Things you need to know.

–        Super Tuesday for politics but not for Tech.

–        JJ Takes to the Hill.

–        Tech gets spanked, Will it get spanked again?

–        Is it China or is it something else?

–        OPEC extends cuts, oil up.

–        Try the Zucchini Surprise

Super Tuesday?  Was it?  Stocks got slammed – the indexes down 1% across the board – which btw is nothing to get worked up about…it’s 1%, it’s not 10%.  – the Dow down 400 pts or 1%, the S&P’s lost 52 pts or 1%, the Nasdaq gave up 270 pts or 1.6%, the Russell down 20 pts or 1% while the Transports gave up 165 pts or 1%….

Economic data mixed…. Services PMI’s were stronger than expected – suggesting that services inflation remains an issue for the FED.  Factory orders declined by 3.6% and Durable Goods fell by 6.2% and that speaks to the ongoing weakness in manufacturing.

Most anything Tech got slammed, some of it being credited to an ongoing weak China narrative while most of it can be explained away by stretched valuations that have taken some of these names to obscene heights.  Look, the tech trade is crowded, very crowded – bullish positioning in techs stocks is at a 3 yr. high and that only screams ‘Caution – Slippery when Wet’!

Apple, Tesla, and Advanced Micro – are the latest poster children for the supposed China weakness.  To which I would say – is it weakness in China or were the original estimates just too damn rosy or has regulation changed the narrative?

 Look, Tesla got slammed because shipments FROM CHINA slumped, not because shipments TO China slumped.  All that means is that Tesla sales (outside of China where they are made) must be slumping and that has nothing to do with China, that has everything to do with Tesla.  

Apple got slammed because of cheaper competition, (again that is not a China issue it’s a competition issue).   Hon Hai Precision (an iPhone assembly partner in Taiwan) reports an 18% decline in sales in the first 2 months of the year – but those are global sales, not just China sales and what that suggests is that global consumers are tiring of upgrading to a more expensive model and that the one they have might just be enough….which would speak to weakness around the globe – not just in China…. 

AMD is a different story – why? Because it is US regulations that are preventing AMD from selling products into China – and again – that is NOT a China issue, that’s a US regulatory issue. I mean you can’t pin the blame on China when the US gov’t say’s you can’t sell product into that country.  How is that a China issue?  Don’t get me wrong, I am not arguing for China, I do not invest in anything China, I’m just saying be careful how you lay it out. 

XLK down 2.5%, Cybersecurity – CBIR – 2.4%, Semi’s – SOXX -1.7%, Disruptive Tech – ARKK – 3.5%, Expanded Tech – IGM – 2%,  and if you look at the Magnificent 7 – yeah, they didn’t have a good day either….AAPL – 2.9%, AMZN – 2%, MSFT – 3%, TSLA -4%, META – 1.6%, GOOG -0.4%, NVDA is the only one bucked the trend – rising by 0.9%,

Real Estate – XLRE lost 1.3% (think higher rates), Consumer Discretionary – XLY lost 1.25% (think stressed consumer), Communications – XLC -0.8%, Industrials – XLI -0.8%, Healthcare – XLV – 0.75%, Basic Materials – XLB – 0.5% while Utilities gave back 0.3%.   

But it wasn’t all bad –

Investors did though, find some safety in Financials, Consumer Staples, and Energy up 0.02%, 0.25% and 0.75% respectively.

Bitcoin surges to a new all-time high – $69,190 before retreating by 14% to trade at a low of $59,317 before settling in at $63,300….and this morning it is on a tear again – up $4000 to $67,300…. leaving it up 58% ytd.

Bond prices rallied – the TLT and TLH up 1.4% and 1.2% respectively while the AGG (Aggregate Bond Index) gained 0.6%.  the 2 yr. yield is now 4.55% – which is down from 4.69% only 3 weeks ago, while the 10 yr. yield is at 4.16% down from 4.34%. 

