Things you need to know –
– Investors await JJ’s testimony – don’t expect a dove.
– Oil pierces $80/barrel – hello?
– Gold and the Dollar index churn in line
– META announces ‘000’s more out of job, while Joey wants to raise taxes (again)
– NFP due out later this week.
– Try the Stuffed Chicken Breasts Medallions
Stocks waffled on Monday – failing to build on the traction created last week – leaving some to say that the rally had gotten to be a bit ‘long in the tooth’ considering that the economic risks have not gone away and that JJ is due to appear on the Hill today and tomorrow. As discussed – technically – we saw stocks pierce resistance back in late January – rally nicely from there, back off and test the trendline – which is now support vs, resistance – bounce nicely only to tire as the day wore on – leaving the Dow up 40 pts, the S&P’s up 3 while the Nasdaq lost 13 pts, the Russell gave back 29 pts and the Transports gave up 140 pts…..
Analysts citing that while some technical factors caused the latest ‘bear market rally’ – they wouldn’t last – especially because there is a lot of uncertain economic data directly in front of us…and many of the fundamentals appear to be getting weaker….so how high could this rally really take stocks? Today is the start of the bi-annual (Feb and July) Humphrey-Hawkins Testimony – which requires JJ to appear before both the Senate Banking Committee – today and then the House Financial Services committee on Wednesday. In this testimony – he is supposed to paint the landscape about the state of the economy, the state of monetary policy and ‘guesstimates’ about where we are headed. Consensus says that he will emphasize the need to stay the course, that the FED is not done yet and that rates may need to go higher than what the market is currently pricing in – which is 5.4% which is below where the FED has indicated they may have to go – think 6%.
He will be bombarded with questions that may not make much sense – but as usual – I expect that he will keep his cool, lay out the facts, admit that ‘yes, we are behind the 8 ball’ – inflation remains stubborn in the exact places where it hurts the most – food, energy, healthcare, utilities – but that ‘he has it under control…’ MMMMMMMM …not so sure I would agree with that…..My sense is that they lost control last year, and have remained behind the 8 ball ever since and that rates – in my opinion – will need to go higher still. The market had been pricing in a 5.1% – 5.4% rate environment, while the FED (thank you Loretta Mester and others) have suggested a 5.5% – 6% range which was putting pressure on stocks – but then last week – we got some mixed comments out of a couple of FED heads, comments that were interpreted as being more dovish – with Chris Waller identifying a terminal rate of 5.1% – 5.4%…..below the 5.5% – 6% rate we had been pricing in…and that caused the last ‘bear market rally’….
Remember – the hikes thru June will put us at the 5.25% – 5.5% range – just a hair below what the market and many of the FED heads have identified. And if inflation data – CPI, PPI and PCE – continue to move up in the sectors that affect us the most – then – expect the FED to push higher over the summer….. Remember – the Fed has suggested 3 more 25 bps rate hikes, but the FED Fund Futures are betting that there is a 30% chance of a 50 bps rate hike on the 22nd….Dramatic, yes? Realistic, I don’t think so….the May meeting maybe, March – not so much. And that is what I think the message will be…..I also expect that we will get a fair amount of pushback from the likes of Lizzy Warren and Maxy Waters…
In addition to the HH Testimony – we are due to get the monthly NFP report and this speaks directly to the health/strength of the job market. How many more jobs have we created? Will last month’s surprise surge be revised lower? What will unemployment do? When will we see it begin to tick higher…. which is what the FED wants and needs. How high does it have to go? Some predicting that we have to see a rate with a 5 handle while Larry Summers suggests it needs to go to a 6 handle on it and then stay there for ‘a while’ – defined in years not months. Now, I am not sure I agree with that analysis, but it is worth noting.
Additionally – I expect that the FED will ‘re-define’ the target at some point down the line – saying that the economy is different than it was 10, 15, 20 yrs. ago and maybe the 2% target that they fought so hard to achieve is no longer the correct target….3% may be more to our liking….Of course it would be – they just raised the target by 50% making their job that much easier to try and achieve….and if that doesn’t work – then maybe it should be 3.5%? Do I hear 4% from anyone?
At the same time though, the 10 yr. treasury yield pierced 4% last week – this appears to be the line in the sand causing increased anxiety for equity investors….…..…..shorter duration yields went even higher – piercing 5%…..offering a real alternative for equity investors – an alternative that is here to stay (for a while). The 10 yr. has since retreated a bit and is yielding 3.92% this morning….but the 6 month and 1 yr. yields continue to yield better than 5%…and the rise in rates is causing a new birth of acronyms – that the big Wall St banks are tossing around – TARA (There are Real Alternatives, TIARA (There is a Realistic Alternative) and TAPAS (There are Plenty of Alternatives).
With the mixed action – we had mixed results across the sectors….Utilities, Financials, Tech, Consumer Staples and Energy were all higher while the rest of the broad sectors ended the day lower….and all of those other sectors that rallied nicely last Thursday and Friday – also gave some of it back….Think Consumer Discretionary, Communications, Retail, Housing, Airlines, Disruptive Tech, Semi’s, Artificial intelligence, Metals and Miners and those hot coal stocks.
