Things you need to know –

–         NFP reveals Contradiction.

–         Tech comes under pressure, but the money is moving into other sectors.

–         Oil flat and Gold is consolidating.

–         FED goes into ‘lockdown’.

–         Try the Chicken Cacciatore

Good Monday morning America, Good Afternoon to our European counterparts and good night to traders/investors in Asia….…Stocks got a backhander on Friday – nothing really dramatic if you look at just the end of day action, but it was dramatic intraday….

Friday morning gave us the latest Non-Farm Payroll report – and it was full of contradictions…. Job creation was stronger than expected – coming in at +275k jobs vs. the expected 195k jobs, but look where the biggest increase came from?  Gov’t jobs!  (Which is all NON productive right), Unemployment ticked up to 3.9% (which wasn’t expected) and wage growth also came in below expectations and downward revisions to prior reports all added to the drama……. And so, what did we learn?  Did that report offer any clarity at all on the next move by the FED?  Stocks initially rallied on the back of that report – futures shot higher (on the expectation of what?  Rate cuts! – think weaker wage growth and the uptick in unemployment) but then what happened? 

Economists/analysts and strategists started to pull it all apart and look under the sheets.  And while those data points were a bit weaker – the job creation portion continues to suggest a strong labor market – and then the chatter centered around the number of expected rate cuts exploded across the chat rooms and X (formerly Twitter) ….

Click below to see my appearance on Varney & Co, Friday morning just after the report hit the tape.  We discussed this and my sense was while I remain cautious, it was clear (at 9 am) that the algo’s were focused on the negatives in the report that would support those multiple rate cuts…until they aren’t.

https://video.foxbusiness.com/v/6348485873112

When the opening bell rang – stocks moved up, tech – XLK +1%, Semi’s +1% and NVDA up 5% all before 10:30 am…..But then the tone changed, mixed commentary about the NFP report permeated the chat rooms and the cable channels and then boom, here comes the backhander…..The smart logic algos go from ‘buying the news’ to ‘selling the news’ and stocks moved lower – led by what?  Anything ‘tech’. The XLK lost 1.5%, Semi’s – SOXX – 4% while NVDA ended DOWN 5% (a 10% swing from high to low)

At the end of the day – the Dow gave up 70 pts or 0.2%, the S&P’s down 34 pts or 0.7%, the Nasdaq lost 190 pts or 1.2%, the Russell only lost 2 pts, the Transports gave up 130 pts or 0.8% while the Equal Weight S&P lost 11 pts or 0.2%. 

The big story here – on EVERYONE’s mind is what happened to NVDA and what does that mean for tech and the broader market? Well, let’s discuss this – nothing ‘happened to NVDA’ – it’s a very crowded trade – do I need to remind you that the stock is up 580% since January 2023, 76% of that just in the past 9 weeks as the AI revolution takes root…..Remember – NVDA stands at the nexus of this revolution….and anyone that manages a tech fund or a tech etf or is just interested in tech – OWNS NVDA….they have to, if they want to participate….So, everyone you know is connected to NVDA – whether they know it or not….It is in ONE of the funds (if not multiple funds) that make up their portfolio – retirement or otherwise…It is WIDELY held, and when the market goes up – everyone celebrates and reminds themselves how good they are in at investing, but when the tone changes – suddenly there is ‘nervousness’…and people start to run for the door….So,  here is a reality check – NVDA could lose 30% of its value and still be in an UPTREND….have you seen the chart? 

So, you have a decision to make – is this a long-term portfolio or a short-term trading account? Are you nervous about the chart? Did you buy it at $300 or $900?    Because how you answer these questions will help you decide what to do next…. Do you blow it out or do you just ‘peel’ off a piece and maintain a ‘core’ position?  Now just fyi – I am not convinced yet that NVDA is going down 30%, so I’m doing nothing, ….it just means, I like the name, nothing fundamental has changed so my theory remains intact. 

