Things you need to know –

–         Kansas City Fed President says, “Slow down Boyz.”

–         What will the others say?

–         PCE Deflator due out on Thursday…. Annualize the numbers.

–         The Magnificent 7 in the US and the Granolas in Europe.

–         Bonds prices down, Oil up, Gold continues to thrash around.

–         Try the Braised Beef Tenderloins.      

So the stock rally that has taken the indexes to all time highs appears to be tiring – a bit…..as investors, traders and algo’s brace themselves for a boatload of economic data coupled with all kinds of remarks from a variety of FED Heads that will surely end up creating confusion and chaos….Will they all sing the same song or will they break ranks and start to challenge each other in the global public square? Will some say that it is time to cut while others say – ‘slow down boyz….’  We are about to find out….as the parade of FED heads begins tomorrow….

Two big changes in the Dow indexes – AMZN replaced WBA in the industrials and UBER replaced JBLU in the transports and while they don’t change the members of the indexes very often and some think that it is all very exciting – it doesn’t really mean a whole lot, so, if you were looking for all kinds of bells and whistles – sorry to disappoint….At the end of the day AMZN lost 0.1% and UBER gained 0.25%.

By the time the closing bell rang – the Dow had given up 63 pts or 0.15%, the S&P lost 20 pts or 0.4%, the Nasdaq gave up 20 pts or 0.15%, the Russell gained 12 pts or 0.6%, the Transports lost 80 or 0.5% while the Equal Weight S&P lost 30 pts or 0.4%.   

Yesterday gave us New Home Sales and while it was expected to be +3% and I expected it to be even stronger – that was not to be the case…. New sales came in at +1.5% – half of the expectation, and well below last month’s read of +7.2%.  Now some of that can be explained away with higher mortgage rates this past month vs. the month before – putting pressure on buyers…. but in any case, it did not send a tremor through the housing etf. The XHB ended the day slightly higher – and is now up 6% ytd.

Wendy’s – you know them right (WEN $18.20) – the serve hamburgers and frosty’s…. So, a couple of things – they announced a new chief information officer – Matty Spessard and the first thing this guy announces is the UBER style ‘SURGE PRICING’ for hamburgers and frosty’s….Which means – just to be clear – that the cost of the hamburger will fluctuate during the day depending on demand…so it might cost $7 at 10 am (low demand) but cost $10 at noon (a 42% increase!) – think lunch time and higher demand…and this btw is not just for hamburgers – it is across the whole menu item list….The NY Post puts it perfectly –

“The fast-food chain’s unappetizing plans, set to be tested in a high stakes rollout next year, will SQUEEZE MORE MONEY OUT OF ALREADY INFLATION BATTERED AMERICANS who may not have an option to eat their meals during ‘off-peak’ hours”.  

How’s that feel?  Oh boy…. Can’t wait to see how this plays out…. Just to be clear – WEN has not been a winning investment – it’s been in a downdraft since December 2022 – down 24%…. (7% of that is this year).  Not sure this news is going to turn that performance around, You? I guess this guy is betting on customer loyalty……. Is Wendy’s planning on hiring more workers to meet that increased demand that forces prices higher?  And then is surge pricing going to become ‘the thing’…. Will Apple announce a surge in pricing at its flagship stores around the country?  Will Costco, WMT, ACI or CVS announce surge pricing too?  And then what about hospitals and healthcare?  Are we preparing for surge pricing there as well? Oh boy, this is going to be interesting…. What will the Wendy’s customer do?      

Now the economy is back to being the focus – earnings season is mostly over….…. Yes, we’ll get the retailers this week – LOW (beat on the top and bottom lines – the stock is quoted up $1), M (mixed), AZO are next.  But I’m not sure it’s going to change my mind at all about where we are going – in fact the double beat for LOW’s only confirms that….

Eco data includes Durable Goods – expected to be down 5%, Ex Transports of +0.2%, Cap Goods Ordered and Cap Goods Shipped – both expected to be up 0.1%, Richmond Fed Manufacturing Index of -9 and then the Conference Board Consumer Confidence expectation at 115 is up over last month….But it will be Thursday’s PCE deflator report that so many are waiting for…..…..remember – this IS the Fed’s favored inflation gauge and it is expected to show a big increase in the m/m report….on both the top line and the core line….the PCE deflator m/m is expected to be up 0.3% and the Core PCE deflator is expected to be up 0.4% m/m…. – which means if you annualize those numbers – inflation is running at 3.6% or 4.8% at the core level……. Hmmm?  THAT’s NOT GOOD….and does not suggest any reason at all for the FED to cut rates.

And btw – did you hear what the NEW Kansas City Fed President – Jeffrey Schmid had to say…… “slow down Boyz”…….he is urging patience on cuts as the fight against inflation is NOT over….citing the strong job market, considerable momentum in demand,  and ‘in his view’ there is NO reason to preemptively adjust the stance of policy….Notice the choice of words – Adjust vs. Cut……

“I believe that the best course of action is to be patient, continue to watch how the economy responds to the policy tightening that has occurred, and wait for convincing evidence that the inflation fight has been won.”  BAM! 

Will this be the song that the others sing as well?  And if it is – then just maybe the 3 rate cuts that the market is supposedly pricing in will also be ‘adjusted’…. I mean 3 cuts???  It still sounds ridiculous to me considering the economic data…. but I am not a member of the FOMC committee.  

NVDA continues to impress – piercing $800/sh once again in the morning but ending the day up 0.3% at $790.92.  this morning in the pre-mkt – NVDA is up another 0.2% or $1.40/sh.  

