Things you need to know.
– Wake up…JJ said stop your whining…. We are not there yet.
– The algo’s are not happy, stocks get punched in the face.
– But if you played it from the short side – you won!
– Janet ups the ante – bringing more long-term debt to the market.
– The VIX spiked higher…. And the VIXY etf rallied as well.
– Try the Bucatini with Red/Orange Bell Pepper Sauce
“We’re not declaring victory at all” – we need to see more data and he doesn’t think it is likely that the committee will reach a level of confidence by the time of the March meeting. “It is a highly consequential decision to start the process of dialing back on restriction and we want to get it right.” In fact, he said “it wouldn’t’ be appropriate…until they have gained greater confidence that inflation is moving sustainably toward 2%”. JJ Powell – FOMC Meeting 1/31/24.
Stocks slid on Wednesday morning and into the FED Press Conference at 2:30 pm…. The tech sector dragging us down as the trader types hit bids to ‘lock in those gains’ AAPL, AMZN and META – joining MSFT, GOOG and AMD got taken to the cleaners yesterday in anticipation of what they ‘might hear’ this afternoon. And then, not to be left out – the algo’s threw a temper tantrum…..only adding to the sell pressure….At the end of the day – the Dow lost 317 pts or 0.8%, The S&P gave back 80 pts or 1.6%, the Nasdaq lost 345 pts or 2.2%, the Russell lost 50 pts or 2.4%, the Transports choked – giving up 260 pts or 1.6% while the Equal Weighted S&P lost 85 pts or 1.3%…..
Just a point here – The indexes closed on the lows of the day…which usually means the market tests lower again the next day (today) – just to see if the sellers remain aggressive….
And do you remember what I told you about the VIX – fear index yesterday? If you don’t here, you go –
The VIX – fear index – was up 1% early on, and that only added a bit of pressure for stocks…but by the end of the day – the VIX settled down and ended the day down 2%…. which I think is head fake! I think we are gonna see the VIX spike higher – …. I do not have any inside information – It’s just the way I feel.
And the VIX spiked higher…. Closing up 8%…. while the VIXY ETF rallied by 5.2%! And if you played the ‘short game’ yesterday – you would have won! The DOG added 0.8%, the SH closed up 1.6%, the PSQ added 2%….and if you were really aggressive you could have made 5% if you went long the SPXS – which is the Direxion S&P daily 3x’s levered SHORT….
Now all of that happened after JJ took the stage…. So, what happened before?
The action was a bit muted all morning for the broader market as investors patiently awaited JJ’s press conference while trying to assess what Janet Yellen is really going to bring to the funding markets and then yesterday – the treasury came out and announced that they would in fact INCREASE the sales of long-term bonds (for the 3rd time) at next week’s refunding….…. ….. They are now expected to sell $121 billion of 3, 10 and 30 yr. bonds and that’s just next week….
She went onto say that IF there are any unforeseen changes in the borrowing needs – she could easily solve that problem using 1 yr. T-bills that get offered to ‘private investors’….Now before you go popping the champagne bottle – understand that ‘we’ are going to have to shoulder massive amounts of debt – a result of the large gov’t deficit and free spending ways – which could prove to be an issue…..…. But on the other side – Bond investors appear to be relieved because the overall supply of long-term bonds is NOT expected to surpass the current expectations……(yet).
And then we heard from NYCB (a large commercial real estate lender in NYC) ….and they got crushed – after swinging to a 4th qtr. loss…..$185 million of charge offs due to come commercial real estate – a co-op property and an office property – slashed their dividend by 70% and raised their loan loss reserve account to $552 million – 10x’s MORE than expected….noting that currently – the amount of loans that are between 30 and 90 days ‘past due’ jumped by 48% in the final 3 months of 2023. And so, investors and the algo’s took nearly 50% out of the name in mins….and this sent tremors throughout the sector…the KRE – S&P Regional Banking ETF lost 6%…. and it has names that include: NYCB -37%, CFG – 4.7%, ZION – 5.7%, TFC – 3%, MTB – 4%….etc.…In any event – the consensus is that this is an NYCB ‘specific’ problem and is not an industry problem (that has yet to be confirmed)….Analysts around the street stunned – with some of them calling this a ‘material negative surprise’…. Do you think?
And then the clocked ticked…….tick tock, tick tock…..and BAM – as expected rates stayed the same…at 5.25% – 5.5% – it was a unanimous vote…….but then we had to wait another 30 mins for JJ to take the podium…and when he did – he said the only 2 things you need to know – First – rates have peaked and Second – Don’t expect rates to decline on YOUR schedule. March was taken off the table….no mention of May……
Now that does not mean that the FED isn’t considering easing rates – it just means that they are in NO RUSH to CUT rates! Period, the end. Capisce? Is it clear or did you hear something else?
So, all this means is that if the market really starts to come under pressure, if stocks spin out of control, then the story will change…. Watch how fast that happens…..If we see the S&P and Nasdaq trade down 10%……..They won’t be able to get out their own way….The trader types will scream and yell, and then the FED will start talking about how the data is weakening and that the FED doesn’t want to overdo it……
Funny how that works – they were happy to overdo it on the other side and hold rates at 0 for 9 months longer than they should have (when they thought inflation was transitory – which is the running joke – it was never transitory)….but – JJ needed to keep his job….so he couldn’t raise rates until after his confirmation -and that is exactly what happened….he was confirmed in January 2022 and rates started to rise in March of 2022….But his confirmation process began in 2021…..so he had to hold the line or risk getting thrown out…But that’s another story….
