Things you need to know –

–         JJ hikes and leaves the door open to a pause IF the data dictates.

–         Janet on the other hand – stuns markets and says she is NOT working on backstopping depositors

–         Regionals get clocked again….

–         Oil pierces $70, Gold rallies back to $2000, bond prices rise sending yields lower

–         Remember – Chaos creates opportunity.

–         Try the Chicken Parmegiana

So, what happened???  Stocks get walloped…….JJ raises rates by 25 bps – which was expected – Investors appeared to be ok with it, stocks held their own – in fact at 2:50 pm – 20 minutes into the press conference – we saw the S&P up over 1%, the Dow was up more than 250 pts about 0.7%, the Nasdaq was up by 260+ pts or 1.5% – he indicated that yesterday’s hike ‘could be the last one ‘for now’ – or maybe not and that the FED has to wait to see how badly (or not) the banking turmoil creates trouble for the economy.

Just to be clear – he did NOT say that rate hikes are complete….he did not say that we won’t see hikes in May and June, he said that he is prepared to keep raising rates more than anticipated if inflation shows no signs of cooling, he did say that they considered a pause but then not, he changed the language just a bit to leave the door open in the event that the economic data and banking turmoil changes in the next 6 weeks allowing room for pausing….NOT pivoting….pausing….again – a pivot is not in the cards, no matter how much traders scream and yell.

Now, while he thinks the turmoil in the banking sector is quite real – saying that the banking stress could trigger a credit crunch with significant implications  – he admitted that he would only be guessing at the results and reminded us that the FED needs to be ‘alert’ going forward.  Well, isn’t that wonderful…..the FED needs to be alert….. – something they weren’t when regulating SVB.  OK and investors were ok with that….so what happened to cause the markets to get slammed?

Well, first of all, he took rate cuts OFF the table….(I never thought they were ON the table) – in fact he was also very clear about that too – saying that ‘rate cuts are not in our base case’ and that caused some to throw a temper tantrum – sending stocks down but then his sidekick Janet Yellen did a 180 degree about face – telling lawmakers that ‘she wasn’t considering ways to provide broad guarantees – blanket deposit insurance – to uninsured bank deposits’.  And I say that it was an about face because only 3 days ago she told us the complete opposite…..and by the way – here’s something Janet apparently missed….When the FED, the FDIC and Treasury backstopped depositors at  SVB, SBNY and FRC – they essentially backstopped EVERYONE at every bank in the country…..that was the message….there is no doubt about – because everyone saw it that way and bank stocks rallied hard the day after – …..she also said that they were looking at ways to make it happen….  So, I guess she was speaking out of line…..she never did the math to figure out how much exactly that might be and lawmakers on Capitol Hill were surprised … In any event – stocks fell out of bed and closed on the lows of the day…..

As the closing bell rang the Dow was down 530 pts or 1.6%, the S&P down 65 pts or 1.6%,  the Nasdaq gave back 190 pts or 1.6%, the Russell choked – losing 50 pts or 2.8% while the Transports lost 285 pts or 2%.

I said two things yesterday…..one was about how he delivered the message and two is about how everyone HEARD the message….remember, people hear what they want to hear vs. what is said….In my mind – he said nothing different.  He raised rates and he left it clear that he will continue to raise rates if necessary.  He also said that they will remain alert.  He then confirmed that rates cuts – are not in the future- no matter what FED fund futures say…..Fed Fund futures are expecting not 1, not 2 but 3 rate CUTS by end of this year  …..I don’t see it and neither does JJ.  He said that ‘all deposits were safe’ and then the Yellen commentary completely contradicted him throwing fuel on the embers -causing the flames to shoot up and that sent stocks down, bonds prices up, bond yields down, VIX up, the 11 broad sectors of the S&P down, Gold UP and regional banks down.  It was a another crazy day – but reflects the anxiety that is still present in many investor minds…

By the end of the day – every sector was RED – Real Estate getting whacked the hardest – 3.6%, Consumer Discretionary, Financials & Energy all down more than 2% while the rest of the group lost more than 1%…..Regional banks got slammed again after the Yellen comments with the KRE – 5.7%, BKX – 4%, FRC – 15%, blah, blah, blah.

The contra trades were all higher with the VIXY rising by 3.8%, the DOG +1.1%, PSQ + 0.5% and the SH + 0.8%.   The SPXS – which is the Direxion S&P 500 BEAR ETF – levered 3x was up 5%….while the SPXL- which is the Direxion S&P 500 BULL ETF was what?  Down 5%… See how that works? 

So like I said – the action in stocks sent money flying into the Bond market – sending prices up which sends yields down….the 2 yr. yield falling to 3.95% down from 4.15%, the 10 yr. yield is now at 3.43% – down from 3.6%. The 6-month Treasury is now yielding 4.55% down from 4.75%.

The Dollar Index broke down yesterday as the press conference continued – breaking support at $103.42 – ending the day $102.36 – that now leaves the dollar index with no trendline support – so look for the February lows – $100.80 – to be tested in the days ahead. You see – dollar traders wanted to hear that rates will continue to rise – and when they didn’t hear it clearly – then they sold the dollar off.

Oil moved up and thru $70 yesterday even as stocks were getting slammed….and the dollar got slammed….Yesterday our friends at Goldman told us that ‘Chinese demand continues to surge across the whole commodity complex with oil topping 16 million bpd.  Wood Mackenzie – a commodities consulting firm estimates that China will be responsible for 40% of the increase in global oil demand THIS year alone. And if you think the US oil exports are  not keeping up – think again…..gross US exports of crude oil and oil products hits a new high of just under 12 million bpd….which suggests that global demand for oil is STRONG…..higher prices are ahead…..This morning oil is trading at $70.20 and will look to challenge resistance at $77 in the days ahead.  Remember – I think we see $90 before $60!  ( I was almost wrong last week – when we traded down to $64.50!)

