Things you need to know.
– Eco data on Friday conflicts with FED speak.
– Algo’s go all-in, long-term investors going along for the ride.
– Tech gains 2.8% while Energy ended flat.
– Bonds rally, yields fall.
– Oil & Gold churn.
– Lots of FED speak and global central bank policy announcements.
– Try the Veal
It’s RISK ON – stocks pushed higher, Investors, traders and algo’s go all in, NFP suggested weakness (for some) – we only created 175k jobs vs. the expected 240k. Unemployment rose to 3.9% while wages were up ‘slightly’ less than consensus – +0.2% m/m and 3.9% y/y. Services PMI’s give us a mixed view on the economy – S&P had it at 51.3 – expansionary – while the ISM survey had it at 49.4 – contractionary. – which leaves me thinking we are really in neutral (remember – 50 is the dividing line) – with a slight bias to the upside… and this caused the ‘rate cut cult’ to scream for what else? Rate cuts!
The WSJ runs this headline on Saturday morning.
“Hiring Cools, Lifts Rate-Cut Hopes”
The latest eco data is now reigniting the bet that the FED is ‘out of touch’ and that the only natural thing to do is to CUT rates…..and while last week’s FOMC drama caused those bets to be moved out to December 2024 if not sometime in the 1st qtr. or 2025 – Friday’s data has now tossed all that in the air….Some of the rate cut traders are now betting on a July cut while the majority of them are in the September rate cut camp – to which I remind you – September – would be 6 weeks ahead of the US Presidential election – not a typical time for the FED to do anything on rates – up or down…Let me make this clear – the FED has always played under these guidelines….no move on rates in the 6 months prior to a Presidential election UNLESS the data absolutely DEMANDS a move – meaning – we would have to be circling the drain for that to happen in September – something that does not appear to be the case…. Just an fyi – Today is the 6 month mark for the Presidential election.
Unemployment would have to have a 5 handle on it – currently it is 3.9%….PMI”s would have to plunge into the mid 40’s, Factory Orders, Durable Goods Orders, Housing, Retail Sales, Building Permits, Housing Starts would all have to plummet in unison for us to be circling the drain….so unless that happens, cutting rates in September is nothing short of a pipe dream and by the way – if THAT happens – strap in – they will have to do more than just cut rates by 25 bps…..Capisce?
In any event – the Dow gained 450 pts or 1.2%, the S&P gained 64 pts or 1.3%, the Nasdaq up 316 pts or 2%, the Russell ahead by 20 pts or 1%, the Transported gained 114 pts or 0.75% while the Equal Weight S&P added 45 pts or 0.7%.
Tech – XLK gained 2.8%, Communications – XLC +1%, Basic Materials – XLB +1%, Real Estate, Industrials & Utilities all up 0.8%, Consumer Discretionary – XLY + 0.7%, Consumer Staples & Financials + 0.3% with Energy – XLE – ended the week flat.
AAPL surged 6% as investors go all in after their better-than-expected earnings report. Investors bought it up $13 on the opening trade – leaving an obvious gap on the chart – something that typically would get filled over time…… Over the weekend – we learned that Uncle Warren (Buffet) actually sold 13% of his holdings during the quarter – which equates to about 115 million shares – but he still owns 800 million shares –the sale resulted in an $11.2 billion ‘after tax’ gain and helped the raise the company’s cash position to a record $189 billion – it remains Berkshire’s largest holding. It’s called risk management and tax planning….he paid 21% to the FEDS on that sale – noting that next year – if Jo Jo has his way – that number might be significantly higher….so Uncle Warren made a decision….he has no problem paying taxes – but why pay 35% next year when you can pay 21% this year? It’s a math problem – nothing more, nothing less.
Bonds surged on the idea that the FED might consider cutting rates – the TLT + 1%, the TLH + 0.9%….and that sent yields lower….the 2 yr. fell 6 bps to end the day at 4.78% while the 10 yr. fell 7 bps to end the day at 4.5%….both of these yields down significantly in just one week.
Oil continued to decline…falling 1% to end the week at $77.99…. over the last two weeks – we have seen oil fall by 10% as tensions in the mid-east ebbed…and the expectation of a ‘cease-fire’ was the hot topic. This morning – the prospect of a cease-fire appears to be at best – slim….and that is causing those same traders to take oil up 1% to $78.90. Over the weekend – the Saudi’s raised the price of their flagship crude for Asia – this is the 3rd month in a row that the Kingdom tries to tighten its grip on the supply/demand balance in that region. And remember – they are extending their production cuts for the foreseeable future for the rest of the world. In any event – WTI is now in the in the $77.50/$81.20 trading range. $77.50 is the trendline support – if it fails to hold that then we could see oil decline into the low 70’s – something that the Crown Prince has made clear is not acceptable.
