Things you need to know –
– Well, we are now in the 3rd month of the year. End of quarter only 4 weeks away.
– February was tough but not a disaster. Bonds now offering a real alternative to stocks and that will keep the lid on.
– Oil holding steady, Gold rallied on the back of a weakening dollar – but don’t celebrate just yet….
– The March FOMC meeting is March 22nd…CPI and PPI due out on the 14th and 15th.
– Try the Rigatoni with Grilled Sweet Sausage and Broccoli.
Stocks ended the month on a downbeat….. buyers exhausted of trying to bid them up – decided to step aside and let the sell side algo’s unload and at about 2:05 pm is when it all began…..you can see it on the chart….we had been trading in a tight range 3992/3996 and then boom….the buyers stepped aside and the sellers didn’t’ know what to do….and they began to trip over each other as they ran for the door…..not knowing if the buyers would step in or let it go…..and while it was by no means a disaster – it was the end of the month, a brutal month at that. Now, they didn’t walk away, they chose to move their bids down a bit – knowing full well that the sellers would ‘panic’ – asking themselves why pay $50 when the sellers are willing to sell it at $49?
Now, to be fair, it wasn’t really panic, but had trading gone on for another hour, my guess is that it would have gotten uglier and panicky….…..But it does tell a story….and that story is that investors are finally coming to their senses……Inflation is not cooling in fact it is becoming even stickier than many thought, the FED is not pausing, nor are they pivoting and that is pushing the dollar higher. Bonds are now a realistic addition to anyone’s portfolio (never mind that the curve has been inverted for 11 months now) since the short duration ones are paying you 5%+ for owning them, macro data is confusing at best, but showing growing signs of weakness. Consumer Confidence plummeted to 102.9 down from 107.1 – but the expectation was for 108.5 – which would have been an increase over last month. The Richmond Fed survey also plunged – falling 16 pts in addition to the 11 pt decline last month and well below the expectation of -5 pts. And finally – a recession is on the horizon – leaving one to ask – how deep will it be? Shall I go on?
By the time the closing bell rang – the Dow had given up 230 pts or 0.7%, the S&P down 12 or 0.3%, the Nasdaq down 11 or 0.1%, the Russell bucked the trend and added 1 pt while the Transports lost 102 pts or 0.7%. So, YTD – the Dow is now down 1.5%, the S&P’s up 3.5%, the Nasdaq up 9.4%, the Russell up 7.7% and the Transports are in the lead – rising by 10%.
The FED Fund Futures market is now pricing in a peak of 5.4% by June up from 5% just one month ago pouring cold water on the idea that monetary policy is succeeding at taming inflation – but remember – many on the FOMC committee are hinting of a terminal rate with a 6 handle on it – equivalent to throwing an ICE bucket on it. Two weeks ago – we found out that the CPI & PPI surprised to the upside and then last week the PCE joined in the fun….doing exactly what I have been afraid of….Inflation, which had appeared to be waning is rearing its ugly head again. The FED is telling us that ‘they have it under control’…yet the data reflects something different.
I have been saying this for months now – I have been afraid that we would see a repeat of the 1970’s. You see – in 1970 – CPI was 5.8% – it shot up to 11% by 1974 – all while the FED raised rates to a high of 14.3% before backing off in 1975 as inflation fell to 9%, In 1976 the CPI was 5.7% – and the FED lowered rates to 6% as they celebrated the end of inflation……and then in 1977 it started to move up and by 1980 – inflation was running at 13.5% forcing the FED to take rates to a high of 22% as Volker tried desperately to kill it…forcing the country into a deep recession that ultimately killed it, but it killed so much more as well. Yeah, I know what you’re gonna say – ‘That was then, it isn’t now…this time it’s different!’ Ok – you run with that.
Reagan was elected president in November 1980 – ending the Carter administrations disastrous reign – ushering in all kinds of tax and regulatory reform – By December ’81 inflation had fallen to 10.3% and by December ’82 it was running at 6.1%….Volker announced a cut in rates and the economy started to recover – and gave birth to what was the greatest bull market the world has ever known (August 17th, 1982) – and the rest is history….as they say…
Ok – let’s move on….