Gold – as I told you – rallied off the $1950 level yesterday on the back of the sell off – and ended the day up $33 at $1998/oz.  I am not surprised and neither should you be….Gold is the ultimate safety trade – and yesterday’s action suggests investors want safety….so think US treasuries and GOLD.  The more the markets remain unclear about the future, the better it is for gold….Capisce?

This morning US futures are churning…… Dow futures are up 40, the S&P’s up 16, the Nasdaq  up 120, the Russell up 8 pts as the clock ticks….And after the sell off yesterday – this does make sense….there is nothing new on the tape today….there will be lots of discussion on all the commentary yesterday as street analysts / strategists try to decipher what exactly was said…. Remember – some people saw the sun while others only saw rain…. I saw sun – but I remain in the camp that careful analysis and allocation of money is top priority – I’m sticking (overweight) with the big, yet boring names across TECH, Healthcare, Financials, Energy & Industrials, smaller weights in everything else…. ……Remember – in the chaos is opportunity.

European markets are down across the board….the UK down 1.1%, the CAC 40 – 0.7%, DAX – 0.8%, EUROSTOXX – 0.6%, SPAIN – 0.8% and ITALY -0.95%.   The BoE meets today and are expected to raise rates by 25 bps to 4.25% up form current 4%.  Recall – that last month – they weren’t so sure they were going to continue to raise – saying that they had beaten inflation and it was on its way out the door…but now we know that is not the case…..inflation is still running hot in the UK. In Switzerland – the SNB remains focused on stability and raised rates by 50 bps taking their base rate to +1.5% even after the Credit Suisse debacle…..suggesting that they too remain keenly focused on inflation vs. any banking ‘crisis’….Apparently the Swiss don’t see it as a crisis….

The S&P closed at 3936 down 65 pts…. What started out as  Risk ON day ended as Risk OFF day……driven by the headlines and the latest news that Yellen is not backstopping all depositors and JJ is not cutting rates.  I don’t think they can consider cutting rates until at least summer 2024 and maybe longer…..

Yesterday we did kiss resistance at 4012 again and failed – and then we tested what I thought might be support at 3955 and failed as well – but we did find support at the 200 dma trendline at 3934.  It looks like investors will cautiously take us higher after the sell off yesterday, but let’s not kid ourselves….the mood remains volatile….Do not chase anything….patience is a virtue.  Make your shopping list – pick your entry points and then wait….complement your portfolio with some contra trades if you think the bottom is going to fall out….I’m not selling my Apple, JPM, MSFT, VZ etc.….just because the market may go lower…I would add to any of those positions on further weakness….. this is not a day trading account….this is an investment account and I have money to put to work.   So, what do you see?  The sun or the clouds?

Take good care.

Chief Market Strategist
kpolcari@slatestone.com

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Chicken Parmegiana

Now there seems to be some debate about what exactly Parmegiana is and where it comes from.  Parmegiana is a popular Italian dish – that originated in Parma, Italy –  Parma is north of Bologna and south of Milan in the Emiglia Romana region and is famous for the cheese and the ‘Prosciutto di Parma’….so when you make Eggplant, veal, chicken or pork parmegiana – you are really making a dish that originated in that part of the country (Parma).

It is not called parmegiana because of the cheese – it is called Parmagiana because of the locality that it originated from.  Now you CAN make this with shaved parmegiana but you can also use sliced provolone or fresh mozzarella….It just depends on what you like.  Now to be fair – Southern Italians (Naples and south) will always make this dish with fresh mozzarella – they just will.

For this you need:  thin sliced chicken breasts, seasoned Italian breadcrumbs, eggs, flour, s&p, the cheese (either the Parmegiana, Provolone or Mozzarella), olive oil,   and some homemade tomato sauce – you can use a meat sauce or you can use a marinara sauce – makes no difference – if you use the classic meat sauce then the flavor will be different than a simple marinara sauce.  Either way – you can’t go wrong.

Rinse the cutlets and pat dry with a paper towel.  Set aside.

Heat the tomato sauce up on the stove and keep warm.  Slice the cheese and set aside.

Now make an assembly line – in the first bowl put the seasoned flour (s&p), next bowl the scrambled eggs (egg wash) and the 3rd bowl the seasoned breadcrumbs.

Dredge the cutlet in the flour, dip in the egg wash and then dredge in the breadcrumbs.  Set aside – repeat until finished.

Now turn your oven to broil and in a large broiling pan – add enough olive oil to cover the bottom of the pan – do not create a pool of oil – put in the oven and heat up.  Once the oil is hot – then place the cutlets one side down in the oil and then flip to coat the other side.  Now slide the rack in and close the oven door to broil the cutlets…should be maybe 5 – 7 mins..  Now flip when golden brown and brown the other side.  Once done remove.

Now in a baking dish – add some of the tomato sauce –  just enough to coat the bottom of the dish.  Now place the cutlets in the dish and top with the cheese of your choice.  (Really any of them are fine – it is your choice….)  Now dress each cutlet with some more tomato sauce and place in the oven on bake – 350 degrees.  Leave them in the oven long enough for the cheese to get soft and melty – maybe 8 – 10 mins.  Remove and serve.

This is best served as a second dish after you have eaten a bowl of spaghetti!