Things you need to know.
– Stocks advance as investors bet the hiking cycle is about over
– NFP does not surprise
– This week we get the latest CPI & PPI – Earnings season begins on Friday
– Try the Shrimp Scampi
Well – the NFP report came in right in line….but by now you know that….there was nothing dramatic about it – other than we saw unemployment tick lower – went from 3.6% to 3.5% – Not what the FED wants to see by any stretch…everything else – was not earth shattering – Avg hourly and yearly earnings came in line, job creation in line, Avg hours worked in line, Labor Participation Rate – again in line….…….Remember – JJ needs to see unemployment tick UP not DOWN – so this will present more of an issue for him….…Just sayin…..Economists agree that he will need to see the unemployment rate tick above 5% if he is to be successful in taming inflation….- and the fact that the unemployment has held near record lows after he has raised rates nearly a dozen times is not helpful…..and that is what will keep the heat on the FED….so once again this idea that some people see not 1, not 2, but 3 rate CUTS in the fall continues to amaze me…..Wake up….this is NOT happening……I mean the economy would have to implode at this point for JJ to consider ‘stimulating’ the economy – by cutting rates…and by all accounts – that does not seem to be happening – yet…..
Stocks meandered all day – as cyclical stocks – represented by the Industrials – XLI +0.9% and the and the SMID’s (Small and Mid-Cap Stocks)– represented by the IJJ and IJT rose by 1.25% and 1.4% respectively led the market higher…. volumes were light…. getting no help from Europe because those mkt centers were closed in observance of the Easter Monday holiday. And so, we tossed back and forth – without any major move either way….at the end of the day the Dow added 100 pts or 0.3%, the S&P added 5 pts, the Nasdaq lost 4 pts, the Russell gained 18 pts or 1% while the Transports were the winners – ending 230 pts or 1.6% higher….
Tech was mixed –
Apple got slammed – 1.6% after they reported that personal computer shipments fell sharply – while the Semi’s rose after Samsung announced that they would CUT memory chip production as they try to control the semiconductor supply chain. The SOXX – Semi ETF gained $7 or 1.75%…. that’s like when the Saudi’s told us that they would cut oil production in order to control supply and price. – oil stocks and oil prices shot higher…. – it’s that whole supply/demand conversation that you should have learned in Econ 101.
The other broad S&P sectors ended the day mixed – Utilities – 0.2%, Communications – 0.25%, while Healthcare, Consumer Staples, ended the day flat while Financials, Consumer Discretionary, Energy, Basic Materials and Real Estate all ended the day a bit higher. Value beat growth rising 0.7% vs. a loss of 0.1%.
Aerospace and Defense names ended the day up 1% leaving that group up 4.5% ytd …(think the latest drama playing out in the South China Sea as Beijing threatens to take Taiwan). Individual names rose even more…. RTX +1.3%, NOC +1.3%, LHX +1.1% and LMT +1.4%. This should not surprise anyone at all… Look – we all know that China wants to take Taiwan back – causing all kinds of chaos to the global economy never mind the war that will surely follow. This is not a secret; we have been talking about this for years now…. Yesterday Fl Senator Marco Rubio telling us that China will do this before the end of the decade – while I say – Wake up Mario – the end of the decade? Come on…. Try before the end of the Biden presidency.
Artificial Intel gained ground adding 0.8%, C3.ai – which came under pressure last week after Kerrisdale Capital accused them of ‘accounting gimmicks’ rose 1%. Remember – Kerrisdale has a very large SHORT position in the name – the stock was up over 200% ytd – making it very uncomfortable for them…..and so – the accusation last week caused all kinds of damage to the stock – it lost nearly 40% (12 pts) as I reminded you that Kerrisdale has a lot to gain by seeing the stock collapse…the question now is – Was Kerrisdale a ‘buyer’ last week – as the stock was collapsing? In any event D a Davidson hosted a webinar yesterday featuring the CEO who clarified and disputed much of what was in the Kerrisdale accusation….and reaffirmed their $30 price target on the stock. Let’s see what happens next.
In the end – It is still all about the FED
It reminds me of the 1992 Billy Clinton Presidential tag line coined by Democratic strategist Jimmy Carville – “It’s the economy stupid!” and that is what it is all about now…the economy….What the data tells us, How the FED interprets it, How the FED acts and then ultimately how Americans act…..At what point will American’s stop spending money….at the pace that apparently we are…because the data continues to tell us that American’s can’t stop spending money…..whether it’s money they have or money they don’t – think credit cards….We did see credit balances surge from $14.8 bil to more than $19 bill last month… That’s a 28% increase – just sayin’….
