Things you need to know –

–        Goldman’s arrogance takes the stock lower

–        Empire Manufacturing – collapses…falling 4 x greater than consensus estimates.

–        Oil rallies and kisses trendline resistance – another demand story

–        China claims slow growth – I say – So what?

–        And the earnings parade continues…

–        Try the Simple Pot Roast

Goldman Sachs – Disappoints….which is both a surprise and not…..You see – it’s one of the big banks, that missed their estimates by a wide margin…….all of the other ones have beaten on the bottom line while some have also beat on the top line…. think JPM, C, WFC, BAC, STT….and we talked about how estimates have been slashed (and burned) making it easier to ‘beat’ – but we also discussed that if a company was still going to miss the estimates then they should  pre-announce/ warn investors that they are not meeting even those reduced estimates…and they would to that for two reasons – 1. To get it out of the way, take your lumps and then move on….and 2. When they do this – companies realize that investors – while disappointed – are forgiving….and while the stock might get hit – it isn’t usually as bad it could be (as long as you come clean)…….but when companies are arrogant enough to dismiss investor reaction and choose not to address the elephant in the room ahead of time – what they find out very quickly is that investors can (and do) get ‘annoyed’ – resulting in a more chaotic dramatic move lower….  And that is exactly what we saw yesterday with Goldman Sachs. 

You see – GS is arrogant enough to think that it doesn’t matter. The C Suite at GS knew damn well that they were gonna miss and miss big….yet they chose to say nothing  (at least say nothing to the public) – whether or not they ‘whispered’ those disappointing results to their ‘A” list of clients is another story – but let’s not go there….that is not what this is about.   CEO Davey Solomon’s strategy didn’t work very well…..investment banking fees down 50%, new business down, loan loss reserves – UP (to cover what is expected to be tougher times ahead) and to top it off he then tells investors that compensation costs jumped by 16%…. The stock lost more than 7.5% by mid-afternoon to end the  day down 6.5% and another 0.3% in the after-hours. Rumor has it that some people are not happy with Davey….to which I would say – he should have owned it well before earnings day…. but he didn’t….so let’s see.  

And that loss – along with a disastrous Empire Manufacturing report plus anxious economic commentary and concern out of Davos – helped to set the negative tone across the markets – both European markets and US markets.  Word that China is experiencing a ‘near-historic’ record slowdown in economic growth of 3% only added to the angst. Their  shrinking population also remains a source of worry – I guess that one’ child policy that was in effect for 36 years (1980 – 2016 – a generation +) is finally coming home to roost.    But I must point out – does it really matter to you what China says?  Can we believe anything that comes out of that country? 

And then we have the whole debt ceiling drama that is unfolding in DC and is  supposed to hit on Thursday…..….Once again we are on the precipice of a gov’t shutdown or a downgrade to US debt or the beginning of the end!!!  The media using words like ‘debacle’, ‘fiasco’ ‘collapse’….So dramatic….so unnecessary – but look – who is Janet kidding?  If those clowns in DC that have already spent the money decide to play hard ball – then Janet is going to have to borrow money from somewhere else – they describe this as using ‘extraordinary measures’ that should take us to mid-June….So, if anyone thinks that the debt ceiling drama is something to worry about – think again….it isn’t – even those clowns in  DC recognize that they have to make a deal and they have to raise the limit – period…but it does provide – if nothing else – entertainment as they try to panic the country.  Expect and 11th hour ‘happy ending’ !

By the end of the day the indexes were mixed…the Dow lost 390 pts or 1.4%, the S&P down 8 pts or 0.2%, the Nasdaq gained 16 pts or 0.15%,  the Russell lost 2 pts and the Transports gave up 6 pts.

Now – did you see that?  The Nasdaq is the only one that gained ground – which makes sense if you believe that the worst is over…and that there is nothing but blue skies ahead…Some analysts and strategists remain convinced that the likelihood of a deep recession is waning…pointing to ‘better earnings, rising wages (which is not what the FED wants to see) and strong consumer spending (again not what the FED wants to see right now) while they battle inflation….  You see, rising wages will only push us into a wage/price spiral inflationary environment (this was front and center during the DAL earnings call….) ….and that will force the FED to get more aggressive – which will cause the riskier names to go south again…..  Which is why being a bit more defensive still makes some sense until we get clarity on the macro data….

