Things you need to know 

*             The Rush to Re-define what a Recession is….

*             WMT pre-announces – and it wasn’t pretty

*             Food/Energy inflation are real…WMT points that out

*             Today starts the 2 day FED meeting – will we get an 11th hr surprise?

*             Remember- Earnings are beating ‘slashed estimates’  & Guidance is weak– is that a positive?

*             Try the Rib-Eye Pizzaiola

Investors remain a bit confused….as we wait for the slew of macro data (economic reports), micro data (earnings) and the decision from the FED to hit the tape this week…. yesterday morning we got 2 macro reports – both suggesting weakness – Chicago Fed and Dallas Fed – both weaker (read negative) than the expectations.

Then we got 7 earnings reports and 5 of them beat the estimates – Great!  No surprise really – that’s a 70% run rate – right in line with what we have been seeing this season – but we got the same response in terms of guidance – all of the company reports warning of tougher times ahead which then caused many on the street to continue to speculate on not what the FED will do – we ‘assume’ they will raise rates by 75 bps – but we could get an 11th hour surprise and see 100 bps….(if that was going to happen – Minneapolis Fed Pres -Neeley Khashkari – not an FOMC member – will have to leak it to Goldman at some point today rather than allowing it to hit the tape ‘unannounced’) – but rather what they will say about the months ahead…..What will the FED’s say about future guidance?  Will they mimic what we are hearing from the C-suite of these companies, or will they tell us a different story? Who will dissent to the 75-bps move?  We can expect that Kansas City’s Ester George – will be the dissenter…. (She always is).

Well – the first thing they will do – because they are trying desperately to do it – is redefine the data and redefine the terms.  All of the members of the administration (and the FED) now re-defining the ‘technical definition’ of what a RECESSION is…. most likely because Thursday’s 2nd quarter GDP report is about to reveal that the economy grew by negative 1.5% (according to the Atlanta Fed) – this on top of the negative 1.5% reported in the 1st quarter. And that my friends would be considered a recession under a Republican President – so it should hold true under a Democratic President – we can’t just ‘cancel’ definitions that have been on the books for decades because they tell a negative story – or can we? 

A recession is no longer what we all thought it was, it is no longer what Econ 101 taught us, it is no longer 2 consecutive quarters of negative growth, oh no…. In fact – the idea that a recession is knocking on the door is ridiculous.  Yellen told Chucky Todd on ‘Meet the Press’ on Sunday that we are not in a recession, but rather in a ‘period of transition in which growth is slowing’.  Brian Deese – Joey’s economic advisor – tells CNN’s Johnny Berman that ‘a second consecutive quarter of negative GDP growth was ‘technically not a recession’ all while emphasizing the need to look ahead rather than have a debate about whether or not we are in a ‘technical recession’.   And then Jared Bernstein – council of economic advisors – told us that he ‘objects to the semantics claim’ that we are in a recession…. And what does all this mean?  We’re in a recession! The fact that the administration and the FED are out there in the media trying to re-define the terms screams of ‘fire in the hole!’.

Now remember – the NBER (National Bureau of Economic Research) is the one that ‘calls it’ and they are not interested in calling it just yet – but no matter – if the majority of the country thinks we are in a recession – guess what?  We’re in a recession – Remember when the majority of the country thought ‘transitory’ was BS?  That’s because it was – it only took JJ months to admit it – but he finally did….so this idea that we are not in a recession is BS.

Ok – so now what?  We’re in one, so no we all have to deal with it…..In fact – you could argue that it is the FED that put us here, by providing the fuel to feed the recession fire long after it was clear that we didn’t NEED any more fuel, aided by the massive spend policies and free money provided by the Biden’s.  The signs were clear, there is NO argument there.  When the CPI shot up and through 2% in April 2021 – the FED should have begun the process of retreat – as they promised for years they would.  They should have begun raising rates by 25 bps – slow and steady – But they didn’t – pressured by the administration that wanted to push through a massive spending program – in fact – they told us it wasn’t real, it was transitory – a word that has come back to haunt them.   So now, they have to figure out how to create ‘smoke and mirrors’ and they can do that by re-defining the terms.

By the end of the day – the Dow gained 90 pts, the S&P’s up 5, the Nasdaq down by 52, the Russell up 11 and the Transports up 55.

Treasuries remain inverted – this is now going on 4 weeks of inversion…. the 2’s yielding 3.01%, the 5’s yielding 2.85% and the 10’s yielding 2.77% – yet no one in the administration is even discussing what an inverted yield curve means…. Hint – can you say recession?

And oil?  That was up 1.8% to end the day at $96.45.  Brian (Deese) telling us that oil is down 17% in the last 6 weeks – so American’s should celebrate the decline…what he conveniently refuses to say is that oil is up 106% since Joey moved into the White House and that gasoline is still up 56% with a bias to the upside…..this morning oil is up 2% to $98.75 – about to kiss resistance at $101 – this leaves oil trading in the $88/$101 range….

