the semi’s? Being in a way oversold position? How they were one of the beneficiaries of new money on Monday and Tuesday… Well – last night – AMD came out with their earnings report AND they crushed it. The stock is quoted up $5 or nearly 6%. Now look – AMD is off 48% from its November high – it is not going anywhere – it is one of those ‘shelters in the storm’ stocks (in my opinion) …Today’s excitement could see it attempt to kiss $100 and if not today – I suspect by weeks end. (With all bets off if Jay Jay admits that they have lost control and will need to act ‘faster and more furious’ than anyone expects) – but even then, it will be temporary.
European markets are under pressure……you can cite rising bond yields as one of the factors, rising inflationary pressures as another factor and the ongoing war in Ukraine as a 3rd factor, uncertain policy moves on behalf of the ECB as a 4th factor, weakening economic data as a 5th factor….Notice – not once have we even mentioned ANY variation of covid – how great is that? At 6 am – markets across the board are all off about 0.5%.
The S&P closed the day at 4175 after swinging between a low of 4147 and a high of 4200…. This morning stocks are treading water…. waiting on the macro data – which will be interesting but not the market mover today in my opinion. Do not let your guard down – what Jay says today will be keenly listened too…Expect every analyst to pull every sentence apart – looking for a word or phrase that runs counter to what he is trying to tell you – so he says A but means B….….
Analysts now speculating on the narrative – trying to tell us what the story will be…. trying to lay out the plans for the next 2 meetings at least…. while also trying to pinpoint what FED fund rates will be at year end. In the end – is what Jay is about to say – already prices into the markets – at least in the short term? I say yes – it is. I do not think he will be any more hawkish than the market is pricing in…investors have had plenty of time to consider higher rates and stocks have been in a re-pricing mode – and while the indexes are down – Nasdaq down 20% ytd, Russell down 16% ytd, while the broader S&P is off 13% ytd…we all know that some individual names are down even more….some double the index – and at some point they represent long term value….which goes straight to my point about overweighting value this year.
The S&P is well below all trendline supports and has been trying to stabilize. If Jay is able to present the message and convince investors that they, have it under control – then I think we’re ok – but if investors suspect that he is not in control, then we could see stocks continue to plunge. Remember – Morgan Stanley and others have recently been calling for S&P 3200, 3400 and 3800…which would represent further downsides from here of 23%, 18% and 9% respectively. I am not in that camp at all…. While I am cautious – I am not lighting my hair on fire! Cautious is good.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Pan Seared Oven Roasted Chicken in an Orange/Brandy Sauce
So, I thought this was a good idea – because I wonder if we all about to get seared and roasted today?
Cost: $50 for a family of 4. (BUT when you add in the cost of electricity for the fridge, lights, dishwasher and laundry machine, the cost of the natural gas for the stove/oven, the cost of gas to go to the store – then it’s probably more like $75 – $100 – just sayin….!)
For the sauce you will need: 4 tblsp butter, 1 shallot, 2 tblsp of brandy, 1 cup of fresh squeezed orange juice, 3/4 cup of chicken broth, 1 navel orange cut into segments – and then cut the segments into thirds, Italian Parsley, s&p.
For the Chicken – you need: boneless – skin on breasts, 2 cups of orange juice – fresh is better, orange zest, olive oil, s&p. water.
First combine the orange juice, zest, 3 cups of water, and about 2 tblsp of salt in a bowl and stir to dissolve the salt…. when ready add the chicken breasts and refrigerate for a couple of hours.
Now – when ready – Preheat oven to 400 degrees.
In a large “oven proof” sauté pan – heat up some olive oil over med hi heat – add chicken – skin side down and cook until the skin is golden brown – about 5 mins. Turn the chicken over and season with s&p. Place in oven and roast for 15 mins… (do not throw out the juice from the chicken – pour into a measuring cup and let cool so the fat comes to the top)
Remove the chicken and put on a plate and cover with tin foil.
Now for the sauce – use the juice from the chicken – skim the fat – once it rises to the top.
Melt 2 tbls of butter over med hi heat – add the chopped shallot and cook until soft. Remove from heat and add brandy – then return to stove and scrape the bottom of pan – brandy will evaporate.
Now add the orange juice…boil it until it turns thick and syrupy about 4 or 5 mins…Add chicken broth and the pan juices and cook for about 3 mins. Remove from the heat and add the orange slices, parsley and 2 tbls butter and stir until the butter melts…season with s&p.
When serving – cut the chicken in slices and place in a fan like presentation then top with the orange Brandy sauce.
Buon Appetito.
