Things you need to know.
– Did we hit a top? Markets decline? What?
– Apple introduces its latest ‘game changer,’ but is it?
– The Saudi move did little to send oil higher for more than 10 hours, what now?
– Black Swan anyone?
– Try the Mussels Posillipo
–
** NO note tomorrow – I will be in NYC appearing with Maria Bartiromo on Mornings With Maria from 6 – 9 am on the Fox Business Network**
So, what about that follow on rally? What happened to all the excitement from Friday? At the end of the day – the Dow gave up 200 pts or 0.6%, the S&P lost 9 or 0.2%, the Nasdaq lost 11 pts or 0.1%, the Russell lost 25 pts or 1.3% while the Transports gave up 160 pts or 1.1%.
Well, the banks came under pressure after it was revealed that regulators are thinking about increasing capital requirements for large banks…The XLF lost 0.5%, the KBE (S&P Bank ETF) fell by 2.2% while the big boys all lost ground as well. GS & BAC down 0.6%, JPM -1%, MGS -0.7%, C -0.2%.
Tech, which has been leading the way, came under some pressure, not a lot, but some….and that took the wind out of the sails – XLK down 0.5%, SOXX – 1.55%.
Then – Apple – introduced a new virtual reality product at the Worldwide Developers Conference (WWDC)– a mixed reality headset – that retails for $3499 causing the once optimistic analysts to acknowledge that the price point would limit who could (would) buy it at least in the near term.
Now look, the buzz has been building around what Timmy (CEO) would announce at this event….everyone speculating on what it was going to be – and then he introduced it – the AR/VR (Augmented Reality/Virtual Reality) headset that will once again ‘change the world’ as well as isolating people more and more (I mean think about it – the iPhone takes you out of the conversation, the iPod takes you out of the conversation, the App Store with all its apps TAKES you out of the conversation and this too will eventually take you even further into virtual reality which will take you out of the conversation) ….and why do we need this? I mean, what he didn’t tell us was WHY we need it? He did say that we will no longer have to say, ‘Hey Siri!” (What a relief that is!) and for a moment – that news sent the stock to hit an all-time high of $184.95/share a gain of 2+% ….that was until he also announced that the new headset would not come to market until early 2024….never mind the price tag associated with it and by the end of the day Apple fell by 0.75% or $1.37/sh to end the day at $179.58/sh. Expect to hear more about this product today, tomorrow and the day after that. I guess we have to wait now to see what the developers develop for this product that will make it a ‘must have’. Just FYI – Apple is lower again this morning – down 0.4% in the pre-mkt….
Energy which had gotten a boost over the weekend – after the Saudi’s volunteered to cut their production by 1 mil/day beginning in July and extending out through December 2024 IF necessary – also failed to stay higher…. erasing most of the early morning gains it enjoyed. Fan favorites – XOM and CVX both ended the day lower after racing higher out of the gate. The broader S&P Energy ETF – XLE also ended the day down by 0.6% as oil weakened throughout the day. Some suggesting that the Saudi announcement did little to stop the bleed….and that supply will outstrip demand as other suppliers bring oil to market forcing prices lower and that any global slowdown will only exacerbate the demand/supply imbalance.
Look, the Saudi budget breakeven is $80/barrel to support their lifestyles….Which is why whenever the price of oil strays too far from $80 – they go on a magic carpet ride flying off to Vienna where they attempt to control the group (OPEC+) and by default attempt to control oil prices.
By all accounts – the market doesn’t think they succeeded (at least for yesterday) because not one of the other members stepped forward to also cut production – leaving the Kingdom going it alone while the media jumped on board warning of a global economic slowdown. One analyst in Germany saying that “Oil prices are still in a bear market, and we can see that some advanced economies have already started to fall into recession such as Germany.” Traders are also awaiting Friday’s CPI, PPI, and trade data for China (world’s 2nd largest consumer) along with next week’s FED decision – all of it will serve as indicators of future demand.
Oil ended the day at $71.91 – after trading as high as $75.03 overnight Sunday into Monday and this morning WTI is lower again – down $1.63 or 2.3% – taking it right back to $70.50/barrel well below all 3 trendlines – that are all about to converge at the $74 level which suggests significant resistance. A few more days of oil teasing the $70 level will force the Saudis to reconsider their next move and there will be a ‘next move’.
And then we got a slew of US economic data…and while both PMIs remain in expansionary territory (anything better than 50) – the ISM Services PMI fell to 50.2 – when it was expected to be 52.4. Leaving it right on the edge of expansion vs. contraction. The S&P Services PMI – came in at 54.9 – which is a bit stronger, but still below the estimate of 55.1 and that should have been an all clear sign that the FED is succeeding in taming inflation….(weakening services sector) which will give the FED cover to ‘skip’ a hike next week. But once again, the numbers make no sense…. Last week – we created an enormous number of jobs – mostly in the services sector – leaving many to ask – How can services PMI be weaker if job growth in that sector was so strong? It’s a conundrum!
Look the rally that we have all seen over the past 3 weeks has been about megatech, AI, skipping, pausing or even pivoting on rates, relief that the regional banks have not imploded and the relief created after the clowns in DC that held the debt ceiling over our heads finally reached a deal……and while that is all true, let’s not kid ourselves…..it ain’t all a bed of roses……There is still the possibility that the FED will resume hiking in July…and any cuts that the market expected in the fall are not happening. CRE (Commercial Real Estate) loan concerns haven’t gone away (have they?), consumer credit is at an all-time high – suggesting that consumers are living on borrowed credit and time…wages are falling, not keeping up with inflation which is still running at near 5%…and Mikey Wilson (MGS) tells us that profits are going to decline by 16% and that the S&P will test 3000 before this is over all while hedge funds have made a very large bet that the S&P will decline (just because it can’t go higher!). Yet, the market continues to march upwards…… It’s illogical unless no one believes all of those negatives will come true as the ‘Fear of Missing Out’ (FOMO) is stronger than the ‘Fear of Being In’ (FOBI).
