Things you need to know. 

–        Stocks churn as investors await today’s CPI report.

–        Bonds yields move up just a bit.

–        Gold holding steady at $2025/oz while Oil remains above $80.

–        Mixed messages out of the FED heads…. but expect rates to rise.

–        Try the Italian Style Sweet and Sour Chicken.

Stocks continued to meander as they await today’s inflation read and then any signal that the FED is either staying the course or changing the course.  Yesterday Chicago FED President Austin Goolsbee told the Economic Club of Chicago that.

“At moments like this of financial stress, the right monetary approach calls for prudence and patience” suggesting that he is thinking the FED should stop raising rates…. saying ‘we need to be cautious.    He went onto say that bank lending surveys showed that the banks are already tightening loan standards and that would help to slow economic growth and that he was going to pay particular attention to the ’anecdotal data’ before making any decision about what to do next.  He then said that we should not stop ‘prioritizing the fight against inflation.’

He was supported by Philly Fed President Patty Harker – who also said that the FED should show greater caution moving forward pointing out that it can take 18 months for any rate increase to ‘influence economic activity’…..But remember – Patty has pushed to get rates just ‘above’ 5% – and that would imply that he is voting in favor of another 25 bp increase…because that would get the terminal rate to the 5% – 5.25% range – a level that the JJ made clear was also his target. And then once we get there – we are expected to stay there for a while….

And the NY’s Johnny Williams chimed in saying that he saw NO evidence yet that ‘businesses or consumers were strongly influenced by changing lending standards’ and that he would need to see signs of core inflation ‘really come down’– which would also suggest he is on board for another hike.   Remember – official projections by the 18 officials have suggested another hike (if not two) – reminding us that last week’s NFP report continues to show a strong labor market and that US services PMI’s remains in expansionary territory – and that is an issue because the US economy is a 75% services economy.   In the end – my sense is that unless today’s CPI completely surprises us to the downside – get ready for another increase in May.

By the end of the day – the Dow added 98 pts, the S&P was flat, the Nasdaq lost 53 pts, the Russell gained 14 pts while the Transports added 163 pts.

Word around the street is that the hedge funds are building a large short position in the markets – as they apparently expect a significant decline….while Bank America tells us that the data shows ‘clients’ are selling equities across the board as they await todays inflation print….which is just a bit curious…because if their clients are selling stocks, someone has to be buying them….because nothing happens in a vacuum….there are always two sides to the trade….both a seller and a buyer….which just means that while the banks clients might be nervous, there are clearly others that are not….and see this as a longer term opportunity…..because remember if the data is good and suggests that the rate hikes are over (after May) then I would expect to see the market rally and if those shorts are the biggest they have been – then watch out…because those short sellers will become buyers….understand?

Now, if inflation runs hotter than expected – then those shorts will be correct, and the buyers will retreat to lower prices and stocks will fall….so sit tight…. we are just hours away from knowing that answer….

Tomorrow then brings us the PPI report and that is expected to decline fairly significantly….and if that is true – then the next months CPI should also reflect that….and that would give strength to the argument that the FED is accomplishing their goal.

Then next up is the earnings season and many analysts continue to believe that estimates have to come down even more than they have…. And that should also put some pressure on stocks…. Remember – any company that is not going to meet the current estimates should pre-warn…. otherwise, they risk getting completely slammed when they do…And that fun starts on Friday.

Bond yields moved up just a bit with the 2 yr. yielding 4.05% up from 3.98%, the 10 yr. yielding 3.43% up from 3.39% while shorter duration yields are kissing just above 5%…. and this is what will keep a lid on stocks for now….

Oil continues to trade above $80/barrel – something that makes the Saudi’s happy, but Joey unhappy…..and this is the wild card…because gas prices are on the move up, energy prices are on the move up and those most recent increases will not be factored into today’s CPI….that move will be reflected next month….so if oil continues to move higher this month – then we can expect CPI to reflect that next month.  Remember – after last week’s announcement that the Saudi’s and OPEC +_ are cutting production – oil surged higher – and is now above all 3 trendlines…setting us up test the November highs of $90/barrel. 

Gold is holding steady at $2025/oz.  Traders betting that the May rate hike will be the last…and if that is the case – gold has room to move up.  – we are now firmly in the $2000/$2100 trading range. 

This morning US futures are up (slightly) …. Dow futures up 70 pts, S&P’s up 5, Nasdaq up 2 and the Russell up 1. Investors focused on today’s inflation report…You know the deal…. the tightening cycle is about to come to an end, and while earnings season is expected to be mixed at best No One is suggesting it is going to be a disaster other than Morgan Stanley’s Mikey Wilson…. So, sit tight.  Build a more defensive portfolio – think big boring mega cap names.  Put some money into short duration treasuries if you are nervous and make a shopping list….

European markets are open and are higher…. Up about 0.4% across the board. The IMF put out a fairly weak report suggesting that global growth will be the weakest in 30 yrs.…blaming the results on the recent banking turmoil….

The S&P closed at 4108 – flat on the day…. leaving it just below its most recent high of 4128.  It feels like the market is at a crossroads…. not sure to go up or down….  If the market backs off, I suspect it will find plenty of support at the trendline at 4025 and if it advances it will find plenty of resistance at 4200.   So, for now – we remain in the 4025/4200 trading range.

Take good care.

Chief Market Strategist
kpolcari@slatestone.com

“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace Capital Advisors.”

Sweet/Sour Chicken – Italian Style

Sweet and Sour (Italian style) Marinated Chicken Thighs (you could always use breasts, but the dark meat is always better.)  –

This is not a difficult dish to make and once you simmer it – you have time to take a shower, set the table, break open the wine and enjoy the night.

You need:  olive oil, s&p, diced onion, chopped carrots, chopped celery, plenty of sliced garlic cloves – 6+, ¼ c sugar, 1 c Chianti, ½ c red wine vinegar, ½ c orange juice with pulp, *sliced almonds – optional.

Season the chicken pieces with s&p – set aside.  In a heavy frying pan – heat up some olive oil, – now brown the chicken on all sides.  Remove and place on a platter.

Now add the garlic, carrots, celery, and onion – sauté for 10 mins on med heat…. Now add the sugar, wine, vinegar, orange juice, and almonds…. bring to a boil – add back the chicken – skin side up.  Place a lid off center and turn heat to simmer.  Cook for about 30 mins.  (This is where you run up and take a shower, get into something comfortable and kick back….)

Now remove chicken and place on a platter, – turn heat up to high and stir until it is nice and thick…not long…maybe like 4 mins max…. taste – adjust seasoning with s&p.  Spoon the sauce over the chicken pieces and serve.

This dish works well with a green veggie – like French cut green beans or broccoli.  Make a large mixed green salad with tomatoes, red onion, and cucumbers.  Dress in a balsamic Vinegar and Olive oil dressing.  Keep it simple – as the chicken and marinade carry the dish.

Buon Appetito