It’s’ Done – So Let’s Move on, NFP out at 8:30 – What Will It Say? Try the Simple Roasted Thighs

Kenny PolcariUncategorized

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Things you need to know.

–         The deal is now done – thank God – we can all move on

–         ADP reports strong job numbers, but labor costs are coming down.

–         At 8:30 we get the NFP report – what will we learn?

–         OPEC+ to meet on Sunday – Oil +1.5% today.

–         Stick to the plan!  Can’t say it enough.

–         Try the Simple Roasted Thighs

Wednesday decline was met with Thursday advance…..the debt deal is NOW a distant memory – after both the House and the Senate passed the bill, it is on its way to Joey’s desk…..He’ll sign it after he gets up from the fall he took yesterday at the US Air Force Graduation Ceremony for the Class of 2023.

Senate Majority Leader Chucky Schumer (not to be outdone) telling us that.

“We saved the country from the scourge of default – Default was the giant sword hanging over America’s head.” 

Scourge of default?  Giant sword?  When will the ridiculousness stop?  While they all liked to use so descriptive adjectives – none of it was true at all…. Again, the country would never have defaulted, never.   But they did manage to create angst for 3 weeks ….and now they are all patting themselves on the back – taking credit for a job well done.  Whatever….

Then the economic data continues to paint a picture of a strong labor market – ADP employment rising by 278k new jobs vs. the expected 170k…..a 58% increase over the expectation…..But, Unit Labor Costs only rose by 4.2% down from 6.3% and below the expectation of 6%, S&P and ISM Manufacturing PMI’s both in contractionary territory (48.4 & 46.9) -no surprise there while ISM Prices Paid came in below expectations at 44.2.

All of this suggesting that the most recent comments out of different FED members is supportive of a June ‘skip’ – that’s the new narrative….skip means to ‘pass over without notice, or omit’ a pause is a ‘temporary stop in action’ – It was Philly’s Fed President – Patty Harker –  that introduced that new concept to the markets on Tuesday….suggesting that while they may do nothing on June 14th – It does not suggest that rates have stopped going higher nor does it suggest that rates are going lower – as some in the market desire.  Then yesterday – St Louis’ Jimmy Bullard published an essay that reveals that he thinks ‘interest rates are at the low end’ of what’s likely to come…which suggests higher rates in the future…..and so, the doubletalk out of different FOMC members continues, but investors are now much more comfortable with where the conversation is going….Rates are now up 500 bps over the last 15 months and investors appear to be prepping for better days ahead….. But should they be? 

At the end of the day the Dow added 153 pts or 0.5%, the S&P up 41 pts or 1%, the Nasdaq (this year’s darling) gained 165 pts or 1.3%, the Russell gaining 18 pts or 1% and the Transports up 170 pts or 1.25%.

Tech, which had come under a bit of pressure on Wednesday, resumed its trek higher – building on the gains during the month of May.  In fact – Bank of America tells us that investors moved $7 billion INTO us equities last week….Seems like all of that went straight into NVDA, MSFT, GOOG, META , ARKK and anything else that is in the middle of the AI movement… investors obsess over anything AI or AI related that drove the tech megacap up 17% in May…..on top of the eyepopping moves ytd…..NVDA + 172%, MSFT +38%, GOOG + 40%, META +126%, ARKK +32%…. Yes, these were the same stocks that got kicked to the curb last year, the ones that many asset managers did not want in their portfolio’s – and now they are tripping over each other trying to get back in….…. oh, what a difference a year makes! 

So, of the broad 11 sectors – What was down yesterday?  Utilities -0.7% and Consumer Staples -0.1% – those exact names that provide stability (in a down market but the market ended higher) and what was UP?  Yup – nearly everything else…. Industrials, Tech, Financials, Consumer Discretionary, Communications, Energy, Healthcare, Basic Materials & Real Estate.  So, a properly allocated portfolio would have performed nicely on a day like yesterday…. unless of course you only hold Utilities and Consumer Staples.

The Value of trade – SPYV – went up 0.8% while the Growth Trade – SPYG was up 1%. Metals and Miners – XME +2.2%, Semi’s – SOXX +1.7%, Aerospace and Defense – ITA +1.4%, Biotech’s – XBI +1.3%, Housing – XHB +1.4%, Airlines – JETS +0.2%, Pharma – XPH +0.35% etc.….

Now while coal names were the 2022 darlings, (up triple digits – 150% +) they are not the 2023 stars at all….names like BTU, CRK, ARCH, CEIX are all down double digits – anywhere between 10% to 30%….this as the focus has turned away from coal – some analysts citing a weaker China re-opening as the reason for the weakness, others citing the drop in coal prices while others say that  it is also asset managers re-allocating a lot of those gains into what is this year’s ‘sexiness’ and that appears to be anything AI.  Coal isn’t sexy….AI apparently is.

Eco data this morning is all about the NFP report…will new jobs exceed the expectations the way ADP did? The NFP is expected to report a gain of 190k new jobs…. unemployment ticks up to 3.5% (from 3.4% and still at historical lows), Avg hourly earnings m/m and y/y will be two data points that will be closely watched as well.  Are hourly earnings going up still or are they starting to decline?  The expectation is for +0.3% and +4.4% – a report that reveals upward pressure will force the FED to reconsider the ‘skip’ while inline or weaker numbers will give them cover to ‘skip’. 

