Things you need to know.
– Are stocks ready to pull back?
– Lots of FED speak this week – JJ on Capitol Hill
– Will it be 1, 2 or 3 more hikes?
– Quarter End is only 10 trading days away…expect lots of reallocation.
– Try the Greek Style Shrimp on a bed of Fennel and Feta
Good morning…. So, stocks ended the week higher, but ended the day lower on Friday as new concerns cause investors some anxiety….……the Dow ended the day down 108 pts, the S&P’s down 16, the Nasdaq down 94, the Russell down 14 and the Transports lost 76 pts.
Yes, the FED skipped on rate increase last week, but made it clear that investors should not expect a halt or a decline in rates anytime soon…..in fact, he made it clear that he and a majority of the FOMC members expect rates to continue to rise in the month(s) ahead…..note the plural form….Months vs. Month….which then means he (they) expect more than one rate increase over the summer into the fall…remember – there is one FED meeting in July – then nothing in August – so the next one would be end of September….which takes us into the Fall…..So, for all of those traders that were pricing in a rate decrease in the Fall – think again. In the end – JJ projected that rates would move ‘higher than previously expected in response to surprisingly persistent price pressures and labor market strength. So, put that 6% terminal rate back on the table….
Then on Friday our friends at Goldy came out with a report that said “Markets are too optimistic on the pace of US inflation drop” – In this report – they pointed that inflation will NOT come down as quickly as investors and the markets are expecting…and that speaks directly to maybe why JJ made it clear that while they skipped – they are not done. The report went onto say that investors are not pricing in the potential of ‘Delayed-Onset Inflation’….highlighting the risk in the Healthcare industry for one….– recall what happened to UNH -7% last week and HUM -13% last week…..both warning about the higher costs associated with pandemic delayed procedures….and that caused the algo’s to go berserk….pummeling both of those names.
On the other hand – we heard from Tommy Lee – Fundstrat’s Head of Research – who also has an opinion about where the market is going….and he is much more bullish….saying that ‘the inflation war will end when the ‘collective public believes’ it over…..and in his mind that is ‘sometime in 2023. And while I agree that it will be over when ‘we’ believe it to be over, I’m not sure that many believe that it is anywhere near the end. I mean – have you been to the grocery store lately? Have you gone out to dinner? Have you bought a plane ticket? Have you paid an electricity bill? Have you tried to do any renovation work? In fact – has anything that affects your daily life gone down in price? Hardly…. but I suppose if they keep telling us that it’s improving then it must be improving….and current prices will become the norm….and over time – it will be what it will be.
In any event – the recession that we all have been bracing for remains elusive…..even as the FED has raised rates by 500 bps….and last week – the rally really start to broaden out….We saw strength in Industrials, Financials, Basic Materials, Utilities and Healthcare – even with the UNH and HUM weakness and that suggests that investors and the markets think we are avoiding a deep, long recession. Now – remember – it is also the end of the quarter…. we have 2 weeks until June 30th…and so consider the idea that many asset managers need to rebalance their portfolio’s – which means they will trim the highflyers (think what? Tech) and reallocate that money into those under performing sectors that we have been talking about and that they don’t have enough of – interestingly enough was the strength we saw in cruise lines and airlines last week….both sectors up nicely….and that too suggests that no matter the higher cost – people plan on travelling….which then suggests that people are not feeling financially stressed – even as the cost of money goes higher…..and in addition to the sectors up above – think about the SMIDS – small and mid-cap value and growth names – that you can access via – IJJ and IJT – both up considerably (9%) over the past couple of weeks….,In addition – think of those coal/energy names that were last year’s high flyers that have so underperformed this year…..names like AMR, BTU, CRK, ARCH….etc. They too have had a good couple of weeks.
Eco data today is all about housing…. Housing Starts are expected to be lower by 0.1% and Building Permits are expected to up by 0.6%…. We are also due to get the Philly Fed Non-Manufacturing Survey (think Services) – and last month it was down 16 pts….
Remember – both investors and asset managers are caught between FOMO (Fear of Missing Out) and FOBI (Fear of Being In) …. Many now asking has this rally run too far to fast or is there more to go? Should I get in or should I wait? So, here’s the answer – you should never have gotten out….All you should do is tweak the balance of your portfolio….not tear it apart – unless of course you own junk….then Yes, you have to get out and start over…..But if you follow directions – you should not be one of those people that is scrambling to get in. Remember – investing is dynamic not static which means you – as an investor need to be dynamic as well.
