Things you need to know.
– Stocks continue to meander…. with a bias lower
– Earnings are what they are, guidance is cautious and that is causing stocks to struggle.
– Eco data is slowing, yet FED heads push for more.
– Is the VIX getting ready to explode higher?
– Try the Easy Pork Loin
Well, it’s been a bit boring lately…stocks continue to struggle for direction…. with little to no drama…. We are now 1 full week into earnings, which haven’t been so bad, the big money center banks did as expect while the regionals are doing what was expected as well. But now – we are moving into other sectors and so we are about to get some insight into what the rest of the economy is doing….
So far, earnings beats are running at about 72% – but remember – the bar has been lowered, estimates have come way down and while companies are beating these lowered estimates – let’s not kid ourselves…. earnings are weak, so anyone who misses better have a good reason…and anyone who misses and doesn’t pre-announce should have an even better reason…because investors remain very critical of managements that ‘surprise to the downside’ when they kept that surprise a secret.
Telephone (T) and Tesla (TSLA) are just two examples…Now T beat ever so slightly while TSLA missed ever so slightly….but both offered guidance that could have been disclosed a week ago…..T said that the slowing economy is hurting future demand and investors took that stock down 10%….and TSLA has been slashing prices – putting pressure on margins as they sacrificed margins for market share and investors weren’t happy with that either….and so they took that stock down 10% as well. Now 10% on TSLA might make some sense – I’m surprised it wasn’t more – it is a sexy, hi growth name with lots of excitement, it was up 40% ytd, so a pullback was not surprising…. …., but 10% for T? T is a big boring ‘not sexy’ name. They are a core holding in ‘mature portfolios,’ they pay a 6.3% dividend and are held because of their stability – they were up 6% on the year, so yesterday’s 10% move lower was a surprise…. I mean its Telephone! So, what is going on here????
Look – all together profits this quarter are expected to fall by ~6% vs. last year’s 10% increase…..but we knew this…..the decline in profits is NOT a surprise, but when it becomes reality – investors suddenly become concerned……Concerned that the recession we have been talking about for more than one year now, is knocking on the door. While the earnings are beating the lowered estimates, it is the tone of the guidance that is causing stocks to struggle….the C-Suite is concerned, more layoffs announced, guidance is weaker than expected….and inflation remains stubborn and sticky and that is causing the FED narrative to change….Talk of NO May rate hike, turned into ‘Ok, 1 more hike…has now turned into hmmmm, maybe more rate hikes…and that is causing the latest round of weakness. Will the FED take the terminal rate to 5% – 5.25% or 5.5% – 5.75%? and that will be the event that drives prices in the next week or so…What will JJ say at the press conference on May 3rd?
In addition, the latest economic data is also suggesting slowing growth…. Initial jobless claims rose by 5000, mortgage apps fell by nearly 9%, Philly FED plunges to -31, Existing home sales fell MORE than expected coming in down 2.4% vs. the expected -1.8% and LEI also came in worse than expected at -1.2%….
So where did we see the most weakness yesterday? Communications – XLC was down 1% (think T), Consumer Discretionary – XLY down 1.5% (think recession), Real Estate – XLRE – 1.2% and Energy – XLE down 0.9% (think rate hike worries)…the only sector in the green was Consumer Staples – XLP and that rose by 0.25%…(think all the stuff you need no matter what the economy is doing).
The VIX (fear index) which has fallen to a new ytd low….rose by 4.25% and is up again this morning…..recall – that as the VIX declines it suggests that investors are complacent and stocks typically move up….(which is exactly what we have seen)…but when it is at the lows is when it usually turns….and when the VIX rises it suggests rising fear in the markets….Now, over the past 3 days, it has begun to creep up…..so keep your eyes on what this does…because the tone can change very quickly…..You can play ‘fear’ by buying the VIXY – which is the Pro-shares short term (LONG) futures ETF….When you buy it, you are betting that fear will rise, the VIX will spike higher and stocks will decline….So yesterday the VIX rose by 4.25% and the VIXY rose by 2.2%…while the Dow lost 0.3%, S&P fell by 0.6% while the Nasdaq fell by 0.8% and the Russell lost 0.6%.
