JJ Says it Again, FED Members Confirming. Treasuries decline, Oil & Gold Steady/Try the Herb Pork Chops

Kenny PolcariUncategorized

Free catch my breath pant tired illustration

Things you need to know.

–         Has JJ finally made them understand?

–         Broader market adjusts – yet anything AI continues to climb.

–         Treasuries decline – sending yields higher….

–         Oil & Gold hold steady

–         Lots of FED speakers this week….

–         Try the Herb/Balsamic Pork Chops

So, JJ took to 60 minutes on Sunday evening and said it again…..Don’t hold your breath for a March rate cut – “given the recent economic strength we feel that we can approach the question of when to begin to reduce interest rates carefully’…..and then Neely Kashkari – Minneapolis Fed President said that ‘we have time to gauge the incoming data before easing….’  While his Chicago counterpart – President Austan Goolsbee said he’d ‘like to see MORE of the favorable inflation data….’

And that sent the algo’s into a tizzy…..….causing them to create sell orders at the market while moving the buy orders down in the book – once again leaving a void in prices causing all the indexes to move lower….at 4 pm – the Dow had given up 275 pts or 0.7%, the S&P down 16 pts or 0.3%, the Nasdaq lost 32 pts or 0.2%, the Russell continues to get smashed – losing 25 pts or 1.3% (leaving it down 4.4% ytd), the Transports gave up 113 pts or 0.7% while the Equal Weight S&P lost 55 pts or 0.9%.

Now, none of this should have been a surprise….the trader types have been pushing the March rate cut narrative for a while – an idea that never really made sense given all of the data….what was – at one point – a 100% bet, fell to 80%, then 50%, rallied back to an 80% bet only to find itself at 15% as of this morning.  Although – they won’t let go of the May rate cut idea yet….the odds of a May cut remain high (80%) – but that’s just a matter of time….The sentiment now seems to be a June cut is most likely…but again – that puts us within the 6 month window before the Presidential election – and the FED is not supposed to move on policy – in either direction- during that time period…. ‘BUT this time it’s different’!  LOL….

Yesterday’s eco data – the S&P US Services PMI and ISM PMI’s both came in strong – checking in at 4 month highs while prices for services rose as well….…at 52.5 and 53.4 respectively….recall that anything north of 50 is considered expansionary…..and these strong reports are leaving many to question whether or not inflation can really cool beyond where it is without leaving rates higher for longer….… – Remember – Services PMI’s are important given that the US economy is a 75% services economy….and the other recent eco data only confirms that – think Friday’s NFP report and the surge in Average Hourly Wages that is now running at 4.5% – well above the 3% level that the FED needs to see in order for them to feel comfortable slashing rates.

Now, there are no economic reports today, and none really that are going to change the narrative this week….But, next week is a different story….we are due to get both the latest CPI and PPI reports on the 13th and 16th….along with Retail Sales, Philly Fed, Industrial Production, Capacity Utilization, Building Permits, Housing Starts, and finally the U of Mich Sentiment Survey….

The weakness in the Dow, Russell, Transports and S&P did little to slow the passion for anything AI….NVDA leading the pack – once again – jumping by 4.8% on a Goldman upgrade….causing investors to take QCOM up- 1.6% and AVGO up 1.5%, ASML up 0.9%, LRCX +1.5% and AMAT + 1.7%.  The SMH (semiconductor) ETF gained 2%. 

Now some of the most recent gainers in tech that have enjoyed higher prices – did find themselves under a bit of pressure as trader types lock in some profits…MSFT -1.5%, META – 3.5%, AMZN – 0.9%, GOOG -1%….AAPL bucked the trend gaining 1% – but remember – they punished AAPL last week – taking it down 6% because they only made $119 billion in 3 months and there was a footnote about how China was slowing – Recall, I said that I thought it was all BS and that AAPL is a long term buy….

Away from TECH – XLK which was up 0.2% was Healthcare – XLV which ended the day up 0.3%…. the other 9 sectors ended the day lower and that makes sense – considering the tone and the ‘re-valuation’ that needs to take place given that the markets may finally believe what FED chair JJ keeps telling them.

Treasuries – did what you would have expected on the news…they sold off…… The TLT lost 2% while the TLH gave up 1.7%. (Leaving those bond etf’s down 4.8% and 3.6% respectively ytd).   The 2 yr. is up 27 bps in 2 days and ended yesterday yielding 4.46% while the 10 yr. has surged by the same 27 bps to end the day yielding 4.15% – taking both those yields up 7% since Friday morning.

