Things you need to know –
– PPI – Oh boy…. Strap in…. Inflation remains sticky.
– What will JJ do and say now?
– The VIX raises its head – finally!
– The Contra trades were the winners yesterday.
– Bond Yields UP, Oil UP, Gold gets Punched in the face.
– Try the Spaghetti al’Tonno
** Just a note – I am out from March 19th – 31st….I will be on the Steve Forbes Investment Cruise ‘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**
It’s the Ides of March…. the 15th day of the month….and the word IDES is a derivative of the Latin work to ‘divide’. And on this day in the year 44 BC – 40 Roman Senators assassinated Julius Caeser (actually stabbed him to death) resulting in the death of the Roman Republic and the birth of the Roman Empire. (European Ancient History that is usually taught in 10th grade – not sure it is taught at all any more…. but that’s another issue….) What will the Ides of March reveal today?
Oh boy – what an interesting day it was…. the tension was building, investors, traders and algo’s all waiting in the wings….as the clock ticked closer to 8:30…Speculation rampant as street analysts and market pundits all tried to handicap what the move would be and what the reaction would be after the 8:30 release of the February PPI (Producer Price Index) report. What would it show? Would it confirm our worst fears? Would it be hotter than expected, like the CPI was? And then what does that mean for JJ and band of merry men? What does Goldman think and when will we hear from Nicky T (WSJ fame) – as both are ‘mouthpieces’ for the FED….and since the FED is in ‘blackout mode’ ahead of the FOMC announcement next week – they can’t talk, JJ turns to his ‘deep throats’.
Well, by now you must know that the latest read on inflation at the producer level continued to rise…. Recall the January PPI was an upside surprise, leading to an upside surprise of the February CPI and now the February PPI is hotter again – so brace yourself for a hotter CPI the next time they report in April….
First the m/m PPI came in at DOUBLE the estimate…. we were looking for +0.3% on the top line and it came in at +0.6%, Ex food and energy of +0.2% came in at +0.3%. Now y/y PPI came in at +1.6% vs. the expected +1.2% and Ex food and energy came in at +2% vs. the expected +1.9%….and the algo’s did what?
Well initially, they poo pooed the report and took stocks UP, giving the market the middle finger, completely ignoring the implications of rising prices – as they try to shove this data point off center stage, saying ‘look over here, not over there’……but that move was good for about 10 mins and then the humans beings smartened up – taking advantage of the push higher to ‘unload’ and take money off the table…stocks did a turn around going from positive to negative as the clock struck 9:46 am…..And then the analysis got heated…..investors began scrutinizing the data and asking themselves ‘Ok, what now?’
From the FED’s POV (point of view) this was NOT the result they had been hoping for…. Now, let’s not overthink it, but you have to be honest…. rising prices do NOT support the rate cut argument at all, that’s clear. But if you ignore it and write it off as a ‘flash in the pan’ (think transitory) – then you can continue to suggest that the path of monetary policy is down and not ‘steady as she goes’ or UP as some have begun to suggest. At 9:35 – the S&P was up 0.25% and then at 3:35 the S&P was down 0.85% as stocks got punched in the face testing the 5120 ish level…a level that seems to have some demand…and as we moved into the end of the day – stocks staged a small rally – all indexes ending negative on the day but off the lows of the day.
The Dow gave back 138 pts or 0.35%, the S&P down 15 pts or 0.3%, the Nasdaq lost 50 pts or 0.3%, the Russell down 40 pts or 2%, (again – higher for longer), the Transports gave up 212 pts or 1.3% and the Equal Weight S&P lost 65 pts or 1%.
The VIX – which is the FEAR index – which has been very quiet of late – finally woke up and reacted…. surging by 11% at 3:30 when stocks were on the lows ended the day up 4.65%. The VIXY etf – which gets you ‘long’ fear also rose by 7% at one point to end the day up 2.75%.
Remember – on Wednesday we discussed how the VIX was not reacting at all to the latest data points on inflation, No one apparently worried about sticky inflation, which is illogical to me, that was until yesterday’s PPI report. Now remember – I told you that the VIXY ETF was trading near or at all-time lows (Wednesday) after the latest CPI report and that was also illogical and if you are a contrarian investor that screamed ‘HELLO??? Anyone home?” Well, if you bought yourself some of that VIXY on Wednesday – ahead of the report – then you rang the cash register and if you didn’t, well then, you didn’t. What’s that legendary saying? You can lead the horse to water, but you cannot make him drink! Drink up my friends!
From a sector perspective – it was an interesting end to the day…Energy – was up 1% – this as the Saudi’s hint at ongoing production cuts…and the IEA raised their demand growth estimates, Oil closed at $81.20 yesterday. This morning – trader types are ringing the cash register a bit causing oil to retreat by 40 cts to trade at $80.85. Oil remains in the $80/$85 trading range…Both oil and the XLE etf are now up 9% ytd. Tech – XLK ended the day just a hair above the unchanged line on that late day rally. On the downside – we saw the most weakness in Real Estate – XLRE down 1.4%, Utilities – XLU down 0.8% (think higher for longer), but we also saw weakness in all the other sectors as investors raised some cash…. Sectors down between 0.5% and 1.4% on the day.
