Things you need to know.
– Wait, that’s it? The pullback is over.
– Buy the dippers come to the rescue – Tech and SMIDS benefit.
– Oil slightly weaker on ‘demand’ concerns (Yawn)
– Gold is trying to stabilize.
– Goolsbee leaves the door open on rate cuts, Waller more suspect.
– What will the ECB and other FED heads say today?
– Try the Halibut
Stocks rallied on what I think is more of a ‘dead cat bounce’ rather than signaling the end of any kind of pullback or dare I say ‘correction’? I mean – on Tuesday the algo’s couldn’t’ get out of the room fast enough after the CPI report…..the pressure on stocks was immediate – the sellers ruled the day – and the buyers were happy to step aside- happy to buy stock at slightly discounted prices…and I say slightly – because what was it really? I mean the Nasdaq had rallied nearly 30% in 3 months (Nov – Feb) …. on top of the 35% between January 2023 and October 2023 (that’s a 65% move) and then they decline by 1.8%? Really? Are you kidding me?
I mean – we have all lived it…. Valuations soaring, any mention of anything AI sent the broader market up single digits and anything TECH up double digits. This on top of better-than-expected economic data, cooling inflation, talk of a ‘soft landing,’ strong job growth, historically low inflation etc. So, then we get a slight uptick in the latest CPI, the algo’s go into ‘shock’ and the markets get sprayed with waves of sell orders – stocks fall as buyers take advantage of the fear and then it’s all good?
The ’buy the dippers’ thought we had dipped enough, came in and scooped them up and stocks rallied….there is no doubt about it….the Dow added 151 pts or 0.4%, the S&P up 47 pts or 1%, the Nasdaq tacked on 203 pts or 1.3%, the Russell added 47 pts or 2.44% (the outperformer)- remember what I said yesterday morning….
“Yesterday it was the Russell and the Transports that got 2 black eyes vs. just 1. They lost 4% and 2.6% respectively – this vs. the ~ -1.5% for the others…. Soooooo, while we’re gonna see lots of ‘bargain hunters’ I would expect to see more of them in those sectors……but remember – yesterday’s losses may NOT be 1 & done……so tread lightly…”
The transport gained 38 pts or 0.25% (a sign of weakness) while the Equal Weight S&P gained 62 pts or 1%.
Bonds which got clobbered on Tuesday rebounded yesterday…. the short end of the curve carrying the load…. The TLT & TLH gained 0.5% a piece. The 2 yr. fell 9 bps to end the day yielding 4.57% while the 10 yr. lost 8 bps to end the day yielding 4.25%….and yes, both of these bonds are well below yield levels seen in October – when the market gave back ~8% when the 2 yr. was yielding 5.25% and the 10 yr. ticked at 5.02% – so that fact helped investor psyche…
And as you would expect – it was anything TECH that led the way up…..the XLK + 1%, the Semi’s – SOXX +2.25%, Disruptive Tech – ARKK +5.5%, Expanded Tech – IGM + 1.7%, Robotics – BOTZ + 2% – these are all the sectors that took the hardest on Tuesday…I mean – it’s almost a mirror image….Semi’s lost 2% on Tuesday and they gained 2.25% on Wed, Disruptive Tech lost 5.5% on Tuesday and gained 5.5% on Wednesday….The same with Expanded Tech – down 2% on Tuesday and up 2% on Wednesday….Which means – What really happened?
The only two sectors in the S&P that failed to move up were Consumer Staples – 0.2% and Energy – down 0.1% – all the other sectors ended the day higher– with many of them gaining back most of what they lost on Tuesday… But remember – when something falls by 2% one day and rallies by 2% the next – it is still not ‘completely back’ to where it was…. A $100 stock that falls 2% is now worth $98. If that stock, then rallies 2% it’s worth $99.90 – yes, we can argue over 10 cts…but the fact is – it needs to rally slightly more than 2% to be back to $100. Look at the Industrials – XLI lost 1.1% on Tuesday but gained 1.7% yesterday – so that ETF is worth more this morning than it was on Tuesday night.
And so here is the issue with long term investors that try to time the market – Say you sold your XLI on Tuesday (because you got nervous with the CPI report)….and put that money in cash (great)…and then on Wednesday – Chicago Fed Pres Austan Goolsbee comes out and says – he isn’t’ worried about the slight uptick in the CPI and that he expects maybe 2 or 3 months of higher CPI’s BUT that does not (in his opinion) change the narrative of cooling inflation (and by default potential rate cuts – which he didn’t say explicitly – but he didn’t have to…because it was what the market heard) and so the algo’s go – “Whoops – rate cuts are still alive so time to get back in…” and it rallies back – taking back all the losses and then some…Now what do you do? Do you jump back in, thinking the ‘pull back is over’ or do you sit tight and wait? And then what happens if it is over, and the industrials continue to go higher…. What exactly did you accomplish? You want Industrial exposure, but you just blew it out and now you have to get back in….do you see the hamster wheel you’re on?
If you maintained your XLI position (because the fundamental story did not change) and it continued to sell off – you would get a chance to add to it at lower prices……The real question to ask is – Did something fundamentally change with the industrials or is the weakness just the algo’s creating havoc? Because if nothing fundamentally changed then why would you blow out the position IF you are a long-term investor? Do you think Warren blows out positions every time the market has a pull back? I would argue absolutely not – in fact, he is exactly the investor to emulate when it gets antsy. Speaking of Warren – this morning we learned that he ‘trimmed’ his apple position by 10 mil shares (less than 1% of his total position – so don’t go and make an assumption that he has changed his mind – for him, it’s just ‘housekeeping’) But when did he do it? When it was rallying over the past 2 months…He sold into strength, not into weakness…. he is a buyer on weakness…. (as long as the fundamentals have not changed).