Gold – which has been toying with $2300 – ended the week at $2310 – this morning it is up $20 at $2330…on the idea that the Fed is going to CUT rates….and tensions in the mid-east remain elevated as we await any news on a ceasefire. If it appears that we do not get a ceasefire – then watch as Gold moves up and if we do get a ceasefire – then gold will retreat.
Just to bring you up to date -Hamas is demanding an end to this war – before they consider the release of any hostages – Benji has ‘ruled that out’ leaving some to wonder if the remaining hostages are even alive. And so – the fight rages on.
The VIX continues to decline and that suggests declining fear…. which supports higher prices…this morning we see the VIX trading at 13.40 – back to levels seen from December – March when we saw the S&P rise by 15%….
US futures are pointing up…. Dow futures + 90, S&P’s + 15, Nasdaq +50 and the Russell is +15. It’s a light economic calendar this week – but it is a heavy FED speak calendar and so expect much of the action to be driven by what each says and what the market hears…NY’s Johnny Williams and Richmond Tommy Barkin are due to speak today while Minneapolis’s Neely Kashkari will take the podium tomorrow and Chicago’s Austan Goolsbee is due to speak on Friday.
But it is next week’s CPI and PPI data that is the eco data that investors/traders/algo’s and analysts will be talking about…. PPI is due on the 14th while CPI is due on the 15th…. will we see another month of rising inflation or not? If we do – then cancel the rate cut narrative because inflation remains sticky, and we don’t then expect the crowd to scream for a cut immediately. Oh, the drama of it all……
European markets are up…the UK is closed for a holiday, but France, Germany, Spain, and Italy are up between 0.5% – 1%. ECB Chief Economist – Phil Lane – telling us that the recent data has made him more certain that inflation is in decline….and that the likelihood of a cut is in June…. which means that the ECB is going to lead the world in rate cuts?
Eurozone eco data due out later today, Australia, Brazil, Sweden, Malaysia, and UK rate decisions due out during the week.
The S&P closed at 5127 – up 64 pts…this after piercing trendline resistance at 5129 to trade as high as 5139. And with futures looking up this morning and with little to no real eco data and with all kinds of FED speak that is sure to confuse the algo’s – my guess is that we push higher….as the rate cut chant grows stronger. You know me – I am still not in that camp – yet…just because the data does not support it…could that change dramatically in the months ahead – sure…but I’m not betting on that…. but – let’s see.
As a long-term investor – what the past couple of weeks have shown you is that remaining calm, staying the course and being strategic is the way to go. Call me to discuss. 212-381-6194.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Veal Scaloppine in White Wine & Porcinis
You will need: 3/4 oz of dried porcini, 1/b of fresh mushrooms, 1/2 stick butter, dried sage leaves (finely chopped), 6 veal scaloppines, 3/4 cup white wine, chopped Italian parsley, s&p, 1/2 cup heavy cream.
Soak the dried porcini in 1 cup of warm water for about 1/2 hr. Once soaked – remove with a slotted spoon – next line a strainer with a paper towel and strain the soaking water into a bowl and set aside. Rinse the porcini in cold water to remove any grit then large chop – set aside.
Next cut the white mushrooms into thin slices – set aside.
Season the veal with s&p.
Add the butter and the sage into a sauté pan and turn heat to med high. Add a touch of olive oil to prevent the butter from burning. Next add the veal scaloppine so as not to crowd the pan. Brown well on one side – then flip and brown the other side…you should probably cook for about 4/6 mins total…. they should be pink on the inside….
Add the wine and let it boil – after 30 secs or so…remove the veal and place on a plate. continue to steam the wine – scraping the bottom of the pan until all the wine is evaporated. Now add back the mushroom water. And the porcinis to the pan…. stirring – allowing all of the liquid to evaporate…. Now add the fresh mushrooms and the chopped parsley. Season with s&p – turn heat to low and cover pan…. the fresh mushrooms will make their own juice – keep cooking – stirring every once and a while – remove cover until the juice evaporates. Now add back a splash of white wine and the heavy cream and stir until it becomes a little thicker – 3 or 4 mins. Now – add the veal back to the pan – leaving long enough just to reheat. Turn them once or twice to assure even heating.
Present on a warmed plate and serve this dish with steamed asparagus – seasoned with s&p and a dab of butter. Prepare a salad of arugula, Boston bib and maybe some fresh spinach. Add red onions, cucumbers, and sliced tomatoes. Season with s&p, oregano, a squirt of fresh lemon juice, red wine vinegar and Olive oil. I like a nice Merlot with this meal as it is a medium bodied red.
Buon Appetito.
