Things you need to know.
– Stocks remain rangebound.
– Big earnings week – Big Tech in focus
– Traders make a big, short bet in the 10 yr. treasury
– Is there a Black Swan event just ahead?
– Try the Shells w/Sweet Sausage and Peas
Stocks remained rangebound last week (think 4000/4200 band) after mixed earnings and mixed to weaker economic data failed to ignite ANY move for stocks in either direction…UP or DOWN….Confusing comments by different FOMC members leaving investors pondering what the next move will be – and asking – Will we get rates hikes in May, June AND July now? Could another 75 bps really be on the table, or will the credit tightening conditions do much of the work?
Treasury yields ticked up just a bit on the back of this news leaving the 3 month and 6-month bills yielding 5.11% and 5.08% respectively. The 2’s are yielding 4.18% while the 10’s remain at 3.57%…. the curve still inverted (as if you needed me to remind you!)
Inflation in the UK turned higher – clocking in at 10.1% vs. the expected 9.8% and that sent Gilt yields higher… (Gilts are UK gov’t bonds). News that Chinese growth and spending is rebounding nicely – did little to inspire buyers in Chinese stocks…. all while Oil continued to suffer – falling 7.5% since April 13th – ending the week positioned between the 50 and 100 dma trendlines at $77.87. Fears 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 and on Friday we traded as low as $76.72/barrel…. just $1.05 away from filling that gap before settling in at $77.50 . This morning oil is trading in line at $77.68.
And while the coming debt ceiling debacle isn’t really an issue YET – it is sure to become one in the month ahead – UNLESS those clowns in DC come to the table and decide to hammer out a deal….and at the moment – that does not appear to be the case – but we know that it usually is an 11th hour event, after they have created all kinds of angst for investors and Americans – suggesting all kinds of disasters IF the US defaults on its debt……
Ok – let’s make one thing clear – the US is NEVER going to default on its debt- that is not happening…..no matter what they tell you. Now, shutting down parts of the gov’t could happen (and it has happened), but that is not the same as defaulting on our debt- by any stretch of the imagination. So don’t go make investment decisions on the idea that the US gov’t is going to default on its debt. That’s just not a smart idea…. But building a strong portfolio that could weather the storm of anxiety and drama is a smart idea and has always been a smart idea. So, stick to the plan, that includes consistent deposits into your account and consistent allocations to your portfolio. Take advantage of dollar cost averaging (DCA) and always reinvest your divvy’s until you get to the point in your life that you’re using the divvy’s as income.
Eco data today includes: Chicago Fed Survey of -0.2 and the Dallas Fed Survey of -11. Later in the week – we get the Philly Fed survey, New Home Sales, Richmond Fed Survey, Mortgage Apps, Durable Goods, Capital Goods Ordered and shipped, 1st Qtr. GDP, Pending Home sales, Kansas City Fed Survey, Personal Income and Spending and the one that everyone is spying – the PCE Deflator – the Fed’s favored inflation guide and the top line is expected to show m/m gains of 0.1% while y/y will come in at 4.1%. PCE Core m/m is 0.3% and y/y of 4.5%.
Both readings down over last month, but still remain well above the FED’s 2% target. And that is what is driving the latest conversation about how many more hikes are we going to see? 1, 2,3? And those cuts that ‘traders’ keep dangling in your face? Yeah, not happening….at least not this year…(the FED has been very clear about that), I mean here we are talking about 2 or 3 more HIKES and then they expect the FED to cut by 75 bps by year end? Now look – the CTA (Commodity Futures Trading Commission) told us that ‘leveraged investors have boosted their net short positions on the 10 yr. treasury’ by nearly 1.3 million contracts – It’s actually 1.29. And why would anyone do that? Because THAT bet tells us that they think the FED will keep hiking and that 10 yr. treasury prices will FALL as yields rise….and if prices fall then that bet will pay off BIG.
