Things you need to know.
– Stocks struggle looking for direction.
– We are now getting into the heart of the earnings season.
– The BoE and ECB hint of MORE hikes…. Will the FED follow suit?
– IBM & TSLA report – look for AXP, T, TFC FITB and more today.
– Futures pointing lower….
– Try the Short Rib Ragu over Pappardelle
Stocks continued to meander…..not really doing much of anything…but again you can sense the exhaustion….You can feel how it’s running out of gas for the moment…..and the idea that the FED will hike beyond May is making some investors nervous as well creating all kinds of uncertainty…….Leaving them to ask “What happened to the rate cuts that we said were going to happen in the summer/fall?” That’s exactly the issue…. YOU said it was going to happen…I never heard one FED head ever say that rate cuts were on the calendar in 2023….
Now – recall what we saw yesterday morning…. inflation in the UK turned UP (again) coming in at +10.1% – handily beating the +9.8% estimate and THAT is the problem that the FED has to deal with…. Yes, inflation in this country has been in decline – and that is good – but what will happen if it rears its ugly head again? What happens if it ticks up over the next month or so? I mean it did tick UP in the April report for the month of March. CPI Ex food and energy y/y came in at +5.6% – above the February read of +5.5%…… Now CPI Ex food and energy is called CORE CPI and is considered the more valuable metric because it eliminates the volatile food and energy sectors – and a rise in this metric tells us that inflation remains sticky….and if you have been paying attention to the most recent commentary coming out of the different FED heads – you would have heard the same message….Just sayin’
At 2 pm – the FED released their latest Beige Book data – for those of you who are unaware of this data point….it is a report published 8 times/year. Each of the 12 Federal Reserve banks gather anecdotal information on the current economic conditions in each of their districts. The 12 districts are: Boston, NY, Philly, Cleveland, Richmond, Atlanta, Chicago, St Louis, Minneapolis, Kansas City, Dallas, and San Francisco. What did we learn? Well – NY Fed President Johnny Williams told us that the economy is ‘stalling,’ there was less access to credit, inflation is slowing but the ongoing price gains remain too high. The message? Expect more rate hikes…. Fed Fund Futures are now pricing in an 83% chance of that hike…that is up from 65% last week and 25% last month.
In the end – Inflation is just not going to go away; it needs to be broken and the question is – Does the FED have the resolve to break it? And by all accounts – it appears as if they do…. because the latest narrative calls for a hike in May AND a possible hike in June……. Reminding you that no one (on the fed) is suggesting a rate cut. Now, while some FOMC members have suggested a May hike and then a pause, others have a different opinion….and so, it leaves investors and algo’s on the edge of their seats.
…. At 4 pm – the Dow was down 80 pts, the S&P was flat, the Nasdaq gained 4 pts, the Russell gained 4 pts, while the Transports took back 126 pts…
Elsewhere in the world – an uptick in inflation in the UK confirms another hike when they announce while leaving the door open to more hikes and the ECB (European Central Bank) governing council member Klass Knot told us yesterday that not only will the ECB hike in May but investors should prepare for the possibility of rising rates in June and July… saying that it is ‘too early to talk about a pause…….For a pause, I would really need to see a convincing reversal in underlying-inflation dynamics”. So, do you see what is going on here? They are all lining up…. getting on the same side of the fence…. hinting of ongoing rate hikes beyond what the expectation was….and that is keeping a lid on stocks.
I am still in the hike in May and then pause camp…..but let’s see what next week’s PCE report says….Will it continue to show declining inflation…..Remember – it is the Services part of the inflation read that will become even more important…that remains stubbornly high and if we don’t see that begin to ease – then they will make that the subject of why they need to continue to push rates even higher. A May increase will take the terminal rate to 5% – 5.25% – a place that JJ identified long ago….and a place that almost matches what the current inflation reading is.
Remember that economists tell us that the terminal rate has to be higher than the inflation rate to kill it….so I am running with the idea that if they get it there and then pause – they can see how inflation acts over the next month – assuming it continues to decline….…..while others suggest that they have to get the terminal rate ABOVE before they pause….which would argue for a June hike….Recall that St Louis’s Fed President is calling for a terminal rate of 5.5% – 5.75% (which would mean 3 more 25 bp hikes!). The risk is that inflation reverses course and ticks UP and not DOWN and that will bring back memories of 1979-1980.
Eco data today…. Initial Jobless Claims of 240k, Continuing Claims of 1.825 million, the Philly Fed Survey – expected to be -19.3 and Existing Home Sales – expected to be -1.8% – this vs. last month’s gain of 14.5%…..a significant turnaround…and recall….the latest mortgage app information reported yesterday showed that apps are down 8.8% week/week.
In the news – Apple again…opening their second store in India, today it was in the capital of Delhi….and like in Mumbai – the line extends down the street and around the block, Timmy there to greet Apple’s newest customers…..and remember – India is set to take over China as the worlds most populous country this year…..with 1.428 billion people vs. 1.425 billion people…..
Next up were the IBM earnings report last night…. (a name I love and own). The stock is up 2% in the pre-mkt this morning…. Revenues +0.4%, Consulting Revenues +2.8%, Financing Revenues +27%, Infrastructure Revenue – 3.8%, EPS of $1.36 vs. the $1.25 estimate and FCF (Free Cash Flow) +8.1%. The stock is trading up to $2.
