Things you need to know.
- Quiet data day – but stocks continue to advance.
- This morning we have 4 beats and better guidance –
- Futures are mixed…stocks trading at 20 x’s 2023 and 18 x’s 2024 earnings – a bit rich.
- Dollar steady, oil up and gold up
- Try the Pan Seared Halibut
It was a quiet day – no economic reports and no earnings reports but stocks managed to rise to kick off the week…..A week that will be marked by a slew of ongoing bank earnings and a slew of macro-economic data…what started out as a bit weaker – due to a story out of China that their GDP was weaker than anticipated and what that meant for the global economy – was replaced by the idea that the US economy is coming in for a ‘Goldilocks landing’ – one that is not too hot, nor too cold, rather just right…. Many now pointing to the comments by Treasury Secretary Janet Yellen for the turnaround – who appeared on Bloomberg TV when she said.
“Many countries do depend on strong Chinese growth to promote growth in their own economies, particularly countries in Asia, and slow growth in China can have some spillover effects for the US and while growth has slowed, our labor market continues to be quite strong. I do not expect a recession.”
She went onto say that the ‘US is on a good path to bringing down inflation without a major weakening in the labor market.’
So there it is….Janet Yellen told us that she does not expect a recession – so I guess there won’t be one….but then someone better tell the bond market that – because bond yields have been and remain inverted and by now we know – because so many analysts have reiterated the point – that when the bond market inverts – a recession is confirmed within 12 – 16 months – that is the fact, history has proven that….well – sports fans – the bond market inverted in February of 2022 – It is now July 2023 – by my calculation that is 17 months…So, maybe Janet is right…..There is no sign of an ‘official recession’ yet so, if Janet says ‘it ain’t happening’ then I guess it ain’t happening. No matter that under the prior administration – US GDP was 6+% while under this administration US GDP is running sub 2%, but to her point – it is NOT negative.
And then it’s about earnings….recall that FactSet was predicting a 7% decline in earnings y/y…..and that is not what we are seeing at the moment…..of the companies that have reported and beat 77% of them have beaten the (lowered) estimates by 11%……(Jamie Dimon beat by 24%!) and 72% have beaten on both the top and bottom lines and that is very encouraging for what the next 3 weeks will bring. Bloomberg Intelligence is suggesting an even weaker earnings season – with a 9% drop in profits here in the US while Europe can see a 12% slump. Well, if that’s the case – investors do not seem to be hearing that story or paying attention to it as they take stocks higher in what feels like a FOMO (Fear of Missing Out) trade.
By the end of the day – the Dow rose 76 pts, the S&P up 17, the Nasdaq up 131 pts, the Russell up 20 while the Transports gave up 2 pts.
Of those indexes – it is only the Dow Industrials that are way underperforming the broader market…. The Dow is only up 4% while the broader S&P 500 is ahead by 18% – but remember – the Dow does not include all of the ‘Magnificent 7’. It only includes Apple and Microsoft…..the S&P and Nasdaq include all 7 and they are – AMZN, AAPL, GOOG, META, MSFT, NVDA & TSLA – and it those 7 that have powered so much of the returns this year….just an FYI – those 7 names make up $11 trillion of market capitalization and are responsible for 73% of the S&P returns this year….so those 7 names are responsible for 13% of the 18% advance…..Capisce?
In any event – inflation is coming down while growth remains robust…and that is obvious by looking at the small and mid-cap sectors – the Russell is ahead by 11% while the IJJ – Mid cap 400 Value is up 9% and the IJT – Small cap 600 Growth is up 9.4%. Anytime we see the smid’s outperforming large caps – it suggests that investors are comfortable with the pace of growth.
6 of the 11 broad sectors were under pressure yesterday – Utilities, Consumer Staples, Communications, Energy, Healthcare and Real Estate. The value of trade – SPYV was up 0.1% while the growth trade – SPYG gained 0.6%. Yesterday I thought that the Aerospace and Defense sectors would get a boost after Joey made it clear that we gave all of our ammunition away to Ukraine – leaving us with empty shelves and as suggested we did see investor money pour into the sector – as I expect big gov’t contracts to be awarded…. The ITA – Aerospace and Defense ETF was up 0.5%. Names I mentioned in my letter – LMT +1.2%, NOC +0.8%, GD + 0.5%, LHX + 1.2%.
My error yesterday – I said we were going to get earnings from BK, PNC, BAC, SCHW, MS, as well as PLD – An owner, operator and developer of industrial real estate as well as defense contractor LMT, After the bell – we will hear from JBHT, OMC and WAL. In fact – I got my dates mixed up – they are on today’s calendar, so get ready for the onslaught. Expect investors to be paying close attention to what we hear from the banks and financial companies.
