Things you need to know.
– FED kicks off the July meeting – Investors speculate.
– Big Earnings day and so far all reports have beaten and beaten big
– Oil surges on Chinese DEMAND!
– Treasuries hold steady, dollar up, Gold flat
– Try the Linguine & Clams – a different version.
Stocks began the week in the PLUS column….as investors digest the latest mixed eco data (weaker Services PMI, stronger Manufacturing PMI) and await the onslaught of earnings announcements along with the latest policy announcements from 3 of the world’s biggest central banks…. The Fed – which kicks off its meeting today is preparing to announce tomorrow…., the ECB on Thursday and the BoJ on Friday. By now you know that the mixed eco data suggests that the FED might have managed to navigate a soft(er) landing, while the lowered bar this earnings season is proving to be a boon for stocks and investors – because so many of them are beating on both the top and bottom lines and offering more upbeat guidance than originally feared. Some are announcing new buyback programs while others have raised their dividend payouts while still others did both! No one is expecting any surprises at all out of the 3 central banks this week – in terms of rates – but there is a cohort of analysts that think we will get some forward guidance surprises out of the FED and the ECB.
As the 4 pm bell rang on the NYSE – we found the Dow up 184 pts or 0.5%, the S&P’s up 18 or 0.4%, the Nasdaq +26 pts or 0.2%, the Russell up 6 pts while the Transports struggled to hold the line – falling 35 pts or 0.2%.
In the end – what investors are recognizing is that the ‘still hot’ jobs market is helping the US economy avoid a serious downturn – think hard landing – and that coupled with weakening but not collapsing eco data has helped to fuel this round of advances….Look, so many street analysts were calling for a disaster earlier in the year….– Morgan’s Mikey Wilson telling us that we should brace ourselves for S&P 3000 before this is over – that was when the S&P was trading at 3800 – it is now trading at 4550….and this morning he offered a ‘mea culpa’ saying that
‘We stood by that forecast for way too long. We were wrong…the 2023 story has been one of higher valuations then we expected amid falling inflation and cost cutting’. They then went onto call for an S&P 4200 target 12 months from now. That’s correct – S&P 4200 – 8% below current levels. Ok – then….
Of the 11 broad sectors – Energy was the clear winner – Oil shot higher – rising 2.4% or $1.85/barrel to end the day at $78.92! WTI is now up 18% since June 30th. The XLE rose 1.6% on the day – leaving it down 2% ytd. The XLE focuses on companies that develop and produce oil and Nat gas and provide drilling and other energy related services. It includes names like XOM +1.6%, CVX +2%, SLB +1.8%, EOG +1.2%, MRO +2%, OXY, VLO +2.2%.
The XOP – which is the S&P Exploration and Production ETF was up 1.6% – leaving it up 3.3% ytd. It includes SWN +1.5%, APA+1.6%, VLO +2.2%, COP +1.6%, MRO +2%.
Next up were the Financials – XLF +1%, Real Estate – XLRE +1%, followed by Industrials – XLI +0.2%, Tech +0.2%, Consumer Discretionary – XLY + 0.6%, Consumer Staples – XLP +0.4%, Communications – XLC + 0.2%, Basic Materials – XLB + 0.3%. Utilities and Healthcare came under a bit of pressure, falling 0.2% each – but remember – these two sectors have been outperforming recently – so a little profit taking should be expected.
This week – we will get more than 500 companies representing more than $27 trillion of value worldwide that are set to report earnings – and up til now – there have not been any disasters at all – 73% of reports have beaten the estimates….….Today in the US we will hear from DHR (beat), GM (beat on both lines), KMB, NEE, ADM, PHM (beat), GE (beat by a wide margin and offered better guidance), PII (beat), VZ (beat), SHW, DOW (beat), MMM (beat) but many will be waiting for the 2 biggies after the bell….MSFT, & GOOG. They not only want to hear what they report – but more importantly – what they say about the role of AI in the days, weeks, months and years ahead. META is due to report tomorrow.
Investors, traders and algo’s have taken valuations to levels well above expected 12-month earnings…. the S&P is now trading at 20 x’s 2023 ($225/sh) earnings and 19 x’s 2024 earnings ($240/sh) …. well above the more reasonable 16 x’s (in a rising rate environment) and all that means is that they EXPECT corporate profits to continue to do well. Any downward adjustments to either of those numbers will cause a revaluation by investors…. but let’s not worry about that right now, because that does not seem to be the case.
Treasury yields of 3.8% on the 10 yr. and 4.8% on the 2 yr. – were seen as headwinds for stocks prior to the start of earnings season…but now that we are into it and are not being disappointed – many investors are reconsidering the balance of what they have in cash vs. what they have invested in stocks. Shorter duration 3 month and 6-month bills continue to offer annualized rates of ~ 5.4% – and that is where many investors are hiding out in the short term.
