Things you need to know.
– Debt talks continue – Dems try to pull a ‘Hail Mary’ move.
– Algo’s got all in – sending stocks higher – the S&P and Nasdaq break out.
– Dallas’s Lori Logan calls for more rate hikes.
– Oil steady, gold a bit lower and treasury yields rise.
– Try the Swordfish – a simple yet delicious dish.
Stocks continue pushing higher, the tone has clearly seemed to change – investors are taking it all in stride… (even potential higher rates). News that the debt ceiling talks are in progress seems to be helping the tone…. (Remembering that we were never going to default – no matter what they tell you, and we still have plenty of time to strike a deal). The S&P and Nasdaq both have clearly broken out of the trading range they had been stuck in since the end of March. The others – continue to struggle with the Dow 120 pts or 0.5% below its breakout, The Russell is 12% away from breaking out while the Transports are 11% away from their breakout…. but at the end of the day yesterday, we did see stocks rally. The Dow added 115 pts or 0.3%, the S&P up 40 pts or 1%, the Nasdaq added 189 pts or 1.5%, the Russell up 10 pts or 0.6% and the Transports added 64 pts or 0.6%.
The media keeps pointing to the debt ceiling discussions – Kevy McCarthy telling us that he ‘sees a path forward’ and ‘that we are in a much better place’ and that they should be able to vote on something by next week….Janet Yellen tells us that we only have $60 billion left in the checking account but have more than $97 billion worth of payments that come due on June 1st and 2nd…..So while it appears that we are about $37 billion short – don’t worry….if they need it, they can do some ‘creative accounting’. But – expect them to emphasize those data points to try and force a deal….….Even VP Kammy jumped in yesterday (Jo Jo is in Japan at the G7) – telling us that this doesn’t have to be a crisis – Congress just needs to do their job – the implication here is – ‘just raise the ceiling and stop negotiating’ – which is not happening….
What I find so interesting is that one of the GOP demands is trying to impose work requirements on ‘single, able bodied’ Americans that are collecting benefits in the social safety net programs – yet the Dems response is NO – in fact – Ro Khanna (D:CA) screams – ‘It’s just cruel’! Cruel? To ask someone who can go to work, to go to work. Because – if they don’t go to work, they will lose the benefits and that means they won’t be able to eat (assuming they lose food stamps). Guess what? When they get hungry – they’ll reconsider the ‘no worky mentality’.
This morning it was reported that the DEMS have succeeded in getting 210 Democratic Congressmen/women to sign the discharge petition to try to bypass the GOP and Kevin McCarthy – giving them what they think is a viable option….in addition – the Democrats are urging Jo Jo to invoke the 14th amendment which would allow the President to raise the debt ceiling without congressional approval….All this only adds to the drama and raises the temperature in the room.
In any event – it is what it is…and the negotiations continue – with BOTH sides recognizing that they need to compromise…because that is how you govern in a democratic country – you compromise. Even – Chucky Schumer – Senate Majority Leader – told his colleagues to get ready to come back to DC for a potential vote next week – when the Senate is supposed to be on vacation! Vacation? Really? We’ve got a debt ceiling crisis – that we have known about for months that they have all pushed to the 11th hour and Senators think – it’s a good idea to go on VACATION? And you don’t think the swamp ‘stinks?
Ok – onto what really matters to investors and markets – interest rates, inflation and FED policy…..yesterday we saw another FED President – Dallas’s Lori Logan – who has been relatively quiet thru all of this mess – come out and say that she thinks the FED is NOT done yet and that higher rates are in order saying
‘Inflation is much too high and is not cooling fast enough to allow the FED to pause.’
…. she joins her colleagues – Loretta Mester, Neely Kashkari, Jimmy Bullard and sometimes Raffi Bostic…. (I say sometimes, because he tends to play on both sides of the fence – depending on who is asking the questions). But – that announcement did nothing to stifle buyer interest yesterday….
Now – the overall sense is that we will see a June hike and then a pause…. and there is a small group of traders that are pricing in a hike in June and then a 75 bps CUT in rates by Christmas – Let’s be clear – large asset managers and FED members are not suggesting that at all…….It is a splinter group that is suggesting that if the FED continues to raise and hold rates at ‘elevated levels’ then we can all expect the recession to be longer and deeper than it needs to be (which is why they need to cut) ….Just wait until they realize that the FED may have to raise again down the line IF inflation does NOT respond to these ‘elevated rates’.
And btw – I will say it again – soft and landing should not be used in the same sentence…. we are well beyond navigating a soft landing…. Remember – the FED needs to see a number of things happen – inflation cooling, the labor market cooling, unemployment rise and wage pressures cool….and while we have seen inflation retreat from the high of 9.4% – it appears stuck in the 5% range…Unemployment remains at historic lows at 3.4%, and increased wage demands continue to push wages higher (due to inflation) – the pilots union just the latest group to hold the industry hostage – and the labor market continues to remain resilient. So, this isn’t over by any stretch….
