Things you need to know –
– Stocks got punched in the face.
– Nicky T reveals what many of us already know.
– FOMC announcement is at 2 pm, but the Presser is at 2:30 pm.
– Will the market HEAR what he says, or will it HEAR what it wants?
– Oil and Gold plunge….
– Try the Simple Pork Loin
Wall St HIT by the jitters, Stocks extend the early April decline, Investors brace for FOMC guidance (Not the decision), the Employment Cost Index (Labor costs) rise by the most in over a year while US Consumer Confidence plummets….And stocks got punched in the face….But remember – it was the last trading day of April – which only means the end of the monthly marking period – it is not the end of the more important quarterly marking period. (so, let’s not get our panties in a bunch) – today is May 1st….and a new trading month begins.
The Dow lost 570 pts or 1.5%, the S&P down 80 pts, or 1.6%, the Nasdaq down 325 pts or 2%, the Russell – taking it on the chin gave up 42 pts or 2.1%, the Transports lost 304 pts or 2% while the Equal Weight S&P gave up 100 pts or 1.5%!
In terms of performance though, yesterday’s decline did nothing to change ytd sector ranks, but did reprice how those ranks are performing and overall – it has not been a disaster by any stretch….- the S&P GRR (Group Ranked Returns) reveals that Communications continues to lead + 13%, Energy + 11.7%, Financials + 7.1%, Industrials + 6.6%, Tech + 6.3%, Consumer Staples + 5.6%, Utilities + 5.2%, Basic Materials + 3.4%, Health Care + 2.7%, Consumer Discretionary + 0.2% and Real Estate remains in negative territory down 9.8%.
But if you look at just yesterday’s performance – in a vacuum – it appears as if there was blood in the streets – Energy – XLE gave up 3%, Consumer Discretionary – XLY gave up 2.4%, Tech – XLK lost 2.2%, Basic Materials – XLB and Real Estate – XLRE down 1.8%, Communications – XLC lost 1.7%, Industrials – XLI down 1.6%, Financials – XLF – 1%, Utilities – XLU – 0.5%, Consumer Staples – XLP – 0.45%, while Healthcare – XLV was a winner – only down 0.1%!
Further down the scale we saw weakness across the board…Homebuilders – XHB lost 1.8%, Airlines – JETS – 2.2%, Disruptive Tech – ARKK – 3.7%, Semi’s – SOXX – 2%, Expanded Tech – IGM- 2.5%, Expanded Tech Software – IGV – 2.5%, Oil & Gas Exploration – XOP – 4.4%, Aerospace and Defense – XAR – 1%, Metals & Miners – XME -3.5%, Big Pharma – XPH – 0.5%, and the list goes on…..in the end – it was a down day or was it?
The VIX shot higher by 6.6% – to end the day at 15.65 – well below last week’s surge to 21.50. I for one was a bit surprised with that move….the performance alone would suggest that the fear factor rose exponentially – which it did not – so for me that suggests that what JJ is about to say – is not unexpected…..seasoned investors know that it isn’t a bed of roses, this is not our first rodeo – we can read the tea leaves just as well as the FOMC members and realize that rates aren’t going anywhere today, tomorrow, next month, the month after that, not September and most likely not November or December and if you have been in that camp – then you should NOT be surprised at all….I am (as you know) and have been in that camp.
The ones that appear to be surprised are the trader types that created a ‘false narrative’ (think multiple rate cuts), pushed that false narrative and then bought into it…. How many times did we discuss this? The data did NOT (and does not) support any such thing, so its time to let it go…and let it go they did….as they all ran for the door at the same time… (which is always comical to watch). They have this herd mentality – they follow each other in and out like a bunch of sheep….and in the end – sheep get slaughtered – but that’s another story….
(Wall St. – 1987 Gordon Gekko)
The contra trades – were by default – the winners yesterday…the SPXS – the Direxion triple levered S&P short ETF gained 4.6%, the VIXY +2.8%, the DOG (Dow Short) + 1.5%, the SH (S&P Short) + 1.5% and the PSQ (Nasdaq Short) + 1.9%.
Now it was one of the FED’s deep throat’s – Nicky Timaraos – the WSJ Chief business reporter who acts as their mouthpiece when they can’t talk because they are in a blackout period (and they are in that period now) – that lit the fuse….and laid it out in a WSJ piece yesterday…. (The other Deep Throat is Goldman Sachs….and I’m sure they are not happy that Nicky stole the spotlight – because they couldn’t take advantage of this news to create another ‘Special Report’…. but hey, It’s just business). The article
“Fed to Signal It Has the Stomach to Keep Rates Higher for Longer”
Using an ancient Chinese proverb, Nicky intimated – “Do nothing, and everything will be done” … That’s all you need to know…. ‘Do Nothing’….
Nicky also appeared on Mornings with Maria on Fox Business where he goes onto say that inflation appears to be settling in at 3% and not 2% and that ‘would NOT be ideal for the FED’. They will simply take out any idea of an interest rate cut this year and possibly into next year and what that will do is cause interest rates to rise across the curve – essentially raising rates without the FED actually raising rates (although what he did say as well is that rate HIKES are back ON THE TABLE) which doesn’t mean they will raise them – but what they won’t do is CUT rates….