US futures this morning is higher…on back of all the excitement in DC…. (Think debt bill) as every lawmaker on the left will tell you how we averted a ‘catastrophe or disaster’ while the those on the right will argue the opposite. In addition, the idea now that the FED will do nothing is gaining speed and that is encouraging for most investors.   At 7 am – the Dow futures are +170 pts, the S&P is +21 pts, Nasdaq is +74 pts, while the Russell is +14.

But I did ask at the top – should investors be that comfortable? What happened to all the concerns about CRE loans coming due?  What about record high consumer credit?  What about all the fancy accounting that public companies are doing to ‘manage their bottom lines’?   You can find out more about this in today’s WSJ – where they lead with this headline.

“Business in Slowing. So, Companies are Juicing Profits” –

(it’s called earnings management, – as they report numbers that don’ t ‘adhere to accounting standards)

It goes onto say that in this difficult environment – they are ‘reallocating costs, unwinding charges, delaying depreciation – in the end they are using unconventional (non-traditional) ways of boosting their bottom lines…  GOOG is a perfect example….in last qtrs. earnings – they quietly decided to reduce depreciation on computers that they now (suddenly) say will ‘last longer’ and that move cut the depreciation expense by $1 billion dollars – and that helped to push EPS above all the analyst’s estimates.  Funny how that works, no?  I posted the link here:

It’s just food for thought that helps to keep you grounded so that you don’t get overly excited and keeps you on the path.

Treasury yields held steady as the passage of the deal became more of a reality. 

Oil rose yesterday after getting beaten up last month…. This morning oil is up 1.5% or $1.10 at $71.20/barrel…. Analysts are crediting the debt deal. I would say it was the mixed news out of China….on Wednesday they tell us that the re-opening is slowing (demand destruction) and then on Thursday they tell us that Chinese Factory Orders were greater than expected (demand creation)….as well as the upcoming OPEC+ meeting on Sunday….Will they hint at further cuts or hold production steady?  That is the question. And as you can imagine there are arguments on both sides of that question…I’m in the camp that they will hint of more cuts…. Let’s see. It now appears that we are in the $65/$75 trading range – and you know what the Saudi’s want – $80/barrel is their sweet spot. 

Gold – traded at the trendline for 3 or 4 days – not sure which way to go…. but now that it appears that the FED is going to ‘skip’ a rate hike – gold investors can focus on what’s next.  A skip should cause the dollar to weaken a bit and that is good for gold…in addition economic concerns for the country going forward continue to cause investors to allocate money to the safety trade (Gold is the ultimate safety trade).  This morning Gold is trading at $1,995/oz – up from $1,970/oz just 3 days ago.   remains hugging the trendline…. We remain solidly in the $1880 (long-term support) and $2000 range.

European markets are all higher…. Up better than 1% across the board. The media telling us that the Europeans are excited because Chucky told them that they (the Dems) saved the country from going POOF!  We raised the ceiling and now it’s all good.  To which I would say – are the Europeans that naïve?  I would argue that the move higher is because inflation across the zone is in decline and is the lowest its been since February 2022….and while that is good news – ECB President Christine Lagarde is not satisfied yet and hints at higher rates in the months ahead…and while that might be viewed as a negative – The ECB is only at 3.25% (we are at 5 – 5.25%) – many investors are encouraged by the decline in inflation and the job that she is doing.  

The S&P closed at 4221 up 41 pts…. after trading as high as 4232…. Futures this morning suggest that we will pierce yesterday’s high and test 4250 ish….and then figure out where to go after that? 

Remember, I have been saying that the market feels tired and that a pullback would not be out of the question at all – and I am still in that camp…..But that does not mean I am out of the market – I am not…..I remain fully invested and am adding new money to sectors that have become underweighted in my portfolio.  Tech has taken the lead, so I must allocate to sectors that need some love…. think financials, energy, healthcare to balance it out.  Which speaks to my exact point….IF you have a solid plan, IF the fundamentals of the company have not changed, IF this is an economic cycle (that you learned about in Econ 101) and IF you balance out the core portfolio with downside protection or with some of those big, boring (yet beautiful) names that pay decent, consistent dividends – You will find yourself in the sweet spot….vs. being someone that constantly tries to pick tops and bottoms – otherwise known as ‘timing the market’. 

Investors need to focus on the FED now that the debt news is history…. It now appears that IF we pierce 4250 – decisively – then a challenge of the August highs of 4290 is in the bullseye…. Trendline support is now at 4115

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.”

Simple Baked Chicken Thighs

This is so simple…you need:  Thighs (and legs), Olive oil, garlic, s&p, oregano, chicken broth and fresh lemon juice.

Wash the chicken and pat dry – then salt and set aside.

Preheat the oven to 350 degrees.

Next – in a blender – add the garlic and all the seasonings, broth, and lemon juice.  Blend well. Now – pour over the chicken pieces and let it marinate for 20 mins.

Now cover tightly and place in the oven. Bake for 75 – 90 mins. Then uncover and turn on the broiler – allow the chicken to turn nice and golden brown – like a nice tan.  Remove and serve with a classic Greek salad.

Buon Appetito