The VIX (fear index) keeps trading lower and lower – it ended the day at 14.93 – the last time it traded this low was in June of 2021 and before that in the fall of 2019.…suggesting real complacency – and that is a problem….because everyone is just too relaxed…..there is this sense that nothing can go wrong…that the sun will shine and the rain won’t come…..Let me remind you – That is also NOT happening. At this point – all we need is one unexpected event to ignite the fuse that will set it all in motion… a ‘black swan’ that is lurking in the dark. Remember – a black swan is ‘an unpredictable event that is beyond what is normally expected, having the potential to cause severe consequences.
The pandemic and global shutdown is just the latest such event. So, will it be a China invasion of Taiwan? Will it be China challenging the US? Will it be a Harris Presidency if something happens to Joey? Will it be Vlad threatening even more destruction of Ukraine via nuclear warheads bringing the world into WWIII? This morning we learn that ‘someone’ blew up a hydro-electric dam in the Russian Occupied Ukraine causing all kinds of flooding on farm land across that country (never mind the potential damage to Europe’s largest nuclear power plant) and that will surely impact the cost of wheat and corn (Ukraine is the bread basket for Europe and much of the world) and we can already see the commodities markets react –Corn is up 1.5%, Wheat up 3.3%. I say someone because it is unclear whether it was Vlad or Volod who blew it up….as both sides blame the other.
This morning – US futures are down…. The Dow is down 50 pts, the S&P down 5, the Nasdaq is down 8 and the Russell is down 2. Now we can easily explain this as a move to digest the recent rally…You can also explain it away by calling out the weakness in Apple – look, it’s a $3 trillion company – so any move (up or down) will have an impact on the Dow, S&P and Nasdaq (as it is a member of all 3 indexes). It’s the tail that wags the dog. And you can also explain it away as the market is overbought – now trading at 19 X’s estimated earnings. (19 x $224 = 4273) all while interest rates are approaching 5.5% on their way to 6%?
European markets are all lower as well. The UK is -.2%, CAC 40 -0.2%, DAX -0.1%, EUROSTOXX -0.3%, SPAIN -0.3% and ITALY -0.4%. Christine Lagarde hints at higher rates, overnight the RBA (Reserve Bank of Australia) surprised markets and raised rates. German manufacturing fell by 0.4% vs. the expected increase of 0.3%. New Industrial Orders down 9.9% vs. last year and a decline in energy prices is weighing on that sector as well.
Gold – bounced higher yesterday and is up again this morning…trading at $1,978/oz. It is the idea that we discussed…. If the FED skips – then the dollar should back off a bit and that will help support gold. Also, negative global geo-political events will force a move into the safety of gold. At the moment – the trendlines are defining the trading channel with support at $1975 and resistance at $2.020.
The S&P closed at 4273, down 8 pts. Could this be the start of that pullback I have been referring to? Well, we don’t know that yet, but it could be. Are you ready? Get that shopping list together, add to names you own that become arbitrarily dislocated or stick to the plan and keep DCA (dollar cost averaging) into it. If you are nervous about a decline – position yourself with some of the contra trades that offer that exact protection…. the SH, PSQ, DOG even the VIXY. Just FYI – None of these are meant to be long term, they are meant to offer short term protection – they do not buy it and forget it investments, so make sure you stay on top of whatever you buy (or sell). I for one am adding new money to sectors that have become underweight in my portfolio think financials, energy, & healthcare and if TECH suddenly becomes attractive, I’ll add to that too! (But that is not happening right now!)
We remain in the 4130/4290 trading range…but remember – a move down to 3850 would represent a 9% pullback – well within what is considered a normal trading range in a normal trading pattern.
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.”
Mussels Posillipo
This is an easy recipe that you can use for both clams or mussels – is great on its own or over linguine.
You need: Mussels….2 doz… thoroughly washed off any sand. White wine, Clam juice, garlic, onions, olive oil, s&p, 1- 28 oz can have imported Italian Plum tomatoes – (Not in Puree), Fresh Basil
In a pot – heat the olive oil and sauté the garlic – until lightly browned – do not burn. Add in the sliced onion and sauté until translucent.
Add 1 1/2 c of dry white wine – nothing fruity – stir and let come to a boil – after about 2 mins…rough crush the tomatoes and add to pot with the juice.
(When you rough crush – you literally crush them in your hand – over a bowl to catch the juice. – you can also use the blender – but do it quick – do not puree) Add enough of the tomatoes to give it some substance and color – you do not need to add the whole can if you are not serving it over linguine.
Add the small bottle of clam juice and fresh basil leaves. Season with s&p. Turn heat down to simmer and cook for about 15 mins or so. Now add the mussels to the pot and cover tightly. Cook until the shells open – should be maybe 8 to 10 mins more…. Discard any mussel that refuses to open.
Present this dish in a large bowl with the mussels bathing in the Posillipo sauce. This dish demands toasted garlic bread to dip in the sauce while you enjoy the mussels…
Buon Appetito