As I said – Oil surged yesterday…. Do I need to tell you why? Ok, I will…. tighter supplies and predictions for Chinese demand to surge…. see how they do that? It’s a pattern, one day its all about falling Chinese demand and rising supplies the very next day it’s about rising Chinese demand and tighter supplies…. which is why I say – ignore the noise…. Demand is strong ‘around’ the world and supplies are just tight enough to keep prices up…. ….and the Saudi’s want to see $80 oil – Period.
Dollar index is up by 10 cts at 101.49….and remains below all 3 trendlines but is up 2% since last week and that is keeping gold in check – Gold is trading at $2,002/oz – after hitting trendline resistance at $2021 late last week. Gold remains in the $1950/$2025 range.
US futures are mixed…Dow futures down 30 pts, S&P’s +3, Nasdaq +45 while the Russell is down 1. Eco data today includes the Philly FED Services Activity – known as the ‘Non-Manufacturing’ Index, Richmond Fed Index of -10, Richmond FED Business Conditions and S&P CoreLogic Housing prices index. Investors will also be paying attention to all of the earnings reports and await the TECH reports post the bell.
European stocks are slightly higher….UK consumer confidence hit an 18-month high at -13 vs. the -44 seen last year and -25 in the spring. Inflation does remain an issue but does not seem to be stopping people from spending their money. Germany reported a ‘dismal’ business outlook and that suggests that the ECB will not surprise to the upside by raising rates more than the expected 25 bps.
The S&P ended the day at 4554 up 18 pts…….…. Traders and investors remain cautious ahead of tomorrow’s FED announcement…and while we all expect a 25-bps hike – the focus will be on what JJ says about the September meeting…remember – there is no August meeting, but there is a Jackson Hole boondoggle…. from August 24-26th. The focus – “Structural Shifts in the Global Economy”. JJ is sure to intimate FED think at that meeting because we will have 3 more inflation rates before then. This week’s PCE, and the August CPI And PPI reports. I am in the camp that we get one more hike in September, but there are others that are betting this is it…. There are NO rate cuts expected in 2023 and the jury is out on when they happen (if at all) in 2024…. Some are betting by the end of March, others suggest summer of 2024 while others are not pricing in any. Calls for a recession continue to be pushed back – with some saying that it isn’t coming while others try to pinpoint early in 2024…. consensus seems to be that we won’t see one in 2023… It’s all very fluid….and open to interpretation….and can be whatever you want it to be – there are apparently no more hard and fast rules. Investors just need to create a portfolio that fits their risk profile – remembering that investing is not static – it is dynamic. Staying in touch with your advisor is key.
Now just like UPS – GM just reported BLOW OUT NUMBERS….so what do you think is going to happen when the UAW holds the auto industry’s feet to the fire, the way the Teamsters are holding UPS’s feet to the fire. Higher wages, better benefits mean higher prices to compensate.
We are in this tighter 4400/4600 trading range, but trendline support is at 4330 just fyi. My sense is that the FED will announce a hike and leave the door open and that (might) will cause a pullback – so I am being patient with new money…. want to wait and see what happens and how investors react. I want to see a pullback that shakes the branches a bit causing some of the weaker hands to let go…. In any event – this is not the time to fall asleep….
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
Linguine and Clam Sauce – (A new version…)
We had this for Sunday dinner (after the Mussels Bruschetta) – My daughter – also a foodie – brought this to the table. Mmmmmm
So, for this you need – littleneck clams, shallots, red pepper, garlic, Olive Oil, lemon juice and lemon zest, Fresh grated Parmegiana Cheese, white wine, parsley, butter, and the linguine.
Bring a pot of salted water to a rolling boil.
In a large sauté pan – heat the olive oil, add the shallots and garlic – sauté until toasty brown and fragrant, Now adds in 1 c of white wine, red pepper flakes, kosher salt, the clams and ¼ c of chopped parsley. – Cook for 8 mins or until all clams are opened. Discard any that won’t open.
Cook the linguine – until aldente….so keep it a bit undercooked – as it will continue to cook in the sauté pan…. Add the pasta to the sauté pan – (if you don’t have room – remove the clam shells and clams and keep warm). Stir the pasta and add in about ½ c of the pasta water (tears of the Gods) and mix well. Turn the heat to med and continue to cook the pasta in the sauce. – tossing the pasta as it absorbs the ‘tears’ – should be no more than 2 mins…. If you need to add a bit more of the water – go ahead. Keep it moist – not soupy.
Remove from the heat – add in ½ stick of butter, the lemon juice and the lemon zest.
Toss and serve immediately. Always have fresh grated cheese on your table.
Buon Appetito