This morning we see more weakness in the markets…. Dow futures -130 pts, the S&P’s down 18, the Nasdaq down 75 and the Russell down 9…. JJ is due to appear on Capitol Hill both on Wednesday and Thursday in his semi-annual report to congress. In addition – we will hear from NY Fed President Johnny Williams and Fed Vice Chair (for Supervision) Mikey Barr in NYC today as they appear at a corporate governance event. St Louis’s Jimmy Bullard is also speaking today…. So, expect all kinds of interpretations.
Oil fell on Monday but is trading up 30 cts this morning at $72.10/barrel….now this is up from $67 last week…..and why now….because China is buying record amounts of Russian Crude – taking advantage of ‘cheaper’ Russian prices ($60)….and that suggests that DEMAND in China is strong contrary to what they want us to believe and if Xi Xi can buy cheap Russian oil he will….. In addition – the summer upswing has begun…. A look at the global jet fuel demand is set to keep rising as the summer travel season heats up…Implied jet fuel demand is set to rise by 1.6% w/w to 6.54 million bpd – most of the demand coming from Asia, the Eurozone and North America. And gasoline inventories – those are expected to decline as demand rises during the July/August summer driving season. In any event – we remain below the trendline of $73.54 – but I expect us to test it in the days ahead. But I will say – I can no longer see how oil will hit $100 barrel this year….and stay there…. I suspect that the mid $80’s will be about it…
Gold remains erratic – this morning it is down $8 at $1963/oz. This as investors try to handicap the next Fed move and what that means for the US dollar. Higher rates will cause the dollar to rally and that is a negative for the commodity complex as a whole…. Including Oil (but oil is different from Gold – we need oil and energy every day to make the world go round) …. Gold is once again below the trendline at $1975……as it struggles to move up. My sense is that it will churn right here – Gold bugs will be listening to what JJ says on Capitol Hill this week as they try to read between the lines….and price in what the new terminal rate might be….Is 6% now the default and if so that suggests 3 more hikes… and that would suggest that gold has more downside…….But let’s see.
European markets are a bit weaker…. UK inflation data is due out on Wednesday and a monetary announcement by the BoE on Thursday. Expectations are for the BoE to move by 25 bps. Remember – European markets are all up double digits – except the UK which is flat on the year.
This morning – treasury yields remain essentially unchanged. The 2 yr. treasury is yielding 4.7%, the 10 yr. 3.76%, the shorter duration bills – 3 and 6 months are yielding 5.2% and 5.3%.
The S&P closed at 4409 – down 16 pts…. This morning the tone suggests more weakness…..and this should not be a surprise at all…the market has performed exceedingly well but is a bit stretched….so get ready for a pullback….and that is not a threat, it’s just common sense – It is 7% above the short term trendline and 12% above the long term trendline…..a reversal (to the trendline) should not be unexpected….Just sayin’
Stick to the plan. Build out the defensive part of your portfolio….do not keep chasing tech names that are way overdone… If you are nervous about a decline – position yourself with some of the contra trades that offer protection…. the SH, PSQ, DOG even the VIXY. See my clip above.
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.”
Greek Style Shrimp
This is an easy meal to prepare and uses one pan…. a deep-frying pan or ‘Saganaki’ pan as it is known in Greece.
For this you will need: 12 jumbo shrimps, (6-8 per pound), peeled and deveined, tails left on, fresh lemon juice, salt and pepper, olive oil, 1 medium bulb fennel, cored and finely chopped, 5 scallions – chopped, 1 small chili pepper, seeded and minced, 1/2 cup of Greek Chardonnay wine, crumbled feta cheese.
Begin by tossing the shrimp with some lemon juice in a medium bowl and sprinkling it with salt – set aside.
Heat oil in a large skillet over medium heat. Add fennel, scallions and chili pepper and cook, stirring, until soft and beginning to brown, 5 mins or so. Pour in the wine. Cook, stirring, for another minute. Place the shrimp on top of the fennel mixture, cover and cook until the shrimp are pink and just cooked through, 3 to 4 minutes. Remove the pan from the heat. Now remove just the shrimp and place on a plate.
Add another squirt of fresh lemon juice, feta, salt & pepper to the pan with the fennel mixture and stir until the cheese begins to melt, about 1 minute. – Now make a bed of the fennel mixture on the plate and place 3 or 4 shrimps on top – Serve immediately.
Buon Appetito
