Things you need to know.
– Tech fails to rally the broader market – but it did provide excitement.
– Big earnings day and the beats keep rolling in.
– Is the FED jawboning the next move?
– Oil fills the gap! Let’s see what happens next.
– Try the Spaghetti w/Asparagus & Pancetta
Big tech (think GOOG and MSFT) tried really hard to produce a turnaround in the market – but alas – stocks got whacked again – declines seen everywhere except Tech….…..…Regional banks remain in the spotlight as many investors remain concerned about the health of that sector….FRC – the bank that reignited the firestorm – fell another 30% on top of the 49% that it fell on Tuesday…..The KRE – S&P Regional Bank ETF did manage to end the day slightly higher but not before trading erratically during the day.
Transportation names were getting smacked again with the Dow Transports down 500 pts or 3.56%! (The transports are now down 9% in 4 days…) Truckers taking it on the chin…. ODFL (Old Dominion Freight Line) fell 10% after they reported a freight slowdown and profits missed expectations for the first time in 3 yrs….. And that dragged its competitors with it…. SAIA – 11%, YELL – 14% & KNX – 3%.
Utilities – a usually boring sector found itself down 2.3% as investors weighed the prospect of higher rates…remember – Utilities are a divvy play – they average about a 4% payout, but offer the risk of market exposure as well…..So now that short term treasuries are paying significantly more than that – many investors are choosing to bow out of utilities and move into the shorter duration T bills. And a perfect example of that is a text message I received from a Morning Thoughts reader last night – it said.
“I just moved $100k into a 6-month T bill…. because it’s paying 4.7% and I think the market goes lower from here”.
This guy IS the retail investor (he could be you) ….and while he is not completely out of the market, he is becoming more and more conservative with his money in the short term. Expect to hear more moves like this until we get more clarity on future policy and economic conditions. In fact – a client called me yesterday to confirm that when the money allocated to his 3-month T bills come due at the end of May – he would like to just ‘re-roll’ the money into another 3-month bill…. until he feels more confident. 3-month T-bills are currently yielding 5%…. with zero risk of loss and when you are concerned about where the future is going…. stability becomes the path forward.
Now to be fair – both of these investors are in the baby boom generation ….so this makes perfect sense and it might make sense for some X’ers….but millennials (1981 – 1995), Z’ers (1996-2009) and Alpha’s (2010 – 2024) – would not be in this cohort…..You guys have too much time on your side and so much opportunity….. and just think about the Generation Beta’s…those that will be born between 2025 – 2039!
By the end of the day the Dow lost 230 pts or 0.7%, the S&P gave up 15 pts or 0.4%, the Nasdaq was the bright spot – rising 55 pts or 0.5%, the Russell gave up 15 pts or 0.9% while the Transports (as noted) lost 500 pts or 3.56%.
Losses seen across the board with tech the only gainer….look – earnings expectations have been revised lower significantly – about 15%….and that explains why more than 85% of reports so far have beaten those ‘lowered expectations’…and while that might be good for market psyche – the fact is they are pretty unimpressive…..and I’m not sure it’s even good for the psyche – because the markets have been under pressure since the start of earnings season – even with all the beats….….The Dow down 2%, the S&P off 2.2%, Nasdaq -3%, the Russell -4% and the Transports off 7%.
Much of the weakness can be credited to the FED’s next move…..and then the move after that and after that…..May will bring us a 25 bp hike, and rumors are stirring that June will bring us another 25 bp hike…and if that is the case – it will get the terminal rate to 5.25%-5.5%…..a level that seems to be more in line with much of the most recent commentary coming from various people at the FED.
Now don’t’ forget – much of that could be ‘jawboning’ – which means that they are attempting to ‘persuade or pressure results by the force of one’s position of authority’ – Capisce? If they say it enough, then it becomes self-fulfilling – expectations take rates higher and demand begins to decline faster….and all the FED did was suggest the possibility of even higher rates (than where we are)….and that is what you’ve seen out of Mester, Bullard, Kashkari and even Johnny Williams….they have all suggested a terminal rate north of 5.5%….which is 50 bps higher than where we are today…..and much of that is going to depend on what we hear tomorrow with the latest release of the PCE Deflator – the FED’s favored inflation gauge…and it is expected to come down, but remember – this data point will be more affected by the surge in oil prices during the month of March, vs. the latest CPI which was not (because it was reported mid-month)….so we could see the PCE report be a bit higher than the expectation…..so just a thought….and in fact, I think next months’ CPI report will be a bit higher because it will include the latest run up in oil prices…but let’s not get ahead of ourselves….
Today will be about even more earning reports…. look for results from some big names…. HON, CAT, NEM, HAS, ABBV, IPG, LLY, BTU, BAX, MO, LUB CMCSA and the list goes on.
