Things you need to know.
– The ‘MoMo’ guys are at it again.
– CPI comes in inline, Retail Sales also a bit ‘weaker’ and stocks pierce 5300 and this morning they appear to want to go higher.
– The VIX plunges – suggesting NO FEAR
– Are we getting used to a 3.6% inflation rate? It appears so.
– Swaps traders once again demanding a September cut!
– Oil pierces the trendline while Gold kisses $2400.
– Try the Farfalle con Funghi and Crema di Formaggio
The gov’t reports that topline CPI (Consumer Price Index) came in at +0.3% m/m – down from +0.4% last month…. and that’s all you need to know….None of the other parts of the report – which were unchanged – mattered….All they needed to see was ONE data point that supports their narrative, that pointed to ‘weakening print’ and they got it….The moment it hit the tape – futures shot higher and then when the bell rang at 9:30 – they continued to surge…..apparently suggesting that investors/traders and algo’s have come to terms with ‘sticky’ inflation that is taking new root in the economy. (Think of the latest PPI report) The sense is that while the FED has made it clear that they are not in a rush to cut, yesterday’s data may ‘change their minds’ (I do not believe that to be the case – do you?)
Investors who have been more cautious lately as they awaited this data point – threw in the towel – hitting the buy button at their E-Trade (or Robinhood) account on the back of that news…putting new money to work….sending stocks surging….and the S&P up and thru the next century mark. At the closing bell- we found the Dow added 350 pts or 0.9%, the S&P up 61 pts or 1.2% – (recall that I told you that the options market was pricing in a 1% move in the S&P – based on what the report said…..If it was a positive report it would be up and if it was a negative report it would be down…Well, now we know….). The Nasdaq added 230 pts or 1.4%, the Russell added 24 pts or 1.15%, the Transports + 18 pts or 0.1% while the Equal Weighted S&P gained 54 pts or 0.8%.
Again – the momo guys (think the algo’s) causing all kinds of excitement – taking the S&P right up to and through 5300 at 1:38 pm – only to pull back before surging again ending the day at 5308! …. The most recent rally that began in late April has taken stocks up 7% and if you go back to the October meltdown – the S&P is up 30%. Now – some of the move can be credited to the better than expected earnings season, the 80%+ beat rates, the upbeat forward guidance, some it can be credited to the ongoing idea that we are still going to get multiple rate cuts this year and some of it can be credited to idea that investors no longer believe that a 2% inflation target is achievable….and that we better get used to inflation running at 3+%. Recall that yesterday I told you that Bloomberg was out there making sure we knew that a 3.6% y/y inflation rate was the ‘SMALLEST’ y/y rise in 3 years! Rather than focus on the fact that prices continue to rise – they wanted you to focus on the idea that this is about as good as it gets (right now), that there is nothing to worry about, that 3.6% is a good thing. Oh boy…. But again, I am not complaining about it…I am invested so I am benefitting, (I was up 1%), I did not buy anything yesterday, nor did I sell anything – I wanted to let it marinate, so let’s see what happens today.
The FEAR gauge – the VIX sank even lower – collapsing at 8:30 am after the CPI report was published….It closed down 7.25% to end the day at 12.45 – a level not seen since December 2023 – and that is why stocks were so strong….apparently there is NO fear….As a result – all of the contra trades fell – the VIXY – 4.1%, the SPXS – 3.6%, the DOG – 0.9%, the SH – 1.2% and the PSQ – 1.5%.
Interestingly – Aerospace & Defense saw selling pressure – the ITA down 0.25%, the XAR -0.3% which is a bit odd to me – its not like the geo-political risks are declining…BUT – both of these ETF’s are trading at all-time highs – so I would guess it is more profit taking and reallocation of assets rather than a statement about ongoing geo-political risks. Peeling some off to take profits is never a bad idea – but under the current circumstances – I would not abandon the trade at all – having some exposure here is not a bad thing.
On the other hand though, we saw strength across the board – Everything participating – Tech once again taking the lead – up 2.25%, Real Estate + 1.7%, Healthcare + 1.5%, Utilities +1.5% (taking this usually boring sector up 14.5% ytd – not so boring I guess!), Financials +0.75%, Industrials +0.65%, Communications + 0.6%, Energy +0.25%, Basic Materials + 0.15%, Consumer Discretionary + 0.15% and Consumer Staples + 0.1% .
Down the chain – as you can imagine – it was more tech…Semi’s +2.8%, Disruptive Tech + 1.45%, Expanded Tech Software + 2.5%, Expanded Large Tech + 2.3%, Cyber Security + 1.5%, AI +1.3%, and the Growth trade – SPYG + 1.6%. Homebuilders + 2.4%, the SPXL (triple levered long) gained – as you would imagine 3 x’s the S&P to end the day +3.62%. Even the Value of trade was up – the SPYV + 0.7%.