The focus yesterday, today, and tomorrow was and will be on JJ Powell’s testimony in front of Congress – in his bi-annual Humphrey Hawkins Testimony…. which was a 1978 Act that attempts to establish price stability and full employment as national economic policy objectives.  And this is where we hear about what the FED is thinking concerning the next move in monetary policy.  Which by now, you have to know is a ‘not so fast’ narrative.  That narrative which spun out of control at the end of last year and the start to this year has been dialed back – expectations of 4 – 6 cuts have been replaced to 1-3 cuts and even that is a bit illogical to me – since the data does not support any cuts….and the FED has been very clear – they are data dependent and if that is TRUE – then there is no reason to cut rates.

If JJ hints that he is no rush to cut, which seems to be consensus, then I suspect we will continue to reprice risk…. think more downside pressure.  And while I also believe that JJ does not want to ignite a collapse, he will be very guarded in his responses…..a 3% decline – which is not out of the question- would take us down to trendline support at 4900…a level that would shake the branches a bit, but maybe not enough to cause a change in psychology.  We’d have to see a larger downside decline (think 10%+) to force a psychological change.

Economic data today includes Mortgage Apps – will they continue to weaken or not? Remember – we are now in the Spring Selling Season – typically the hottest time of the year to buy/sell a house.  Will the ongoing 7+% mortgage rates continue to put pressure on that sector?  Next, we are due to get the February ADP employment report…and that is expected to show 150k new jobs created – which continues to suggest a strong labor market – just another reason for the FED to stay put…. We will also get the latest JOLTS reports. (Job Openings Labor Turnover Survey) and that is expected to decline but still shows 8.8 million jobs available…. for anyone that wants one.  And then at 2 pm – we will get the Fed’s Beige Book which details the state of the union in the 12 regional Fed districts.

Oil remains in the $75/$80 range – trading as high as $79.05 after OPEC+ announced that they are extending production cuts.  A move up thru $80 will cause the momo (momentum) guys to push crude to $85.  

Gold – is now up and thru $2100 – trading at $2135 this morning.  Part of the move on the idea that JJ is going to announce a rate cut in June…. Don’t hold your breath while the rest of it is a direct result of the ongoing global angst.  IF JJ does not hint at a rate cut then I would expect Gold to retreat….and if he hints at a rate cut it will remain right in here as it digests this latest move higher.

This morning US futures are up…… Dow futures + 70, S&P’s up 17, The Nasdaq up 135 pts while the Russell is up 10.  This morning futures are suggesting that JJ will sound more dovish than hawkish – which is a complete turnaround from yesterday.   

European stocks are higher as well…. Spain a recent underperformer is up 1% – the other markets across the region are up about 0.25%.  The UK Finance Minister – Jerry Hunt will present the latest budget outline to the British Parliament. The ECB monetary policy decision is due tomorrow. They are expected to do nothing, and investors know that, but what they want to hear is what they will do next month and the month after that?     

The S&P closed at 5078 – down 52 pts…. As the re-pricing continues…. Futures this morning may be suggesting a bounce, but I think it’s just a bounce, I do not think the pullback is quite over yet.  We have seen risk levels rise across a range of sectors leading some to warn of ‘frothiness’ and all that means is that risks are rising, and this is NOT the time to become complacent. And that frothiness argument only risks getting worse with a premature rate cut (that will fuel inflation) but cause stocks to rally further – unless of course the narrative becomes ‘we need to cut rates because the economy is going down the drain’ and if that is the case then watch out below!   

And all this does is reiterate the need for a plan and a diverse portfolio that will weather a storm.  Always happy 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.

Zucchini Surprise

This is a simple dish to make and one that will be well received at any dinner party.

For this you need a couple of things.

3 Zucchini’s (yellow or green makes no diff).  Olive Oil, breadcrumbs, Parmegiana Cheese, s&p, thin sliced prosciutto (you can also use ham) and provolone.

Preheat your oven to 350 degrees.

Start by trimming the ends of the zucchini, then pull out your mandolin and slice the zucchini lengthwise. 

Now – add a handful of parmegiana cheese to the breadcrumbs, season with s&p. 

Next – dip the zucchini slices in olive oil and then place on the breadcrumbs.  Cover both sides with the breadcrumbs and then top with a slice of prosciutto and cheese.  Roll it up and place in a baking dish. Repeat until you’ve filled up the dish.

Place in the oven for 25 mins and remove.  Serve as an appetizer or side dish.

Buon Appetito