Things you need to know
- Retailers are warning AGAIN
- Janet tells Capitol Hill to expect inflation to hang around for longer
- FED in Blackout period – but is Janet the Canary in the Coal Mine?
- Oil – now trading above $121/barrel – Hello?
- Markets remain in a state of confusion
- Try the Chicken Cutlet Parmegiana
Target warns of threats to their profits! (Again!). Remember – 3 weeks ago after they missed on their earnings….they lowered guidance then and yesterday they made sure to make it clear that they are warning you again……They are cancelling orders from vendors and will be forced to offer -……wait….DISCOUNTS in order to clear unwanted goods……well of course you have to offer discounts for ‘unwanted goods’…..why would anyone pay top dollar for something they don’t want? What is interesting is – they are not offering discounts on what you do NEED…..Look – during the pandemic when everyone was stuck at home and the gov’t was sending you money (whether you needed it or not) there was a rush to buy all that stuff…patio furniture, athletic wear, pillows and other home décor stuff…and now that the world is open and you are not locked down – people want services and necessities – think travel, dining out, working out and food and gas.
If you walk around your local Target- you will not find any deals on food, or cleaning supplies, soaps, detergents, or stuff you NEED. But if you need more outdoor furniture or a polyester track suit – you are in luck! And so, it went – the whole retail sector taking it in the gut in early trading…. As the bell rang – TGT fell 8%, TJX -4%, ROST – 3%, JWN -2%…. the XRT – Retailing ETF lost 3% – taking the broader market lower in the first few minutes as the cable news channels dissected the headline…. What would it mean? Was this a new crack in the foundation or was it just more of what we already knew? My sense is that it just causes more confusion and at least for yesterday it was not that much of a concern – because after about 5 minutes – the ‘panic’ was over….and traders/investors took all of those stocks up – in fact the XRT ended the day up 0.7%!
And then we had Treasury Secretary Janet Yellen telling us that we should prepare for a ‘prolonged period of inflation’ – WOW! We have gone from ‘transitory to prolonged’…… Remember – FED voting members are now in their blackout period – so do not expect to hear anything from them, so they send Janet out to inform the global public square…suggesting that that IS what we might hear next week from JJ. Recall that Friday we will get the May CPI report and there is lots of speculation around what it is expected to be……. And if that was not enough – the World Bank cut global growth forecasts while raising the idea that many countries will face a recession!
And you would think all of this ‘good news’ would leave markets vulnerable and weak – but you would have been wrong – because by the end of the day investors/traders took stocks up – the thinking is that this is not really new news…. that this has been priced in – but is it? At 4 pm the Dow was up 265 pts, the S&P added 40, the Nasdaq gained 115 pts, the Russell rose 30 and the Transports added 18.
The 10 yr. treasury yield held steady at 3.003%, while oil rose another 1% to end the day at $119.66. The VIX falling further suggesting that its nothing to worry about.
Energy – which I have been screaming about for nearly one year now was by far the best performer yet again – the XLE rising 3% taking that ETF up 66% ytd. But when you think of energy – do not just think of XOM +72% ytd, CVX + 56% ytd, HAL +92% ytd, or SLB +65% ytd – you have to think outside the box and include names like CRK +161% ytd, BTU + 200% ytd, OIS +75% ytd. Now while these names are up – they can keep going higher as demand for energy continues to be strong.
Another sector outperforming the broader market: Metals and Miners – XME +28% ytd, while names like AMR + 194% ytd, STLD + 40% ytd.
All this while the broader S&P sectors remain under pressure. Consumer Discretionary – 24%, Communications – XLC – 22%, Tech – XLK – 18%, Real Estate – XLRE – 15%, Industrials – XLI down 8%.
This morning – we learn that the Atlanta FED GDP now is suggesting that we could be on ‘the brink’ of a recession…. yesterday their tracker cut the 2nd qtr. annualized GDP estimate to 0.9% down from 1.3% – last week…. inching ever closer to negative territory…this after the 1st quarter GDP remains well in negative territory at -1.5%. Now the traditional definition of a recession would be 2 consecutive quarters of negative growth, but that is changing as well. The NBER (National Bureau of Economic Research) tells us that they are defining a recession as ‘a significant decline in economic activity that is spread across the economy and that lasts for more than a few months.’ And by that definition – you could surmise that we are already there or are getting closer by the minute. In any event – do not expect the more ‘seasoned’ economists to ‘buy’ that definition…. But in any case, – it is what it is and again – the question is not IF, but WHEN.
And that might be what is causing US futures this morning to be under pressure. At 6 am – Dow futures are down 135 pts, the S&P off by 15 pts, the Nasdaq down by 25 pts and the Russell is off by 7 pts. Again – it goes to the total confusion – one day – it is all good, nothing to worry about and the next day – the storm clouds are building.