I also own it at much lower prices, so that also helps me to make that decision.  Am I chasing it? Absolutely not, will I buy more if it retreats by 15% or more – most likely – but if it does, then that necessitates another look at what else is going on before I just buy more……. Capisce?  Now that does not mean I am NOT hedging my bet against a tech downturn; it just means I am not turning ‘sour’ on NVDA.  –

You can think about going long one of the ETF’s that ‘gets you short’ – so SARK, PSQ, or SH come to mind – or you can consider an options strategy that protects you on the downside, but again you need to put it all in perspective and decide who you are?

Look, we’ve been talking about an ‘overbought’ market for a while now…. yet, it continues to kiss new highs…. ….. even as fed fund rates are at 5.25%, which says to me – rates are NOT restrictive yet…. the economy (according to the administration) is humming along just fine…. which again begs the question – Why are we discussing multiple rate cuts? Look – the markets are exhausted, and valuations are stretched – no one should be surprised if we see the market back off into the end of the quarter – something I have been saying for weeks now.

This week brings us a slew of data – we are getting some retail earnings (WSM, KSS, DKS, DG) and that speaks to the health of the consumer, but we are also going to get hit with 2 more inflation reports…CPI on Tuesday and PPI on Thursday. Now CPI m/m is expected to go up again, while y/y will go lower and that makes sense – but that is also the concern….if the m/m numbers continue to advance, then that means inflation is rearing its ugly head again…PPI – which shot even higher last month is expected to be remain elevated and that continues to be an issue…and then remember that at the end of February the PCE Deflator held steady but the Super Core PCE Deflator ‘exploded’ higher…..and that could be the ‘canary in the coal mine’. 

In addition – Thursday brings up Retail Sales – expected to be UP (suggests two things….1. a strong consumer and 2. Higher prices).  You see, retail sales can go up without you buying more…. because prices remain elevated and then on Friday we’ll get Empire Manufacturing, Industrial Production and Capacity Util.

Futures this morning are down – again you should not be surprised – the Algo’s are more willing to hit the sell button ahead of  2 KEY reports this week on inflation that will surely test the resolve of JJ and the 7 dwarfs….(Dopey, Bashful, Sneezy, Happy, Grumpy, Sleepy and Doc). Expect ongoing speculation about what the FED will do or not do, based on what those reports reveal.  The FED is now in ‘blackout mode’ (FOMC announcement next week) so do not expect to hear anything from members on the committee…but you can expect to hear anything they want us to know from Goldman or Nicky (WSJ) – both mouthpieces for the FED when they can’t talk themselves.

At 6:30 am – Dow futures are down 150 pts, S&P’s down 13, Nasdaq down 40 and the Russell is flat.  And what you should take away from this is that the money coming out of the market is NOT going all into cash (treasuries). It is being invested into other sectors of the market that are expected to do well, no matter what tech is doing…..I mean the Industrials – XLI are up 7.3%, Financials – XLF +8%, Consumer Staples – XLP +4%, Healthcare – XLV + 7.5%, Basic materials – XLB +4.5%, Housing – XHB + 9.5%, Airlines – JETS +5%, the Value trade – SPYV + 4%, Coal Miners – +11%, Energy – XLE +5%, Oil and Gas Exploration – XOP + 4.5%. 

Now look – it makes sense that some of the tech sectors will see profit taking and thus pressure on the groups – XLK + 8%, Semi’s – SOXX +18%, AI – BOTZ + 13%, Expanded Tech – IGM + 14.5% – but again – these ETF’s SHARE a lot of the same names – so pressure on just a couple of those names will negatively impact the returns on those ETF’s.  In the end – if you have a well-diversified portfolio that is not overweight in those sectors – you’ll be fine, but if you are a bit nervous, then call you advisor to discuss.

Oil continues to hold the line here at $78.and remains in the $75/$85 trading range. Talk of a ceasefire continues to gain momentum, but there is no agreement yet….should a ceasefire happen, do not be surprised if we see oil back off just a bit….All 3 trendlines are converging at $75.50 – so I would expect to see plenty of support there….and a ceasefire does not negate the demand growth that the market expects over this year.

