Things you need to know.
– PCE Deflator does not surprise
– JJ continues to say ‘relax’ – yet the market does NOT hear him – the narrative says multiple cuts.
– Oil up, Gold up, Bonds down.
– Qtr. end performance was beautiful….Energy LED the gains +12.6%, Tech was in 7th place.
– It is a new quarter, Earnings season just days away.
– Try the Easter Monday – Ham & Cheese Tart Surprise
I am back…had a great time on the Forbes Investment Cruise last week – but a lot has happened in the week I was gone…The eco data remains mixed but is not pointing to a disaster, the paparazzi types (traders/Algo’s) continue to push for multiple rate cuts even while the data does not support it, the FED’s favored inflation gauge – the PCE came in as expected, (although the 6 month read was ‘hotter’ at +2.9%), JJ Powell reiterates the need to ‘go slow and have patience’ and stocks continued to push higher – as the paparazzi remain oblivious to his stance….Stocks ended Thursday mixed, while leaving the week and quarter higher. Remember – Friday markets were closed, so Thursday was the end of week, month, and qtr.
At the closing bell – the Dow gained 48 pts – leaving it up 5.6% for the quarter. The S&P went up 6 pts leaving it up 10% for the quarter. The Nasdaq lost 20 pts but is still up 9% for the quarter. The Russell went up 10 pts, up 4.8% for the quarter, the Transports up 183 pts, up 2% for the quarter while the Equal Weight S&P gained 30 pts leaving it up 7.4% for the quarter.
For the quarter here is how the 11 broad S&P sectors performed and guess who was NOT in the lead? Tech! Energy took the top spot – XLE up 12.6%, Communications – XLC + 12.4%, Financials – XLF +12%, Industrials – XLI + 10.5%, Basic Materials – XLB + 8.6%, Healthcare – XLV + 8.3%, Tech – XLK +8.2%, Consumer Staples – XLP +6%, Utilities – XLU + 3.6%, Consumer Discretionary – XLY + 2.8%, with Real Estate – XLRE -1.3%.
Further down the food chain – we saw Housing – XHB + 16%, Retail – XRT + 9.2%, Airlines – JETS +10%, Growth – SPYG + 12.4%, Value – SPYV + 7.5%, Oil & Gas Exploration – XOP + 13.2%, Aerospace and Defense – XAR + 3.6%, Expanded Tech – IGM + 15% for the qtr. Semi’s – the Van Eck etf – SMH + 28%, while the iShares etf – SOXX + 17% – why the difference? Because the SMH has a 20% position in NVDA while the SOXX only has a 9% position in NVDA – nothing more than that.
Cyber security- CIBR + 4.7% while Robots and AI – BOTZ + 11.6%.
The fear index – VIX was up 4.5% (not dramatic) while the VIXY (fear etf) was down 16%. The contra trades that get you short the market also had a tough qtr. The SH – 8.7%, PSQ – 7.6% and the DOG – 4.6%.
Bonds were down on the qtr. and that speaks directly to the strength in equities. The TLT – the 20 yr. bond ETF down 4.3% and the TLH – the 10 – 20 yr. bond ETF down 3%. The AGG – the Bloomberg Aggregate Bond Index – lost 1.3%. (Recall the AGG is a combo of treasuries and corporates – so that tends to be less volatile than the TLT & TLH – which are only Treasury ETF’s). Talk of lower rates is not helping the bond market – let’s see what happens when Janet brings even more supply to the market.
Oil – continued to march higher….this morning it is trading at $83.10….leaving it up 15% for the qtr. – this spike higher just starting to be reflected in the inflation data as the latest spike only began in mid-March. Now we all know why – growing demand for oil, global tensions in the Mid-East, the ongoing war in Ukraine and the supply cuts imposed by OPEC+ (being driven by the Saudi’s). News this morning out of OPEC confirms that they expect to extend those cuts at least through June – which will tighten supply just as we enter the summer driving season in the northern hemisphere. Oil now remains in the $80/$90 trading range.
Gold – busted out and up last week – up $65….this morning it is trading up another $35 at $2275 that is up from $2175 when I left last week.
Friday was a holiday and markets were closed, but that did not stop the gov’t from announcing some KEY eco data points that the markets and investors were waiting for, data points that many hoped would finally put an end to the rate cut narrative speculation and identify when the multiple rates would actually begin….
At 8:30 am on Friday – we got the Personal Income and Personal Spending reports at +0.3% and +0.8% respectively – Income was better than expected while Spending was stronger than expected (leaving some to say that that’s good while I think – maybe not so much) to me, it suggests that we are spending more on things we need. (That’s a negative), And then we got the all-important PCE Deflator report – the FED’s favored inflation gauge and what did that show?
Well, it came in as expected – no surprise up or down leaving the Core (which strips out the volatile food and energy components) m/m number at +0.3% while the y/y number at 2.8%. (As mentioned above – the 6-month Core PCE though, came in at +2.9% – the fastest since July 2023 and that was a bit of a surprise but no one is focused on it).
