Things you need to know.
– It was all about Jamie and his takeover of FRC.
– Janet Yellen warns of another ‘crisis’ if we don’t get an increase in the debt ceiling (Yawn….)
– Joey – invites both sides to the WH to discuss.
– FOMC starts today – details tomorrow.
– Try the Cavatappi with Arugula and Beans
Jamie Dimon ‘wins’ (again) – JPM takes First Republic off the hands of the gov’t after winning the weekend auction….….and appears to have contained the regional banking crisis that has been an issue for investors and the markets since the collapse of SVB. Investors celebrated – taking JPM up 2.1%…. Jamie’s winning bid takes all of the deposits and a ‘substantial majority of the assets too” – making JPM the nation’s biggest bank…. Look they had $3.67 trillion in assets BEFORE the FRC takeover…. Yesterday they got another $92 billion in deposits, $173 billion in loans and $30 billion more in securities…. Jamie telling us on his conference call that
“There are only so many banks that were offsides this way. They may be another smaller one, but the pretty much resolves them all: this part of the crisis is over.”
So, I guess we’re gonna see about that….
Eco data on Monday showed that S&P US Manufacturing PMI came in at 50.2 vs. the expected 50.4 but still remains in expansion territory. ISM Manufacturing PMI came in at 47.1 vs. 46.8 and that shows contraction territory…. a bit confusing, yes, but this way everyone gets something. Construction Spending was up 0.3% vs. the expectation of +0.1%. In the end – the eco data was not out of line vs. the estimates so none of this contributed to the days moves.
In the end, it was a boring day…. – the Dow gave back 46 pts, the S&P lost 1, the Nasdaq gave back 14, the Russell was flat, and the Transports rose 141 pts or 1%
50% of the earnings yesterday – disappointed – missed the estimates – yet none of them were any of the names that would drive the broader market…and so investors/traders and algo’s paid it no attention… So, the news machine resurrected the debt ceiling ‘crisis’…. making sure to get Treasury Secretary Janet Yellen to come out fighting…telling us all that a disaster was brewing…. the headline says it all….
“Treasury Secretary Chief Janet Yellen Tells US Risks Default as Soon as June 1 Without Debt Ceiling Increase”
Making sure to tell us we will be unable to pay our bills on time as of June 1st IF congress doesn’t’ first raise the debt limit before she backtracked and said she was still uncertain, and that the treasury could ‘ultimately be able to pay the nation’s bill for several weeks beyond early June’. She backs up her flip flop by saying that the treasury tends to be ‘conservative’ when communicating a possible default. And again – let’s make this perfectly clear…. The US is not defaulting on its debt – that is NOT happening…. now, will they shut parts of the gov’t down? Sure, but shutting down parts of the gov’t is NOT a default…..….So they will close the parks, they will furlough gov’t workers, they will make sure to let us know that the IRS will suffer under a shutdown so anyone expecting a tax refund will just have to wait…I mean it will be all very dramatic….but in the end none of it will cause a long term disruption to stocks…..None of it….They will use it as an excuse – coupled with the ongoing rate hikes and boom….there is the story.
Speaking of hikes – the FOMC meeting begins today and ends tomorrow…. the results by now are known…. rates are going to rise by 25 bps…. Period. And then the press conference takes place, where all of these ‘reporters will try to pin him down on what’s next. If he sounds ‘hawkish’ at all – meaning he is leaving the door open to another hike in June, then I would expect the market to back off, and if he suggests that they are done (for now) I would expect the market to take off…. something I am not expecting. Also, expect to hear some of them to ask when rates are going to get CUT – something I think makes no sense at all, but you know that.
In the end – I don’t expect to learn anything new…..rates are going up and the FED will remain data dependent….which leans a little bit hawkish – because we all know that inflation is not coming down at the pace JJ wants…it remains sticky….and we got confirmation of that last week, when we got the PCE report…..and next week brings us the April CPI report and m/m is expected to be up vs. last month, while y/y is expected to be +5%. And when you take out Food and Energy – inflation is still expected to be +5.4% – 3.4% above the target rate.
Tomorrow’s hike will take the terminal rate to 5%-5.25% – still below the inflation rate, a hike in June would take the terminal rate to 5.25% – 5.5% – a level that matches / exceeds the inflation rate and that is where the FED needs to be. And then they pause…. not pivot or cut, just pause….and unless inflation plunges and unemployment surges, I don’t see how they can justify cutting rates later in the year…. Now, 2024? Sure, It’s an election year…. that would not be a surprise at all.
Other than the banks yesterday – nothing else really stood out at all….and even that was not dramatic.
This morning oil is trading up 16 cts at $75.82 – just below the trendline….and gold is trading at $1990…. Nothing to see here.
Treasuries remain inverted – as if you thought that was gonna change – the 2 yr. is yielding 4.13%, the 10 yr. is yielding 3.55% while the 3 and 6 months are yielding 5.22% and 5.11% respectively. 12-month CDs at the bank will give you 5+%.
US Futures a just a bit lower this morning – but it’s only midnight in the US – (I’m in Greece and it’s 5:30 am), So, so much can happen. Eco data includes Factory Orders, Durable Goods Orders and the JOLTS Report – which is expected to show only 9,736k jobs available…and I say only because 2 months ago – that number was closer to 11 million…
Expect lots of ongoing chatter about what the FED is expected to do tomorrow and then next month as the markets try to figure it out. Also expect to hear more about the coming debt ceiling debacle…but word has it that Joey has invited both Republicans and Democrats to the WH next week to discuss…. which is news, because last week he said that there was nothing to discuss…. he expected a clean raise with no handcuffs…I guess that’s about to change….
The S&P closed at 4167 down 1 pt…. I’ve been saying that it feels tried to me…and I think we top out here. A pullback will find support at the trendline – 4033 which is only a 3% move down from here….
Remember – stay the course….be patient…. we remain in the 4000/4200 trading range. A move down to 4000 would only be a 4% move lower…. hardly anything to write home about….and a move to 3800 – the March lows – is only an 8% lower…. both moves well within what is considered a normal trading pattern….and both levels that would offer long term investors new 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.”
Cavatappi with Arugula and Beans
Cavatappi is a kind of macaroni that looks like a spiral tube. You may know it as tortiglione or spirali. The word Cavatappi is a combination of Cava & Tappi – whose literal translation means “tap extractor” or corkscrew. Capisce?
This is a vegetarian dish that is easy and quick to make.
Bring a large pot of salted water to a boil. Add the Cavatappi and cook until aldente – 8 / 10 mins.
While the water is heating up – grab a large sauté pan – heat up some olive oil, crushed garlic and a sliced/chopped “red” onion. Sauté until the onion is soft and translucent. Now add a can of cannelloni beans – juice and all and stir to heat up…about 4 mins or so. Now add the arugula and stir. Arugula will wilt – no worries. Drain the pasta – saving a mugful of the pasta water…. return pasta to pot.
Next add beans and arugula – handful of Parmegiana cheese and toss. If it appears to be too ‘dry’ add back some of the pasta water to moisten…. Serve immediately in warmed bowls with freshly toasted garlic bread.
Buon Appetito