Oil did an about face – traded down to $78.65 but then turned up at 9 am….ending the day up 1%, piercing the $80/barrel at $80.49……this morning it is churning as it digests that move and prepares to move higher to challenge resistance at $83.15. Overnight – Chevron CEO Johnny Watson – told us that ‘there is not enough swing capacity in the oil markets’ and that is being seen as a positive for oil prices. In addition – we have the ongoing China demand story along with new refining capacity in Asia and the Middle East that will allow for increased processing of crude……Hmmm…doesn’t sound like demand destruction to me…..
Gold is treading water – as we await the Powell testimony today and tomorrow, the NFP report on Friday and the inflation reports next week. All of these will influence the future path of monetary policy and interest rates and that will influence the path the dollar index which will influence the precious metals complex. This morning gold is trading at $1850/oz while the Dollar index – DXY is trading at $104.45….leaving it in the $103.40/$105.50 trading range….Anywhere in here will cause gold to do nothing…but a break below $103.40 will send the precious metals higher while a breach above $105.50 will put pressure on the complex.
Like Gold and the dollar index – US futures are also churning this morning – Dow futures +20, S&P’s +7, the Nasdaq is +42 and the Russell is +6. There is no eco data today to speak of, so pay attention to the headlines from the Hill… META platforms announces another round of layoffs (described as ‘thousands’ with an S) – on top of the round announced in January…. Joey – is set to release his budget this week and is WANTING to increase Medicare taxes (from 3.8% to 5%) on anyone making more than $400K….to insure that it doesn’t run out of money before 2050….And then Chinese leader Xi Xi (feeling the pressure at home) – takes a ‘direct aim’ at Joey and the US….blaming him and us for a campaign to ‘suppress China’ – saying that
“Western countries – led by the US – have implemented all-around containment, encirclement and suppression against us, bringing unprecedently severe challenges to our country’s development.”
The use of the word ‘containment’ is significant because it wreaks of the Cold War and as the journal points out – ‘is more closely tied with Nationalist Rhetoric….at a time when bilateral tensions continue to simmer over trade, technology and discordant views on Russia’s invasion of Ukraine.’
So, I ask – Is there anyone out there that still thinks China is NOT going to take Taiwan before November 2024?
European stocks are also higher…..up about 0.2% across the board. There is no eco data to speak of and investors there appear to be waiting on JJ’s testimony to get a sense of where we are going…here’s a clue – not down….
The S&P ended the day at 4048 up 3 pts. We will get a better sense of how the day will go once JJ takes his seat on the Hill…. I suspect that JJ’s testimony will be cautious but open to all kinds of interpretation…..any sense that he is ‘overly hawkish’ will see us test S&P 3990 and then 3940 fairly quickly….if he is seen as being dovish -then watch as the algo’s take us to February highs of 4160ish….My sense is that the path of least resistance is down not up….just sayin’.
Remember, Investing is dynamic not static – make the plan and stay the course but remain fluid to take advantage of the opportunities that are sure to come….…. don’t try and time it – Do your research and then invest accordingly,
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
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Stuffed Chicken Breasts
This is easy to make – looks more complicated, but it really is not.
For this you need: 4 butterflied chicken boneless breasts, olive oil, white mushrooms – sliced thin, 1 med leek – whites only, garlic, fresh thyme leaves, fresh lemon juice, dry white wine, chicken broth and cooking twine.
For the sauce you need: Dijon mustard, butter, s&p.
Trim the breasts just enough to make them into near rectangles – set the trimmed chicken in into your food processor and pulse until smooth – maybe 15 seconds or so. Set aside.
In a skillet – heat up a splash of olive oil – add the mushrooms and cook – allowing the moisture to evaporate and the mushrooms are golden brown. 10 mins maybe. Add a splash more of oil and now toss in the sliced/chopped leeks and sauté for 5 more mins. Next add in the chopped garlic and ½ tsp of fresh thyme. Sauté for 1 min…. add in the 1 tsp of the lemon juice and cook until the juice evaporates. Transfer this mixture to the food processor bowl.
Now pulse the mushroom mixture in the food processor until it is just finely chopped. Do not make it into mush. Add this mix to the chicken that you processed above. Season with s&p. Mix well.
Now take your cutlets and spread the mixture over it -leaving room around the edges. Roll the cutlets as tightly as possible w/o squeezing too hard. Tie it up with cooking twine.
Now season the rolled chicken with s&p – in the same skillet – heat up a splash of olive oil and a dab of butter…. – add the rolled chicken pieces and brown on all sides. Add the wine and 1 c of the chicken broth. – bring to a boil and then reduce to simmer. Cover and cook for 15 mins or so.
Remove the chicken and place on a serving platter and tent with foil while you make the sauce.
In the same skillet – with the wine/broth – whisk 1 tsp of mustard. Turn the heat up high and reduce to about ½ cup. 5 mins or so. Remove from heat and add 2 tbls of butter, the lemon juice – season with s&p….
Cut the twine and slice the chicken into medallion pieces…. Each roll should produce 4 – 6 medallions. Spoon the sauce over the medallions and serve with sauteed spinach (garlic and oil).
Buon Appetito