Now this reading was a welcomed reprieve after the latest CPI and PPI reports showed price pressures intensifying since the start of the year. But Friday’s data did not stop JJ from remaining cautious….in a speech on Friday he stressed the need for patience while saying that the timing of the first-rate cut would be ‘highly consequential’ (meaning very important). Here were just some of the points he made in that speech –
– The FED can hold rates STEADY if inflation does not come down.
– He does NOT think that rates will return to Pre-Pandemic Levels.
– The economy is NOT suffering from the current level of rates AND
– There is NO reason to think that the economy is on or on the edge of a recession.
Now, remember – the equity and bond markets were closed on Friday so no one could react, or could they? Yes they could – you see the Bitcoin market never closes and that market reacted ……..going from $71k to $69k – or a 2% loss from high to low that day (which btw – is barely even noticeable on the chart)….and while that does not necessarily dictate how equity investors will react – it was a reaction. And that reaction suggests that the market (at least on Friday) viewed his comments as more hawkish……And to this I would say – they are not MORE hawkish, they remain in line with what he has been saying all along and no matter what he says- the street narrative continues to be that multiple rate cuts are coming.
This morning after traders and algo’s had all weekend to digest the data they continue to assume that the data and the Powell comments are still pointing to a rate cut…FED Fund futures are now pricing in a 67% chance of a June rate cut (Not July, but June) and this is a turnaround from where it was only 2 weeks ago. Recall – that 2 weeks ago -when we got the ‘hotter’ CPI and PPI reports – rate cuts were pushed out to July, apparently the market has repriced that and are now assuming a June cut is not only possible but is coming. And futures and Gold are both up….
At 6 am – Dow futures are up 110, the S&P’s up 18, Nasdaq ahead by 90 and the Russell is up 12! The moves on the back of three things. One – that rate cuts are coming and two that earnings season, which begins on the 12th are going to surprise to the upside – setting us up for a stronger 2nd half of the year and three – that the economy does not appear to be ready to implode (at all).
The idea that inflation is churning in here (3.4%) is NO longer an issue – they will point to the y/y reports that are trending lower rather than the m/m numbers that are trending higher and that personal spending is UP will continue to propel stocks higher… Again, I would say that personal spending is up because inflation remains an issue, not because consumers just want to buy things. And you can see this in the XLP +6.8% vs. the XLY +2.8% (needs for wants).
Tech stocks are higher in the pre-mkt – think NVDA, MSFT, AAPL, AMZN, IBM, TSLA, SMCI, etc.…but remember – the 1st qtr. is now in the books, today starts a new marking period for asset managers and traders…..stocks which came under pressure last qtr. – think names like AAPL (-10% in the 1st qtr.) & TSLA (down 30% in the 1st qtr.) will represent new buying opportunities for retail investors, large asset managers and the algo’s.
Eco data today includes – S&P US Manufacturing PMI of 52.5 (expansionary), ISM Manufacturing PMI of 48.3 (Contractionary) – which is a conflict, right? Construction Spending of +0.7%, ISM prices paid of 52.9 which is up from 52.5 – again suggesting upward pressure on prices.
European Stocks are closed for the Easter Monday holiday.
The S&P closed at 5254 – that is up 100 pts from when I left on the 19th– or a 2% move higher, as the re-pricing continues on the back of the rate cut narrative. Higher futures this morning suggest that investors are confident that the FED has navigated a ‘no landing’ (not soft or hard, just none) and that as a result they will at the least do nothing (nor RAISE rates) and at the best – they will cut rates multiple times. Former Fed Vice Chair Roger Ferguson floats the idea of NO RATE CUTS this year – and apparently NO ONE is listening to him either!
This is NOT the time to chase expensive (growth) stocks, but that does not mean you can’t put money to work in other sectors that are expected to outperform.
Yearend S&P targets are moving UP – with some suggesting a 5700 handle by year end – and if that happens, the S&P will be up more than 20% – which I would love to see, but just don’t see it yet.
AI will continue to be the story this year and next and next…. – the Saudi’s are expected to pump more than $40 billion into the industry themselves in 2024…as they try to become the tech capital of the world….Let’s see how that works out….
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Ham, Cheese & Potato Torta – Perfect for Easter Monday
For this you need Mashed potatoes (which you have left over from Easter dinner), 2 rolls of puff pastry (buy that at the supermarket), Ham, (left over from Easter dinner), Mozzarella, Fresh grated parmegiana, s&p and eggs.
If you don’t have the mashed – then make them (using butter and a splash of heavy cream and a handful of the parmegiana)
Preheat the oven to 375 degrees.
Lay out one roll of the pastry on a baking sheet – spread the cooled mashed potatoes on the pastry. Now layer the ham on top and then layer the sliced mozz on top of that.
Now place the other roll of puff pastry on top and seal the edges. Brush the top with a beaten egg and using a fork – poke holes in the top.
Place it in the oven and bake for 25 – 30 mins or until it is nice and browned.
Remove – let rest for 5 mins and then slice and enjoy.
Buon Appetito