GOP House members did pass their version of the debt ceiling bill – and did agree to raise the debt limit with some spending cuts, but it is sure to die upon arrival in the Senate….and with Jo Jo telling us that he is NOT negotiating on ANYTHING concerning spending, it all seems like pomp and circumstance….so we are no closer to solving that problem just yet…. It is now a game of chicken…. who will blink? Will that small far right wing of the GOP force a showdown with the far-left wing of the DNC, and will that force a gov’t shutdown?
And don’t say ‘default’ – that is not happening…..that’s just drama…..Does anyone see the issue here…we are being controlled by a small number of elected leaders that refuse to come to the table…what happened to being in the center of both parties that allows for productive and realistic debate? The problem here is that this stalemate is all about Trump…. who is kidding who…. Joey referred to it as a MAGA debt bill…really? Stop the stupidity and stop telling us that Donald is the presumptive candidate…he is NOT. 2024 will NOT be a repeat of 2020…. Don’t get me started….
US futures are up…. Dow +90, S&P’s up 18, the Nasdaq up 95 and the Russell is ahead by 3 pts. In addition to earnings – we will get some eco data that could create some action…although I doubt it…. Initial Jobless Claims of 248K, Cont. Claims of 1.87 million. 1 Q GDP of 1.9% which is down from the 4th qtr. read of 2.6%. Pending Home Sales m/m of +0.8% but y/y expected to be down 20.7%.
Treasuries remain in line with recent performance…. The 3- & 6-month bills ended the day yielding 5.1% & 5% respectively…the 2 yr. yielding 3.95% while the 10 yr. is yielding 3.45%.
And BOOM…. Oil filled the gap yesterday…. trading down to close at $74.30/barrel…. filling that gap at $75.67. This morning – oil is up 11 cts at $74.40. We are below all 3 trendlines and would look for support right here at $74 ish…. resistance is now at the trendline – $76.30….
Gold like oil is just biding its time…trading at $2,008/oz as it builds a base hear and awaits the next FED move…. We remain in the $2000/$2100 range.
European markets are all higher….UK +0.1%, CAC 40 +0.4%, DAX + 0.1%, EUROSTOXX + 0.15%, SPAIN + 0.1% and ITALY is flat. The story in Europe is about earnings….
The S&P closed at 4055 – down 15 pts…. Remember what I said yesterday…. The market closed on its low on Tuesday and that usually means it will go lower again and it did. The S&P traded as low as 4049 before it bounced but still closed lower….and this morning futures are up…and the earnings that have hit the tape so far – all beat the estimates…. Surprise! Look the markets will remain volatile until we get more clarity out of the FED – and that happens next week….
Remember – this is not the time to panic…. stay the course….be patient…. keep putting money away into your account – maybe just holding it in cash until it settles down…. Cash can be defined as short duration (3 month) T bills…that are yielding 5%. The market continues to feel tired, but that is not a reason to abandon it, in fact that could be more of a reason to build a stronger cash position that will allow you to take advantage when the change happens.
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.”
Spaghetti w/Asparagus & Garlic and Pancetta
Here is another great Springtime dish…. Looks great on the plate and is pleasing to the eye and pallet. Try this on a night when you can set the table outside, play some classic Gigi D’Allessio on Spotify and enjoy the night.
For this you need: 1/2 Pound Fresh Asparagus Spears, Diced Pancetta, sliced Garlic, 1/2 Cup White Wine, Grated Pecorino Romano Cheese, Finely Chopped Fresh Parsley, 1 lb. of Spaghetti.
Begin by trimming asparagus, Cut the white end of the stalk off and discard. Blanch the asparagus in boiling water until tender crisp, then drop it into a bowl of ice water. Do not overcook – you want the asparagus to be firm not limp. Once cooled – cut into bite size pieces – saving the flower aside.
In a lg sauté pan – sauté the pancetta and garlic in some olive oil. do not burn…. Add in the asparagus and stir. Add the wine and cook until it has been almost completely absorbed. Turn to simmer.
Bring a lg pot of salted water to a rolling boil and add the spaghetti. Cook for 8 – 10 mins or until “al dente”, then drain and add to the sauté pan with the pancetta and asparagus.
– Reserve a mugful of pasta water. Add back a bit to moisten…do not leave a puddle…. stir to mix well. Toss in a handful of grated pecorino cheese and mix well.
Serve in individual warmed bowls, adorning with the asparagus flower – offering extra grated Pecorino cheese at the table for your guests. Compliment with your favorite white wine…. Nothing too fruity. I like a chilled Pinot Grigio – or now that summer is coming you can try a nice Rose! (Remember – Rose all Day!)
Enjoy!
