Things you need to know.
Mamma Mia! When will it stop??? Will it stop? What drove this change in tone and risk? I mean – What is happening…? CPI and PPI came in better than expected – but ….inflation remains solidly in the 5.3% range, there appears to be weakening in the job market, wages are in decline, Manufacturing PMI’s in contractionary territory, while Services PMI are still in expansionary territory and then on Wednesday JJ paused – holding rates steady at 5% – 5.25% – but told us all ‘not to get too comfortable’ – that 67% of the committee sees higher rates by year end and those rate cuts that you have all been talking about – yeah – those are NOT happening….and stocks go higher……and higher…..
But if you are nervous – be strategic and consider the contra trades – I discussed this with Charles Payne yesterday on Making Money…. You can find the clip here.
https://www.foxbusiness.com/video/6329495953112
And yesterday Investors/traders and algo’s took stocks higher again – at 4 pm the Dow was up 430 pts or 1.2%, the S&P’s up 53 pts or 1.2%, The Nasdaq up 156 pts or 1.2%, the Russell up 15 pts or 0.8% while the Transports once again outperformed – rising 225 pts or 1.6%. The Dow is now snuggling up to entering a new BULL market…. (20% higher from the October ’22 low of 28,660). It’s all very exciting…. This as the VIX remains subdued…. which again might just be the contra indicator….as it suggests complete complacency….
The rally that started in the tech space – specifically – AI – and specifically on March 13th…. – now appears to be broadening out…. As investors do two things…. The first is playing catch up – as many asset managers and retail investors were underinvested in ‘tech’ as they played it safe – moving money into short term treasuries that were paying 5+%…. not knowing exactly what the FED would do with rates. And the second thing is now that tech is up double and triple digits – savvy investors are looking at where they can allocate new monies into the market……… I have been saying to look at the ‘underperformers’ – the sectors that have not participated so far because so many were expecting a ‘sell off’…of dynamic proportions (think Mikey Wilson) … By now you know that he has been calling for the S&P to trade down to 3000 before he saw the all clear sign…and that was when the S&P stood at 3900….and that represented a 23% pullback –
If it happened…. Now to be fair – Mikey is a well-respected analyst…….has won an award or two – so no one is questioning his pedigree, but in this case – I think (and the market thinks) he missed the boat……But – it is what it is…and so last night – that same index busted up and thru 4400….before ending the day up 54 pts at 4425!
Put it in perspective….in early March – the S&P was trading at 3850 ish (with calls by many of the major investment banks for the market to go lower) ….by the end of March we had pierced 4000…..2 weeks later we kissed and pierced 4100, by Memorial Day Weekend – we breached 4200 – 2 weeks later (June 9th) it was 4300 and then only 6 days after that we busted up and thru 4400….Amazing….considering that last year it couldn’t get out of its own way as investors ran for the doors – expecting the bottom to fall out. This year, those same investors are all clamoring to get back in the door…. Isn’t it funny how that happens? Even after 42 yrs., I am still awed by the fact that the ‘herd mentality’ is alive and well.
Now for those investors that stayed in for the ride – you got your divvy’s which you reinvested, added more money when your stocks were on sale – helping to broaden out your portfolio and now – you’re sitting back enjoying the fact that you don’t have FOMO (Fear of Missing Out) – but you are glad that so many others do! And those short players – you know the ones (those hedge funds) that made really big bets of lower prices by June? Yeah, not so much….and when the trade goes against them – they too become buyers only adding fuel to the fire and BAM! Up, up and away…. Which explains the recent surge…. which feels just a bit stretched – but we’ll discuss that later.
We saw gains in everything…. Industrials, Utilities, Tech, Financials, Consumer Staples, Communications, Energy, Healthcare all went up more than 1% while Real Estate, Basic Materials, and Consumer Discretionary rose by about 0.7%. The Value trade (SPYV) was up 1.4% – taking it up 12% ytd, while the Growth trade (SPYG) rose 1.1% taking it up 20% ytd. We also saw broadening strength further down the scale in sectors that have been unloved this year…. – Metals and Miners +1.6%, Coal stocks which were winners last year – have been leading losers this year – some names down 20% while others have been holding their own – but the group found plenty of bids yesterday….BTU + 3.2%, AMR +5.1% and CRK +5%, Aerospace & Defense names up 1+% and the list goes on…..Mid cap Value (IJJ) and Mid cap Growth (IJT) also were up by 0.8% – leaving those two sectors up 6% ytd….they too have been underperforming – and investors have found opportunity there as well. In the end – it’s about the plan, right?
Yesterday’s eco data continues to provide more insight…. Retail Sales were stronger than expected – (think healthy consumer), Initial Jobless Claims and Cont. Claims were up – suggesting a slightly softening labor market, Empire Manufacturing was not the disaster we expected, Philly was, Industrial Production weaker while Capacity Utilization was inline. And what does all that mean for you? Stay the course, don’t stress…that’s what it means.
Eco data today is all about the U of Michigan data points…. Sentiment expected to be 60 – slightly higher than last month, 1 yr. inflation estimates remain solidly in the 4% range while the 5 – 10 yr. estimates suggest 3%…. I didn’t see a 2% number, did you? Hmmmm… Wonder what that means?