YTD the VIXY is down 29% and that makes complete sense – the VIX is at the low of the year, stocks are teasing near the highs of the year and investors do not appear to be concerned that there is ‘an event’ that is about to happen…and that is exactly when you need to be worried….Capisce?
Now if you have been playing the VIX from the Short Side – then you would have been buying the SVXY -Pro-shares (SHORT) – short term futures ETF and that ETF is up 15% ytd…. – while the VIX is down 25% ytd (see how that works?) … while the Dow is up 2%, the S&P up 7.5%, the Nasdaq up 15%, the Russell up 1.5% and the Transports up 8%. Just think inverse….
Oil – continues to pullback….and this morning it is down 0.05 cts. at $77.32…fear of a building recession and rising rates is once again causing the demand destruction story to come to the forefront…. Remember what I said …. I would not be surprised to see oil ‘fill the gap’ it created back on April 3rd…which means we could see it trade down to $75.67/barrel.
The dollar index is churning …. Remaining well below any trendline as it hovers around $102. We are in the $100/$103 range.
Gold – continues to act psychotic…. whipping around as it tries to find stability at $2000/oz…. Up $30 one day, down $25 the next…. This morning, gold is down $20 – trading at $1,999…. talk of a more aggressive FED will put more pressure on gold because it will cause the dollar to rally…. So, sit tight….
US futures are down again this morning…. – Dow futures -30, S&P’s -3, Nasdaq -13 and the Russell is -3. Regions Financial (RF) announced earnings this morning and missed the estimate…. Regions is one of those ‘regional banks’ that we have been talking about in the wake of the SVB crisis. The stock is quoted down 2% this morning.
In addition, watch for earnings from HCA (healthcare), FCX (metals and miners), PG (consumer staples), SLB (oil services/equipment) FRBK (another regional bank).
Eco data today includes the S&P Manufacturing and Services PMI’s…. of 49 and 51.5 respectively…. leaving one in contractionary territory while the other remains in expansionary territory.
European markets are all lower – not much, but in negative territory….…. It’s all about earnings and central bank policy…. France is showing the fastest growth since May 2022, Germany’s business environment is turning up – led by services and UK retail sales fell by 0.9% – worse than expected. BoE is expected to raise rates again and the ECB says that ‘we still have a way to go’ which would suggest continued hikes – plural.
The S&P closed at 4129, down 24 pts. Stocks and investors are tired…..you can feel it….The May hike is coming and fall rate CUTS are NOT coming…..Hike and pause thru year end is my call….as we monitor inflation….Cleveland’s Loretta Mester supports another hike while Dallas’s Lorie Logan favors ‘more’ hikes saying that ‘inflation has been much too high’. The consensus now among investors is that the elusive recession is about to hit (during the summer) and the eco data will get weaker….which – illogically – will become good news….think bad news is good news – because the FED will stimulate the economy to help it recover….which is what is leading some to suggest that the FED will slash rates by Christmas…..which I don’t think is happening……2024 – yes, 2023 – no.
Twitter – deletes all of the Blue checks for people that refuse to pay the toll….$8/month…..So, I like many have lost my blue check mark…..and like many, I think this is a mistake because it deletes the authenticity of the person or organization…..I do though, understand that Lonnie has allowed ‘some’ to keep their checkmark for free….interesting, no? I guess that is one of the benefits of being a FOE (Friend of Elon).
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.”
Easy Pork Tenderloin
This is so simple and is one of those quick meals that is always a winner.
For this you need: Pork Loin, s&p, beef broth, whole kernel corn.
Preheat oven to 375.
Season the loin with s&p. Sear it on the stove – to get it a bit crusty…. Now, Place in a Pyrex baking dish – add the beef broth – enough so that the loin is bathing, but not so much that it is swimming. Cover and cook for 15 mins…. – then remove tin foil – add one can of whole kernel corn and continue to cook for another 30 mins.
(Keep your eyes on it, as you may need to add a bit more broth if it starts to steam away)
While this is cooking you can make a side of rice.
Accompany this with some steamed veggies of your choice – French cut green beans always works well.
When done – remove from oven and slice – it done properly – you can even shred it with two forks. Serve over the white rice with the corn. Veggies on the side.
Simple to make and always a family favorite.
Buon Appetito