The contra trades – PSQ, SH, and the DOG all ended higher by about 0.4%. The triple levered S&P Direxion Short – SPXS gained 1% (see how that works? The S&P lost 0.3% and the triple levered short gained 3 x’s the loss – Capisce?)
And some of the big tech names – the ones that have gotten beaten up all gained. AAPL + 1.1%, AMZN + 1.25%, MSFT + 2.5%, & GOOG +2.5%.
NVDA – the current Wall St darling continued to come under pressure – losing 3.25% – but remember – it was up over 100% in the last 9 weeks…. making that high on March 8th….so the 20% retreat that we’ve seen should not really be a surprise – unless of course you were the one that top ticked it at $974!
And what did bonds do? Well prices fell (duh), and yields rose…. the TLT lost 1.5% and the TLH gave back 1.24%. The AGG (Bloomberg Aggregate bond index) lost 0.6%. Yields on the 2 yr. jumped by 6 bps to end the day yielding 4.68% while the 10 yr. jumped by 10 bps to end the day yielding 4.29%. Thus, the pressure on Real Estate and Utilities.
Gold got punched in the head…falling $23 at one point before ending the day down $15. And this again is a direct result of investors warming up to the idea that rates are NOT going down (just yet). On Wednesday I said that a stronger inflation report will put pressure on gold because rates would not be going lower. Since I do not think that rates are going lower – I expect Gold to retreat a bit…. I’m thinking $2100/$2150 ish. Yesterday we tested $2157. This morning – it is trying to stabilize and is up $6. Remember – Gold is the ultimate ‘safety trade’ when inflation remains hot, and the global political scene remains unsteady…. (And I think we can all agree that the global political scene is a MESS.)
Futures are trying to ‘fight the latest inflation report’ – essentially saying – don’t focus on rising prices, but rather on how AI is changing the world. At 6:30 am – Dow futures are up 40, S&P’s up 9, the Nasdaq up 36 and the Russell is up 5…. Expect lots of speculation around what the FED will do and say now when they take center stage next Wednesday. My sense is that the market will try to tell us that June rate cuts are absolutely still on the table while JJ continues to say that there is no rush to cut rates yet. Again, these supposed ‘restrictive’ rates have been at this level for 9 months….and all we have seen is for the earnings season to impress, for forward guidance to remain robust, for the job market to remain strong, Unemployment to remain at historic lows, and for stocks to kiss new highs…So, WHAT AM I MISSING? Nothing! Stop the whining…
European stocks are also up – nothing more than a bounce… markets across the region up between 0.4% and 1%.
The S&P closed at 5150 – down 14 pts…. And while futures are suggesting a small bounce, I am not buying it….my sense is that we will see pressure on stocks going into the end of the quarter….but that does not mean I am OUT – because I am not….Keep new money in money market funds that are paying you 5+% if you’re nervous….5% is an investment decision….and will add stability to your life.
In the end – I do not believe that today’s report 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, add new money to the underperformers, peel some off of the outperformers if that makes you feel better. And if you way out on the risk scale – then you are much younger than I am! Just make sure your risk is appropriate and that your names are familiar. I am not selling my AAPL, MSFT, AMZN, IBM, JPM, NVDA, just because they have moved lower…. These are CORE names, there is nothing wrong with them and they give me the exposure that is commensurate with my risk profile.
Call me to discuss.
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.
Spaghetti Al’ Tonno (It’s Friday in Lent)
This recipe comes to us from Sicily – just off the tip of the boot…. Sicily is all about fishing and contains numerous fishing villages that are responsible for catching much of Italy’s seafood, including most of its tuna.
Giuseppe Garibaldi, Italian national hero was said to have eaten it upon his arrival in the Sicilian city of Marsala in the year 1860. Whatever its origin….it is delish…
For this you need – Tuna in olive oil (not water), olive oil, s&p, red pepper flakes, dried oregano, crushed tomatoes – (or you can buy whole peeled tomatoes and crush them yourself), capers, garlic, anchovies, white wine, and 1 lbs of spaghetti and freshly chopped parsley.
Bring a pot of salted water to a rolling boil.
In the meantime – in a large skillet, turn heat to medium – add some olive oil, 1 or 2 anchovies (depending on your tastes), and drained capers. Sauté until the anchovies melt – now add in thinly sliced garlic…. (3 cloves). Sauté for 3 – 4 mins….do not burn….
Now add in about ¾ c of dry white wine – I use a pinot grigio – turn the heat up to med high and bring to a boil, add some red pepper flakes and dried oregano reduce to about 1/3…. stir and reduce….
Now add in the crushed tomatoes…I use San Marzano…. stir to mix…. season with s&p. Let it simmer for about 10 mins…….
Now add in the tuna and oil…. break it up …. stir to mix well, add in the chopped parsley – now lower the heat to simmer and let it simmer as the pasta cooks.
Add the spaghetti to the boiling water and cook for about 8 mins…. you want this to be aldente…. Strain – always reserving a mugful of the pasta water. Add the pasta back to the pot…. add a splash of the pasta water and toss to moisten. Now add in the tomato sauce – mix well. Cover and allow to sit for 3 mins…. Open and look – does it need a bit more of the water to keep it moist? If so – add a touch more, if not, then not.
Now serve in a warmed bowl – top with a drizzle of olive oil and some more chopped parsley and grated parmigiana.
Buon Appetito.