Oil did manage to rally a bit…. up 0.7% as traders try to hedge the geo-political risk in the middle east.  WTI is trading at $72.83/barrel…rebounding off of last weeks low of $71.40.  Remember – the US did strike a number of Hootie targets over the weekend and has not ruled out more.  This as the Hootie’s (think Iranians) claim to have hit more merchant ships in the RED Sea creating more global angst. 

The Saudi’s need oil to trade at $90 barrel in order for them to balance their budget…..so at $72.83 – they are not happy….So far, they are sticking with their current production quotas hoping to avoid more of an oil surplus…..but remember – the surplus that exists today is because of all of the Non-OPEC production – with the US leading that effort – so it’s a game of ‘cat and mouse’ now….Stay tuned.  Oil remains in the $70/$75 range.

Gold is holding steady at $2040/oz…. after testing the trendline at $2030 on Monday…. a level I identified and expected us to test.   We tested and bounced off that trendline – despite the fact that the FED has made it clear that rate cuts are not imminent – It is the geo-political unrest that is the cause celebre for gold investors – as it is still the ultimate ‘safe haven’ play….I mean – who doesn’t love having those gold bars in your safe deposit box!  Right now, gold remains in the $2030/$2100 trading range.

US futures are mixed…Dow futures down 50, the S&P’s down 1, the Nasdaq gained 30 and the Russell is down 6.  Fed Presidents Loretta Mester and Patty Harker both due to speak to today….so let’s see if they support the latest comments by other FED presidents.  Adriana Kugler – FED board of Governors and Richmond Fed President Tommy Barkin both due to address ‘the nation’ on Wednesday.  Janet Yellen to address the Senate banking committee on Financial Stability and Oversight on Thursday.  All while Jo Jo prepares to meet German Chancellor Olaf Scholz on Friday at the WH.

Beyond our borders – we will also hear from Bank of Canada Governor Tiffy Macklem and ECB Chief Economist Philly Lane.

Earnings to continue and we will see reports from DD (beat), CNC (beat), LLY, KKR all before the bell with AMGN, GILD, SNAP, F & PRU all after the bell.  And that is only a preview of reports…

European markets are all higher this morning…. BP rising 6% even after reporting a sharp decline in profits – think lower oil prices – but they did announce plans to boost shareholder returns…. a $1.75 billion stock repurchase plan in the first quarter along with a $3.5 billion plan in the first half of the year. UK sales did slow in January as the ‘cost of living crisis’ weighs on households…. German factory orders rose by 8.9% – well above the expectation…. thanks to surging aircraft orders and fabricated metal products and electrical equipment. If you take those 3 segments out – then new orders actually declined by 2.2%. At 7 am – markets across the zone are up between 0.1% – 0.3%. 

The S&P closed at 4942 – down 16 pts….….Not so bad considering the headlines…..but I would not be surprised to see ongoing weakness (in the broader market) as investors and traders digest the latest narrative….But that weakness should be viewed as an opportunity for the long term investors….Look – a move down to the trendline at 4734 represents only a 4% move lower…Now, I do not think we go there, but if we do – it’s only a 4% move – well within what is considered a normal trading pattern.  And while some will be screaming – others will be quietly picking away…. which side will you be on?  I told you that the market felt a bit tired up here…and I still think it is…. which is why I suspect we will see some ongoing weakness.  Talk to your advisor….

Take good care.


Sources:  Bloomberg, CNBC, Reuters, Wall Street Journal

Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. 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 Kenny Polcari or SlateStone Wealth.

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, which may not necessarily align with our firm’s standpoint.

While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.

Kenny Polcari is the Chief Market Strategist for SlateStone Wealth.  Neither Kenny nor the partners of SlateStone Wealth are compensated in any manner by the issuers of any securities mentioned in the publication.

Chef hat, knife, and fork icon


Herb / Balsamic Marinated Pork Chops

Start with 4 / 6 pork chops on the bone…. thin or thick cut – whatever you like.  Rinse and pat dry.  Set aside.  In a bowl – add olive oil, balsamic vinegar at the ratio of 1:1.

Next add dried rosemary & thyme and fresh basil.      Season the chops with salt and pepper.  Marinate the chops in the oil/balsamic mixture for at least 1 hr…. (You can prepare up to this point the day before and leave marinating in the fridge overnight.)

When ready to eat -preheat oven to 400 degrees.  Place chops in a baking dish – with the marinade…. cover tightly and place in oven and cook for 30 mins.

Remove cover – and turn on the broiler…. broil chops to create a bit of a crust – flip and repeat…. Be careful not to dry them out.   (You can also do these on the grill if you choose)

Serve this dish with roasted smashed potatoes and a green vegetable like French cut green beans – steamed and dressed in a dab of butter and s&p.   As usual also serve with a salad of Boston lettuce, arugula, red onions, cucumbers and tomatoes.

Buon Appetito.