Things you need to know.
– CPI pleases everyone.
– FED Mins are suggesting a ‘mild recession’. Is that like ‘transitory inflation’?
– Today it is about the wholesale prices at the producer level.
– Tomorrow brings us bank earnings….
– LVMH sees a surge in revenues and trades at an ALL TIME HIGH – Hello?
– Try the Rigatoni in a Sweet Sausage Tomato Cream Sauce
So, CPI came in inline and maybe a hair lighter (softer) or not – but well within the expectations – so there was nothing new to see – … Some saw declining inflation (which is true) while others saw ongoing stubbornly sticky inflation – (which is also true) – see that! You can ride on both sides of the fence and be ‘ok’! M/m top line was softer at +0.1%, yet Ex food and energy m/m was +0.4%. Y/y top line came in at 5% yet Ex food and energy – y/y was +5.6%….so you could say there was something in there for everyone…. both the bulls and the bears.
Stocks welcomed the news when it came out at 8:30 – sending futures up triple digits….and when the 9:30 bell rang – stocks surged….the Dow jumping 206 pts while the S&P jumped 26 pts, the Nasdaq ahead by 102, the Russell gained 19 pts while the Transports tacked on 26 pts….in what was being described as a ‘relief rally’….The relief being that it did not surprise to the upside – which would have sent the current FED narrative into the circular file….The fact that it was unimpressive only accentuated the fact that there was nothing new- so the current plan that calls for a 25 bp hike next month – is the ‘current plan’. Period.
But as the morning turned to afternoon – we saw the excitement turn to a little concern.….and that caused stocks to give back some of the early gains…. which only means that the buyers stopped chasing the sellers…. They didn’t go away, they just started playing hard to get. At 4 pm all of the indexes were lower…. – the Dow – 38 pts, the S&P -16 pts, the Nasdaq down 102 pts, the Russell off 13 pts and the Transports down 140 pts…
Remember -what I said yesterday….There is a rumor running around Wall St that the hedgies are building a bit SHORT position – expecting a significant decline in the days/weeks ahead….which means that they wanted the CPI figure to be HOT….they wanted to see inflation rear her ugly head….because had that happened – buyers would have stepped back, the FED narrative would have been around raising rates by 50 bps and not 25 and that would have caused stocks to plunge…. – the retreat would leave a vacuum in prices – which would allow stocks to fall – something that the SHORTS want to happen….but also remember what I said – that if that did not happen and the markets did not collapse and the FED commentary did not change then the shorts would have to ‘run to cover’ – which means they become BUYERS….capisce????
Now nothing says they all caved…. but you can be sure that some did (thus the initial surge) …others playing tough, were waiting for the FED minutes and today’s PPI data and the start of earnings season that begins in earnest tomorrow………. before changing their minds….
Now PPI is also expected to show a decline in price pressures…. – the key theme here is ‘expected’…so if it is what it is – then – we could see another ‘relief rally’ …Again it would be relief that it wasn’t hotter than the expectation….
At 2 pm yesterday – we got the FOMC mins from the March meeting and what did we learn that was NEW? Absolutely nothing…. The headline made it sound as if the scaling back of the hike expectations was a surprise…. It was NOT. The 50-bps hike went out the window when SVB collapsed – we knew that. They settled on 25 bps even as the banking crisis remained an issue….we knew that too…..some members had cautioned and thought about pausing, but then didn’t… and we knew that too….I think the only thing that you could argue was new – is the fact that the FED now sees a ‘mild recession’…..and since these are the same guys that saw ‘transitory inflation’ the algo’s decided that where there is smoke there is fire…..That is when stocks did a 180 and sold off……
Now, in the end – the minutes revealed that they will hike again….take the terminal rate to 5% – 5.25% and then try to stop the drama……..They just need to get the markets and investors used to the idea that we will NOT see 3 rate cuts this fall…..because unless we get hit with a black swan event (which is completely possible)– I just don’t see how the FED can justify ‘stimulating’ the economy….when inflation is still running well ahead of the target…..Can you? Exactly!
Oil – spiked higher on Wednesday…. gaining 2.1% or $1.70 taking oil up to $83.25/barrel and is up another 25 cts at $83.50…Now, why you ask? Well, the talking heads (in the oil industry) would like you to believe that yesterday’s CPI report now supports LOWER interest rates in the fall…. easing any worry that higher rates would send us into a deeper recession which would destroy demand! Come on…. How many times have we discussed this…. demand for energy is not going away anytime soon…. The truth is that the dollar index fell after the CPI report – again on the idea that the FED will lower rates in the fall…. – and a weaker dollar will help support commodity prices and the last time I checked – Oil is a commodity, so the weaker dollar yesterday helped to send oil up. And like I also said yesterday – oil is above all 3 trendlines with the 200 dma now acting as support – and that support is at $79.90…while resistance is the November 2022 high of $87.50….and if they continue to make you believe that rate cuts are coming, then that will cause the dollar to decline further and that will send oil higher….Capisce?
The dollar index is now trading back at the lows of the year….at 101.344 – down 4% off the March high when rumors were running rampant of 50 bps hikes and the country was in the middle of the SVB crisis….During that same time frame we saw oil trade higher by 30% – now a good 13% was because of the OPEC/Saudi production cut news…but the balance can be attributed to the drop in the dollar index and improving demand.
And speaking of commodities – GOLD…. shot higher as well (think weaker dollar) …rising initially by $22 dollars taking it to a high of $2,043…before backing off to end the day at $2,023. This morning gold is up again…. rising $17 to $2,040. Gold has rallied nicely – rising 11.5% off the March low…. during the same time frame that saw the dollar decline…. Are you seeing the pattern?