US futures this morning are up on the 1st day of a new month and the 1st day of the end of the quarter month… Dow futures up 80, S&P’s up 13, the Nasdaq up 65 and the Russell ahead by 10. We will get more retail earnings before the bell today from Lowe’s, and Kohl’s along with earnings after the bell from tech names Salesforce, Okta and Snowflake.
Eco data today includes Mortgage Apps, S&P Manufacturing PMI and ISM Manufacturing PMI – both expected to be 48 – remaining in contractionary territory….Now, if they move up through 50 – the way Services PMI did last month – putting us into expansionary territory – that will only embolden the FED to make more hawkish statements because a rise in manufacturing output suggests a rise in demand. Get it?
European stocks are all up a bit – on the first day of the new month….as they too embrace higher rates after a hotter inflation report in both France and Spain yesterday….today we will get German CPI at about 7 am and that could be the next pressure point for the ECB. In any event – do not expect the ECB to pause or pivot. At 6:30 am – market across the board is up about 0.7%.
Oil is holding steady at $76.30…..the API told us that US inventories rose by 6.2 million barrels last week – suggesting ample supply…..later today we will get inventory reads from the EIA – will they report the same results? Russian supplies have now reached pre-sanctions levels – suggesting that they are having no problem selling their oil to China and India. A pickup in China’s manufacturing PMI also provides evidence that they are recovering which will raise demand predictions going forward. I am still in the camp that oil is going to $85 before it sees $65.
Gold which traded down to the trendline at $1814 last week– has now bounced and is trading up about $30 at $1844/oz. Leaving gold in the $1814/$1880 range….This as the dollar index – DXY has backed off just a bit falling from $105.30 last Friday to $104.30 this morning….Recall – the KEY level to watch in the dollar is $106.50 – a move up and thru that will cause gold (and other precious metals) to fall, while a move lower – say to trendline support at $103.35 will help gold rally.
The S&P ended the day at 3970 down 12 pts – exactly what is was up on Monday…. Recall that I pointed out that 3970 is the KEY level to watch.. Would investors hold the line or not? So far, we have….but today is a new day….and while futures are up this morning – we now how quickly it can change on a headline…..My gut says that the markets will move up today….unless the eco data is much stronger than the expectations….Look for further consolidation for stocks around this level…
Remember, Investing is dynamic not static – it’s not a set it and forget it type of trade – it’s constantly changing – you need to be fluid….not crazy, just fluid enough to take advantage of the opportunities that are created by the chaos. Call to discuss.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
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Rigatoni w/Grilled Sausage and Broccoli – Simple, hearty, and delicious –
You will need Italian Sweet Sausage (Feel free to use hot sausage if you prefer), broccoli, garlic, onion, olive oil, chicken stock and grated Parmegiana.
Bring a pot of salted water to a boil. Light the grill and get it nice and hot.
While that is heating up – sauté some crushed garlic in olive oil in a large sauté pan….when golden – add the sliced Vidalia onion and sauté until translucent. Now add in sliced broccoli heads – season with s&p, turn heat to med/med low and cover. Stirring occasionally.
Next place sausage on grill and cook…..turning sausage so that you do not burn on any one side. Once cooked – remove and place on cutting board…let rest for 5 mins. Slice sausage into bite size pieces and add to the broccoli and garlic on the stove – now add about 1 cup of chicken stock. Season and let simmer.
Boil pasta – Rigatoni works well with this – it’s nice and hearty. For about 8 /10 mins or until aldente. Strain – always keeping a mugful of pasta water in reserve. Return to pot….add back 1/4 of the water…toss and let sit for 2 mins to absorb ….now add the sausage/broccoli mix to the pot….2 handfuls of the grated Parmegiana – mix and you are done.
Serve immediately in warmed bowls with toasted garlic bread – complement with a nice glass of wine and some dinner music and Boom! You win the prize. Always have extra grated cheese on table for your guests.
Buon Appetito.
