Things you need to know –
– Stocks come under pressure, bonds under pressure.
– Eco data suggest strength NOT weakness.
– 2 FED Heads add to the chaos and confusion – but get ready JJ and 4 more are set to speak today.
– Oil is Up, Gold pierces $2300!
– Futures suggest a bit more weakness….
– Try the Risotto alla Romanese.
Stocks get whacked – algo’s go into the ‘run for the door’ mode as rate cut expectations FADE…JOLTS report reveals 8.756 mil jobs available – that is UP from last month’s 8.748 mil and well above the expected 8.730 million, Factory Orders stronger, Durable good stronger and so stocks and bonds suffer. The Dow down 400 pts or 1%, the S&P down 38 pts or 0.7%, the Nasdaq lost 156 pts or 0.9%, the Russell lost 37 or 1.8%, the Transports gave up 185 pts or 1.1% while the Equal Weight S&P lost 62 pts or 0.9.
And remember those TSLA delivery numbers that we waited for? Yeah, well they came out and it was NOT pretty – and the algo’s ran for the door there as well…taking that stock down 7% during the morning only to leave it down 5% by the end of the day at $166….My guess is that it is about to test the May 2023 low of $150.
Fed Heads Mester and Daly continue to cause confusion as they hint at as many as 3 cuts (even in the face of all the stronger eco data that we continue to see) – they actually said it was ‘reasonable to expect’ those cuts while at the same time saying that they are ‘in NO RUSH to cut’…. Did you see that? Essentially – ‘we’re gonna get 3 cuts (when we start) but we just don’t know when we will start’ – It’s ludicrous! I say stop saying how many cuts are coming – because if the economy circles the drain (not happening yet but always a possibility) then we could see the FED takes rates to ZERO (again) – which is just one BIG cut or a series of smaller cuts! Look, we can all agree that the next move is rates is ‘most likely’ lower – not guaranteed – but likely yes….so check that box – but that is not the question – right? The question remains two-fold. 1. Why don’t’ they (FOMC members) support JJ’s narrative and fall in line rather than cause confusion? and 2. When is D Day?
Well, the answer to #1 because THAT would be too easy! If they fall in line – then they can’t do the media circuit, they can’t audition for their next job once their time at the FED ends…..they need to say ‘Hey, look at me, I’m a member of the FED and I need a job when I’m done – so pay attention to what I say!’. To that point – you have former Dallas FED Pres (2005/2015) – Richie Fisher – who was a key voice on the FED during his tenure, who is now a paid contributor to CNBC, a Senior Advisor to Barclays and a Director at Pepsi. You can just hear the cash register go ‘Cha Ching’! You have former Vice Chair – Richie Clarida – rejoin PIMCO as an MD and Global Economic Advisor. And then you have Benny Bernanke – you remember him, no? He was FED Chair during the GFC (that Alan Greenspan created) and is now a ‘Distinguished Fellow at the Brookings Institution,’ and speaking of Alan – he is married to NBC News Correspondent Andrea Mitchell – You get the picture no?
And question 2 – well we don’t know yet…. right? And that is ok – because the economy is fine, 5.25% rates have not destroyed it and btw – 5.25% is historically normal, inflation REMAINS an issue, eco data remains strong so what is all the whining about? It’s the ‘everyone gets a trophy mentality’. It’s a whole generation of people that don’t know anything but zero rates, so of course 5.25% appears ‘astronomical’! It’s ridiculous. My stance is that it does not, nor should it be defined today or tomorrow – it will be defined when it’s defined and that will be when the data confirms the NEED to move lower. Period. – I mean – This is NOT rocketing science boys…
But here is the problem – The FED has become soft! They NEVER gave hints nor were they led around by the nose by Wall Street. They didn’t take to the podium, they didn’t give press conferences, they NEVER gave us insight into what the next move was, and they didn’t succumb to the demands of traders – Period. They became soft when Benny took over -granted – the financial markets and global economy was circling the drain – so I get it – but that was then, this is now…. Enough already!
Now, get ready – because the ‘show continues’ – today we’re gonna hear from JJ Powell (again), Atlanta’s Raffi Bostic at 8:30 on CNBC, then during the day – we’ll hear from Chicago’s Austan Goolsbee, Fed Governors Adriana Kugler and Mishy Bowman. Tomrrow will bring us Cleveland’s Mester (again), St Louis’s Alberto Musalem, Richmond’s Tommy Barkin, and Philly’s Patty Harker… Oh boy….my head hurts…o.
In any event – it is what it is and if you are a long-term investor, you should be welcoming this pullback – look – we’re down less than 2% off the high – that is hardly anything to write home about….so breathe.
Bonds continue to come under pressure – the TLT and TLH both down another 0.5% – leaving those two assets down 7% and 6% respectively ytd. The 2 yr. yielding 4.71% and the 10 yr. at 4.36%. 30 yr. mortgage rates are hovering around 6.75% with an 800 FICO score, 7.35%, with a 740 FICO score and 7.52% with a 720 FICO score. 12-month CDs are still offering rates of 5.25% and Gov’t mm rates are hovering at 5%…. So, there are OPTIONS….
Oil continues to march higher – this morning it is up 15 cts at $85.30…. You know the deal…nothing new here…. Oil remains in the $80/$90 trading range.