There are 6 more FOMC meetings until Christmas…and while it is ‘possible’ it is NOT PROBABLE unless we get some unforeseen BLACK SWAN event that creates havoc and chaos…
Now – I guess we should lay out the possible events….we do have the ongoing Russia/Ukrainian war, we do have China threatening to take Taiwan. We have AI that is now threatening our very existence. We have a ‘debt ceiling drama’ unfolding and we are gearing up for the 2024 Presidential election that now has 1 Democratic challenging Jo Jo for his job and we have 6 Republican challengers so far…. expecting at least 10 more before the count is over. Out of all of these – it is the China threat that could be the BLACK SWAN event…and while many do see that happening, the jury is still out on when. I think it is sometime during the Biden/Harris administration, others think it is a 2025 event…. My gut tells me Xi Xi will do it with Jo Jo & Kamala in the house because they are seen as compromised and weak never mind a host of other issues. But let’s not go there…. Let’s keep telling ourselves that it’s all good.
In addition it is all about earnings this week and next….as the bulk of the S&P reports….and this week we have some big tech numbers to deal with – MSFT, GOOG, META, & AMZN. Remember that so many tech companies took advantage of the economic weakness to ‘clean house’, so expect the focus to be ono those moves and how they helped and will help those companies going forward. Don’t be surprised if you see a lot of positive surprises…. because THAT is the way this game is played – if you’re gonna surprise – do it to the upside….
Before the bell we are going to hear from KO and then after the bell we will get FRC, WHR, AMP, CLF, CCK and a few others….It won’t be until May 10th before we hear from FCNCA – First Citizens – the bank that took over the failed SVB in March.
The dollar index is churning …. Remaining well below any trendline as it hovers around $101.65. We remain in the $100/$103 range.
Gold – remains just below $2000/oz at $1,995 this morning.
US futures are down again this morning…. – Dow futures -70, S&P’s -9, Nasdaq -25 and the Russell is -4. We are now in the official blackout period ahead of the FED’s May meeting… – do not expect to hear much from the FED, but anything they want to ‘get out there’ will come thru Goldman or the WSJ…..in the form of ‘Goldman Chief Strategist Davey Kostin says… or Chief Economist Jan Hatzius thinks…all while the WSJ will use ‘unnamed sources’ to position the piece…In any event – do not fall asleep.
European markets are all lower – not much, but in negative territory….…. It’s all about earnings and central bank policy…. It just feels like a continuation of the complacency seen last week.
The S&P closed at 4133 up 3 pts…. As I said – Stocks and investors are tired…..you can feel it….The May hike is coming followed by what? A June and July hike? We don’t know yet….and that lack of clarity may cause volatility to rise in the days ahead. At the moment – the path of least resistance is lower (as far as I can see….) – because there is enough economic and FED uncertainty and it is the uncertainty that will cause stocks to decline….because it is the uncertainty that makes the markets anxious. Bad news that is clarified can then be priced, but it is the uncertain news that keeps investors on edge. In the end – stick to the plan…. know what you own and why you own it….Stabilize your account with short duration money if that makes you feel better……keep your shopping list updated..
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.”
Shells with Sausage and Peas
I made this last night – you can find a picture of it on my twitter – @kennypolcari.
For this you need: 1 lb. of shells, bag of frozen peas, 1 onion, garlic, sweet Italian sausage out of the casing, olive oil, chicken stock, s&p and fresh grated Parmegiana cheese.
Bring a pot of salted water to a rolling boil.
Start by browning the sausage in a sauté pan. When done – remove and set aside. Now in the same pan, add a splash of olive oil, the chopped garlic and diced onion. Sauté for 5 mins…. now add back the sausage and let it cook on med low heat. Add a cup of chicken stock and the bag of frozen peas. Season with s&p.
Put the shells in the water and cook until aldente….8 mins… Strain – always reserving a cup of the pasta water – (tears of the Gods). Put the pasta back in the pot and then add the sausage and peas. Mix well. Toss in a handful or two of the cheese and serve immediately. Yum…. So good.
Buon Appetito
