Things you need to know:
- The macro data continues to cause confusion for the FED and Investors
- Fed Futures are now pricing in a July cut.
- The Big Banks revising their rate cut forecasts.
- Some economists continue to suggest we could see rate HIKES.
- Oil up – more unrest across the middle east
- Gold down – on the no hike narrative
- Try the Cod in a Coconut Milk, Dill Sauce.
** Just a note – I am out from March 19th – 31st…. I will be on the Steve Forbes Investment Cruise from Bali to Singapore ‘working’. So, while I may make an occasional post – it won’t be daily. But I will be back in force on the 1st. – Take good care, Kp**
Stocks fell for the day and the week last week after trying to digest and dissect the latest ‘hotter’ than expected inflation data on Friday – After a long confusing week – we saw the Dow lose 190 pts or 0.5%, the S&P gave back 34 pts or 0.65%, the Nasdaq lost 155 pts or 1%, the Russell added 8 pts or 0.4%, the Transports gave up 110 pts or 0.7% while the Equal Weight S&P lost 11 pts or 0.2%. I say confusing because investors had to consider what’s next for markets across multiple fronts. Some of the macroeconomic news suggesting that the US economy is slowing down and some of it suggesting otherwise all while inflation is slowing on a y/y basis BUT is suddenly starting to rise again on a m/m basis – and that is keeping the inflation story alive and well – causing all kinds of speculation on what’s next for the FED……. And that is causing angst amongst the players …. (Think long term investors, asset managers, traders and algo’s) as everyone tries to handicap when a rate cut is coming (if at all). …. (Think long term investors, asset managers, traders and algo’s).
The futures markets are NOW pricing in the first rate cut to come in July….vs. what they had been expecting in June – which moved from May – Hmmm…looks like a pattern to me….6 months ago it was a March cut, which got moved to May, then to June and now to July….which I find interesting, because beyond May – puts us in the 6 month ‘election window’ and we all know that the FED is not supposed to move rates – in either direction – during that period.
The big investment banks are now all scrambling to change their forecasts – JPM for example was calling for 125 bps or 5 – 25 bps cuts in 2024 is now calling for only 75 bps – which is still 3 – 25 bps cuts this year – which still makes zero sense to me. While I am in the ‘no cut camp’ there are some street economists that suggest we could see rates go UP this year rather than go down. This week – is sure to shed more light on this very argument as the FED is due to release their latest ‘dot plot’ graph on Wednesday and that details what the thinking is behind the Iron Curtain.
**On a side note – speaking of the Iron Curtain – Vlad was ‘re-elected’ by an overwhelming majority (something like 87%) over the weekend – can you believe that? The Russian media calling it a landslide while the ‘western media’ is calling it ‘illegitimate’, Vlad says it’s a validation of his ‘leadership’…. Ok – whatever!
It was also ‘triple witching’ – a quarterly event that sees options on stocks, indexes and futures all expire on the same day – causing all kinds of volume, but really nothing more…the $5.3 trillion worth of options expiry forced traders to ‘roll’ existing positions or create new ones – which causes all kinds of activity but says nothing about the future path of markets. Re-iterating the fact that long term investors should not react to all of that noise.
The contra trades continued to do well. The PSQ, SH and DOG all ended the day up about 0.4% as pressure on stocks remained the plot last week. The VIX – (FEAR index) which surged by 11% on Thursday, was up another 8% by 1:30 on Friday confirming the lows of the day but did end up ending the day flat as trader types and asset managers went on a late afternoon shopping spree looking for bargains The VIXY etf – which gets you ‘long’ fear also rose by 5% by 1:30 but then retraced its steps – ending the day up 1.9%.
4 of the 11 S&P sectors – Industrials, Utilities, Energy, and Basic Materials ended the day in the green while the others saw losses – Tech (including most subsectors as well), Consumer Discretionary, and Communications coming under the most pressure – all losing more than 1%, while Financials, Consumer Staples, Health Care and Real Estate ended the day slightly lower….and what that tells us is that investors are ‘re-arranging’ their portfolios’ – moving money away from the outperformers, but not completely into cash….
Bonds continued to waffle….and while they did end a bit lower – it was not dramatic – bonds were off by ~ 0.1%. YTD – the TLT is down 6%, the TLH down 4.75%. The AGG (Bloomberg Aggregate bond index) – which includes treasuries and corporates – corporates being the saving grace is down 2.17% ytd. Yields on the 2 yr. jumped by 3 bps to end the day yielding 4.71% while the 10 yr. up 1 bps to end the day yielding 4.30%.