BAC came in at 88 ct/sh…better than the expectation and revenues beat as well…. a Divy increase of 9% and improved performances across all the business lines…NII was better than expected – oh ‘surprise’! the stock shot up by 1.5% in early pre-mkt but then flipped and went slightly negative… Remember – what I told you last week – the stock was up 8% in the past 5 weeks coming into this report….so it would not be surprising to see the trader types of lock in some profits.
In addition – PNC, MS and BK also reported and guess what? They beat as well….so that’s 4 out of 4 so far…. We’ve got 3 more to go.
Eco data today includes Retail Sales +0.5%, Industrial Production 0%, Capacity Utilization – 79.5%, Manufacturing Production 0%. Housing Starts, Building Permits and Existing Home Sales are due out later in the week.
US futures are mixed – Dow futures +1, S&P’s down 2, the Nasdaq -16 and the Russell is +1. Many focusing on the Yellen comments – where she said that the labor market is cooling – well is she aware of the strike by the 11,500 screenwriters, or the pilots union, and now it’s the hotel industry….Hotel workers across the country are rising up – demanding higher wages and better working conditions, thousands in Southern California alone are up in arms…– so wage pressures do not appear to be cooling at all, but they tell us that it is, so I guess it is… kind of like – ‘nothing to see here, move on…’ My fear is that wages will remain sticky and that will cause inflation to re-ignite in the coming months – which is exactly what JJ and other members of the FOMC seem to be concerned about.
European markets are also mixed…as earnings season heats up there as well. Tomorrow will bring UK inflation figures ahead of the BoE policy meeting on August 1st – where it is expected that they will raise rates by 50 bps….as ‘strong wage growth’ remains a problem…. Hmmm…. Think of that…. Strong wage pressures…. Who would have thought? Now we did learn that UK grocery prices are coming down – Prices at the grocery store ONLY rose by 14.9% in June…. vs. the 16.5% pace in May…. And now you ask – why workers are demanding higher wages…. they can’t put food on the table…. That’s why.
The 10 yr. treasury is yielding 3.76%, while the 2 yr. is yielding 4.69%. Shorter duration 3 month and 6-month bills are yielding 5.4% and 5.49%.
Oil is up 40 cts at $74.54 as investors consider more Saudi production cuts to deal with the ‘weaker’ Chinese economic data weakness. Data today is expected to show that US inventories and stockpiles declined week over week while US shale producers are expected to see their first monthly decline since December. All while 3 Libyan oil fields are expected to come back online after being shuttered last week. As a result – I think we will remain in the $73.50/$80 trading range.
The dollar index remains sub 100 at 99.752 down 0.09 cts….…. but appears to be holding right here.
The S&P ended the day at 4522 – up 17 pts….…. as it consolidates and digests the macro data and the move up over the past week. We remain 5% above the short term trendline….at 4295….so the slightest bit of negative news could see the S&P pull back quickly….- more positive news could see us attempt to push higher, but my sense is that it feels tired…..the best we can hope for – is for the markets to tread water until valuation catch up to prices….The S&P is now trading at 20 x’s 2023 earnings of $224/sh for the S&P – and 18 x’s 2024 earnings of $240/sh…..I think it is a bit rich which is why I am not chasing anything….which doesn’t mean there isn’t any opportunity – there is – you just have to find it…..and ITA was the sector to be in yesterday.
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.”
Pan Seared Halibut in a Lemon Wine Caper Sauce
For this you need: 1-pound fresh halibut, skinned and cut into two equal portions, ½ stick of butter, olive oil, kosher salt, black pepper, 3–4 slices Meyer lemons, 2 teaspoon fresh garlic, finely chopped, ¼ cup white wine, 2 tablespoons lemon juice, 2 tablespoon capers drained, 2 tablespoons fresh flat leaf parsley chopped.
Salt the top of the fish with just a small sprinkle of kosher or sea salt.
Place ½ of the butter and a splash of olive oil in a medium to large skillet or sauté pan and heat over medium heat.
Swirl the butter and oil around and once it starts to slightly brown, add the fish top side down. Sprinkle the side facing up with the rest of the salt and the pepper. Cook for five minutes then gently flip.
Add the lemon slices to the pan as the fish cooks and cook the fish for about 3-5 more minutes. You want to stop the cooking just before it fully cooks – It will continue to cook outside of the pan.
Remove the fish and place on a platter along with the cooked lemon slices.
Keep the heat at medium and add the garlic and cook for one minute. Add the wine and cook to evaporate. Then add the lemon juice, capers and parsley. Cook for a minute then remove from heat and stir in the remaining 2 tablespoons of butter and stir to make the sauce.
Put the fish back into the pan and cook for 1 min then remove to a platter and serve.
Serve each portion with a cooked lemon slice and some of the pan sauce. A side of mashed potatoes and mixed green salad works well with this.
Buon Appetito
