Things you need to know.
– Did the rally fizzle? Not yet….
– US banks pass phase one of the stress tests
– JJ, Lagarde and Bailey all promise to push rates higher.
– All the while FED economists warn of a coming disaster.
– Joey takes to the campaign trail and tells us – “Ignore lower wages and higher prices – you’re doing just fine!”
– Try the Short Rib Burgers for the long holiday weekend.
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And the confusion continues….Stocks struggled for direction – just one day after they surged higher – in a blistering rally that took Airlines, Hotels, Cruise Lines, AI, Cybersecurity, Semi’s, Home Builders etc.….all higher – with some stocks up 3, 4 & 8 percent in what felt like another FOMO trade as the buying seemed anxious as if there would never be another down day on Wall St. (And we know that isn’t true…). In addition – investors were mulling around – waiting for news about the results of the first round of stress tests on the banking industry (they all passed and that isn’t’ a surprise – more below) – while JJ was in Portugal attending the European version of the August Jackson Hole FED boondoggle…..There he told the roaring crowd that investors in the US and around the world SHOULD expect at least TWO more rate hikes by the FED before we hit the terminal rate. It should be noted that ECB Pres Christine Lagarde and UK BoE Governor Andy Baily also vowed to push on.
He said that he doesn’t see US core inflation returning to the 2% target until sometime in 2025! (That’s not a typo…. he said 2025….18 – 24 more months of this). He then left Portugal and went onto Madrid and reiterated those comments….and if you are surprised…you shouldn’t be…. recall that when JJ had his press conference 2 weeks ago post the FOMC meeting he said it there as well. I pointed it out…. When he referred to guidance he used the plural form of hike – he said hikes – with an S. That means more than 1…. So, did he really say anything new? Nah…. not for me….
At the end of the day – we saw the Dow lose 75 pts, the S&P lose 2, the Nasdaq added 36 pts the Russell added 9 and the Transports added 120 pts.
We are now less than 48 hrs. away from the end of the qtr.….and the clock is ticking….so asset managers – as expected – are doing the end of qtr. dance…. where they scramble to adjust their portfolios for the qtr. end marking period. Expect more dancing today….
News yesterday morning that the Biden’s may restrict the export of semiconductor AI chips to China – and do you know why? Because 70% of the technology that was in ‘the balloon’ was American technology. Essentially, we allowed Xi Xi to spy on us using our own technology! That announcement caused near panic (among the trader types and the algo’s) in the pre-mkt……Many asking – OMG what’s gonna happen with Nvidia? (that’s a very crowded traded). CFO Colette Kress warning the administration and investors that if the latest regulatory controls prevent Nvidia from selling chips to China – the ‘consequences could be severe’. She went onto say that it ‘will result in the permanent loss of opportunities for the US to compete and lead in one of the world’s largest markets. Oh boy, that doesn’t sound good, but it also sounds a bit hysterical…. I’m not sure I’m buying it, but it makes for dramatic conversation.
In any event -the stock did open 12 pts lower but it recovered some of that loss, ending the day down $7 at $411….Hardly the disaster that so many were afraid of…..but the news did cause AMD, INTC, AVGO and CSCO – all names in the semi space to trade lower… I only hope that they continue to go lower….so I can buy some more….
And then there was the whole Bank Stress Test decision that hung over that sector as we all waited for the results….and that put the focus squarely on the big boys….think JPM, C, BAC, GS, WFC as well as the super regionals and while banks stocks – represented by KBW and the XLF have been underperforming the broader market this year – much of that can be blamed on the failure of SVB which then caused systemwide panic (for at least a couple of weeks….) that forced the FED and the Treasury to backstop EVERY single bank depositor REGARDLESS of size at any bank in the country….….
Now while that wasn’t the headline, it WAS the headline…It was the only way to stop the panic – panic created by the likes of Petey Thiel, Davey Sacks, Jason Calacanis along with a handful of others… Very successful VC guys that have made billions in transaction value and who had MILLIONS and MILLIONS of dollars at SVB and guys that brought this on themselves.
Now don’t forget the role that Mary Daly and the San Fran FED played in all of this – in short – they FAILED. They were the regulator and they FAILED and FAILED spectacularly…. forcing Mary to go into hiding….and I’m not sure that she has shown her face since…. I don’t think so, but whatever. In the end yesterday’s tests are just the first of three regulatory ‘waves’ that hang over the sector. The next two will wash over us during the summer….so expect to hear more…but in the end – No one expected any US bank to fail, and none did – Let’s see what happens when we institute additional ‘regulatory oversight’ in the wake of the San Fran Fed Failure later this summer.
