Things you need to know.
– Another Monday Rally – but is something a bit amiss?
– Nations around the world trying to use diplomacy to diffuse the Israel/Hamas conflict.
– Vlad rallies his troops (get a load of this)– Egypt, Syria, Iran, and the PLA
– China supports Hamas and calls for a cease fire.
– Treasury yields rise, Oil Rises, Dollar Rises and Gold holds Steady.
– Try the Capellini in a Roasted Tomato Sauce
Who remembers Cass Elliot? Michelle Phillips? John Phillips or Denny Doherty? The Mama’s and the Papa’s? (1968). Monday Monday so good to me…. Monday morning it was all I hoped it would be…. Monday, Monday can’t trust that day…. Monday Monday – sometimes it just turns out that way….
Stocks staged a BIG rally on Monday….and as Ryan Detrick – Chief Market Strategist at the Carson Group LLC – so finely pointed out- saying.
“Stocks are about to be up on a Monday for the 15th time in a row. This is the longest Monday win streak ever for the S&P” –
which makes me want to ask – where does he find that stat??? Just curious…. but either way – stocks rallied hard – and you would think its all wine and roses that there isn’t one negative thing going on in the world…that the sky is blue, the sun is shining, and the ocean is warm….
That inflation is not ravaging the country, that prices are not up by 30+% since Jo Jo took office or that interest rates haven’t surged in the past year, never mind the past week or even yesterday. You would think oil was trading at $40/barrel and not $87 on its way to $100. That there is peace in both Europe and the Middle East, and that China is not getting ready to pounce on Taiwan…. Or that all of the big boys at the banks aren’t warning of tougher times ahead. I mean – who would believe you? Sounds ridiculous, doesn’t it?
Look, sometimes you just can’t explain it…. or you can point to the idea that just maybe the diplomatic efforts to prevent Israel from destroying Gaza is working…Even Vlad (you remember him, no?) joined in – hosting a call with the leaders of Egypt, Syria, Iran, and the Palestinian Authority (now there’s a group of guys that scream Democracy!) – saying that THIS group voted unanimously on the need for a cease fire! Maybe he needs to look in his own backyard first? Oh! Well, that’s good! Glad we got that out in the open. Look who we are talking about – Syria? Iran? Really?
And then, not be left without a voice – China chimes in – in support of Hamas – of course he did, nothing like kissing up to the Arab states as he looks to gain support for the ‘China Global Agenda.’ – The agenda that legitimizes authoritarian regimes and strips people of human rights protections on the international stage. Come on…! And speaking of the Arab states – What’s up with that? How come they don’t all open up their borders and assist? Maybe, they don’t want the problem?
At the end of the day – even as treasuries fell, stocks surged (which is an oxymoron), but it appears that the algo’s are much more focused on future corporate earnings. The Dow gained a whopping 315 pts or 1%, the S&P up 45 pts or 1.1%, the Nasdaq up 160 or 1.2%, the Russell ahead by 28 or 1.6% and the Transports gained 277 pts or 1.9%!
In the end, I think the rally yesterday was because we did NOT see an escalation over the weekend, we did NOT see Israel go in and mow everyone down and I think more than anything it was NOT about an improving economic story but rather the absence of war! And remember – geo-politics do not price stocks in the long run, and sadly – chaos in the world is put on the back burner as investors are now focusing their efforts on earnings season…..and just too keep score – of the 20 or so companies that have reported so far – 88% of them have beaten the estimates….but remember – the estimates are low….which is why 88% of them have beaten. Capisce? It’s a wicked game they play…. My gut says that we can expect the usual by the end of the reporting season…. about 72% will beat….
And speaking of earnings – street analysts are starting to ring the alarm bell…. Morgan Stanley, JPM and Citi have a lot to say… Mikey Wilson (aka Mr. S&P 3000!) – of MGS fame – had this to say (if you can even understand him)
“Given this is a time of year when earnings revisions tend to see an upward inflection of breadth, further underperformance would be a sign that other cyclical risks including macro headwinds are driving the earnings revisions backdrop.”
First of all – is he kidding? Who even talks like that?
Ok – Mikey – stop with the drama, speak English, say it like it is…. upward earnings revisions are getting slammed, the country is about to enter recession and earnings will get hit again because rates are going to remain higher for longer if not go higher still! Isn’t that so much easier?
And Citi’s index of earnings revisions shows downgrades outpacing upgrades for the 4 weeks before earnings began….and JPM’s Mislav Matejka says that revisions appear to be weakening again in the US and the Eurozone….and these bearish comments fly in the face of what was much more optimism only 2 months ago. The next 4 weeks will reveal how US and European companies have managed their businesses in the face of higher rates and slowing economies.
Now Lori Calvasina – Head of US equity Strategy at RBC is taking the opposite side of this trade – raising her 2024 projections…saying that she assumes a ‘significant moderation in inflation and an easing of interest rates in the late summer/fall of 2024 – as sluggish GDP and Industrial Production forecasts will force JJ to reconsider his higher for longer narrative. Maybe it was her commentary that the algo’s focused on? In the end – Bloomberg Intelligence tells us that this quarter is expected to see a 0.8% drop in earnings y/y before we experience a 6.2% increase for the 4th qtr. – which is in complete contrast to what Mikey thinks is about to happen.…. and that will or will not become clear in the guidance that they give us. For now – investors, traders and algo’s are apparently loving what they are hearing.
Joining Lori is Ricky Bernstein (Bernstein Advisors) who told us that.
“If the economy is going to re-accelerate, which it is doing and if profits growth is going to re-accelerate which they are doing, then small caps will lead the way. That’s what history says.”
