Things you need to know. 

–        OPEC+ decision sends Oil UP 6.5% yesterday and up another 1% today.

–        So many appeared to be ‘taken by surprise’….which makes no sense

–        US macro data continues to weaken.

–        RBA holds rates steady and expects the US to pivot this summer – Challenge!

–        Mikey Throws cold water on TECH – but I’m not deterred

–        Try the Rigatoni with Chicken in a Broccoli Pesto

The Dow continued to run…attempting to catch up with the others…rising another 327 pts or 1%, while the S&P added 15 pts, the Nasdaq took a breather after the qtr. it had and gave up 32 pts – after Morgan Stanley’s Mikey Wilson made some disparaging remarks about the sector, the Russell ended the day flat while the Transports lost 158 pts or 1%. 

The big news of the day was not the weaker Manufacturing PMI’s or weaker construction spending and nor was it the coming arraignment of the former President today in NY….Oh no, it was that surprise ‘production cut’  announcement by OPEC + that caught the administration and apparently some traders by surprise that was really the market talk of the day….and again, I ask you, why?  Why was anyone really surprised that that happened?  It happens every time oil veers away from $80/barrel – it starts with veiled threats, and then speculation of a cut – that usually sends it right back to where the Saudi’s – who are now in  control of the price of oil – want it….  The Saudi’s are not UNCLEAR about this at all….They do not whisper amongst each other nor do they whisper about it at any of the OPEC+ meetings….  They have been very clear about what they want and they make sure everyone else is as well.

Recall it started when oil broke into the low 70’s last month….the rumbling, the chatter.  Stories about how demand in China (and India) was waning, never mind that China is expected to be 40% of the increase in demand, burning and additional 1.3 million bpd bringing their daily consumption to 16 million bpd while total global demand goes to 100.8 million bpd. And never mind that China has become the largest importer of oil – buying it from whoever would sell it to them -Russia, the Saudi’s, Norway, Brazil, Venezuela, Iran, Iraq AND the US – you see we sold it to them out of the SPR (Strategic Petroleum Reserve) when Joey and his ‘advisors’ thought that was a good way to bring down the price of oil while he kept his promise to Xi Xi. 

Economists talked about the coming global recession that would destroy demand and then they told us about rising crude inventories and that put more pressure on oil prices….Oil cracked $70 and traded to a low of $63 in late March…and then the rumbling started….I told you so in note after note…I repeated the fact that the Saudi’s want to see oil at $80+ barrel…  Street analysts was calling for $95/barrel on AVERAGE for 2023….which means it has to go significantly higher than that to bring the average to that level….So, tell me again – why this was a surprise at all?  

The only surprise I see is that no one in the administration thought to buy any oil at those prices to begin to refill the SPR – I mean what were THEY thinking? They told us that they would yet, they didn’t.   And so, over the weekend – the Saudi’s did just as they said they would – the had a surprise meeting (which wasn’t really a surprise) with the other OPEC+ members and announced a 1.5 million barrel/day production cut beginning next month and lasting thru at least year end. And so oil surged by 6.3% – the steepest rise in more than 12 months.  The XLE added 4.5%, XOM +6%, CVX +4.2%, SUN +6.3%, HAL +7.7%, SLB +6.5% & BKR +3.6%.

Now the media tried to make us think it was a surprise…..It wasn’t at all, I just don’t think that they thought it would happen, which is curious – because it always happens when oil gets too far away from the stated price.  This morning oil is up another 80 cts or 1% at $81.22…..just above the Crown Prince’s sweet spot….but below where the street sees it going by year end.

Next was the weaker economic data ….the PMI’s are now in contraction territory for 5 months  – the ISM manufacturing PMI coming in at 46.3 – the WSJ reminding us that when the ISM PMI falls below 48.7 – it usually means that the economy is contracting!  No kidding and when the yield curve is inverted it also usually means the economy is contracting and going into a recession….

And the yield curve is still inverted – has been so for more than one year now….after yesterday’s economic data – we saw prices rise as money moved into the ‘safety’ of treasuries and that sent yields lower – but they remain inverted.  The 2 yr. is yielding 3.98% while the 10 yr. is yielding 3.44% and the 3 and 6 month T bills are yielding 4.9% and 4.87% respectively.

And then there was good news for the health insurers…..the XLV rose by 1.2% after regulators announced higher reimbursement rates for privately administered Medicare plans….UNH +4.6%, and was the largest reason for the surge in the Dow yesterday (as it is a Dow member)….adding 140 pts to the move….ELV rose by 3.6%, CI + 2.5%  and HUM added 5%.

