Things you need to know –
– The tone was negative….Monetary policy and geo-political issues causing unrest
– Sellers run for the exits; buyers stepped aside sending stocks lower.
– Dollar index up, commodities under pressure
– 10 Yr. Treasuries Kiss 4%
– Vlad tests a nuclear capable missile while Xi Xi makes his plans.
– Try the Spaghetti alla Nerano
Hello???? Anyone home? Guess what? – Investors woke up to the narrative that interest rates ARE going up and that when they get to the ‘terminal (neutral) rate’ they will be held there for longer! It was RISK OFF – as traders and algo’s ran for the door – increasing the ‘supply’ of stock – while savvy investors stepped aside – forcing the sellers into ‘panic like sales’….as in line ‘demand’ dried up. Now – remember – its not that there was NO demand – there is plenty of demand, there just isn’t’ plenty of demand ‘in line’ but down a percent or two – there are more bids…. Then we had disappointing earnings projections coming from 2 of America’s biggest stalwarts…WMT and HD – and that didn’t’ help the tone….
And so – stocks fell – every seller meeting a buyer at lower and lower prices…..…the Dow falling 700 pts or 2%, the S&P down 82 pts or 2%, the Nasdaq lost 295 pts or 2.5%, the Russell gave up 60 pts or 3% and the Transports gave back 490 pts or 3.25%.
Bonds continued to fall as well sending yields up….the 10 yr. now kissing 4% and that appears to be the line in the sand for now……Remember that the 6 month and 1 yr. T-bills are already yielding more than 5%, while the 2 yr. is pushing up against 4.7%. Now while treasuries do represent the safety trade – they still aren’t protecting you against the ravages of 6% inflation and that’s the number they tell you, but for those of us that go to the supermarket or out to dinner or pay the bills, or try to get away – we realize inflation is still running at a healthy clip that is somewhat more than 6%…..Capisce? And remember – 30 yr. rates (think mortgages) are priced off of the 10 yr….so as those yields move up – then expect mortgages to get more expensive…….and that will show up in weaker housing data….
And the talk of rising rates – sent the dollar index (DXY) higher….to end the day at $104.17 and this morning it is up again…..trading at $104.23. And you know what that means……pressure on the commodity complex….Gold fell $6 to end the day at $1844/oz….leaving it in the $1800/$1880 trading range….now with a rising dollar – $1800 is the key level to watch….will it hold or will it breech support? That depends on the inflation / interest rate narrative. If it stays hot – then gold could break $1800…..If it cools (unlikely for now) we will see gold stabilize in here.
Oil also came under pressure…falling 13 cts to end the day at $76.20 but not before falling to a low of $75.97…..Now, it was a rising dollar but it was also the slowing ‘global economy that is sure to destroy demand story’…..see how they do that? Recall that last week we saw a build in US inventories – suggesting slowing US demand, yet we saw rising demand coming from Asia – in a ying/yang narrative….. – so what they did yesterday was repeat the (negative) US inventory build story that fit right into the broader negative tone…..and this morning oil is lower yet again…trading at $75.40 in what appears to be more technical weakness (stronger dollar) as oil attempts to find a bottom.
Don’t worry – expect to hear from the Saudi’s any day now….remember that when oil starts to trade sub $75/barrel the Saudis’ start making noise about production cuts while Vlad has already promised to slash production by 500k bpd so don’t expect oil to fall very far and don’t forget that Joey has posted a big flashing neon billboard announcing that he is a buyer sub $72 – remember he has to buy millions of barrels to refill the strategic petroleum reserve….….which means we have a floor….…..
Now adding to all this excitement don’t forget that we had those weekend warnings from Morgan’s Mikey Wilson – telling us that traders and algo’s have taken stocks to unsustainable levels – defining it as the ‘Death Zone’ and that didn’t help the tone…. And then – this negative tone was amplified by both JPM and GS. JPMorgan warned us NOT to count the recession out (with more commentary this morning – see below) while Goldman told us that they expect at least 3 more moves of 25 bps – before the FED pauses…to that I would say – thanks Goldman for your incredible insight into FED policy….but you’re late to the game with that call…..Everyone on the street has been calling for that for weeks now as the macro data revealed an inflation monster that just won’t quit……with last week’s CPI and PPI data only solidifying it for those of us that had the foresight to predict it.
And then there are the geo-political issues that are starting to boil on the back burner…This Friday is the one year anniversary of the Russian invasion of Ukraine. The fighting has no end in sight – Vlad raising the temperature in the region by ‘unsuccessfully testing’ a nuclear capable missile while Joey was having tea with Zelensky in Kyiv – committing another $500 million of support only adding to the angst. In addition – during his ‘State of the Union’ address over the weekend Vlad blamed NATO and the WEST for this confrontation – saying it was his duty to ‘stop it’. We also found out that Vlad suspended participation in the US/Russian Nuclear Arms Limitation Treaty suggesting that he is preparing for a new arms race. Now, much of this is just noise – but when the markets are anxious this noise only adds to the echo chamber….
And not to be outdone – US Secretary of State – Tony Blinken said that China is considering supplying weapons to Russia to assist in this war – something that China was quick to deny….accusing Tony of spreading lies…..all while Joey warned China to ‘stay out of this fight’ – Yeah, let’s see how that works…..
