Things you need to know
- Janet goes for a second round on Capitol Hill
- World Bank warns of Stagflation
- Crude oil surges by another $3.20/barrel
- WH Braces for a Stronger CPI Report
- ECB set to announce a policy change
- Try the Eggplant Parmegiana
Sellers returned to the market and buyers pulled back – unwilling to pay prices that they paid on Tuesday…. Nervousness over what Janet Yellen had to say about inflation (It is too damn high) and rising energy prices along with the global economic downgrade by the world bank – that also warned of 1970’s style ‘stagflation’ led to the negative mood. Visons of seeing Janet Yellen saying that she now expects that the Biden Administration will most likely have to increase their 4.7% inflation forecast to something higher in this year’s budget proposal only adding to the drama. In addition, she also said that it is
“Virtually impossible for us to insulate ourselves’ from soaring gas prices…”
And with that – oil prices continued to march higher…rising 2.75% or $3.20/barrel to end the day at $122.61! – Gas at the pump now pushing closer to $5.75/gal for regular…. High octane is over $6! Diesel and jet fuel prices are surging….it now costs nearly $800 to fly from FL to NYC – and that’s basic economy. The ticket itself costs $300 and then you have to ‘buy the seat’ for another $80 or so and if you want to take a suitcase you pay $30 to check it, add in all the newest fees and surcharges and BOOM…. $800 dollars to go round trip.
At this rate I expect to see ZOOM (ZM) rise from the ashes as people will choose ‘not to go’ and business travel gets reigned in. In fact, ZM is up 48% since hitting a June low of $85 and is now trading at $115 while oil is up another 11% during that same time period. The JETS etf falling 2.5% yesterday taking it is 2022 losses to 7.2% and likely going lower as the cost of jet fuel surges….and the argument that airlines are ‘short staffed’ will no longer be relevant.
By the end of the day the Dow gave up 270 pts, the S&P lost 45 pts, the Nasdaq gave back 90 pts, the Russell lost 30 and the Transports suffered the worst loss in days…. falling 555 pts or 3.8% on the back of surging diesel and gas prices.
To add insult to injury – at about noon – the WH reveals the fact that they expect Friday’s CPI report to be worse than the 8.2% that analysts are estimating…..and btw – that would make sense, because the Producer Price Index keeps rising and those rising prices get passed onto the consumer which then show up in the CPI…..so investors are bracing themselves….
In the end – the cure for inflation is higher prices because at some point consumers will decide that enough is enough….and they will stop spending…and then that will start to show up in company earnings. Look – 1st quarter results were generally ‘ok’, but the warning flags were everywhere…. Input costs are rising……energy prices and wages are just two of the costs that are increasing exponentially causing companies to warn of more ‘difficult days ahead.’
The yield on the 10 yr. treasury rose to 3.02%, still below the recent high of 3.124% last month. 30 yr. mortgages are now running at 5.25% for conforming loans – Mortgage applications fell another 6.5% reflecting the rising cost of money and the toll it is taking on home buyers. We are starting to see that reflected in housing as home builders are now offering ‘upgrades and landscaping’ – something they did not have to do the past 3 or 4 years – as a ‘give me’ in order to attract new buyers, the next step would be to start cutting prices. When do we think that starts?
Grocery stores (in NYC) that face weekly spikes in supplier pricing are now requiring those suppliers to prove how their costs have gone up in order to justify weekly rising costs, to be sure that suppliers are just not ‘taking advantage’ of the current hysteria. Some of which is surely happening….
US futures are flat this morning. European markets are all in negative territory – not much, but still in negative territory as they await the latest ECB (European Central Bank) policy announcement today. It is expected that Christine Lagarde will ‘pivot’ today and announce (vs. hint) the start of tightening in July and then again in September, while others (on the fringe) are expecting her to not only announce BUT to raise rates at this meeting….as inflation across the Eurozone is at all time highs and she is also way behind the 8 ball. Remember – the ‘deposit rate’ in Europe is -0.5% (that is right, it is still negative) and with those two increases it is expected to go to 0% all while inflation across the zone is running at 8.1%…. Capisce?