Next is the bond story….and barrage of supply that is coming to the markets in both treasury notes and corporate bonds…. Yesterday we had both 2 yr. and 5 yr. notes.  $63 billion worth of 2 yrs. that yielded 4.69% – up from 4.68% (means prices dropped) and $64 billion worth of 5 yr. notes that came in 4.32% vs 4.31% – again sending prices lower in order to soak up supply…remember – its not there aren’t any buyers for this stuff, it’s just at what price will clear at….More supply will send prices down and yields up.  A look at both the 10 yr. and 20 yr. bond etf’s told the same story…. the TLT (20 yr. bond etf) down 0.5% and the TLH (10 – 20 yr. bond etf) down 0.4% and that sent yields higher…the 10 yr. yield up 5 bps at 4.295%.  But none of this should surprise anyone.

Oil rose by $1.10 or 1.45% yesterday…. Why?  Shipping disruptions and the ongoing conflict in the RED Sea….and while there isn’t a problem with supply, it is the increase shipping costs and time costs that drove the action yesterday. Jo Jo assures us that there will be a cease-fire in the Israeli/Hamas war by Monday, which would hopefully cause the Hootie’s’ to go away as well – yet both Israel and Hamas dispute that headline.  And btw – this would be a temporary cease-fire, not a permanent cease-fire.  This morning though – oil is down 30 cts – and the are pointing to the latest Schmid comments about leaving rates higher for longer…and if that’s the case – then economic growth should slow and demand will decline….but let’s be honest….Interest rates are not high…..they are normal – High was in 1981 at 20%……5.25% rates are nothing to raise the roof about.  Stop the whining.

Gold remains stuck in the range…$2030/$2050….Yesterday we traded $2034/$2046….to end the day at $2039…this morning it is up $7 at $2046…and remains stuck between the trendlines….Now – if we continue to hear caution in rate cuts – then again I suspect Gold will come under pressure…higher rates will benefit the dollar and a stronger dollar will cause Gold to decline.

The dollar is down 9 cts at $103.72 and has been in decline since mid Feb when it traded up to $105…. Recall – when it traded at $105 – gold got slammed and traded down to $2000…. But as the 3-rate cut story gathered steam again – the dollar pulled back allowing gold to advance.  So, if that story should change again – don’t be surprised if Gold gets hit.

US futures are in the plus column…. Dow futures + 4, S&P’s +3, Nasdaq + 20 and Russell + 6.  I expect the action to be subdued today….as investors/traders and even the algo’s are reluctant to make any big bets ahead of all the FED speak and eco data later in the week….and if Jeffrey Schmid is the ‘canary in the coal mine’ then we can expect MORE talk of not so fast…….and if that is the case – I would expect stocks to retreat (a bit).  In fact, I hope they retreat, but just understand…..while valuations for tech stocks is high causing ‘some’ of those stocks to become stretched, that is not the case for other industry groups – which supports the argument that a major pullback is most likely not happening……as  money moves out of the ‘stretched sectors into those other sectors’….Think Consumer Staples, Healthcare, Financials, Industrials and Basic Materials.

Tomorrow we will hear from Atlanta’s Raffi Bostic, Boston’s Suzy Collins, and NY’s Johnny Williams.  On Thursday – it will be Chicago’s Austan Goolsbee, Raffi (again) and Cleveland Fed President Loretta Mester.  And on Friday we will hear from Raffi (again) and San Fran’s Mary Daly.

European markets are treading water – Germany is up 0.4% while Spain is down 0.6% – the others are trading within those bands…. – consolidating after all the excitement.  BoE Governor Andy Bailey speaks today,  Eurozone Eco activity and consumer confidence is due on Wednesday, France, Germany, and Spain CPI’s due out on Thursday, Eurozone CPI due out on Friday.   Next – suddenly we are hearing about the European ‘GRANOLAS*’ – these are Europe’s 10 biggest stocks that have carried those markets higher – raising concerns about concentration risks in Europe- the same way the Magnificent 7 raises the same risks in the US.

*Granolas (apparently a GS acronym) – GSK, Roche, ASML, Nestle, Novartis, Novo-Nordisk, L’Oréal, LVMH, AstraZeneca, SAP, and Sanofi.

The S&P closed at 5069 – down 20 pts…. closing on the low of the day…. The range was 5068/5097. I continue to think it is toppy at the moment – so patience is a virtue. ……. doing nothing and keeping some money in your money mkt acct earning 5% is also an investment decision….  I am looking for some more churn and expect the broader market to back off a bit going into the end of quarter.

Take good care.

kpolcari@slatestone.com

Sources:  Bloomberg, CNBC, Reuters, Wall Street Journal

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Braised Beef Tenderloins

You will need:  crushed garlic, olive oil, butter, the beef tenderloin cut into 1 1/2-inch-thick pieces, flour, s&p, and a nice full bodied red wine….

Ok – begin by selecting a sauté pan that will accommodate the tenderloins without crowding…. Now – heat the pan on med hi…. add in a bit of olive oil and about 3 tblspns of butter…. (The oil prevents the butter from burning).  Drop in the crushed garlic and sauté.

While the butter is warming up –season the tenderloins with s&p and dredge the filets in flour and when the butter is all melted – add the filets and brown the meat nicely on both sides.   Once you are satisfied – remove the meat and place it on a platter.

Add in about ¾ cup of red wine to the pan…. let the alcohol burn off – always using a wooden spoon to scrape the bottom of the pan…. when the wine is almost boiled off – add back the filets and cook for about 1 or 2 mins per side…. Remove and immediately serve on a warmed plate with a green veggie…

I suggest roasted Brussels sprouts.  For these you need:

Brussels Sprouts – trimmed and sliced in half lengthwise, s&p, lemon, and butter.   Prepare the sprouts and roast them in a 400-degree oven while you tend to your tenderloins….

Serve alongside your tenderloins and a lg mixed green salad. Enjoy a nice Cabernet.

Buon Appetito.