Things you need to know.
– It continues to be RISK ON as the ‘momo’ guys try to force the algo’s into a frenzy.
– CPI due out at 8:30….
– Traders calling the FED’s bluff – they are betting on only one more hike.
– The dollar weakens, helping to send oil and gold higher.
– Try the Spaghetti al’ Tonno.
Good morning…and it was RISK ON again! Stocks continued to rally as investors go all in…..The idea that the FED will raise rates by 25 bps later this month taking interest rates to levels last seen in 2001 – is not stopping investors, traders or algo’s to go in…..and again all of those investors and asset managers that went to cash in the late winter/early spring – now find themselves tripping over each other to get back in and they ARE tripping over each other…. All of the indexes rose…with the Dow gaining 317 pts or 1%, the S&P up 30 pts or 0.7%, the Nasdaq tacked on 75 pts or 0.5%, the Russell rose 18 pts or 1% while the Transports were the days winner – rising 220 pts or 1.4%. Just to remind you – the S&P is now up 16% ytd, the Transports up 19% while the Nasdaq is ahead by 32%….The Russell (small and mid-caps – SMID’s) are up 8% while the Dow Industrials are this year laggards (and potential diamonds in the rough) are up 3%.
Everything was up in the broad 11 S&P sectors….Energy – XLE gaining the most – rising 2.2%, Communications – XLC in second place up 1.7%, Utilities – XLU in third place – up 1.25%, Financials – XLF and Industrials – XLI both up 1.2%, Real Estate – XLRE up 1.1%, Basic Materials – XLB up 1%, Consumer Discretionary – XLY up 0.8%, Tech – XLK near the bottom of the barrel up only 0.2%, while Consumer Staples – XLY gained 0.15% with Healthcare – XLV bringing up the rear ending the day flat.
Further down the food chain – we saw – Disruptive Tech – ARKK + 3.7%, Retail – XRT up 2%, Energy Exploration/Production – XOP– a group that has gotten slammed this year– (in March was down 16%) has been quietly gaining ground over the past 4 months and yesterday’s gains of 2.5% now leaves it flat on the year – (so it’s up 16% in 4 months)….as many investors found value in the group, and speaking of Value – the SPYV (value trade) rose 1.2% leaving that group up 12% ytd, Aerospace & Defense – ITA up 1.2%, Metals & Miners rose 0.7%, I mean everywhere you looked – you saw green…..Unless of course you were playing it from the short side where you would have lost money in the DOG – 0.8%, SH – 0.6% and PSQ down 0.5%…
It was and is all about what today’s inflation report will show…. ….. Expectations are for today’s CPI report to be better than anticipated, the chatter suggesting that it will be the last hike this year…. Markets are betting that rates will top out in the 5.25% -5.5% range. Recall – that JJ and other FED members have been preparing us for rates closer to 6% – which would mean additional hikes are to come…a camp that I am in – yet traders seem to be playing ‘Liar’s Poker’ – as they ‘challenge’ JJ, Loretta, Jimmy, Neely, Mary, Johnny, Mikey, Mishy, Lisa, Austan, Patty, Lorie and Christopher….(all FOMC members).
By now you know – ‘The Report’ due out at 8:30 am is expected to show that the ‘core’ inflation rate remains at 5% y/y….a good 3 percentage points more than the target while core m/m is to show a slight decline – coming in at +0.3% down from +0.4%. (And this is what they are focused on….) Remember while the CPI IS trending lower – prices for everyday items are not declining…. they are just increasing at a slower pace. We are also going to get Avg Hourly Earnings y/y and Average Weekly Earnings y/y. And it is this data will drive the action today as analysts then try to handicap what tomorrow’s PPI report will be…and all of this is ahead of the official start to earnings season…. which begins in earnest on Friday morning….
Recall – that 2nd QTR earnings are expected to decline by 7.2% (according to FactSet)- but the recent investor action is telling us that investors do not believe it…. Of the18 S&P companies that have reported so far – 14 of them have beaten on the bottom line while 12 of them reported a surprise on both the top and bottom lines…. Tomorrow will bring us 5 more names that span the economy and give us just a taste of what’s to come. PEP a food and beverage company, PGR – an insurance company, FL a retailer, DAL – an airline/transportation company and FAST an industrial/construction supply company. will we see beats on both the top and bottom lines or not? And what will they say about the next 4 – 6 months? Because that is what is important.