China – watching intently as Xi Xi – plots his move to take Taiwan – when? No exact date yet, but by all accounts he is set to do it while ‘Jo Jo’ is in the White House – so that’s anytime between now and January 20, 2025 – knowing full well that ‘Jo Jo’ has hands full at the moment and would be hard pressed to get dragged into another confrontation…..never mind trying to process it all….
All while East Palestine, Ohio burns to the ground poisoning its residents without a word or visit from anyone in the administration……Transportation Secretary ‘Mayor Pete’ who is apparently going thru his ‘South Bend, Indiana Disaster Playbook’ is trying to figure out what to do or say. (Now to be sure – Petey told GMA (Good Morning America) that he dealt with plenty of disasters while Mayor of South Bend and that he would ‘visit’ East Palestine – when the time was right.)
In any event – it’s getting hotter around the world and we’re NOT talking climate change.
Every sector was lower…..and again it was this year’s outperformers that were the biggest losers…Consumer Discretionary – 3.3%, Tech -2.4%, Communications – 2.2%, Housing – 4%, Real Estate – 2%, Retail – 5%, Disruptive Tech – 6.1%, Airlines -3%, Semi’s -3%, AI – 3%
But do you know what was up? All the contra trades PSQ + 2.4%, DOG + 2%, SH + 1.9% and the VIXY +7.6%….and what else????
Aerospace & Defense names like LMT + $3.50 or 0.7% & NOC + $3 or 0.7%. Does that make sense to you? The market is getting crushed, but investors are buying up defense names, not defensive names. Hello Taiwan…. just sayin….
This morning US futures are limping higher….Dow futures +25, S&P’s up 5, the Nasdaq ahead by 20 and the Russell up 2. JPMorgan’s Marco Kolonovich calling for another 5% move lower before we see a bounce. Funny thing is that I said that yesterday morning in this statement – (He must have read it….)
“Now, my point is – Is it out of whack just a bit? Yup, Is it anxious? Yup, but is it about to collapse? I don’t think so….I think S&P 4000 (down 2%) will be a place that gets tested this week and if it holds then that’s a positive….but if it fails – then I suspect we will test the December lows 3750/3800 which represents a 7% decline from here….and remember a 7% move (up or down) is within a normal band of trading…especially when the landscape is as anxious as it is right now”
So, 2 things…yes we tested S&P 4000 – and held (for now)…which was a 2% decline…..another 5% puts us where? Oh, right at 3800! Hello???
Eco data today is about Mortgage Apps – last week they fell by 7.7%….what will this week show? And at 2 pm we get the FOMC mins….don’t expect to learn anything new – but do expect some journalists and analysts to tear it apart sentence by sentence looking for that ‘golden egg’ statement that everyone missed during the press conference on the 1st. I say, it’s ridiculous…..open your eyes – it’s very clear where we are going.
European markets are lower across the board….the FTSE down 1%, CAC 40 -0.7%, Germany – 0.6%, Eurostoxx – 0.6%, Spain down 1.2% and Italy lower by 0.9%. The UK gov’t reports a surprise budget surplus in January – which did nothing for the tone that is overwhelmed with the geo-political narrative.
The S&P lost 81 pts to end the day at 3997. Remember – S&P 4000 is the key level to watch…the S&P pierced it on March 29th and has pushed higher since and then on February 2nd – we saw the golden cross ….that is when the short term trendline (50 dma) crosses up and thru the long term trendline (200 dma) – which is a ‘technical bullish signal that suggests higher prices….which is why I say S&P 4000 is key. Futures this morning are trying to push higher…but this is a critical juncture….but it is not a reason to panic at all. I think Mikey Wilson is wrong….about where stocks are going….could we see lower prices in the next week? Sure, will it be a hurricane, not likely….
In the end – stick to the plan…someone asked me on twitter yesterday if I was selling stocks here to buy them back cheaper later…my response – No, I’m buying downside protection that will increase in value as stocks fall (think those contra trades), and I will put new money to work in my favorite names that are being arbitrarily dislocated because of the negative narrative. I am sticking to the plan….because I do think stocks will be higher at year end…and outperform in the long term.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
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Spaghetti alla Nerano –
Now Nerano is on the Amalfi Coast – one of the most beautiful places in the world….and this recipe comes from that small town located along the cliffs overlooking the Mediterranean – I hope you enjoy.
For this you need: 4 green zucchini, 1 lb. of spaghetti, fresh grated Provolone cheese, 2 garlic cloves, basil leaves, EVOO (extra-virgin olive oil), s&p, butter.
Begin by bringing a pot of salted water to a rolling boil – set on back burner so it’s ready when you need it.
Grate the provolone and set it aside.
Slice the zucchini into thin discs, Fry the discs in plenty of hot oil until golden. Drain on a paper towel and sprinkle with s&p and a little Provolone. Repeat until you have fried all of the zucchini.
Add the spaghetti to the boiling salted water. Cook for 8 mins or until aldente.
Sauté the garlic cloves (slightly crushed not chopped or minced) in the pan you used for the zucchini – adding a bit more oil if you need to. Remove the garlic when it’s browned and add ½ the zucchini and the spaghetti (directly from the pot – using tongs). Now add 1 ladle of pasta water, 1 tblspn of butter and a handful of the grated provolone. Finish cooking over low heat, adding another ladle of pasta water gradually along with more provolone, mixing until it forms a creamy sauce.
Serve immediately – using the remaining zucchini to top off the dish.
Enjoy this with a nice chilled white wine – you know me – My favorite is Pinot Grigio – Santa Margherita.
Buon Appetito
