Things you need to know.

–         Macro data very strong, Investors celebrate – Good News is Good News!

–         New Homes Sales – YUP…. Blew the Doors off the place!

–         Airlines, Cruises, Hotel – Planes, Trains and Automobiles lead the way.

–         Tech takes second place – but is still very much a winner.

–         Try the Peach and Tomato Summer Salad

So…..Stronger Eco data – ignites the algo’s……Durable goods -which were expected to be down 0.9% – came in at +1.7% – a dramatic swing higher, Capital Goods Ordered was expected to come in at +0.1% and that came in at +0.7% and remember those New Home Sales that I suggested on Monday were going to be much stronger than the -1.2% expectation…?  Here is what I said….

New Home Sales – expectations of -1.2% (which I think is wrong – based on prior housing reads and how home builders can make current mortgage rates more appealing via their in-house financing)

In addition to making mortgage rates more appealing….New Home Builders can attract buyers by offering ‘free’ upgrades to kitchen cabinets, quartzite countertops, upgraded bath tiles, fancy trim, exterior landscaping and in the south -discounted pools….so when you go into this NEW house you are ‘wowed’ – because they also stage it just right…..this vs. going into an ‘Existing’ home that does not have any of these benefits….no upgrades, no fancy trims, old furniture, faded paint jobs, old kitchens, cracked tiles,  overgrown landscaping and of course higher mortgage rates because the banks aren’t buying anything down…..and so, you ask – how did New Homes Sales come in?  They BLEW the roof off!  Coming it at +12.2%…. a massive swing vs. the expectation….and guess what the Homebuilders did?  The XHB surged by 2.7% taking the individual names higher – TOL + 3.25%, KBH + 2.2%, TPH +2.7%, LEN +4.1%

And Consumer Confidence?  Yeah – there is a lot of that too…. coming in at 109.7 – up from 102.7 last month and well above the expectation of 104.  In the end – it is a conundrum……anyone who expected the rate increases to cause a slowdown has been surprised….so anyone that was overly cautious – going to all cash has been disappointed – especially if they listened to Mikey Wilson at MGS – who told us to prepare for S&P 3000 or listened to Goldman that called for the S&P to trade down to 3400.  Which is why I keep telling you to stay in, but be a bit more defensive – which doesn’t mean SELL all your tech – it just means talk to your advisor and create a more diversified, defensive plan that keeps you invested and keeps you exposed to the equity market while offering more stability in a turbulent time.   

And all this cause the algo’s to go into a frenzy….as investors can’t help themselves causing another FOMO type reaction (think of all those investors that got out of the market) – markets surged!  The hoped for pullback which appeared to have begun came to a sudden halt…and while you are assuming that it was TECH that led the frenzy – you would be wrong……by the end of the day the Dow added 212 pts or 0.6%, the S&P up 50 pts or 1.1%, the Nasdaq rallied 220 pts or 1.6%, the Russell gained 26 pts or 1.5% while the Transports – yeah – they exploded – rising by 400 pts or 2.7%….

Investors, traders and algo’s couldn’t help themselves…..they all rushed in – once again afraid of missing out – many thinking that watching the S&P lose 2% or the Nasdaq lose 4% over the past week – represented a ‘sale’ and was an appropriate ‘buy the dip’ moment…..…..and like I said it was the Transports that led the way….. Airlines, Hotels and Cruise Lines.

Within that sector we saw the airlines (JETS) surge by 4.7%…individual names up even more…. DAL +6.8%, AAL + 5.4%, UAL + 5.2%, ALK + 4.2% & JBLU +8.8. The story is the same…. ‘pent up demand for air travel’ is driving the mania…..2023 profit projections continue to climb…..all while Petey (Buttigieg) tells us that summer air travel will be a nightmare….because the transportation sector can’t handle it…and those 5G cell towers – Yeah…they are jamming computer systems on the planes forcing some planes to be grounded – How’s that working for you?  Never mind the ongoing cancellations and delays that happen daily….

Then, when you fly someplace you have to stay someplace and that caused the Hotel and Cruise industry to follow suit…. MAR +3.4%, H + 2.2%, HLT + 2.2%, RCL +4.3%, NCLH +5.7% and CCL a whopping 8.8%.

In second place yesterday was AI and anything TECH  – as the algo’s took the Nasdaq up 240 pts or 1.8% – recouping nearly half of what it had lost in the prior 5 days….The TECH megacaps leading the parade higher………TSLA which had lost 12% – after being up 165% on the year rose by 3.4% as the groupies were unable to accept the fact that anyone would sell it.  META up 3%, AMZN +1.5%, AAPL +1.6%, AI + 4.4% & IBM +1%…. and the Semi’s – OMG…. the SOXX + 3.5%, while NVDA + 3% leaving it up 186% ytd, AMD +3%, INTC +2.5%.  Next up Cybersecurity – CIBR +1.7% while individual names also enjoyed the company of buyers…. – PANW + 3.6%, FTNT + 3.8%, CHKP +2%, NOW +1%.

