OK – NVDA is history now, Still No Deal, Oil Confused? – Try the Apple Pie and Ice Cream

Kenny PolcariUncategorized

Free Memorial Day Memory illustration and picture

Things you need to know.

–         NVDA causes all kinds of reactions and analysis.

–         Are we closer to a deal? Will it be a deal we can live with?

–         Both sides getting into position

–         Mixed messages out of OPEC – to cut or not to cut.

–         It’s Memorial Day Weekend – Try the Apple Pie & Ice Cream

**It is the Memorial Day weekend – I salute and thank every veteran out there for their courage and bravery in defending this great nation.  Find a veteran, shake their hand, hug them, and say, ‘Thank you for your service.’  They are the backbone of this country – don’t ever forget that. **

So while NVDA drove the Nasdaq +213 pts or 1.7% and the S&P higher +36 pts or 0.9% (it is a member of both indexes)….we saw weakness in the Industrials (No NVDA) -35 pts or 0.1%  and the small and mid-cap Russell (again no NVDA) -12 pts or .07%….and that is not a surprise – as it continues to suggest how the broader market remains tired….……

Now just a note – NVDA traded up 25% yesterday…(GAPPING higher) – leaving an 80 pt GAP….between the Wednesday close and the Thursday opening….a look at the chart almost looks like a mistake, but alas, it was not….so the question is – Who in their right mind would pay up 25% for the stock on that news?  Well, you have shorts who got clobbered and had to throw in the towel – so they become forced buyers, you had investors that panicked because they never got in and now they suffer from FOMO (Fear of Missing Out) and they become panicked buyers and then you have large asset managers around the country (and the world) that were underweight the name, didn’t see this coming and had to add to their position to reflect the proper weighting in their portfolio’s -they become angry buyers and then you had all the day trader types that were just flipping it around all day…. In the end, I like many others did absolutely nothing…I own it and I enjoyed the ride yesterday (loving the 25% move higher for the portfolio)….and I am happy to wait for NVDA to fill the gap before adding more….and it will fill the gap…..

We also had the ongoing drama surrounding the debt ceiling – Nothing new to report…. The drama drags on as the temperature in the room rises. At 12 pm – Reuters ran with a story that suggested we are nearing a ‘slimmed down’ deal…..to which I will say  ‘of course we are’….slimmed down essentially let’s BOTH sides claim victory (which needed to happen) and it is a fraction of the size of what really needed to happen….…… while freeing all of those clowns up for the long weekend and assuring Fitch and the other ratings agencies that the US will not default – so Fitch can withdraw their assumption of a gov’t crisis – rather they should be concerned about the gov’t CIRCUS   Now THAT is a reason to downgrade US debt! 

This morning the headlines again are telling us that while it is not done ‘we are close to a deal’ –

“Debt Deal Takes Shape to Raise Limit, Cap Spending for Two Years

– the article goes onto say that the two sides have narrowed their differences, yet the final accord is still a mystery.  It appears that defense spending would be allowed to rise by the 3% that Joey wants, it would also include money to upgrade America’s electric grid – to accommodate renewable energy (think climate control) – a Democratic want while also speeding up the permitting process for fossil fuel projects that the GOP wants. It would also cut $10 bill from the $80 bill increase for the IRS – so maybe we get 70k new agents and not the 87k they wanted…..Republicans warning of the wave of new agents that will terrorize the country while the DEMS say that this is a program that will pay for itself by identifying tax cheats!  Right – all those waiters/waitresses that make a living off of tips…. or anyone in the gig economy that transfers more than $600 /yr. via VENMO or CashApp etc.  Those are the tax cheats that will carry the burden.  Wake up!  It’s gov’t WASTE that is out of control…

But we can already see pressure from both sides as the news leaks….House Conservatives penning a letter to Kevy saying ‘hold firm’ while House Minority Leader Hakeem Jeffries tells us that putting more work requirements around federal aid (food stamps) is ‘anti-American’ and that all the GOP is trying to do is crash the economy. Let’s be honest – the GOP is asking for 20 hr./week for individuals between 19 – 50 yrs. (with no childcare requirements).  Just curious – how in the world do you connect those dots?  How would work requirements for food stamps crash the economy? How could LESS IRS agents crush the economy? Go ahead – I’m ready to listen….

