Things you need to know
- Stocks rally as some consider the state of the union
- JPM’s Marko Kolanovic predicts a gain of 7% THIS WEEK
- It is the end of the 2nd qtr. – expect lots of window dressing
- Oil bounces off of trendline support and moves higher
- Try the Seared Swordfish on a bed of Puttanesca Sauce w/Polenta squares
Stocks ended the day strong; commodities weaken, treasury prices rise – sending yields down, oil is up, and life is good….
The bulls finally having a day in the sun, as the bears went into hiding to regroup…….– the Dow (which was the underperformer on Friday) added 825 pts or 2.6%, the S&P up 116 pts or 3%, the Nasdaq gained 375 pts or 3.3%, the Russell gained 34 pts or 3.1% and the Transports added 520 pts or 3.9%. The move being credited the ongoing economic data that appears to be pointing to a slowing economy that will allow the FED to reconsider the latest narrative of ‘aggressive rate hikes’ in favor of ‘less aggressive rate hikes’ as they try to convince us that inflation is weakening, and the worst is over….
Reports last week showed Services PMI declining, Manufacturing PMI declining, regional FED activity declining and Consumer Sentiment and Consumer Confidence also in decline (none of this would be considered bullish if rates were stable and inflation was 2%) but with inflation at 8.6% and rising rates all the rage – the sense is that the newest FED policy is working to slow the economy…..….Well, how is it working to slow the rise in energy, food and rents? It is not…and that is what is important to consumers on a daily basis…and with summer driving and cooling needs in high gear – do not expect to see energy retreat…and then we move into winter where the demand for oil spikes again as the need to heat your home takes center stage. And what about revolving credit? What do you think happens to that when the FED raises rates? It does not go DOWN…. that is for sure….and that only takes more ‘disposable’ dollars out of the market. Maybe the Biden’s will consider cancelling revolving credit along with student loans…. – think about the relief that would bring….
What was interesting though, was the strength in Mortgage Apps – which were up by 4% on Wednesday along with New Home Sales on Friday that were expected to be down by 0.2% – surprised even the most bullish analysts rising by 10.7% m/m.
Now you can explain away some of the new home sales as promotions by the homebuilders…recall during the past 3 yrs. – none of them had to do anything, no upgrades, no pools, no landscaping – nothing…….demand was so strong that all they had to do was put up 4 walls, 10 windows, 2 bathrooms, a roof, a couple of doors and boom – they were done….buyers were trampling over each other to get in….and that was when mortgage rates were in the 2’s…..rates are now in the high 5’s/low 6’s….and buyers are no longer running each other over….so the builders change the opportunity – now when you go into a ‘new’ neighborhood, you get fancy landscaping, upgrades in every room, better appliances, more choices of finishes and in Florida (and other warm states) you can even negotiate a pool at a discounted price…..all this to help keep demand strong for NEW housing…
Because what we saw in existing housing told a different story….Existing home sales were down 3.4% m/m as buyers are pushing back on high prices for older homes that need to be remodeled……and we are seeing that in the daily Realtor.com emails that you might be getting (It’s a good way to keep your finger on the pulse). I am starting to see emails suggesting that prices are coming down …. that they are being ‘discounted’…. A quick look at properties in NY revealed weakening prices vs. what they have been as both buyers and sellers need to reconsider what higher mortgage rates coupled with high real estate taxes have done to affordability…. And with rates expected to continue to go higher we can expect more pressure on housing prices…. (Which in the end – would not be a complete negative – unless you were just trying to buy and flip the house….)
Every one of the 11 S&P sectors was up…….6 of them – Industrials, Tech, Financials, Consumer Discretionary, Communications, and Basic Materials – which all happen to be the weakest for the year were all up more than 3% while the other 5 – Utilities, Consumer Staples, Energy, Healthcare and Real Estate were all up better than 1.8% (note that they have also been the ‘better performers’ ytd).
In addition, we saw strength (or short-term opportunity) in sectors that have gotten absolutely clobbered this year. Retail – XRT up 3.7%, Airlines – JETS up 4.2%, Housing – XHB + 2.8%, Disruptive Tech – ARKK up 4.7%, Growth – SPYG +3.5%, Semi’s – SOXX +4.4%, Artificial Intelligence – BOTZ +3.3% and the triple levered Direxion S&P long – SPXL gaining a full 9% (the triple levered short – SPXS losing that same 9%). The ETF’s that get you short the broader markets (DOG PSQ and SH) also gave back about 2.5% – 3% but remain higher by 11%, 26% and 17% respectively.
Weakening commodity prices also helped the mood…. the BCOM (Bloomberg Commodity Index) has fallen 12% since early June (but still remains 20% higher on the year) – this as investors and markets are growing increasingly nervous about growth prospects and higher interest rates here and around the world. This has sparked the second week of a decline in prices….and if the nervousness continues, we could see commodity prices fall further and that will serve to support the latest narrative that the economy is weakening.
All this happened even as JJ told congress that he would be ‘reluctant’ to shift from raising rates to cutting rates until he ‘saw clear evidence that inflation was coming down in a convincing fashion before he would declare any kind of victory’……the action is suggesting that JJ will see convincing (weakening) inflationary data and that would be a relief…..