And then on Friday into next week we will get the banks and financial companies….JPM, WFC, C, MS, BAC, GS, BLK, STT and then the super regionals….like- USB, KEY, PNC, BK, & TRU……and then the smaller regional banks (that got slammed when SVB and FRC imploded). Remember – that after all of the big banks passed the stress tests 2 weeks ago – investors have taken the group up 5% – expecting to hear about bigger buyback plans and divvy increases…. on a ‘buy the rumor’ response– so even good reports could see a ‘sell the news’ type of response.
AMZN kicked off AMZN Prime day – that continues thru today……Projections are as high as $12.9 billion for 2 days……which would be up 11% over last year’s prime day. (much of that though is due to higher prices and not necessarily higher demand). So far retail research is projecting top-selling categories including apparel, household essentials and home goods. We’ll get all the data tomorrow.
The dollar index is slipping – this morning it is down 24 cts at 101.492 because trader types are calling the FED’s bluff…. The July hike will be the last one (according to them) and so they are selling the dollar. And a weaker dollar helps the commodity complex (as you’ll see). The index is below all 3 trendlines but appears to be holding the April/May lows of 101 leaving it in the 101/103 trading range.
Oil is UP again – think weaker dollar index – and supply cuts…. yesterday oil blasted up and thru resistance at $73.60……and overnight – it traded as high as $75.25 (+2.2%) – teasing long term (200 dma) trendline resistance at $75.50 so $75.50 is now the KEY with $73.60 acting as support. A move up and thru that level will see oil test the April highs of $82.25 relatively quickly – leaving the Saudi’s laughing all the way to the bank!
Gold – another commodity that has also been under pressure as investors try to decipher the FED’s next move has now found stability in the $1900/$1975 trading range. A further decline in the dollar will help Gold go higher.
And US treasury yields remain elevated…. the 3- & 6-month bills yielded 5.45% and 5.5% respectively while the 2 yr. is now yielding 4.8% and the 10 yr. is yielding 3.95%.
And US futures are up again…… Dow futures +26 pts, the S&P’s +7, the Nasdaq +30 and the Russell is +8.
The S&P ended the day at 4439 – up 30 pts. Now it’s just about momentum…..as the ‘mo-mo’ guys try to take out the April high of 4488…..hoping to send the algo’s into a frenzy….that will cause them to initiate more buy orders sending stocks even higher….in what I think is a bit of a disconnect with reality…which is why I keep saying – have a plan, and stick to it. Do not chase the names that are already stretched, put new money into those sectors that have underperformed and may be boring but have strong fundamentals….
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.”
Spaghetti Al’ Tonno
This recipe comes to us from the Island of Sicily – just off the tip of the boot…. Sicily is all about fishing and is responsible for catching much of Italy’s seafood, including most of its tuna.
For this you need – Tuna in olive oil (not water), olive oil, s&p, red pepper flakes, dried oregano, crushed tomatoes, capers, garlic, anchovies, white wine, and 1 lb. of spaghetti and freshly chopped parsley.
Bring a pot of salted water to a rolling boil.
In the meantime – in a large skillet, turn heat to medium – add some olive oil, 1 or 2 anchovies (depending on your tastes), and drained capers. Sauté until the anchovies melt – now add in thinly sliced garlic…. (3 cloves). Sauté for 3 – 4 mins….do not burn….
Now add in about ¾ c of dry white wine – I use a pinot grigio – turn the heat up to med high and bring to a boil, add some red pepper flakes and dried oregano reduce to about 1/3…. stir and reduce….
Now add in the crushed tomatoes…I use San Marzano…. stir to mix…. season with s&p. Let it simmer for about 10 mins…….
Now add in the tuna and oil…. break it up …. stir to mix well, add in the chopped parsley – now lower the heat to simmer and let it simmer as the pasta cooks.
Add the spaghetti to the boiling water and cook for about 8 mins…. you want this to be aldente…. Strain – always reserving a mugful of pasta water. Add the pasta to the sauté pan and add a splash of the pasta water. – mix well. Cover and allow to sit for 3 mins…. Open and look – it may need a bit more of the pasta water to keep it moist – If so – add a touch more, if not, then not.
Now serve in a warmed bowl – top with a drizzle of olive oil and some more chopped parsley and grated parmigiana.
Buon Appetito