Yesterday, I said this:

“We remain in the 4090/4200 trading range….and won’t break either way until we either ‘default’ (not happening) or make a deal…  The extent of any move will be determined by WHAT the deal actually is…. What kind of spending cuts will we get if we get any?

So, when we finally get the deal, whatever it is – the markets – controlled by algo’s, investors and traders will decide what they think about all the drama.  Are they happy with what we got or is it just more of the same?  My gut says that all the negotiations did nothing but create drama, angst, and trepidation…. the ceiling will get raised and we will spend more money than even we estimate today…. And then we will have to issue more bonds to cover the expense…. it’s a vicious circle….and there is now way out…… But it was entertaining while it lasted as we listened to both sides argue their position on why we need to cut and why we need to spend even more.  In the end – none of it will price stocks in the long term, but it did and will create chaos and opportunity in the short term.

Eco data yesterday revealed that Initial jobless claims fell, Cont. claims fell, and 1st qtr. GDP was revised higher….at +1.3% up from +1.1% and all that means is that traders and algo’s should recognize that the FED is not pivoting at all and while they might pause next month – the door is open to higher rates in July.  The data does not support a rate cut ….and the sooner they accept it, the better off they will be. 

Look – while the NVDA news was a surprise – it was a Wednesday night surprise – which is essentially history now….so let’s refocus on the reasons why the market will stumble……interest rates are NOT going lower, in fact, I think they go higher still, global economic growth is weakening….yesterday we learned that Germany is now in a ‘technical’ recession, full year 2023 earnings continue to be revised lower (with the exception of NVDA!) and the market is trading at 18 x’ earnings which is a bit elevated in a 6% rate environment….. Notice I said 6% rate environment because that is where I think it will ultimately go and that is what will cause the market to test lower – not a disaster by any stretch, but lower still. You know me – I’m thinking the 3800 level…. which would be an 8% move lower from here, BUT still within the normal trading band….  Mikey Wilson of MGS fame is still calling for S&P 3000 (27% down from here) while those fellas at JPM are calling for 3600 or a 13% move lower…. So, there it is…those are your choices!  LOL.

The members of congress have all left DC to make sure they get home before today – but Kevy did tell them to be ready to return on Sunday (which suggests a deal is only hours away) …. Can’t wait to see how the airlines perform this weekend…What’s the bet?  Good, bad, or Ugly?  Speaking of the airlines – investors took that sector higher yesterday – the JETS etf up 1.2% – I guess they are betting on a good outcome all while the airlines themselves are warning of ‘problems’.  In addition, almost anything tech enjoyed the company of buyers…the XLK +3.5%, SOXX +6.6%, Cyber +1%, Robotics & AI +3%.  ARKK (Disruptive Tech) fell by 2.8% – Cathie sold out of her total position in NVDA months ago…. You can bet she is kicking herself in the a*s……I guess NVDA isn’t disruptive enough!

The broader market sectors though were not so lucky…. Healthcare – 1%, Financials – 1.8%, Retail – 2%, Energy – 1.7%, Consumer Discretionary -0.4%, Coal stocks – 2.2%, Metals and Miners -0.8%, Aerospace & Defense – 0.7%, Biotech – 2.6%, Basic Materials -0.3%, even Utilities got smacked – 1.3%.

It is a big economic data day…. (But will anyone be at their desks to react?).  At 8:30 am – we will get hit with Pers Income and Pers Spending expected to be up 0.4% and 0.5% respectively. We are also getting the FED’s favored inflation gauge…the PCE (Personal consumption Expenditures) y/y and that is expected to come in at 4.3% – a touch higher than last month’s 4.2%.  (Think sticky) and Core PCE y/y of +4.6% – in line with last month…. (Again, think sticky.)  We will also get Retail Inventories of +0.2%, Durable Goods -1%, and then at 10 am – we will hear from the U of Mich sentiment survey of 58 along with 1 yr. and 5 yr. inflation expectations…. of 4.5% (sticky) and 3.1%.  So, where is the 2% target number?  8 yrs. out? 