And then to add more energy concerns to the conversation- Russia announced that they are cutting the supply of natural gas via the Nord Stream pipeline to Europe beginning tomorrow morning…citing that it needs more maintenance and that sent Nat gas up by 6% and it’s up again today by 2% at 5 am this morning.   This as the fall and colder weather are only 2 months away….

And then after the bell last night – WMT slashed its earnings and guidance outlook – and it isn’t pretty.  They took the stock down 9% in the after-hours session…. Look, WMT isn’t due to announce their earnings until August 16th – yesterday was July 25th….so do you see what they did?  They pre-announced – took the pain now so that when they announce investors will take the stock UP – comfortable in the fact that there is no new information – unless of course there is.  And what did WMT say?  Well – they warned that higher food and fuel prices were causing consumers to pull back.  When you are paying 10% – 15% more for food and energy – you have less to spend on discretionary items which is causing them to cut prices on other items to get consumers to take it home – but will consumers take it home?

This announcement was not helpful to the other names in the space…AMZN which was down 1% during the day, fell another 4% on that news. Remember – AMZN is due to report on Thursday.   TGT and COST lower this morning as well.   The warning by WMT now casts a cloud over some upcoming earning this week – MCD, PG, V and GM.  What will these companies say about consumer behavior? What will these companies say about the recession?

This morning – US futures are down – Dow down 150 pts, the S&P’s down by 12, the Nasdaq off by 45 and the Russell down by 3 pts.

WMT has set the tone and reminds us that inflation isn’t going away anytime soon, and that the recession is ringing the doorbell.   Investors, traders and algos’ bracing for a week full of data…Today starts the 2-day FED meeting, tomorrow we’ll get the answer.

Earnings today include some BIG names…. UPS, MMM, DND, ADM, MCD, GE, KO, ECL, GLW, and KMB…all before the bell, with GOOG, JNPR, MDLZ, CMG, SYK after the bell.

Eco data is all about housing…. S&P CoreLogic 20 city housing prices up 1.5% m/m and up 20.6% y/y, New Home Sales of -5.4% (in line with other housing data points), the Richmond Fed Survey of -14 and the Consumer confidence at 97.

In Europe – markets are also lower – not a disaster but stocks are in negative territory as they too brace for more earnings reports, US macro data and tomorrow’s FED decision…The EU is having another emergency energy meeting and the IMF is about to update the global economic outlook.

The S&P closed at 3966- after trading in the 3943/3975 range.  We remain above the support trendline at 3920.  If we rally- then look for some resistance at 4000 – if we push up and thru that, then the intermediate trendline becomes resistance at 4130.   We need to close the gap created on June 10th – which means the S&P has to trade up to 4018 in order to do this.  It tried on Friday and failed…Will it happen today?  Not likely…. but keep that level in your head because when it closes that gap it will be a reason for further gains…

Look the list of risks exposes the vulnerability of the latest bear market rally – expect to see more volatility, more chop and more weakness as we move through earnings season and then we come to September/October – a seasonally difficult time for the markets.   

Take Good Care

Chief Market Strategist
kpolcari@slatestone.com

Rib-Eye Pizzaiola

This is a very hearty dish as it features a nice rib eye braised in onions, peppers, tomato sauce and a splash or so of your favorite red wine.

For this you will need a couple of things:  A nice rib eye – (about 3/4″ thick), Olive oil, Oregano, garlic, onions, red and green bell peppers, can have crushed tomatoes (not puree), some red wine, salt and pepper…. **crushed red pepper flakes (optional).

Preheat the grill –

In a saucepan – heat olive oil and add crushed/sliced garlic and move it around for a couple of mins until it is nice and golden…. add a sliced white onion and julienned bell peppers – turn heat to medium and cover.  When the onions and peppers are soft (about 5 mins) add the crushed tomatoes, oregano and *red pepper flakes.  Turn heats up and bring to a quick boil then reduce heat to medium.  Add red wine (about 1/2 cup) salt and pepper and let simmer and thicken up…. about 10 / 12 mins.

Next – rub steaks with olive oil, salt and pepper – do not drown the steak in oil – just enough to massage the steaks and prepare them for the grill.  Sear for about 2 mins then turn over and continue cooking for another 2 mins.  Remove from the grill and add to the tomato sauce/pepper/onion mixture.   cover and turn heat to simmer and cook for another 10 mins.  This should give you a nice medium steak – If you prefer you can let simmer longer for more well done.

When done – remove steaks from skillet – slice into thick strips and arrange on plate.  This should be enough to feed 4 adults.  Next – stir the sauce in the skillet pan to deglaze – making sure to scrap the pan for any bits left behind.   Spoon sauce over the steak and serve immediately.  Present this meal with a large mixed salad of Arugula, Boston Bib & Romaine topped with tomatoes, red onions, cucumbers – dressed in a red wine vinaigrette.  For wine – enjoy a nice Brunello di Montalcino.

Buon Appetito.