Things you need to know.
– Stocks retreat a bit – no surprise – it’s called short term profit taking.
– It is a holiday shortened week – expect volumes to recede making dramatic moves more possible.
– Loretta warns of further rate hikes ahead – not changing the narrative
– Gold rockets higher on the back of weakening data….
– Try the Grilled Rib-Eye Arrabiatta
“The labor market is slowing, the labor market is slowing” (read in the same tone as Paul Revere – when he rode thru the streets of Lexington, MA on April 18th, 1775 – warning Samuel Adams and John Hancock that the “The British are coming, The British are coming”….)
The JOLTS job openings survey – fell to 9.9 million in February – down from 10.8 million last month and below the expectation of 10.5 million….suggesting that the labor market IS cooling after the string of interest rate increases begins to maybe finally take hold…..and don’t forget – the credit tightening conditions that are sure to come after the most recent banking crisis creates more stress on the system that will only add to the building weakness….…..…..This after we learned that other eco data is showing signs of ongoing weakness…Monday’s weak manufacturing PMI’s both remain in contractionary territory (5 months now) and yesterday’s Factory Orders and Durable Good Orders coming in weaker than the expectation….all point to a weakening economic outlook.
So, we remain in a wait and see mode…what will today’s ADP employment report reveal and what will Friday’s Non-Farm Payroll report reveal? Today’s report is expected to show an increase of 210k new jobs….while Friday’s NFP report is expected to show an increase of 240k new jobs….Unemployment to remain steady at 3.6% (a number that needs to rise if the FED expects to see the economy really slow), Avg Hourly earnings m/m of +0.3% while y/y estimates are +4.3%. In addition- consumer credit is expected to surge to $18 billion up from 14.8 bill.
So stocks snapped that 4 day ‘winning streak’ – as investors decided to take some money off the table ahead of the long holiday weekend….. after the rally we saw last week…..The Dow down 200 pts or 0.6%, the S&P lost 24 or 0.6%, the Nasdaq down 64 or 0.5%, the Russell lower by 32 or 1.8% while the Transports lost 255 pts…or 1.8%.
It is a traders driven market…….as so much of the weakness was seen in some of the sectors that had rallied going into qtr. end….Anything tech – under pressure after some negative commentary out of both MGS and JPM….took some of the wind out of the sails – the XLK falling 0.5%. Semiconductors – SMH down 1.5%, AI – BOTZ down 1.5%. Energy – XLE– was lower by 1.8% – but this was after the rally that saw it gain 14.5% in 7 days while the Industrials – XLI fell by 2.2% after gaining 7% during the same period.…..Basic Materials – XLB also suffered a decline –falling by 1.4% as investors reconsidered what the depth of the coming slowdown will be.
In fact – as I have been saying – we saw the greatest weakness in some of the sectors that have shown the greatest gains over the last couple of weeks and months. Metals and Miners – XME fell 2% (but it up 10% in 7 days), Rails, Air and Trucking ETF– IYT down by 1.5% after seeing it gain 7% since last week… Oil and Gas Exploration – XOP lost 2.3% – vs. the 18% gain seen over the past week…. The only sectors that saw gains yesterday were: Utilities +0.5%, Healthcare +0.02%, Real Estate +0.03% and Communications+0.3%….
And C3.AI – a name I have liked – saw huge selling – down 26% after short seller Kerrisdale – sent a letter to the SEC and to regulators claiming that C3 is using accounting gimmicks to bolster its balance sheet….claiming the auditors missed it ( of course the auditors missed it, the stock is up 200% and the guy is short)…..the auditors in this case are Deloitte and Touche, LLP….In their claim – they say that C3 is using ‘highly aggressive accounting to inflate income metrics to meet sell side analyst estimates….’ A claim that C3 disputes…. Now look, the guy is getting his head (and something else) handed to him…..so I am not surprised at the claim…..the question is – how much did Kerrisdale buy back yesterday on the weakness that they helped create? Expect to hear more about this in the days ahead…this morning the stock is quoted down another buck….or 4% bringing it right down to the trendline…..a line that it has held since February 1st….
Now, inflation remains stubborn (in the places that matter the most) and Cleveland Loretta Mester made that very clear yesterday…saying that …the FED ‘likely’ has more rate increases ahead and that in order to keep inflation on a sustained downward path while keeping inflation expectations ‘anchored’ – rates will have to move ‘further into restrictive territory this year’ – Precisely how much? Well that depends on how much inflation and inflation expectations move down…..and that depends on how much demand slows, supply chains resolve and prices ease…..This morning Fed fund futures suggest a 65% probability of a 25 bps hike in May – and then we pause…If that happens, it will take the terminal rate to 5%-5.25% – a level the FED had targeted long ago. So, while she said nothing really new – she did maintain the narrative.
Ok, and while that is what the FED wants – it is still the inflation story that is making this more difficult…..