This morning US futures are churning……In Asia – The BoJ did nothing – holding rates are ultra-low levels, In Europe – the ECB raised rates by 25 bps as Christine Lagarde (ECB President) told investors when asked if she was done yet that “No, we are not done” …..Now that’s pretty clear, isn’t it. But remember – they started raising rates while they were in negative territory and remain 2% below where the FED is…and history suggests that the ECB needs to fall in line with the FED – which only means she needs to raise rates or we need to cut rates…and cutting rates is not an option (according to JJ) so as she said – ‘We are not thinking about pausing’.
Dow futures -11, S&P’s -2, The Nasdaq +5 pts and the Russell is -4. As expected, the media is already focusing on the next 6 weeks – until the next FOMC meeting – as they ponder what the cumulative effects of all of this tightening will have on the economy and on monetary policy.
European markets are all higher after the ECB decision – as investors there (and across the globe) feel a little better about how the ECB is handling its economy. At 6:30 am – most markets across the region are all up by about 0.5%…. France the outlier +0.8% while Germany is only up 0.25%.
Oil – took the $70 handle back again…as the ricocheting around $65/$75 continues…. And why?? Oh, right – it’s the China demand story all over again…. are you seeing this pattern yet? They talk oil down on a China slowdown on Monday and then they change the story on Wednesday after they all get long and ride it right back up…. Suddenly – ‘data’ shows that China’s refineries are working overtime…. output is up 15.4% as Chinese DEMAND is expected to keep climbing…. Comical! So, remember that the next time they tell you that Chinese demand is slowing. In addition – a weaker dollar also helped push oil higher. This morning WTI is trading at $70.10/barrel – leaving it $3 away from the short term trendline at $73.67 – which we have tested 3 times already….so keep your eyes on the 4th time….and while it’s not happening today – it most likely will happen next week – but the other two trendlines are sitting right on top of it, so let’s not kid ourselves – it will be a struggle for oil to bust up and thru $76….unless of course the dollar weakens significantly or the Saudi’s (and OPEC) slash production…
Gold also took back the trendline at $1975…..as the dollar index weakened a bit plunging through the trendline at 102.61…..leaving it trading at 102.21 this morning…..on its way to potentially test the May lows of 101.50 and if it does, the will benefit the commodity complex.
This morning – treasury yields remain essentially unchanged. The 2 yr. treasury is yielding 4.6%, the 10 yr. 3.8%, the shorter duration bills – 3 and 6 months are yielding 5.1% and 5.3%.
The S&P closed at 4425 – up 53 pts…. This morning the tone suggests uncertainty…. could we see a pull back?? We could, but today is also a bit option expiry….so expect all kinds of volumes and trades as those option players need to roll or close out positions…..but in the end – that means nothing to you the long term investor….but it does have the ability to cause some short term disruption on one or two names….Again, nothing for you to be concerned about.
Look at the chart…..it goes up in a straight line….THAT is not going to continue – 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.”
Sicilian Style Linguine and Clams
Sicily – the largest island in the Mediterranean Sea – located off the tip of the boot – and along with some smaller islands makes up an autonomous region of Italy….otherwise known as the Regione Autonoma Siciliana……It is rich in history ( Remember Don Corleone?), culture, food, art, music, architecture…..The agriculture sector is a significant part of their economy producing, lemons & oranges, along with olives, grapes and wine.. Additionally – many of the recipes make use of fish – so today we are featuring this classic Sicilian Style Linguine and Clam Sauce….This is just a spectacular dish – not your usual linguine and clam sauce…. Try it – won’t you? For this you will need:
2 doz clams, plus a container of minced clams, olive oil, chorizo, garlic, shallots, white wine, clam juice, Linguine, Parmegiana Cheese, breadcrumbs and butter.
Start by bringing a pot of salted water to a boil.
Next – take ½ of a chorizo sausage and remove the skin…then dice – add to another pot. Next dice two shallots – add to pot. Third – 3 cloves of garlic – smashed them with the side of the knife and then give them a rough chop – add to pot.
Now add a bit of olive oil – like twice around the pot. Heat on med heat and sauté for about 4 – 5 mins…careful not to burn. Now add some white wine – I just pour it in…but I am thinking like no more than two cups…. – bring to a boil…. Now add the bottle of clam juice and the 2 doz clams and the container of minced clams. Turn heat to low and allow the clams to open – remembering to discard any clam that does not open on its own.
While this is simmering – in a frying pan – add a dollop of butter and some Italian seasoned breadcrumbs – turn heat up to med high and turn the breadcrumbs and allow them to toast – they will get crunchy – be careful not to burn. Set it aside.
Add the linguine to the pot of water and cook until aldente – maybe 8 mins. Strain – always reserve a mugful of pasta water always. Return the pasta to the pot and add back a bit of the pasta water to re-moisten…. Now add the clam sauce – mix well – add 2 handfuls of Parmegiana cheese – mix again. Serve in warmed bowls adorning each portion with 3 or 4 clams still in the shell along with half a ladle of the clam sauce.
Now top with a spoonful of the toasted breadcrumbs and serve. Have extra cheese on the table for your guests. Serve with a chilled white – I prefer Pinot Grigio with this meal as you do not want to overwhelm the food….
Buon Appetito