The other thing you need to consider is – if inflation remains stubborn – then I expect the FED to redefine what the target will be going forward – 2% will become 3% and that will make it appear less than it is…. but let’s see.
Eco data yesterday – saw initial jobless claims and cont. claims drop, while Existing Home sales fell by 3.4% which was basically in line…. there is no eco data today to drive the action….so expect more discussions surrounding the debt talks.
Longer dates Treasury yields rose on the back of that economic data. The 2 yr. is now yielding 4.23%, the 5 yr. is yielding 3.68%, the 10 yr. is yielding 3.64%. Shorter dates bills continue to pay you more than 5% on an annualized basis. 1-month bills are now yielding 5.4%, 3 & 6 months are yielding 5.29% and 5.34% respectively.
OIL is trading at $72.75….a level that does not make the Saudi’s happy….the next OPEC+ meeting is June 4th….sit tight….Do not be surprised if we hear them rattle the cage about more production cuts to ‘manage supply’ if the economy slows down too much or if oil prices do not rise. A push higher will hit resistance at $74.65. At the moment it is tough to see how oil prices will rise substantially from here…something has to change – what will it be?
Gold fell by $25 yesterday to end the day at $1,978/oz. Hopes of a debt deal and the realization that the FED is not going to cut rates anytime soon – are the reasons for the decline. We have broken down and thru the short term trendline support at $2,020 and are testing intermediate support at $1,967…. If we fail to hold here – then we could test the longer term trendline at $1,880….
This morning US futures are slightly higher…. – Dow up 18, the S&P up 4, the Nasdaq +16 and the Russell up 3. The possibility of a rate hike in June is now 35% – double what it was yesterday…..but the media is making sure to note that if we have a default on the 1st – then a hike is OFF the table….That is not happening – we are not defaulting and a hike is ON the table.
European markets are all higher…in fact the DAX (Germany) is notching new highs all around….is now up 17% ytd. ECB President Lagarde is speaking at a Brazilian Central Bank Conference – expect Europeans to be listening to what she has to say – as they try to read between the lines….
Yesterday I spoke at the Mid-Atlantic Self Storage Association Conference in National Harbor, MD. It was fascinating. And I learned so much about that industry…. Names like CUBE, LSI, NSA, EXR and PSA are all names in the space… (although EXR is buying LSI – so that will become one). These guys are printing money like crazy….storage clients never leave, (trust me, I know), they are on auto debit and the industry raised rates by about 15% y/y…on average….they are typically great dividend payers 4+% across the board….they are not labor intensive and profit margins are strong….Just saying – I’m gonna take a deeper look at the group.
DE – reported earnings this morning and they beat…$9.65 vs. $6.81!!! That is not a typo…. .Net sales in construction, forestry, small AG, Precision AG all up across the board….and forward guidance was strong……profit outlook strong as supply chain improves. The stock is up $12 or 3.3% in the pre-mkt.
The S&P closed at 4198 up 40 pts…… what is key here is that we did trade up and thru 4200 yesterday (4202) before falling back….So 4200 is now in play…..and if the mood remains buoyant then a test of the August highs – 4325 could happen quickly….A debt discussion failure and any indication that the FED is not pausing after the June hike will also cause investors to reconsider the opportunity ahead and we could see the gains of late fade. In any event – that only re-inforces my mantra – stick to the plan, do not try to pick tops and bottoms – continue to DCA (dollar cost average) on a monthly basis and re-invest your dividends until you need them as income… (If you need them as income.)
You know the deal – As a long-term investor – stick to the plan. Eliminate the noise….
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.”
Grilled Swordfish w/Spinach & Feta
If you like swordfish – you have to try this and if you’ve never eaten swordfish – you have to try this too!
This is a simple dish and should be a staple for the grill. And since it is going to be a nice weekend. …. let’s go!
For this you need: Swordfish, Spinach, Crumbled Feta cheese, butter, s&p, olive oil and fresh lemon juice.
Start with fresh swordfish steaks. Marinate in: Olive oil, S&P, fresh lemon juice – cover with saran wrap and let sit for at least 1 hour on the counter. You want it to be room temp when you put it on the grill.
In a separate pan – sauté a bag of fresh spinach in a bit of butter. Season with s&p. After it wilts down then turn off heat and set aside.
Preheat the grill on high for 10 mins…. When ready – place the swordfish steaks on the grill and sear. Leave for 4 mins or so (depending on thickness) then flip. At this point – cover each swordfish steak with the sautéed spinach. Add crumbled Feta cheese and close cover. Turn heat to the medium and leave for an additional 4 / 5 mins until done. The feta will be soft but not melted.
Arrange the swordfish steaks on a warmed serving platter and complement with a mixed green salad. Your favorite chilled white wine is the perfect complement –
Buon Appetito