And what happened to bonds? They rallied as well…. the TLT + 1.4%, the TLH + 1.2% while the AGG gained 0.7%. Now the swaps traders (the ones betting on cuts) are putting September squarely in the bulls eye…recall that last week – they were in the November / December camp – but after yesterday they are becoming more emboldened with some even teasing of a June cut…
The rise in prices is causing bond yields to plunge – the 2 yr. is now yielding 4.73% down from 4.81% (recall this was 5.02% 2 weeks ago) yesterday, the 10 yr. is yielding 4.33% down from 4.42% yesterday (down from 4.68% – 2 weeks ago) …Mortgage rates are also coming in a tiny bit – but for what – as rates come down -housing prices continue to climb – so it’s a wash…..lower rates + higher prices leaves you in the same spot except you have to come up with more money for the downpayment. 20% of a $700k house is $140k, but 20% of an $800k house is $160k. The current 12-month CD rates have also come in a bit – now yielding 5.3% down from 5.5%.
Again – you know how I feel, I think it is a bit premature and I do not think they cut in September – just 6 weeks ahead of the election…Can they now pull off a June cut? Well, now that Jo Jo is floating the idea of a June debate with DJT – that would not surprise me at all…It’s all very orchestrated – but I am still in the no cut camp prior to the election….(as naïve as that may be – I am still a believer that the FED is non-partisan and that they will act independently of what the WH wants – because the data still does not support a cut).
Just think about Tuesday’s PPI report – it surged much more than expected and price hikes there take about 4 – 5 weeks to filter their way thru the system and show up in the CPI – so I guess we need to wait until June 12th to see if those increases in costs are passed onto the consumer….Capisce?
Oil was all over the place yesterday….in the early morning hours – it was trading at $78.60, by 10 am – after the IEA reported ‘weakening demand’ we saw oil plunge to a low of $76.70 – piercing both the intermediate and long term trendlines at $78…..retesting the low from last week before regaining its composure to end the day at $78.87. This morning oil is down 30 cts at $78.30 as it continues to try and hold onto the trendline. Overnight the EIA reported that US crude oil, gasoline and distillate inventories FELL and that suggests demand is rising – contrary to what the IEA told us…..So, it’s a game of cat and mouse….I continue to believe demand is strong and is only getting stronger – that being said – we remain in the $78/$81 trading range.
Gold rallied to kiss $2400 yesterday….as gold bugs digested the latest CPI data…and are also now betting on a rate cut in September. The combination of the CPI and a slightly weaker Retail Sales report is fertile ground for precious metals traders. Retail sales were unexpectedly flat last month.
Dow futures up 15, S&P’s up 1 pt, Nasdaq up 25, while the Russell is down 5. Like I said – I suspected that that the ‘momo’ guys would test the all-time S&P highs…. Well, they did, and they pushed us into a new century…. the S&P is now in the 5300 range…. leaving it up 11.3% ytd – just a hair behind the Nasdaq – which is up 11.50% ytd. The question is – Where do we go from here?
European markets are down…. Not big – but they are all off by about 0.2%……Investors there are focusing on the latest US CPI data and what that means for the FED and by default what it might mean for the BoE. Eurozone CPI is due out tomorrow.
The S&P closed at 5308 – up 62 pts…. And it appears that maybe we’ll take a breather after yesterday’s rally that took us to all-time highs. Investors prepare to listen to what Philly Fed President Patty Harker, Cleveland Fed President Loretta Mester and Atlanta Fed President Raffi Bostic have to say….
Eco data today includes: Initial Jobless Claims and Continuing Claims, Housing Starts – expected to be up by a whopping 7.6%, (and if that is true – think about the demand for building products and accessories) Building permits +0.9%, Industrial Production +0.1% (down from +0.5% last month) and Capacity Utilization of 78.4%.
My sense is that we need to digest the latest data and the latest move up in stocks. Again – this is why I keep saying – talk to your advisor – create the long-term plan, execute it, and stick to it…do not try to pick tops and bottoms, your long-term account is not a ‘day trading’ account…
If you want to day trade, then open up a separate account and deposit your ‘mad money’ but do not mix the two up. A long-term investment account is exactly that – a long term investment account.
Call me to discuss. 212-381-6194.
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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Farfalle Con Funghi e Crema di Formaggio
This is a simple quick dish – maybe takes you total of 45 mins- start to finish.
For this you need: 1 lb. of Farfalle pasta (bow ties), sliced button mushrooms, 1 sliced red onion, fresh spinach, 1 whole head of garlic, s&p, a dash of oregano, a dash of thyme, 8 oz of cream cheese, Olive oil and of course you save a mugful of the ‘tears of the Gods’ (the pasta water).
Start by preheating your oven to 375 degrees.
In a large Pyrex baking dish, add the sliced mushrooms, the red onion, the head of garlic (you have cut off the top and drizzled with oil,) season with s&p, thyme and oregano. Add in the cream cheese and drizzle the whole thing with olive oil. Now cover tightly and place in the oven for 35 – 40 mins..
While this is happening boil 1 lb. of Farfalle in a pot of salted water. When aldente strain and set aside – reserving that mugful of water.
When the mushrooms are done – remove and squeeze the garlic bulb to release that sweet fragrant garlic. Add in the fresh spinach and the pasta – mix to coat well. Serve immediately – the kids will love this dish and it will become a family favorite. This is also a great dish to serve at a summer BBQ – It goes a long way.
Buon Appetito