The only eco data point today that is worth watching is Mortgage Apps – and if you noticed – they have been in decline for weeks now and are expected to be lower again today as mortgage rates remain elevated causing monthly payments to rise. Add in rising prices for food and energy and now you have gotten an even bigger problem as consumers have to make choices……Mortagage apps FELL by 6.5%!
Oil is up again today…. rising $1.60 to trade at $121.10/barrel and this is despite the fact that the API (American Petroleum Institute) reported an increase in crude and oil products. Demand from China being credited to the most recent surge in prices. There is also a story that Norwegian oil workers are planning on striking next week and that is raising the risk of a shutdown taking some Brent oil off the market which by default would ‘raise’ demand for US WTI (West Texas Intermediate). The EIA (energy Information Agency) is set to report inventory levels at 10:30 am today and by all accounts it is not expected to change the narrative very much. Meanwhile global crude supplies remain tight as the Western sanctions on Russia hamper Russian exports and that is also adding the move higher.
I suspect – and have been saying – that there will be continued back and forth – with the path of least resistance lower over the next couple of months as investors and portfolio managers attempt to find clarity, a sense of direction and whether or not the FED can manage to navigate a soft landing….to be clear though, lower does NOT necessarily mean a collapse….I still believe that 3800 is a level of real support and will only change my mind if the fundamental story changes over the next couple of months.
European markets are also all a bit lower after being up yesterday….so they too remain confused…one day its good the next day it is not so good. This morning they are down about 0.5% across the board. European investors also waiting on the US CPI data on Friday……which may give them a clue about what the ECB (European Central Bank) might have up its sleeve in the weeks ahead. Remember – inflation across the zone has surged to all-time highs and the ECB continues to stimulate…. but that is expected to end this Thursday when then make an announcement.
The S&P closed at 4160 after testing as high as 4164…. just below the most recent highs of 4175. I continue to believe that we remain in the very tight trading range of 4075/4175. This morning’s action suggests more churn but no reason for it to break out or break down as we await Friday’s CPI data. While it is beginning to feel a little better – I am not convinced yet….and remain on the cautious on side of the equation.
Estimates for more downside action suggest that 3800 should hold – but there are the outliers that are calling for S&P 3200 before this is over…. citing Fibonacci retracement levels and DMark Indicators. Just to be clear that would be an additional loss of 21% for the S&P that is already down 13% ytd…something I do not see – UNLESS of course the data suddenly turns really ugly……Which it could do but is not something I expect it to do.
Sit tight – the CPI report is only 2 days away; PPI is 5 days away…. ….and the FED meeting results are 7 days away…so lots going on…. We remain in the broader trendline support / resistance range of 3800/ 4275.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Chicken Parmegiana
Ok as promised- use yesterday’s meat sauce to now make a new dish. This is also a classic Italian dish – originated in the Southern part of Italy…. where tomatoes and meat sauces are a staple in the diet.
This part of the meal should cost you about $25 – for the chicken and mozz and breadcrumbs. Remember you already spent the money on the sauce yesterday!
For this you need – thin sliced (or pounded thin) chicken breasts (classic), but you can also use boneless thighs as well. Eggs, flour, seasoned breadcrumbs, olive oil and fresh Mozz….
Begin by rinsing and drying the cutlets. Scramble 4 eggs to make the egg wash. Now make a ‘assemby line.’ A plate of seasoned flour, the egg wash and then the seasoned breadcrumbs.
Dredge the cutlets in seasoned flour (s&p) and then dip in the egg wash and then in the seasoned breadcrumbs. Making sure to cover the cutlet well.
Put some of the meat sauce in a pan to heat it up. (Use your head, how many cutlets did you make?)
Preheat your oven to the broil mode. Now – using a large broiling pan or Pyrex dish – add enough olive oil to cover the bottom of the pan and then some. Heat it up under the broiler…. you need to pay attention to this….do not leave the oven. Once it is hot – (you test by tossing some breadcrumbs into the oil to see if they sizzle) – add the cutlets. Dipping one side in the hot oil and then flipping it over to dip the other side. Then put it under the broiler until they take on a golden color. Flip and repeat then set aside.
Turn the oven to bake at 350 degrees now.
When complete – place the cutlets in a baking dish – add a slice of fresh mozz and then top with the warmed meat sauce you made yesterday. Place in the oven to give the cheese a chance to melt. Maybe 10 mins…. remember- the cutlets are already cooked – you just want the cheese to melt.
Serve with a large mixed salad – dressed in a red wine vinegar/olive oil dressing. Season it with s&p, and oregano. Simple to make and so good to eat.
Buon Appetito