Gold – BANG! It did it! It kissed and then pierced $2300…. yesterday I said –
“We are only $20 away from testing $2300…. something it feels like it wants to do and if it does then I think it hits some resistance.”
Yesterday it tested $2301 and then backed off to close at $2281, overnight it tested $2308 and then backed off again and is trading at $2292. We discussed why Gold has been on a tear and I continue to support that argument…but I will also say – just like stocks, I think it might be a bit stretched – so hitting some resistance here would not be a surprise. A pullback could see gold test the $2175/$2200 range.
Eco data today includes – the ADP employment report and we are expected to create 150k jobs….that would be up over last month…and again suggests strength – so no need to cut rates, We are also getting S&P and ISM Services PMI’s and they are both expected to be in expansionary territory – and again we are a 75% services economy – so these are KEY data points….results in the expansionary territory again – do not SCREAM of a need for rate cuts. ISM Services Prices Paid is another data point we are getting and that too is expected to be UP – are you seeing the pattern here yet?
US Futures are down…. Dow down 30, S&P’s down 10, Nasdaq down 55 and the Russell down 2. As noted, – we are only down 2% off the high – I would like to see us shake the branches a bit more…. maybe 5% or 6% taking us down just under 10%…which is completely withing the ‘normal trading pattern’. Remember – we have NOT seen any kind of a pullback for months…that is not healthy – so don’t be afraid of a pullback – use it to continue to build out your portfolio – remember – this is longer term money…..As long as you have a diversified portfolio and own top names in the sectors you’re in then don’t worry….ride the wave but take advantage of it as well.
Now in the middle of all of that selling yesterday – Energy was up 1.4% while Utilities gain 0.2% – Healthcare got slammed down 1.6% as Medicare holds firm on rates causing 2024 profits forecasts to get shredded…. Profit margins under pressure as medical cost RISE (no surprise there! Hello Joey???). Consumer Discretionary also got hit on the idea of higher for longer…. down 1.5%. Naturally, the contra trades did well – the DOG + 1%, SH + 0.8%, the PSQ + 0.8% and the VIXY (fear index) up 2.7%!
In the end – global stocks appear to be in retreat, bonds are in retreat, yields are at 4 month highs, economic reports are strong and commodity prices are up – the BCOM (Bloomberg commodity index) is up 6% off the February low – it has busted up thru both the short and intermediate term trendlines and is about to test the long term line at 101.78. If it pierces that confidently – then a run to the November 2023 highs of 105 is the target and if that happens it only reinforces the idea that rates are going anywhere – Capisce?
Friday brings us the all-important Non-Farm Payroll Report and that is expected to show an increase of 215k new jobs…..which is down from last month’s initial report of 275k, but remember – they always revise and lately all the revisions have been lower than previously reported – which continues to add to the chaos. The unemployment rate is expected to decline to 3.8% (down from 3.9%) and Avg hourly m/m and y/y earnings are expected to be +0.3% and +4.1% respectively.
European markets are up small today – after yesterday’s weakness and cautiousness about the start of a new quarter. Eurozone inflation eased a bit to +2.4% – ok….and that is giving some a reason to suggest that the ECB is cutting rates – thus the attempt to push prices up…. UK is down 0.4% while the rest of the region is up about 0.2%.
The S&P closed at 5205 – down 38 pts…. yesterday I said that I suspect we will see some churn lower rather than churn higher and I remain in that camp. I would love to see us shake the branches a bit more…. think 5% – 6% – which would take us back to 4900 ish…a level last seen in February. But while I would like to see that, I do NOT think we will…. My gut says if we test 5100 – that’s about all we’ll get….and that would represent a 3% decline…. Capisce?
I remain cautious as the new qtr. Begins – which does NOT mean I am a seller of my long-term assets; it just means I remain cautious and will put money to work strategically. Remember if you’re nervous – leaving money in a gov’t mm fund (that is completely liquid) at 5% is a decision….….an April pullback is not uncommon at all – especially during the first two weeks – think TAX Day. …. keep your eyes on the long game…. remain focused, stick to the plan, 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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Risotto Alla Romanese (Risotto Roman Style)
Oh boy – this dish is like LOVE.
For this you need – 1 c Arborio Rice, Vegetable Broth, Fresh lemon Juice, Lemon zest, white wine, toasted pepper corns (crushed), salt, grated Pecorino Romano Cheese, and Olive oil,
Begin by heating up the vegetable broth (you can make your own by slicing carrots, celery, shallots & onions and then bringing to a boil).
Now in a large sauté pan – toast the rice – no butter, no oil – just the rice. Heat up the pan and stir the rice until you toast is just a bit. Now add in a cup of white wine and stir – Coating the rice in the wine. Now add in ladles of the vegetable broth – one at a time until the rice absorbs it and then add another…. Keep stirring as you add the broth.
When the rice is done, but still just a bit firm to the bite – add in the juice of one lemon (make sure to massage the lemon by rolling it on the counter to bring out the juice) – not all at once – do half and taste – capisce. You can always add more. Then add in 2 c of the pecorino Romano cheese and some lemon zest the pepper and a bit of salt. Stir, now add 2 turns of the olive oil. Taste and adjust.
You should end up with a beautiful creamy risotto…. if not – add a bit more of the broth and more of the cheese… this is the definition of LOVE.
Buon Appetito.