They talk of a pivot as if it’s really happening – sometime soon – and that is causing a rush into the most beaten up names of 2022…..because a FED pivot means that they are about to CUT rates and that would help all of those names/sectors that got slammed last year….So I ask- what are you to do if they don’t cut rates?  Which is why I keep telling you – build a diversified portfolio…have all the pieces – but just overweight the big, boring, but beautiful stuff while underweighting the riskier names…don’t eliminate them, just underweight them, so if the economy turns and if the recession isn’t as bad as some believe – then you’ll participate on the upside – yes at a slower pace, but you aren’t left completely in the dust….Capisce?  At that point you can adjust….Now you can adjust today if you want and overweight those names, but you run the risk that you are too early….and if you are in the waning years of your life – you don’t want to be early, you’d rather be fashionably late let the 30 yr. olds that have time on their side – make the first jump.

Now, let’s talk oil – Oh yet. It rallied yesterday taking oil right to the intermediate trendline as it kissed $81.12….Why? You ask….  Yeah, it’s another China headline……demand is expected to surge now that China has ‘ditched’ their zero covid policy…..Whatever……Oil is expected to go higher – GS calling for $100/barrel while a Reuters poll is expecting oil to average $89.37/barrel for the year, which means it has to trade substantially higher in order for the average to be $89.37.  Look for oil to pierce the trendline and then challenge the long term resistance at $86.50 as it makes its way towards $100.

Eco data today includes – Mortgage apps, and Retail Sales both expected to be lower…..but the most important data point today is the PPI – Producer Price Index…the price that producers pay to buy the raw materials to manufacture the goods we buy from them.  It is the sister to the CPI report….what happens to the PPI ultimately finds its way to the CPI – so a declining PPI is a positive for CPI…and decline is what it is expected to do – but let’s be honest…..PPI y/y is still expected to be +6.8%, Ex food and energy of +5.6%….trending lower, but still high- and that is why the FED isn’t slowing or pausing or pivoting.  We will also get Capacity Utilization and Industrial Production….both expected to be a bit weaker…

We’ve got a team of FED speakers today….Atlanta’s Raffi Bostic, Dallas Fed President Lorie Logan and Philly’ s Patty Harker all tomorrow, while Boston’s Suzie Collins and NY’s Johnny Williams appear on Thursday.

US futures are flat this morning as investors continue to mull over the news and data….It is a bit macro data day and another big earnings day….so sit tight – there is plenty of the docket.

European stocks are flat as well….again – very much the same concerns in Europe as in the US.

The S&P closed the day at 3990 – down 8 pts after trading in a range of 3984/4015.  The trendline – which was resistance and is now support is at 3978….a level we held yesterday….That’s a positive. Now let’s see what happens today… If we test and fail, then we will surely test the 3870 range.  If we hold, then I expect to see a continued struggle to push higher at the moment.

If it’s rallying – Don’t chase it, let it run,  but if some of your names are backing off – then consider adding a ‘bit more’.   A well-balanced core portfolio – is the goal – You can use cash to play around the edges and add alpha to your portfolio on names that become completely disconnected to current reality….

Take good care.

Chief Market Strategist
kpolcari@slatestone.com

Simple Pot Roast

This is one of those simple ‘one pan’ meals that takes little time to prepare and cooks beautifully in the oven. 

For this you need: 1 -31/2 lb. boneless chuck-eye roast, vegetable oil, 1 large white onion- chopped, 2 large carrots chopped, 2 celery ribs chopped, 3 lg cloves of garlic- put thru the garlic press, sugar, chicken and beef broth, fresh thyme, water and ¼ c of red wine.  You also need a pot that can go from the stove into the oven with a lid. 

Begin by turning your oven on to 300 degrees.  Make room in the center rack. 

Pat the roast dry with paper towels and season generously with s&p.

Heat the pot with the oil until it shimmers.  Brown the roast on all sides.  – 10 mins. Now transfer to a plate and set aside.

Reduce the heat to medium – add the chopped onion, celery and carrots.  Sauté for about 10 mins.  Now add the garlic and 2 tsp of sugar- stir to mix….  Now add in 1 c each of the chicken broth and the beef broth and the twig of thyme.  Return the roast to the pot and any of the juice it produced.  Now add enough water to come halfway up the sides of the roast.

Cover the pot with tin foil and then put the lid on top to secure it.  When the liquid begins to simmer – transfer to the oven. Turn the roast every 30 mins until fork tender – maybe 3 ½ – 4 hrs.

Now remove the roast and put on a plate and cover with tin foil.  Let the liquid in the pot cool for 5mins.  Now skim the fat off the top and toss away the sprig of thyme.   Bring to a boil to reduce by half. – Now add in ¼ c of red wine – boil again for about 2 mins to allow the alcohol to burn off. Season with s&p to taste.

Pull the meat apart with two forks – transfer to a warm serving platter and pour ½ c of juice over it. Serve immediately. 

Buon Appetito