Let me be clear – the message that Deep Throat was to deliver was simple – take rate cuts OFF the table and he did –
‘They will simply take out any idea of an interest rate cut this year and possibly into next year…’
And boom – here we go! Stocks and bonds get smacked….
In the bond market – the TLT lost 0.8% and the TLH gave up 0.7% and that sent the 2 yr. up and thru 5% to end the day yielding 5.03% while the 10 yr. gained 6 bps to end the day yielding 4.688% and there is the culprit…. rising rates!
This isn’t rocket science – which is why I keep asking you – are you a long-term investor or a short-term day trader? Because that will answer the question about how you reacted to yesterday’s action. Because in the end – what really changed? Nothing. The message has been clear all along – inflation has remained sticky, m/m numbers have been on the rise for 3 months now, and all indications were flashing ‘warning Will Robison, warning! Which is why I have been saying – do not get drawn into the fray…. create your plan and then stick to it – only change course if something ‘fundamental’ changes…and for me – nothing fundamental has changed…(yet).
Oil got slammed – falling 1.3% to end the day at $81.55 and this morning it down another 1.9% at $80.39…US crude inventories and production has swelled; Iraq crude exports rose despite a pledge not to increase production and there are increasing hopes of a ceasefire in the mid-east. The API reported that US inventories rose by 4.9 million barrels while gasoline stockpiles did decline. US crude production is also ramping up and is expected to go to 13.15 million bpd – up from 12.58 million bpd.
Now – we did break trendline support at $81.05 but not significantly (yet) – Let’s see how the day ends…. a close below trendline will put is in a new range…. $77.50/$81.05 – while a close above trendline will keep us in the $80/$90 range. Remember – the summer driving season is about to kick off – Memorial Day weekend is now just 23 days away (24th – 27th) so get ready to keep paying higher prices for gasoline.
And as you would expect – GOLD also got crushed….falling $60 yesterday and another 80 cts today at $2302…this after testing a low of $2291….again breaking the $2300 level that I identified as support last week….In my opinion – it was a herd mentality type of move….everyone running for the door at the same time…So again, I ask – is the market really that surprised that rate cuts are off the table for now? Is it really a surprise? And if it is – then you have been living under a rock – The message has been very clear. I think in the end – we will find support at $2300 and while I do not think the FED will raise rates, he is certainly not cutting them.
US futures continue to come under pressure – Dow futures are down 90 pts, S&P’s down 25, Nasdaq down 135 while the Russell is down 10. Now, no one should be surprised to see a bit more caution after yesterday’s decline in what is sure to be another ‘shoot first, ask questions later’ reaction….and ahead of today’s all important FOMC guidance…. along with the eco data. ADP employment is supposed to be +180k new jobs, Construction spending +0.3%, ISM Manufacturing of 50 (directly on the neutral line), Prices Paid of 55.4.
The announcement is at 2 pm – but the Presser is at 2:30 and that is what the market is waiting for…what will JJ say? Will he waver? Will he suggest something other than what Nicky said? Will he finally say with full clarity- that rates are not seen as going lower (anytime soon)? And even if he does, will the market hear what it wants to hear or will it hear him? That is always the question….
European markets are closed for the May Day holiday…. other than the UK – and that market is up 0.1%.
Now remember when I said we would test 4950 before 5120 and then on Monday evening Lonnie made that surprise trip to Beijing and Bernstein upgraded AAPL to a strong buy causing ‘the herd’ to push stocks up and thru 5120 on Tuesday– for a brief moment – only to close at 5116. While I did admit defeat yesterday– I also said that while we pierced it – we did CLOSE below it – which essentially left us in the defined range….and then yesterday happened – taking the S&P back to 5035!
I was just a day late and a dollar short! But hey, I remain convicted, I am still not convinced yet that the drawdown is over – which only means – I still have cash on the sidelines ready to be deployed. I am not a sheep, I did not follow the herd which also doesn’t mean my portfolio didn’t’ decline, it just means I didn’t get slaughtered. Owning some of the contra trades helped to blunt the bleed while building a strong foundation is key to creating that long term portfolio.
The S&P closed at 5035 – down 80 pts…. With futures pointing down this morning- I suspect that a test of trendline support at 4950 IS in the cards…..Maybe not today, but soon enough….where I think it finds support….Friday’s NFP report is what’s next….and like I said yesterday, I fully expect it to show a strong labor market and strong Avg hourly earnings m/m and y/y. I also expect unemployment to come in as expected at 3.8% – still historically low. Sit down and strap in…. this part of the ride isn’t over….
Call me to discuss. 212-381-6194.
Take good care, 
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Easy Pork Tenderloin
This is so simple and is one of those quick meals that is always a winner.
For this you need: Pork Loin, s&p, beef broth, whole kernel corn.
Preheat oven to 375.
Season the loin with s&p. Place in a Pyrex baking dish – add the beef broth – enough so that the loin is bathing, but not so much that it is swimming. Cover and cook for 15 mins…. – then remove tin foil – add one can of whole kernel corn and continue to cook for another 30 mins.
(Keep your eyes on it, as you may need to add a bit more broth if it starts to steam away)
While this is cooking you can make a side of brown rice.
Accompany this with some steamed veggies of your choice – French cut green beans always work well.
When done – remove from oven and slice – if done properly – you can even shred it with two forks. Serve over the white rice with the corn. Veggies on the side. Simple, fast and easy.
Buon Appetito