Now let me remind you – if you don’t’ own all those individual names – don’t worry – As long as you are well diversified and own one of the broad total mkt return indexes – then you’re good….you are participating….The ITOT for example is the iShares S&P TOTAL Market Return ETF – it includes ALL of these names and reinvested divvy’s and was up 1.2% yesterday and is up 14.2% ytd….mimicking the S&P which is up 14.05% ytd.  In the end – it was an exciting day….

And the excitement comes from the fact that it gets harder and harder to think that we are in for a CRASH landing….the data doesn’t suggest that (any more) and so IF you assume we are at the end of the rate hiking cycle (or closer to the end) then we are in a place that assumes ‘Good News IS Good News’ for the economy….vs. the ‘Good News is Bad News’ logic that has permeated the psyche for years now. 

And that also suggests it could get complicated for the FED, but no one was paying any attention to that yesterday…..Look – the Consumer Confidence survey is expecting inflation to remain sticky (that’s not good) and well above the 2% target – which might mean we are not as close to the end of rate hikes as the action (yesterday) suggested.  And if you ‘listen’ to JJ – he has been clear – it is the ‘stickiness’ that is making him and the other FED members – just a bit uncomfortable…and remember – Loretta – has been pushing for a 6% terminal rate all along….and that would mean rates rise by another 75 bps…. And just to be clear – ECB President Christine Lagarde remains just as focused because inflation across the zone also remains sticky….and she has made it clear that the ‘fight is NOT over’.

All the excitement caused investors to hit the SELL button on bonds and that sends yields higher…. the 2 yr. is now yielding 4.73% up from 4.7% while the 10 yr. is now yielding 3.76% up from 3.71%….  The 3 month is at 3.53% up from 3.5% and the 6 month is 5.47% up from 5.4%.

In all of this – the Dollar index didn’t really do anything….it is holding at 102.60…. hugging and kissing the short term trendline….

Oil continues to churn in the high 60’s…and this morning is trading at $68.25/barrel…. is down this morning trading at $68.60/barrel – and that is very curious to me – considering what happened in the transport sector yesterday – think about how all of that travel is going to cause DEMAND to surge – I mean how else are all those planes, trains, buses and automobiles going to move around the world?  The API reported that crude inventories fell by 2.4 million – much more than the expected 1.7 million and gasoline?  Those inventories fell by 2.9 million barrels vs. the expected 126k!  And that suggests DEMAND – so what I’m saying is – I’m just surprised we didn’t see a larger move up in oil…. but it is what it is…. In any event – oil remains in the $68/$72 range….

Gold – as you might have expected did not take well to the strong macro data….because that just means that the FED isn’t done yet……and so we can expect higher rates and then a stronger dollar…..and that caused gold to tumble $10 yesterday and is down another $7 today…at $1917/oz….Now within a hair of the long term trendline…..at $1896….which is only a 1% move lower from here….Like I said the other day, I fully expect it to test that level and I expect it to hold…but if it doesn’t – then that says something else completely…..(Even higher rates than what the mkt expects).

US futures are confused…. ….. Dow futures + 25, S&P’s -6, Nasdaq -65 and the Russell is up 1.  All those moves up in chip and tech stocks yesterday coming under pressure as we move into qtr. end.

European markets are up across the board…. all up better than 0.7%. As noted, – there is a major global central bank boondoggle taking place in Portugal – and ECB President Lagarde reiterated that it is ‘too soon to declare victory’ – investors are waiting to parse what the other central bankers have to say….and yes…JJ is one of those that will be speaking.

The S&P ended the day at 4378 – up 50 pts….…. That sell off that I have been hoping for appears to be at bay for now….I am not chasing tech and in fact won’t be buying anything today – after that outsized move yesterday….I’m happy to sit back and let it settle in ahead of Friday’s end of qtr. action…..My performance this qtr. has been good – up 16%.

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.”

Summer Peach and Tomato Salad – Yes – Peaches…Delish

This is another great summer salad and one that Julie Hyman at Yahoo Finance reminded me of….so after our conversation on Monday – I went home and tried it……and YUM……  A side of Roasted Pork Loin complements this dish exquisitely. Here is the link to that interview…

https://finance.yahoo.com/video/stocks-week-ready-rebalancing-reallocation-143346690.html

Salad Ingredients:  Red Onion – sliced (thin), Ripe peaches – skin on – pitted and cut into wedges, Heirloom Beefsteak Tomatoes – also cut into wedges, Yellow Cherry Tomatoes

For the Dressing you need:  2 tbls of Sherry vinegar, 3 tsp of olive oil, 2 tsp Honey, ¼ tsp of salt, ¼ tsp of black pepper, Crumbled Feta or you can use block feta cut into bite size pieces, fresh basil.

Begin by tossing all of the ‘salad’ ingredients into a large bowl…. don’t really toss them, place them in the bowl. 

Next – combine all of the dressing ingredients into a bowl and whisk until emulsified.  Now you have a lot – do not use all of it, unless you have a lot of peaches and tomatoes…. Capisce?  You can put any extra in the fridge…won’t go bad.

When ready – drizzle the dressing over the peaches and tomatoes, gently turn to coat well.  Now add the feta and the basil.  Serve with a ‘side of pork loin’!

Buon Appetito