TSLA – traded down 7% after their earnings – ($167.50) …. Qtrly profit declined to $2.5 billion vs. $3.3 billion last year. Operating margins fall to 11.4% – but put it in perspective…. Ford’s operating margin is 4% while GM’s is 6.6%. Lonnie has made it clear that he is willing to sacrifice margins for market share. Avg prices for cars dropped to $46k vs. $52k last year. Now look – TSLA was up 60% ytd, so a 7% pullback is not the end of the world….but the action has now taken the stock down and thru the trendline….leaving it flailing around…looking for support….let’s see what Lonnie says today…because I’m sure he’ll say something….and then, will investors/traders and algo’s take it back above the trendline at $171.50 or not. If it doesn’t – then look for TSLA to struggle – and if the economy continues to slow – then I would expect TSLA to pull back more – think $150 ish…. And btw – I am still not sure about why a TSLA motor car is any better than a Caddy, Audi, BMW, Porsche, Ford etc…these car companies are producing very nice products….and very well designed…. but Lonnie has produced a TSLA cult experience – That’s it. In my mind – an EV is an EV…both use battery power…I just like some of the other products out there better. (I am not a TSLA junkie).
GOOG – has an updated Chatbot (BARD AI) ….and wait until you see what it can do (think: pathological liar) …. we are now well into dangerous territory…. talk of ‘slowing down’ is ridiculous…there is no slowing down now….and that is dangerous…. And gov’t guardrails? Really? Come on…stop the stupidity…. What guardrails could they possibly create that the whole world would respect? (Answer: NONE). Be honest….AI has gotten to a whole new level…. Get ready. GOOG has a lot going on right now and much of it isn’t good.
Earnings today include TFC (missed), FITB, CMA, PM, AXP, NUE, MMC, DHI, T, KEY, VIRT….
The dollar index is churning in line…. Oil remains under a bit of pressure – today the story is again – demand destruction with a slowing global economy…. Crude stockpiles fell by 4.6 million barrels – much more than analysts’ estimates, while gasoline inventories ROSE unexpectedly (fueling that demand destruction narrative). Remember what I said yesterday…. 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.
Gold – is rallying back hard…after falling hard…to a low of $1,980/oz before ending the day at $2,007. This morning it is up $8 at $2,015….as the dollar index just churns…. higher rates and a stronger dollar would not help gold…but pausing rates or cutting rates will.
US futures are down – Dow futures -150, S&P’s -30, Nasdaq -130 and the Russell is – 20. Nothing really new – earnings and confusion over FED policy…. will weigh on the markets…. for now. We remain in the 3800/4200 trading range….so sit tight….and watch for individual opportunities.
European markets are all lower…. Italy down 1.21% while the UK is off 0.2%.
The S&P closed at 4154. Stocks and investors are tired…..you can feel it….The May hike is coming and fall rate CUTS are NOT coming…..Hike and pause thru year end is my call….as we monitor inflation…..In the event that the FED pauses and then has to raise rates again….expect stocks to react negatively…..We will know more by June 15th meeting…..because we will have gotten 5 more inflation reads between the May meeting and the June meeting….2 CPI’s, 2 PPI’s and 1 PCE. In addition – do not discount what tighter credit conditions will (should) do. So, stay awake…. stick to the plan…. Look for the opportunities…
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.”
Pappardelle Pasta smothered in a Short Rib Ragu
This is delish….
For this you need: 10 3-4″ bone-in short ribs, kosher salt, pepper, olive oil, 2 medium carrots chopped, 1 medium onion chopped, 3 or 4 chopped cloves garlic, 3 ounces tomato paste, 2 cups of chianti, 1- 28 ounce can of crushed plum tomatoes – NOT puree, 1 bay leaf, 2 tblspns fresh thyme, 1 lb. pappardelle pasta, Fresh grated Parmigiana
Ok – so this does take time to prepare – in fact, you need to make the short rib ragu the day before (and then refrigerate it overnight) in order to get the FULL flavor and punch….
Preheat the oven to 325 degrees.
Rinse and pat the short ribs dry, season with kosher salt and black pepper on all sides. In a large pot – heat up some olive oil…. Once the oil is hot adding the ribs to the pot and sear on all sides. You will have to do this in batches and do not crowd the pan. Short ribs should take about 10 minutes to sear on all sides per batch.
Remove and set the seared short ribs aside.
Turn the heat down to medium-low. Add in the carrots, and onions and sauté in the beef fat until very soft (about 10 minutes) then add the garlic and cook for 2 more minutes.
Next, add in the tomato paste – about 3 or 4 oz’s and cook for 3 minutes stirring frequently. Add the wine and turn the heat to medium. Using a wooden spoon scrape all the brown bits off the bottom of the pan.
After cooking the wine for 3 minutes, add the plum tomatoes, thyme, and bay leaf and bring to a simmer.
Now using a large deep aluminum pan – place the short ribs in the pan and then pour the sauce all over it. Cover tightly with tin foil and cook for 2 hours… Then open up one corner of the pan and allow the steam to escape and cook for 1 more hour. Remove from the oven and let cool for 15 mins or so.
Using 2 forks – shred the meat – discard the fat and the bone. You can also toss out the bay leaf and any thyme stems that you have. Return the shredded meat to the original pot and then add the sauce and keep warm on the stovetop. Taste and adjust seasoning if necessary.
Let it continue to simmer on the stovetop.
Now bring a large pot of salted water to a rolling boil and add the pappardelle – cook until aldente – maybe 8 mins or so….and then strain – always reserving some the ‘tears of the Gods’ (pasta water).
Using another big sauté pan – add two ladles of the ‘ragu’…. now add the pasta – stir to mix…if it appears to dry – add some of the ‘tears’…. Now serve in warmed bowls…adding more of the short rib ragu on top. Always have that fresh grated Parmegiana on the table for your guests…. YUM….!
Buon Appetito