Oil is hovering right in line……talk of renewed lockdowns in Shanghai is said to be putting some pressure on the oil markets…. OMG – stop already with the China lockdowns….
There are no economic data points today that will drive the conversation…. but tomorrow’s CPI report IS top of mind – especially after the WH admitted that they expect it to be hotter than the estimates. Long term investors need to sit tight, a spike in the CPI will force the FED to start to float the idea of 75 bps rate hike in July…. (There are others that are thinking that they just might do it next week – that is a stretch to me, but at this point anything is possible). I thought that they should have shocked the markets and raised rates by 1% at both the June and July meetings, but that did not get a whole lot of support in DC – because that would be like yelling ‘FIRE’ in a crowded theater….and you can bet no one wants to go there (at least not yet). Next week it will be all about the PPI (Producer Price Index) as well as the FOMC (Federal Open Market Committee) meeting results.
The S&P closed at 4115- down 45 points keeping us in the 4075/4175 trading range that I have been talking about. This morning’s action suggests more churn as we await tomorrow’s CPI data. I am not convinced that the worst is over……and remain on the cautious on side of that argument.
I still believe that S&P 3800 will hold – but there are analysts that are calling for S&P 3200 before this is over. The beauty pageant (earnings) is set to begin again in 4 weeks – and they should provide some more insight into what is happening. Analysts and companies are issuing revised (lower) guidance as changes in the economy demand…. But the real challenge will be what these company CEO’s and CFO’s say about the second half of the year. It is all a tangled web we weave.
Sit tight –lots going on…. We remain in the broader trendline support / resistance range of 3800/ 4275.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Eggplant Parmegiana
And here comes the eggplant. This is a must have when you are making spaghetti and meatballs…. A good eggplant parmigiana is always a welcome addition.
This dish should cost you no more than $15. And if you have any leftovers – then you can make a delicious eggplant parm sandwich for lunch the next day.
Ok – for this you need: 2 large eggplants, sliced mozz, eggs, olive oil and some fresh grated parmigiana cheese. You already have the tomato sauce that you made the other day. Mmmmm.
Ok – so you start by removing the skin of the eggplant. Then slice the eggplant either using a mandolin – that guarantees perfect slices, or you just wing it and use a sharp knife to slice it. Lay out 3 sheets of paper towels and place sliced eggplant on top in a single layer. Then take 3 more sheets and cover that eggplant and lay out another layer of eggplant. Repeat until you have laid out all of the eggplant. On the final layer – make sure you also cover that with a layer of paper towels. Leave it on the counter for at least 4 hrs. – to give it a chance to release the water. It is better if you leave it overnight – so that it is completely dried in the morning.
When you are ready to make it – beat 6 eggs in a large bowl. Get a large size frying pan and add the olive oil – enough to cover the bottom of the pan. Turn heat to med hi and wait until the oil gets hot.
Now – dip 3 or 4 eggplant slices in the egg and then place in the frying pan. Brown on both sides. When browned – remove and place on a platter that is also lined with paper towels – this will help to take some of the oil out of the slices. One layer at a time and then cover with a new layer of paper towel.
Pre-heat your oven to 325 degrees.
Now its time to make it. Using a large Pyrex baking dish – 9’x12’
Add a ladle of sauce – on the bottom. Now make a layer of the eggplant. Now add the slices of fresh mozz, and then a ladle of sauce. Repeat until you have used all of the eggplant. Should be no more than 4 layers. On the final layer, add a sprinkling of the fresh grated Parmegiana cheese on top of the mozz.
Place in the oven and let it bake for 20 mins. Remove it, it will be all bubbly. Allow it to rest for 10 mins before cutting and serving. Tomorrow will be Baked Rigatoni…. mmmmm
Buon Appetito.