And the surprise OPEC+ announcement that saw them cut production by 1.5 million bpd beginning in May will only add to that ongoing concern….and why? Because we can expect higher energy prices as we move from winter to spring to the summer driving and vacation season…..Oil is up nearly 8% in the last 2 days…and this morning it is trading at $80.85/barrel….up from the mid 60’s just days ago….and expected to hit $100 barrel before this is over….and that will send gas prices surging again – which will continue to put upward pressure on prices….and so, I would say – don’t expect inflation to collapse anytime soon….for the things you need…..Food, energy, utilities, healthcare and insurance!
The other day, I commented on how my auto insurance company – the Hartford Group (HIG)– took my rate up by 33% y/y….for 2 cars that are 4 yrs. old ($6200/6 months)….and when I called them – the agents response was – “well the cost of everything has gone up, car parts are expensive, inflation is hurting everyone and so we revised our rates….” Are you kidding me? 33%? Something is wrong….and I don’t think it’s me…..I called Allstate (ALL) and guess what – their rate came in at $4600/6 months – exactly where I WAS with Hartford before they ‘revised’ their rates. It’s comical…really – the whole thing is comical… So, I am seller of HIG and a buyer or ALL….LOL…..
This morning – US futures are a bit lower again….- nothing dramatic, but they are lower….Dow futures – 60, S&P’s down 10, the Nasdaq -30 and the Russell down 7. We are coming into the long weekend….many PM”s are away from their desks…..the eco data is weakening and that raises concern for what the future looks like….None of this is new – btw – but when there isn’t anything else to focus on traders will look to lock in short term profits – remember – they are not investors, they are traders….so they are always moving in and out….creating all kinds of noise….. Overnight we saw New Zealand’s central bank raise rates by 50 bps citing ‘persistent high inflation’. I can just hear you now….New Zealand? Really? Yes – New Zealand….they are just another country that is seeing the ravages of inflation destroy their economy.
European stocks are a bit lower as well….Remember – their holiday is Easter Monday, not Friday…. There is no eco data today and like many others – the action is just digesting the recent moves up. At 6 am – We see the Spanish market +0.4%, UK +0.3% while France, Germany and Italy are all lower by 0.4%.
The bond mkt remains inverted (and will remain so for a while longer…..so don’t expect this part of the story to change..) 2 yr. is yielding 3.88%, the 10 yr. – 3.36%, the 3 and 6 month T bills yielding 4.9% and 4.86% respectively.
Gold rocketed higher yesterday on the weak economic data – betting that the May rate hike will be the last….which does NOT mean that June or July brings a pivot and cut, it just means that they pause…..Gold rose by $40 pts or 2% to end the day at $2038/oz…..after having tested and retested resistance at $2000/oz over the last couple of weeks….a level I told you to keep your eyes on…..Now, we are significantly above it and it appears as if it wants to test the March 22 highs of $2100….a level I had as an end of year goal…..Is it Christmas already? In any event – we are now in the $2000/$2100 trading range….and IF the economy continues to weaken and the FED pauses…then gold has more to go….so sit tight and enjoy the ride.
The S&P closed at 4100 down 24 pts….…..Remember – we are in vacation weeks….Passover and Easter – so volumes will decline and asset managers will place buy orders below current levels and sell orders above current levels to take advantage of any outsized moves while they are away – the rest of the action will be driven by the trading community. I suspect that there is plenty of demand at the trendline at 4025 while supply is plentiful at 4200.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
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Grilled Rib-Eye Arrabiata
Arrabiata – is the Italian word for angry – and it seems like everyone is angry right now. Created in Rome – this sauce is simple to make and gets it anger from the red chili pepper…. Today we are serving this over a grilled rib-eye – now you can use any cut of steak you like – but I love a good grilled Rib-eye….
You will need: olive oil, onion, garlic, red wine, sugar, crushed red pepper (or chili peppers if you want hot, hot, hot), lemon juice, oregano, s&p, crushed tomatoes, tomato paste and chopped parsley….
Light the grill – season the Rib- eye – massage with a bit of olive oil, and s&p – set aside.
In a large pot (or deep sauté pan) on med-hi – heat up olive oil and garlic…. sauté a bit – but do not burn – 3 mins or so…. now add sliced onion and sauté until soft – like 5 mins more. Next – add 1/2 cup of red wine, 1/2 tblspn of sugar, fresh squeezed lemon juice (about 1 tblspn), oregano, bit of tomato paste and a 28 oz can of kitchen ready crushed tomatoes (not in puree – just crushed tomatoes), crushed red pepper (or crushed chili pepper if you prefer) – bring to a boil and then reduce to simmer and cook for 15/20 mins….
Now – grill the steak to your liking – med rare is always nice…. remove and slice across the grain. Make a bed of the Arrabiata sauce on the plate and place the sliced steak on top. Enjoy with a mixed green salad and a nice bottle of Brunello di Montalcino.
Buon Appetito