All I’m saying is the market never moves in just one direction forever – like I said yesterday – ‘Trees don’t grow to the sky’…. What were you thinking? Valuations get stretched and then they reprice…. the repricing (most times) depends on how stretched they were…. Other times, a repricing can happen because the story changes and as a long-term investor you have to be able to know the difference. If you are a day trader or a more active trader then none of that makes a difference to you, you just want to buy ‘em and sell ‘em…. So, you are looking for any reason to hit those buttons….
This morning US futures are UP…..Dow futures +60, S&P’s +7, The Nasdaq +20 and the Russell is +14…..There is more eco data today that will give us additional clues on the state of the union and the way futures are acting they are not expecting anything ‘traumatic’. Empire Manufacturing, Retail Sales, Retail Sales ex autos and gas, Philly Fed Business Outlook, Initial Jobless Claims, Cont. Claims, Industrial Production, Capacity Utilization and Business Inventories…. all due out between 8:30 – 10. Tomorrow though, will be the other KEY day of the week…. It includes the latest PPI report (which details inflation at the producer level) and after Tuesday’s CPI – many are sitting on the edge of their seats. We will also get Housing Starts, Building Permits, and the U of Mich Sentiment Surveys.
Oil pulled back just a bit on US crude inventory build…. that was up more than expected – it rose by 12 mil barrels vs. the expected 2.6 mil….and that is causing some angst because they are trying to tell us that the build speaks to waning demand! Are you kidding me? On the other hand – Gasoline inventories fell by 3.7 mil barrels – which was 2.5 mil barrels more than expected…. which suggests that demand is strong…so which is it? Is demand weak or is demand strong? And in the mid-east – both Kazakhstan and Iraq said they were reviewing their production to address any excess output above OPEC limits.
OPEC meets again in March – where they will decide what to do going forward to curb supply and keep prices elevated….any sign that they will impose new quotas will send prices up and any sign that they do nothing will most likely send prices lower – something that the Saudi’s don’t want to see at all….They need oil to trade in the 80’s in order for them balance their budget…..This morning – oil is trading at $76 – down 60 cts….leaving it resting on support at $75.50.
Gold which got clobbered on Tuesday on the idea of NO rate cuts tested as low as $2000 – down some $40 from where it has been hanging out. This morning – it is up $3 at $2,007 as it cautiously interprets comments made by Austan Goolsbee…. Is the rate cut narrative really still alive? If so, gold traders will take it right back up, so watch what happens here to get a sense of what gold traders think happens next.
Now while Austan said one thing…. Fed Vice Chair of Supervision – Mikey Barr – said something slightly different…. he said that the FED needs MORE DATA showing that inflation IS easing before they start cutting rates…. which just leaves it confusing and open to interpretation. Today we will hear from ECB President Christine Lagarde, ECB Chief Economist Philly Lane, Atlanta Fed President Raffi Bostic, Fed Governor Chrissy Waller – what will they all have to say about US and European rates?
Stocks in Europe are mixed….UK and Spain down, France, Germany and Italy are up…..The UK is now in a ‘technical recession’ – which is also ‘word salad’ – Either they are or they are not…..the UK economy contracted by 0.3% in the 4th qtr. and the 3rd qtr. growth was revised lower to -0.1% – which means that’s 2 qtrs. of negative growth…which means they are in a ‘recession’ not a ‘technical recession’. Growth is negative for 2 qtrs. – that is the definition – period. Unless of course they are suggesting that the readings are not real, or they are changing the long-held definition. In any event – markets are mixed and awaiting commentary by the two ECB voices.
The S&P managed to close directly on 5000 – not higher, not lower and that is making some investors think that the re-pricing is over….I am not sure I am buying that argument….Like I said – a 1.8% pullback in the S&P on one day does not represent a pullback…I’m still waiting for the shakeout…so that I can put more money to work….because remember – I did not sell anything on Tuesday…in fact, I added to a couple of my names, but I’m waiting to add more….….…..
Anywhere between 5000/5050 still feels a bit toppy to me – and so I expect more ‘backing and filling’. Call me to discuss.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Halibut w/Mushrooms, Leeks, and Clams
This is easy and delicious. It makes you feel like you are on the beach with the sand between your toes… Enjoy.
You need, if you can get it, Pacific Halibut – because the Pacific Ocean is colder year-round vs. the Atlantic and the fish does not fall prey to some of the parasites that exist in warmer waters. Atlantic Halibut is best eaten in the colder months when the water is at its coldest…
Ingredients: Halibut, mushrooms (preferable oyster mushrooms), butter, 3 large leeks, s&p, chicken broth, 2 doz. littleneck clams and chopped Italian parsley.
Season the Halibut with s&p. Set aside.
Start by melting the butter in a sauté pan over med heat – do not burn the butter – add sliced mushrooms – like 2 cups and the sliced leeks. Trim the leeks and use only the white and light green part of the stalk – discard the rest. Season with s&p and reduce heat to med low and cook for about 10 mins or until the leeks are soft. Now add about 3 cups of the chicken broth and raise the heat to mend him – let it come to a boil.
Now add the fish and clams to the sauté pan – wait for it to re-boil and then reduce heat to low and cover. Cook for about 6 or 7 mins…make sure all of the clams have opened. If you still have some unopened clams – remove the fish and the opened clams and continue to cook for another 3 mins or so to give the stubborn ones a bit more time. At this point throw out any unopened clams.
Serve this dish in a full-size bowl (shallow is best) bathing in the clams and broth topped with the mushroom and leeks. Sprinkle with the chopped Italian parsley at the end. Enjoy this with a crisp, chilled white wine.
Buon Appetito