Gold  – which tested $2200 last week in what has been nothing but a remarkable move up over the past 2 weeks….(Gold up 8%) all ahead of this week’s inflation data….Now if the data this week confirms that rates will remain right where they are -then I would expect to see gold retreat – $2100 would not be a surprise.  If the data suggests that last month’s CPI was just a one off, then expect to hear all about how rates are coming down and that will cause gold to consolidate at these higher levels.

Bond prices are up this morning and that is putting pressure on yields…the 2 yr. is yielding 4.49% and the 10 yr. is yielding 4.07%.  The rise in prices and fall in yields is telling you that the bond market continues to think that rate cuts are alive and well. This is on the back of JJ’s most recent commentary about how ‘we don’t have much further to go’ before we get a rate cut.  In addition – Jo Jo expressed his point of view – saying that ‘he think’s the FED is going to cut rates…..Oh boy, here we go, pressure on the FED coming from the WH – something that is not supposed to happen – remember – the FED is ‘apolitical’- but will JJ feel the pressure to cut after Jo Jo suggests it? It is a tangled web we weave.

European stocks are all lower across the board…. down between 0.3% – 0.6%.  There is no eco data or earnings data to point to, so it’s just some churn and pullback – again no surprise. 

The S&P fell by 34 pts on Friday to end the day at 5,123…. You know how I feel, I full expect a pullback going into quarter end – which is just 3 weeks away.  I also expect this weeks eco data to continue to give the FED cover to do nothing (meaning holding rates higher)….and we know that March is off the table and also May – but they keep teasing about that June cut…..so, let’s see if that narrative picks up steam.  Remember – the FED should cut rates if the economy appears to be stalling, not when it appears to be firing on all cylinders…. which it appears it is…. Keep your eyes on what they do and say about NVDA today – why?  Because why not, you know that is now the markets talking point. As NVDA goes, so goes the market……

Take good care.

kpolcari@slatestone.com

Sources:  Bloomberg, CNBC, Reuters, Wall Street Journal

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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.

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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.

Chicken Cacciatore

In Italian – the cacciatore is the hunter – so this means that it is Hunter style chicken.  The ‘Hunter’ would sauté garlic, tomatoes, onions, bell peppers, mushrooms, peas, season it with oregano, basil, wine and S&P.   You would then cook the chicken in this sauce and serve it over fusilli.

Depending on the part of the country – the recipe changes slightly – Southern Italians use red wine and Northern Italians use white wine…Either way is fine and if you choose not to use the wine – that’s ok too.

You should make this dish the day before you want it – because as with most tomato sauces – if it sits overnight – it is always more robust the next day….

Start by sautéing crushed garlic in olive oil…add the seasoned (sap) chicken pieces – thighs and legs – and brown nicely.  No need to cook all the way through as it will cook in the sauce.

Once you have browned the chicken remove and place on a platter.  Next add sliced onions, and bell peppers – use 2 lg onions and 1 green and 1 red bell pepper – if you like the orange/yellow ones then feel free to use that also. Sauté the onion and peppers and until soft – about 10 mins…. season with s&p.   Now add two cans of kitchen ready crushed tomatoes – not puree – just crushed tomatoes.  Then add one can of water (and 1 cup of red wine – optional).  Season with s&p, oregano, and fresh basil…bring to a boil and then turn heat down to simmer.  Add back the Chicken, Now adds one can of sliced mushrooms (draining the water first) and one bag of frozen peas.  Let simmer for 45 mins – stirring occasionally.

At this point it is done – but like I said – the longer it simmers the better it is and if you let it cool and refrigerate until the next day – it is even better…….

When ready – bring a pot of salted water to a rolling boil and add the Fusilli…cook for 8 / 10 mins or until aldente.  Drain – reserving a mugful of pasta water – return to pot adding back about 1/4 of a cup of the pasta water to moisten…. let it sit for a min and absorb the water – you do not want a puddle in the bottom of the pot.  Now add 3 or 4 ladles of sauce and toss.  Add two handfuls of grated cheese – Locatelli Romano works great – toss again and serve.  You can serve chicken pieces right on top of the pasta or you can serve the chicken on a separate platter.

This meal works well with a nice Chianti – remember this is a meal prepared by the hunter – he is a simple man so the wine should reflect his simplicity.

Buon Appetito.