But tech got slammed just a bit -after the spectacular moves we witnessed last qtr.…. Mikey Wilson of MGS fame came out over the weekend and said that the move up in TECH did not make sense (to him) and that the TECH sector is not a ‘safe haven’ sector – in fact – Fortune Magazine ran with this headline…

“Wall Street’s Top Strategist says 20% tech stock rally has gone TOO FAR and sector will return to NEW LOWS”

New lows!!  In the article he warns that the 20% advance in tech isn’t sustainable and predicts a fall out!  Then JPM strategists Mislav Matejka joined in saying that the it might not be the best place to be (right now) citing earnings risks, unattractive valuations and very high prices relative to the long term….Whatever!  In the end, I am not selling my AAPL, AMZN, MSFT, IBM or NVDA – and would be a buyer on any material weakness….in the meantime – I reinvest all divy’s and remain fully engaged.  Capisce?  

This morning US futures are higher as concerns over rate hikes apparently recede today…- Bloomberg telling us that  “amid signs that central bankers are not in any rush to raise rates”   -I’d like to know where they get that from?  The market is now pricing in a 65% chance of another 25 bps hike in 4 weeks…. The article goes onto say that yesterday’s oil news will prevent the FED from speeding up the pace of hikes…-– see how they did that….what it says is that 50 bps is off the table….they can’t possibly raise 50, so 25 bps is seen as bullish!  And the news that the RBA – Reserve bank of Australia – has decided to pause – holding rates steady at 3.6% – to give them time to assess the state of their economy and what effect the prior rate hikes have had.  They also noted that they want to see what affect the recent US banking ‘crisis’ that isn’t a ‘crisis’- is having on the US and global economy.  The underlying implication was that they expect the FED to PIVOT in the late summer/early fall….something you know I don’t see happening at all….  This morning Dow futures are up 40 pts, S&P’s up 14, the Nasdaq is up 65 and the Russell is ahead by 6 pts.

Eco data today includes JOLTS job openings, Factory Orders and Durable goods.

European markets are all higher as well…. up about 0.7% across the board – with the exception of the UK – they are flat on the day….Banks and Insurers are in the lead….and investors there are digesting the latest OPEC news as well as this morning’s RBA decision….

Gold is steady at $2000/oz…. As noted yesterday….It is consolidating between $1950/$2000 – with $2000 proving to be a difficult level to pierce for now.

The S&P closed at 4124 up 15 pts…..Remember – the next two weeks are 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….I suspect that there is plenty of demand at the trendline at 4025 while supply is plentiful at 4200.   This is also a holiday shortened trading week with the NFP report being released on Friday when markets are closed.  

Take good care, 

Chief Market Strategist
kpolcari@slatestone.com

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Rigatoni w/Chicken and Broccoli Pesto

this is a great and easy dish to make and one that I made once a week for my kids when they were growing up.  It gave them a bit of everything – right?  Chicken, broccoli and pasta…. This is also a great party dish – because it goes a long way.

For this you need – 4 skinless chicken breast – cut up into bite size pieces, onion, butter, olive oil, garlic, s&p, broccoli – trimmed and cut into small pieces – you want both the floret and part of the stalk, ½& ½,  fresh grated parmegiana cheese….

Bring a pot of salted water to a rolling boil.

Begin by seasoning the chicken pieces with s&p.  Set aside.  In a large pot – heat up some olive oil  – add in the sliced garlic and sauté for 4 or 5 mins….until golden…now add in the chopped onion and sauté until soft.  Next add the broccoli – mix well and turn heat to med and cover – stirring occasionally. You want the broccoli to become soft.  This might be about 15 mins or so.

While this is cooking – in another frying pan – add a dollop of butter and a splash of olive oil – heat until the butter begins to froth….now add in the chicken pieces and turn heat to high.  Cook the chicken thru and thru – until it takes on a bit of a goldeny color…Turn off the heat and set aside.

Now – the back to the broccoli – turn heat off and allow to cool for 5 mins.  Take out your Cuisinart.  Add the broccoli and onions and puree.  Add in a handful of cheese and mix again.  Done.  Taste for seasoning and adjust.

Now add the pasta to the water and cook for 8 mins or so or until al dente.  Strain and reserve a mugful of the pasta water.  Now add the pasta back to the pot – toss in ¼ of the water and mix.  Now add the chicken and the broccoli pesto – mix well and serve immediately.  Always have extra cheese on the table for your guests.

Buon Appetito