Oil which pierced $80 last week is trading up 70 cts at $81.75. This as the geo-political risks are once again on the rise. Last week – Ukraine launched a number of drone strikes on Russian refineries – sparking a fire at a refinery that produces 170k bpd – idling about 7% of their capacity. And in Israel – Bibi confirmed that he will push into Rafah – defying the US and other allies…. this causing Senator Chucky Schumer – the highest-ranking Jewish member of Congress to call for an end to Bibi’s reign. And this forced Bibi to tell Chucky to ‘go to ……’. In the end though, it is feared that this push will make regional peace even more difficult and all that means is that the tensions will remain elevated and that will put a floor under oil. And we haven’t even heard anything new from the Hooties! I think oil remains in the $80/$85 trading range – with the bias to the upside.
Gold – which got punched in the head last week – down $30 or so…is down $2 this morning at $2159. Stuart Varney and I discussed this on Friday morning on Varney & Co. You can see the interview here.
https://www.foxbusiness.com/video/6349008239112
Since I do not think that rates are going lower – I expect Gold to retreat a bit…. I’m thinking $2100/$2150 ish. Overnight gold tested $2149 – a lower low vs. last week. Remember though – Gold is the ultimate ‘safety trade’ for some investors. It protects against a recession and helps ease the angst created by global political unrest.
Futures are confused…. Dow futures down 16 pts, S&P’s up 18, the Nasdaq up 125 and the Russell flat. Apple is quoted up $1 at $173.50 and Google is up 3% at $147.50 after a report revealed that Apple is in talks with Google to provide its AI engine in iPhones. SMCI – a name we discussed in late January is up 270% ytd and up more than 1000% over 12 months is due to be included in the S&P as of today (that was already known – today is the official date of execution) …and all that does is create MORE institutional interest in the name – as so many asset managers will now have to include that company into their models that mimic the S&P…which is another reason why we have already seen a push up – as asset managers have been buying up the stock to balance their portfolios.
This is a big week for eco data and central bank data…. My gut says that both are equally important but that the focus will be on what the FED, the BoE, the ECB & the BoJ have to say.
Here at home, we will get data on Building Permits, Housing Starts, Mortgage Apps, Manufacturing and Services PMI, Existing home Sales and New Home Sales….
European stocks are also up – nothing more than a bounce… markets across the region up about 0.2%. Look for macro data on the EZ CPI & UK CPI. We will also get central bank policy decisions from Switzerland, Norway, Brazil, Canada, Taiwan, Indonesia, and Mexico.
The S&P closed at 5117 – down 34 pts…. And while futures are suggesting a small bounce, I am not buying it – I remain cautious going into the end of the qtr. Keeping new money in money market funds that are paying 5+% until I see what the fallout is.
In the end – I do not believe that Wednesday’s FOMC meeting is going to change the narrative – which is and has been – ‘we are waiting for more definitive evidence of a slowdown.’ I remain in the ‘No cut’ camp – because I do not see evidence of a slowdown and do not believe that the FED should be cutting rates at all to ‘stimulate demand.’ Nor do I believe they should be raising them either – I think they are fine right where they are, and the market action tends to agree. Remember – 5.25% is historically normal, it is not high by any stretch of the imagination.
As a long-term investor – remain focused, stick to the plan, talk to your advisor – or better yet, call me to discuss. Always happy to help you create a long-term wealth plan that will provide for you and generations to come.
Take good care,
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Coconut Dill Atlantic Cod
This is a simple dish to make.
You need the cod filets, s&p, lemon slices, coconut milk, dill, and garlic.
Start by seasoning the filets with s&p, set aside.
In a large sauté pan – heat up some olive oil, sliced garlic. Now add the lemon slices to the pan and place the cod filets on top of the slices. Add the coconut milk so that it almost covers the fish and top with the chopped dill. Keep the heat on med-low and ‘poach’ the fish – using a spoon to continually ‘poach’.
Serve this over wild rice – make sure to top with the sauce. Enjoy with a side of your favorite green veggie. Maybe steamed French cut green beans or steamed asparagus. A glass of chilled Pinot Grigio Santa Margherita works fine.
Buon Appetito.