And the thing with revolving credit cards is that the rates are usurious….20% plus rates are not uncommon and if you miss one month or underpay – the rates surge to close to 30%….and then you know what happens? People stop paying….credit losses on revolving cc begin to mount and then we hear about write offs and bad credit when the earnings season hits….and guess what – earnings season is knocking on the door….Knock, Knock….It all begins on Friday – April 14th….and it is led by the big money center banks – JPM, C, WFC, BAC, GS, …and then we hear from the super regionals and then the regionals….etc….so pay attention to what the C suite says about ‘loan loss reserves’. Because if they ramp up the allocations to those accounts (and they will) – that will speak volumes to what the banks think is about to happen…. Capisce?
In addition – we are about to get hit with the two latest inflation reports….CPI – which is all about the consumer – due out on Wednesday and that is expected to show a m/m rise of 0.2% and y/y of 5.1% – but when you look at the core – we see something a bit more disturbing….the core rate is expected to rise by 0.4% m/m and 5.6% y/y…..the core rate is the rate you would expect to be even lower than the top rate…but all that tells you is that ‘core’ inflation – the stuff that we need everyday remains strong…and while it is expected to be lower than last month – it is still ‘sticky’. And ‘sticky’ is the problem.
Now PPI – which is inflation at the producer level is expected to be lower this month – and that is good…because it is prices at this level that ultimately get passed onto the consumer – so a declining PPI should equate into a declining CPI – about 4 – 6 weeks out…..and that is exactly why I see the FED raising rates by 25 bps in May – and then pausing at that level which takes the terminal rate to 5% – 5.25% to see what the CPI does next month and the month after that…. Remember – many economists tell us that the terminal rate has to be ABOVE the inflation rate in order for it to slow/stall inflation. We are just about there….and while inflation might be a hair above the terminal rate this month – that may change next month…and that is what will allow the FED to hold the line. Now if inflation fails to continue to decline – then the FED will be forced to make a new decision….and start raising again…and if inflation does continue to decline – then the FED can hold steady…..and be patient until they see inflation hit their target rate of 2%….which is what they said they will do….
Bond yields continue to hover around the most recent levels, remain inverted and are proving to be a real headwind for investors…. especially as we all wonder about the length and depth of the coming recession. ……the 2 yr. yielding 3.98%, the 10 yr. yielding 3.38%, while the 3- & 6-month bills are kissing 5%. And 30 yr. fixed rate mortgages are now running at 6.7% – 7%. – which represents a 133% increase from when Joey took office.
Eco data today includes nothing that is going to drive the action…
This morning US futures are up …. Dow futures up 70 pts, S&P’s up 12, Nasdaq up 44 and the Russell up 6. Investors now focused on the upcoming inflation reports…due out later this week…. The sense is that the FED’s tightening cycle is about to come to an end and that would be a positive. In addition – we do have the start of earnings season…which is sure to be interesting….in light of the banking crisis that happened last month along with the tightening of credit conditions across the spectrum.
European markets are open and are higher…. Up about 0.5% across the board.
Gold, which rocketed higher last week and then retreated as many booked profits ahead of the holiday weekend is on the move up again. Gold is up $15 today trading at $2,020/oz. …..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…..It is also the ultimate ‘store of value’- gold is gold…period….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 4109 up 5 pts…. leaving it just below its most recent high of 4128. It feels like the market wants to go higher as many now expect an end to the hiking cycle and I wouldn’t be surprised if it did…. Watch for 3 FED speakers today…Chicago’s Austy Goolsbee, Philly’s Patty Harker and Minneapolis’s Neely Kashkari…. – What will they say about future hikes and the state of the economy? Now look – If the market backs off, I suspect it will find plenty of support at the trendline at 4025 and if it advances it will find plenty of resistance at 4200. So for now – we remain in the 4025/4200 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.”
Shrimp Scampi
This takes all of 12 mins to prepare and serve….an easy dish that appears harder than it is….
You need only a couple of things….1 lb. of large cleaned, deveined shrimp, butter, olive oil, garlic, lemon, white wine, chopped parsley, s&p, toasted breadcrumbs and a lb. of linguine.
Bring a pot of salted water to a rolling boil and add linguine…. cook for about 8 mins or until aldente….
In a sauté pan – melt butter and add a splash of olive oil, add crushed/sliced garlic……and sauté…. keep heat on med so that you do not burn the butter or garlic…. add the juice of one lemon, complement with some white wine…about 1/4 cup…in pan – and a wine glass full for you – turn heat up to high…. next add shrimp, s&p, and sauté quickly until nice and pink on both sides…no more than 5 mins……
Now strain pasta – reserving a mugful of water – add pasta to sauté pan – mix and serve…. You may need to add back a bit of the pasta water to keep moist -as the pasta sucks up the juice…. Serve in warmed bowls, top with some toasted breadcrumbs and fresh grated cheese.
Buon Appetito