US futures this morning are a bit weaker……not much, but the weaker…. Dow futures are down 60 pts, the S&P is down 6 pts, Nasdaq is +3 (which is interesting) while the Russell is down 5.  Expect to see volumes decline today as many exit the room ahead of the long weekend.

Treasury yields across the board rose yesterday as the debt deal drags on…. the shorter end of the curve reacting the most as they would be the first ones at risk…. – T bills maturing on June 8th are yielding 6.48%, June 13th 5.9%, June 27th 5.4%.  You see the yield drops a bit as we move out because the assumption is that we will get A deal.  Bills maturing in early July are yielding 4.4%. …. ….as the for the 2 & 10’s, they are yielding 4.5% and 3.79%….

Oil is steady this morning – trading at $72.30.  Investors trying to handicap OPEC+’s next move…. We got conflicting messages out of the group – The Saudi’s saying, ‘watch out’ (threatening more production cuts) while the Russians say, ‘not so fast.’  In fact – Vlad came out to say that ‘energy prices are approaching economically justified levels’ suggesting that he is not likely to vote for further production cuts….

In addition, a stronger dollar is helping to hold the line while renewed expectations of weaker global demand is putting some pressure on the asset.  Think the latest German eco data that puts the country into a ‘technical recession’…. along with ongoing concerns about the China rebound.  New cases of a new covid variant (XBB1.5) are becoming a bit of a concern for the global economy as China could at any moment ‘shut the place down (again)’ to deal with any outbreak. Whatever….

Gold fell by $25 dollars yesterday on the overwhelming expectation of a debt deal……along with the realization that the FED will remain hawkish….and that will cause the dollar to rally putting pressure on Gold.  This morning – gold is up $10 at $1970/oz.  Now, I thought that the trendline at $1972 was going to hold, but it did not….which now puts us in the $1880 (long term support) and $2000 range…..Yesterday I said that we would not see a break either way until we get clarity on the debt talks as well as clarity on the FED’s next move and it appears that we are getting both….a done deal (although not the one that we expected) and a more aggressive FED – again, not what the mkt had priced in….

European markets are lower.  At 6:30 am – we see markets across the continent all down between 0.1% – 0.6%.  

The S&P closed at 4151 – up 36 pts. The trendline support is at 4090, as predicted the NVDA report sent both the S&P and Nasdaq higher yesterday…. that euphoria will soon wear off….and investors will focus on the broader economy.  We remain in the 4090/4200 trading range.  When we get the deal – the market will react –   The extent of any move will be determined by WHAT the deal actually is…. What kind of spending cuts will we get and will the Senate pass this onto Joey’s desk?    

In any event – stick to the plan – step away today…., do not make emotional decisions…. this too shall pass…. know what you own and why you own it…. 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.) and eliminate the noise.

Take good care.

Chief Market Strategist

“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.”

Homemade Apple Pie & Vanilla Ice Cream

It’s Memorial Day weekend…. Enjoy desert!

For you this you need – one box of the Pillsbury pie crust (yeah – it’s just easier), 6 cups thinly sliced, peeled golden delicious apples, 3/4 cup of sugar, 2 tablespoons of all-purpose flour, 1/4 tsp of salt, 1/8 tsp of nutmeg, 3/4 tsp of cinnamon and 1 tblspn of fresh lemon juice.

Heat oven to 425°F.

In large bowl, mix the apples, cinnamon, nutmeg, salt, flour and sugar and lemon juice.  Set it aside.

Unroll one of the crusts and place in an ungreased 9-inch glass pie plate. Pressing firmly against the side and bottom – no air bubbles.

Now – spoon onto the crust-lined pie plate.  Unroll the second crust and top the pie – wrapping the excess top crust under bottom crust edge, pressing edges together to seal.  Cut slits in several places in top crust.

Bake 40 to 45 minutes or until the crust is golden brown.  Remove and let cool at least 2 hours before serving.  Make sure to have enough vanilla ice cream to go around. 

Buon Appetito