Now – what is interesting is that some money moved into longer duration bonds….sending prices up while sending yields lower….the 2 yr. ended the day down 4 bps at 3.98%, the 10 yr. lost 1 bps to 3.40% while the shorter duration 3 month bill ended the day yielding MORE than when it started at 5.05%….and the 6 month down 1 bps at 4.98%….What does that really mean? People are confused…. Period.
Tomorrow starts the beauty pageant….JPM, WFC, BLK, C, PGR and UNH all on the docket….Remember both JPM and UNH are DOW members – so their results will have an outsized impact on how the Dow reacts…..remembering that the Dow is only 30 stocks while the S&P is 500 stocks, the Nasdaq is 100 stocks, the Russell is 2000 names (unless of course you’re looking at the Russell 1000 or Russell 3000)…..
Understand that bank earnings are expected to up on an annualized basis – Refinitiv tell us that JPM estimates have annual earnings up 30%, C +16%, WFC +28%, GS +20%, MS +13%…. Things to pay attention to? Investment banking revenues and what I think is more important…..LOAN LOSS RESERVES (LLR)….the big boys expected to set aside $100 million more EACH – this on top of their already increased provisions last quarter…..to put it in perspective…JPM (one of my favorites) posted a $2.3 billion loan loss reserve last qtr.…..a 49% increase – capisce? So, what does this tell you about what Jamie expects? What will he allocate to LLR this quarter? And then – how will investors react? Now look – JPM has been trading in a tight range…. $125/$128….and $125 is a key level…it is the 200 dma…. a failure to hold (think earnings miss) could send JPM down $10 bucks or about 8% over a couple of sessions….…. while good news (earnings beat) could see trader types take it up to $135…. or a 5% advance… All very exciting….so get ready…. This morning it is quoted up 20 cts in the pre-mkt……
This morning US futures are up (slightly) …. Dow futures up 40 pts, S&P’s up 15, Nasdaq up 65 and the Russell up 8. So, everyone had a chance to digest and dissect the eco data and the FED minutes…They are betting on a weak PPI report…..and the FED’s ‘mild recession’ commentary…. Remember – I am NOT in that camp at all……Who is kidding who? Mild? Soft? Transitory? Not happening…. which only means you set yourself up defensively…. focus on the core…. stick to the biggies, collect your divvy’s and put some money into short duration bills…. Make your shopping list – don’t get dragged into the fray, don’t’ make emotional decisions…. – Stick to the plan. “Talk to me – Goose!”
European markets are open and are mixed……. France leading the pack up more than 1% – good news out of LVMH (Louis Vuitton, Moet, Hennessey) – Revenues up 17% y/y to $23.1 billion – is sending that consumer discretionary name up 4.5% to an all-time high! Consumer demand is strong and coming from EVERYWHERE…. Europe, Asia, and the US….and that is taking the other names up as well…. Christian Dior, Hermes, Prada all up nicely…. Which only supports the idea that the wealthy are unaffected by the coming global recession…. all of the other market centers are lower – not dramatically, but lower.
The S&P closed at 4091 – down 17 pts…. after trading in the 4086/4134 range…. leaving it closer to the low vs. the high…. but 4134 did break the prior near term intraday high on April 4th, before failing to hold it. It feels like a struggle…. but it also feels like the market is at a crossroads…. not sure what to do….but maybe today’s PPI will give us a reason to either go all in or remain patient – If the number is as weak or weaker than expected – then expect stocks to trade higher and the higher they go, the more the shorts get squeezed which will cause some of them to throw in the towel and ‘buy to cover’….which will do what? Yes sir, will get the algo’s all excited and it’s off to the races….and if you are invested – sit back…you’re participating….Now you know that JJ does NOT want to see stocks trade up (makes people feel wealthier) so I’m betting that they are going to repeat the mild recession story….to try and take some wind out of the sail….…..If the market backs off, I suspect it will find plenty of support at the trendline at 4030 and if it advances it will find plenty of resistance at 4200. So, for now – we remain in the 4030/4200 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.”
Rigatoni w/Sweet Sausage in a Tomato Cream Sauce
For this you need: Rigatoni Pasta, Garlic, Onions, Sweet Sausage, White Wine, Heavy Cream, Crushed Tomatoes, olive oil and s&p.
Bring a pot of salted water to a rolling boil.
Heat olive oil in a pot…add crushed garlic and one diced onion (Vidalia if you can get it). Sauté until soft and sweet, next add the sausage meat – which you have removed from the casing – sauté until brown. Next add 2 cups of dry white wine and let the alcohol burn off…. open 28 oz can of plum tomatoes and rough crush – so that it is a bit lumpy. Bring to a boil and then immediately turn to simmer. Stir Don’t go too far because you will need to stir again. Let it simmer for 30 mins…. Season with s&p.
Now add 1 cup + a little more of heavy cream (you can use lite cream if you prefer – but heavy cream gives it a richer taste). Let simmer until thickens…only about 5 – 10 mins….
In a separate pot bring salted water to a boil and add pasta – You can use any type of pasta you like – typically a short pasta is better vs. a spaghetti or linguine for this dish. Today I am using Rigatoni –
Cook until aldente – 8 / 10 mins…strain – reserving a mugful of the pasta water…. also known as the ‘tears of the Gods’……Add the pasta directly into the sauce and stir – making sure to coat well. Add a handful or two of parmigiana cheese and mix. If it looks like it needs some more liquid -add a bit of the pasta water to moisten. Serve immediately – offering more grated cheese to your guests. –
Buon Appetito