What will be really interesting is what we hear from the FED heads in the coming days…. watch what the different FED heads say now, when they all appear on the business shows – trying to explain what JJ meant and what the committee is thinking…. expect to hear conflicting thoughts and all that will do is create a confused narrative resulting in the expectation that March isn’t really off the table….
Bonds Rallied on the news…. the TLT rose 0.9% and the TLH rose 1%…the 2 years ended the day yielding 4.22% and the 10 yr. settled at 3.93%.
Oil is trading at $76.40 this morning – up 60 cts/barrel…. which is confusing – why? Because Chinese Factory Activity was below expectations and that ‘should’ be an impediment to growth – suggesting weakening demand, but remember – Beijing is stimulating their economy so maybe it will be an engine of growth for Chinese energy demand……And then US stockpiles – which were weaker last week due to the storms raging across the country – bounced back this week – inventories rose by 1.2 million barrel and production is once again kissing 13 million bpd and that should put pressure on oil (think an increase in supply) but on the other hand – the US economy is strong – which would suggest an increase in demand….So, pick a side and go for it…We remain in the $75/$80 range….
Gold? Rallied yesterday rising $24 by 11 am – as the speculation continue to err on the side of a rate cut in March – (remember – a rate cut will send the dollar lower and gold higher)….but then it fell after the news that JJ was leaving rates unchanged in March…..and this morning it is down again – down $20 – trading at $2,048…..which only puts us right where we’ve been….hugging the trendline….leaving us in the $2,030/$2100 trading range.
US futures this morning is struggling to pick their head up…. The Dow is flat, the S&P’s up 16, the Nasdaq is up 95 and the Russell is up 20….and that does make some sense considering the sell off yesterday…. After the bell last night, we heard from QCOM – and they BEAT…(surprise!) Revenues up 5% at $9.94 billion vs the estimate of $9.52 billion. EPS of $2.75 – up 16% y/y…. QCOM saw handsets revenues up 16% y/y, Automotive circuits up 31%, while IoT revenues fell 32% – CEO Cristiano Amon saying that he is ‘extremely pleased with the results’ and they take the stock down…. falling 1.5% after hours and quoted down $2 this morning at $146.60/$146.90.
Now – we are due to get 3 more reports today after the bell… META, AAPL and AMZN – all 3 are quoted and trading a bit higher in the pre-mkt….and that also makes sense – since they all got slapped recently………. META – 3%, AAPL down 6.5% and AMZN down 3.3%….
And that beating that NYCB took yesterday – well, it is recovering a bit as well – up 4% in the pre-mkt…. but leaving it on the edge as investors wonder if this is the smoking gun in the CRE market. Now overnight that whole story ricocheted around the globe – Aozora Bank ltd (Japan) fell 21% because of its exposure to the US commercial real estate market and that only heightens the anxiety that we will see more to come….Now, just fyi – I’m in the camp that the big PE firms are salivating over the opportunity that a fallout presents….they are all raising funds to ‘pick up the pieces’ – So, I am not concerned that this will create another GFC. The chaos – if it happens, will be a huge opportunity for the smart money…
We will hear from 40 more S&P companies during the day….12 have already reported and 10 of them have ‘beaten the estimates’…. (that’s an 80% beat rate…)
Eco data today includes Challenger Job Cuts, Unit Labor Costs – expected to be up 1.2%, S&P Manufacturing PMI of 50.3 (expansionary), Construction Spending +0.5%, ISM Manufacturing PMI of 47.2 (contractionary) and Total Vehicle Sales of 15.7 mil – down from 15.83 million last month….
European markets are churning……UK and Spain both up by 0.2%, while France, Germany, Italy, and the Euro Stoxx are all down by 0.2. BoE policy statement due out and they too, are not expected to surprise – holding rates at 5.25%, but like here, investors will be looking for ‘hints’ of future rate cuts…Headline Eurozone inflation came in at 2.8% down from 2.9% in December but up from 2.4% in November…. Core inflation that came in at +3.3%.
The S&P closed at 4845 – down 80 pts…. A look at the chart – would suggest that a move to 4800 (1%) would not be out of the question…. but the action will be about the ongoing ‘reaction’ to yesterday’s news….and the anticipation about the earnings due out after the bell. Recall what I said yesterday…. – some will ask if the party is over…. It is NOT…. Stop the histrionics……
You know me…. I am a long-term investor……yesterday’s news does nothing to change my mind – only because I was not surprised – it never made sense to me that JJ would cut rates in March, and I don’t think he does it in May either…. (Unless of course we go off the rails in the next 5 weeks). As a long-term investor – focus on the exact that – the long term and eliminate the noise…. If you want to be a day trader – then turn up the volume on the noise…. In any event – call me to discuss. 212-381-6194.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Bucatini in a Sweet Orange Pepper Sauce
This is another simple yet yummy ‘quick’ sauce…. It uses vibrant red and orange bell peppers…. garlic, diced onion, olive oil, s&p, fresh basil, hot red pepper (optional) and plenty of Pecorino Romano Cheese.
Bring a pot of salted water to a rolling boil.
In a large sauté pan – heat up the olive oil, sauté the sliced garlic, now add in the diced onions and sauté until translucent. Now add in the thinly sliced orange/red bell peppers and sauté until soft. Season with s&p. When done – run 3/4 of it thru the food processor to blend. Return to sauté pan and set aside.
Cook the pasta al dente – maybe 8 mins… strain and reserve a mugful of water. Toss the pasta into the sauté pan and turn heat to med – mix well – adding a bit of the reserved mug of water.
Now add the fresh basil – some hot red pepper (opt) and plenty of cheese. Toss and serve.
Buon Appetito.