US futures this morning are trending higher….…Dow futures +90, S&P’s +12, The Nasdaq +60 and the Russell is +7. Investors and Traders apparently looking past the latest FED comments to keep raising rates further from here. That makes little to no sense to me…. not that I think the market is going to crash, but because it says to me that investors do not believe what JJ is saying…. Not sure how much clearer he needs to be…. Although – yesterday we got a published report by the FED – two economists on the inside released a report that headlined with this:
“The FED Thinks Catastrophe is Coming for US Businesses” (Note the headline – THE FED THINKS… and CATASTROPHE) It goes onto say that these 2 economists are ringing the bell on the ‘historic percentage of distressed US companies. Apparently 37% of US firms are in ‘major trouble’ which will worsen as the FED hikes even more…. Saying that employment and economic activity could take a significant hit.’ Really? We got JJ saying that we’re not done yet and then we have insiders at the FED telling us that the sh*t is about to hit the fan…. It makes no sense to me….it looks like the left hand doesn’t know what the right hand is doing…. Now that’s comical…. you know why? Because its true…Seems a bit ridiculous to me that on the same day – there are two very different stories coming out of the FED….
After the bell – we heard from MU – and they posted better results – citing ‘industry demand for AI’……and that industry glut that had been weighing on the sector is easing…..even as the industry faces challenges with China….MU is quoted up 3% in the pre-mkt and that is causing more excitement…. In addition – Apple is just $1.48 away from becoming a $3 trillion company….so if for no other reason – expect traders to take it there….it’s almost like a badge of honor for the one that causes it to tick at $190.73 even if it collapses after that…someone gets to say – “It was me!”. It is quoted up 50 cts this morning…. I say it happens before 9:33….
Oil is doing nothing – trading at $69.80…. Gold keeps threatening to test trendline support at $1895 all while the dollar index inches up ever so slowly…this morning it is trading at 102.93….
Treasuries doing the same…. nothing…. they continue to yield what they have been yielding…. the 2 yr. – 4.7%, the 10 yr. at 3.75% while the shorter duration bills are still yielding 5.3% and 5.4%.
European markets are mostly higher…the UK is the only one that is negative – down 0.2%…. all the others are up ~ 0.4%.
And then we have Joey going around the country selling his Bidenomics Plan as the savior for America’s economy…. telling us that he is gonna grow the economy from the middle out and the bottom up – NOT from the top down…. He is trying to tell you that ‘You’re doing great! Ignore the fact that we’ve had 24 months of lower wages and 2 yrs. of runaway inflation, never mind what is happening at the border and around the country…. Major US cities under assault…. But don’t worry – you’re doing great. Vote for me….
The S&P ended the day at 4376 – down 2 pts…….…. and this morning it appears as if there is more excitement…futures are up…my gut says that once Apple hits $190.73 the excitement will fade…… but maybe not…. Let’s see. Resistance is right here at 4400…. while real trendline support is down at 4215…. Expect to see the long weekend begin…. People want to get on the road and get out….
Stick to the plan…Do not make emotional decisions. Give me a buzz if you want to discuss your plan or put a plan together for you.
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.”
Short Rib Burgers
These are crazy good…. They are a bit of work – but if you have the time and you really want to impress – go for it.
Refer back to the Short Rib recipe below. Make 1/2 dozen ribs – the night before……cool and then shred the meat off of the bone…. Now when ready…. bring the shredded meat to room temp and then mix the cooked short rib meat with the ground chuck (now use real ground chuck – not lean hamburger meat…you want it to have the fat for flavor) season with s&p and form the burgers. Light the grill and let it get nice and hot and cook. Top with sautéed onions and Monterey jack to complete this burger.
While this is cooking – butter the Brioche buns and toast either on the grill or in a frying pan……Then place the cooked burger on your bun – with fresh lettuce and the sautéed onions. Mayo and Ketchup on the side. Outstanding.
Braised Short Ribs
Begin with 6 / 8 beef short ribs. season with s&p and then brown in a frying pan with a bit of Olive oil. Make sure to brown all sides, being careful not to burn the meat. After you have browned them – place them in a large/deep baking pan. Lining them up on their sides.
Next – large Chop – 2 lg White Spanish Onions, 1 bunch of celery stalk, 1 bag of carrots. Smash 4 /5 cloves of garlic and add to the meat – making sure you disperse the garlic all around. Next add the chopped veggies right on top.
In the frying pan that you used to brown the meat – add: 1 can beef broth, 1 can tomato paste, and 1/4 to 1/2 bottle of red wine. mix well and let the broth come to a boil for a couple of mins as you steam away some of the alcohol in the wine. Bathe the short ribs in this mixture and cover tightly. Place the baking dish in the oven – preheated to 350 degrees. Let cook for 4 hours – tightly covered.
The presentation: Remove the baking dish from the oven. Puree 1/2 the veggies into the food processor. On a warmed serving platter – pour the pureed veggies down the center of the platter. Arrange the short ribs on top of the pureed veggies and then place the balance of the cooked veggies around the meat.
Complement this meal with oven roasted red new potatoes. – Rinse the potatoes – toss in baking dish…. season with s&p, add a bit of olive oil to coat the potatoes. mix well. Prior to putting it in oven – add 1/2 stick of butter – cut into pieces and strategically place around the potatoes. Cover and roast at 400 degrees for 40 mins. Remove cover and lower heat to 350 degrees and roast for another 15 mins or so – …. check for doneness by piercing with a fork.
Buon Appetito