Now speaking of inflation – Eco data this week includes a bunch of stats…. Today we will get – Durable Goods +0.2%, Durable Goods Ex transports of +0.3%, Pending Home Sales expected to show a decline of 3.9%, Dalla Fed Survey -6.5. Later in the week – we will et the Richmond Fed Survey of -5, Final revision to 1st qtr. GDP of -1.5%, Personal Income and Personal Spending of +0.5% and +04% – but the one data point that will be the MOST important this week – will be the May PCE Core Deflator – the FED’s ‘favored’ read on inflation….and that is expected to show a gain of 0.7% m/m and 6.4% y/y – both stronger than the April read…..Now what they will do if the report is stronger is immediately tell you that this is a lagging indicator (so no need to pay that much attention to it) and the June report (due out in late July) will show a decline…..I mean you can’t make this up….who would ever believe you?
This morning we are seeing US futures rally…. Dow futures up 110 pts, the S&P up 20, the Nasdaq up 80 and the Russell is up 8 pts at 6 am. The story is the same…. a slowing economy….and to add even more excitement – JPM’s Marko Kolanovic is telling clients that he expects US equities to advance by 7% THIS WEEK as pension and sovereign wealth funds ‘shift their exposure’. Remember- Thursday is June 30th – the end of the 2nd qtr. – so expect lots of window dressing this week as portfolio managers attempt to rebalance their funds. Recall that in early June – JPM CEO Jamie Dimon warned of the coming ‘hurricane’ in stocks while Kolanovic told him that he was ‘out of his mind’…. stocks were fine – nothing to worry about here, now move on.
(If that is true – then he is suggesting that the S&P will be at 4180 – a gain of 275 pts while the Nasdaq will be at 12,400 – a gain of 800 pts by Friday….)
European markets are also all higher as the momentum continues……. the FTSE + 0.6%, CAC 40 + 0.1% DAX + 0.8%, Eurostoxx + 0.7%, Spain +0.03% and Italy flat. The G7 meeting is taking place in Germany – so investors are waiting for anything new that may come of that…. (Nothing market moving ever comes of that – so I am not holding my breath).
Vlad continues to try and take Ukraine while also defaulting on its foreign currency debt – a direct result of tougher western sanctions that have trapped him in a corner. The G7 is expected to commit ‘indefinite support’ for Ukraine in its fight against the Kremlin and the US, UK, Japan, and Canada all announcing a ban on new imports of Russian gold…. While this is all interesting…. none of it will drive the action in stocks.
10 yr. treasuries are up 4 bps now yielding 3.17%. Oil is up 16 cts at $107.78 after bouncing off of trendline support last week.
The S&P closed at 3,911 up 116 pts…. decisively up and thru 3800 – which was resistance….and is now support….……It is the end of the month and quarter….so expect lots of action…. There is a sense that maybe things are not as bad as they were just one month ago -that there is hope and just maybe we were in a well oversold short-term condition – (which I would agree with). But I am not in the camp that says we can avoid a hard landing and so I remain cautious as we move into the 3rd qtr. beginning Friday (July 1st) – I hope I am wrong….The focus this week will be on the macro eco data and the Thursday release of the PCE report and the much expected window dressing being done by the big asset managers.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Seared Swordfish on a Bed of Puttanesca w/Polenta Rounds
So, this dish is delicious and easy to make (Once you make the Puttanesca Sauce that I gave to you in my note dated: May 16th, 2022.) Just in case – here it is again for your reference – see below.
For this you will need: 4 pieces of swordfish, s&p, fresh lemon juice, and olive oil and the polenta.
Now start by making the puttanesca sauce – (Here you go.)
Start with 3 crushed garlic cloves sautéed in olive oil about 3 / 4 mins…do not let it burn… next add a diced white onion and diced/minced anchovy filets and sauté for another 5 / 8 mins. – as they cook, they melt away. Add one can – 28 oz – of kitchen ready crushed tomatoes… not puree – Crushed.
Add about 1/4 of a can of water – Let simmer for 10 mins or so. Next add capers, oregano, pepper, chopped Italian parsley, and rough chopped pitted Kalamata olives or pitted black olives – whichever you prefer – but do not mix… It is one or the other. No need to add salt as the anchovies are salty enough. If you like more bite, you can add red pepper flakes at this point… cover and let simmer.
Now – Season the swordfish with s&p, squeeze the fresh lemon juice and then a splash of olive oil. Turn the fish over in the juice to make sure you have it all nice.
Now for the Polenta rounds – you can make the polenta from scratch if you want – but for ease of prep – Go to your local Italian market and buy the pre-made rolled polenta. Cut into rounds and then you are going to fry them in a bit of butter – just to get them a bit toasty.
When ready – Light the Grill – get it nice and hot. Now – using one of those ‘fish’ grill pans – place the swordfish in the grill pan and place on the hot grill. Depending on the thickness – cook for 3 mins and then flip and repeat. Now if the swordfish is really thick – then you need to cook a bit longer….
When complete – dress the plate with a ladle of the puttanesca sauce – now place the swordfish on top in the center of the plate and then place two rounds of the polenta on either side of the fish.
You can also serve some steamed broccolini with this if you like, but to be clear – the dish carries itself as presented. Enjoy with your favorite white wine – Pinot Grigio – Santa Margherita is a fan favorite.
Buon Appetito.