And the small caps were all higher…. IWM + 1.6%, CALF +1%, SMLF +1.6%, IJJ & IJT up +1.5% – but let’s be honest – when the excitement hits – everything gets swept up in the frenzy…the same way – everything gets pummeled when the sh*t hits the fan!
Treasuries prices sank sending yields higher (higher yields typically put pressure on stocks)….the 10 yr. rose 2 bps to end the day yielding 4.70%, the 30 yr. rose 5 bps to 4.85% – the TLT – the 20 yr. bond ETF fell by 1.6%, while the TLH – the 10 – 20 yr. bond ETF lost 1.3%. Maybe it’s because the 10 yr. is still 15 bps BELOW where it was 2 weeks ago, so the angst won’t heat up until the 10 yr. pierces 4.85%.
The contra trades – as you can imagine got punched in the face. The DOG lost 1%, the SH lost 1.2% and the PSQ lost 1.4%. The VIXY fell 10% while the VIX index lost 11%.
Every sector in the broad S&P 11 sectors was higher…. Communications & Consumer Discretionary led the way, up 1.6% while Healthcare and Energy carried up the rear – rising by 0.6%. Industrials, Financials, Utilities, Tech, Basic Materials, Real Estate and Consumer Staples all went up by 1%.
Home Builders, Cybersecurity, Semi’s, Disruptive Tech all up between 1.5% – 2.2% …interesting that Aerospace and Defense stocks did very little – the ITA was only up 0.6%……LMT, NOC and GD lower on the day, with RTX up 1% – which makes ZERO sense to me, but these names all rallied really hard last week – creating gaps in their charts, which usually means they need to go back and ‘fill the gap’.….In any event – it was what it was…
This morning US futures are doing nothing…. Dow futures down 12, S&P’s down 1, the Nasdaq is off by 5 pts and the Russell is down 4. We are due to get another 55 companies (11% of the S&P) to report this week – 5 of them are Dow stocks and this morning we will hear from JNJ, GS (both Dow names), BAC, LMT & PLD. Next week it’s about the regionals. Continue to listen to what they have to say about Net Interest Margins and Loan Loss Reserves…Friday brings us Amex – what will they have to say about card holder defaults?
And it’s a big macro data point day as well…. Retail Sales Advance m/m exp to be up 0.3%, Ex Autos and Gas +0.1%. NY Fed Services Activity, Industrial Production expected to be up 0%, Capacity Utilization of 79.6% (remember 80+% is inflationary), Manufacturing Production also up 0%, Business Inventories of +0.3% along with the NAHB Housing Market Index – which measures sentiment among home builders of single family homes and that is expected to be 44 and this is important because a strong index suggests that we should see an uptick in Durable Goods – think appliances, furnishings, toilets, bathtubs, windows, AC’s, heating systems, flooring, lumber and that speaks to the overall health of the economy. A number north of 50 reflects a favorable view…south of 50 – less favorable.
European markets are also lower…. but not significantly – markets across the region are all down about 0.2%…Earnings from Ericcson, Rio Tinto and Publicis are on the calendar. The ZEW (eurozone) Economic Sentiment Index rose more than expected – coming in at -1.1 vs. the estimate of -9!
Oil is trading at $86.75; Gold is trading at $1933, and the Dollar index is up 18 cts at 106.42.
The S&P closed at 4373 up 45 pts…..Again – we traded right up the trendline and failed..….the short term trendline DID slice down thru the intermediate term trendline and this suggests that we could see further weakness in the days ahead….Now this not the death cross – when the short term trendline slices thru the long term trendline, but it is a warning shot – leaving us in the 4220/4402 trading range….Expect today’s earnings to be the next big thing…..And just a reminder – Treasury yields are up this morning….the 10 yr up 4 bps at 4.75%, the 2 yr up 1 bps at 5.11 and the 30 yr up 5 bps at 4.90%.
On a side note – Jim Jordan looks like he will become the House Speaker at noon today and Jo Jo woke up and has decided to go to Israel tomorrow to show support. This leaves Kammy just steps away from 1600 Pennsylvania Avenue (do what you want with that…) Some world leaders would love to see that…. China would take Taiwan before the sun set…. Just sayin.’
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Capellini in a Roasted Cherry Tomato Sauce
Yum…this is simple to make…. I made it last night – see the pics (from start to finish on my X (@kennypolcari)
You need – 1 whole head of Garlic – trimmed at the top, a bag (or 2) of cherry tomatoes – sliced in half, s&p, olive oil, Fresh Ricotta Cheese, Fresh Grated Parmegiana and 1/2 box of Capellini (angel hair pasta).
Preheat your oven to 400 degrees and bring a pot of salted water to a slow boil. Leave on the back burner until you need it….
Begin by slicing the tomatoes in half, trim the garlic bulb – now place all of this on a baking sheet. Season with s&p and a splash of olive oil. Mix well, to coat. Place in the oven and roast for 20 – 30 mins… The garlic should be golden and nice and soft, and the tomatoes roasted.
Place the tomatoes in the food processor, squeeze out the individual garlic bulbs from the head and add. Now place 2 large spoonfuls of the Ricotta Cheese and 1 handful of the Parmegiana cheese – blend until pureed (see the pic).
Now cook the pasta until aldente…Capellini cooks very fast, so don’t go to far. While this is cooking, put the roasted tomato sauce in a large sauté pan and keep on simmering. Add ½ ladle of the pasta water (tears of the Gods) to the sauce and stir.
When the pasta is done – using tongs – place the pasta in the sauté pan with the sauce. Mix well. If you need to add a bit more of the pasta water – do it now. Serve immediately and always have extra Parmegiana cheese on your table. Make sure you have both a fork and a spoon to twirl! See pics on my X.
Buon Appetito
