Things you need to know.

–        The ‘MoMo’ guys just can’t help themselves….

–        Stocks pierce 5200 and this morning appear ready to kiss an all-time high.

–        Austan Goolsbee takes the stage – expect him to be more ‘dovish’ only adding fuel to this fire…

–        Oil and Gold surge – it’s the mid-East, it’s the rate cut narrative and its demand.

–        Try the Cavatappi w/Arugula and Cannelloni beans.

S&P tops 5200 – the momentum builds as the trader and algo types (the momo guys) push it to test the March highs ….The rally that has taken stocks up 4.5% since the FOMC meeting is being built upon the ongoing idea that the FED will cut rates in 2024 – Notice – they are no longer saying a June, July or September cut – they are now just saying a rate cut in 2024…which could mean as late as December….OK – let’s go with that…I think it’s ridiculous, but it is what it is…and I am not gonna lie – I am enjoying the ride – It’s nice to see the portfolio grow in value….a $100k well diversified stock portfolio just gained ~ $4,500 while a $1 mil portfolio just gained $45k.  You can do the math, right?  A $2 mil well diversified stock portfolio should have gained ~$90k…

At the end of the day – the Dow gained another 330 pts or 0.9%, the S&P up 27 pts or 0.5%, the Nasdaq added 44 pts or 0.3%, the Russell gaining 18 pts or 0.9%, the Transports added 90 pts or 0.6% while the Equal Weight S&P tacked on 55 pts or 0.8%….Notice that divergence…..the S&P gained 0.5% while the equal weighted S&P gained 0.8%….meaning that buyers are looking beyond just the Mag 7 type names….they are finding other opportunities…..

Yesterday’s uptick in Initial Jobless Claims is the latest data point that continues to give this narrative life….as it showed a slight increase in claims….231k vs. 212k –  the increase suggests more job losses and supports that slight uptick in the unemployment rate we saw in last week’s NFP report…..The idea here is that we will continue to see an uptick in Initial Jobless Claims and that supports an uptick in future unemployment and that suggests that the ‘restrictive rates’ are doing their job – which then means that the FED can back off….(Wow – that’s a mouthful). 

This even as the latest FED heads try to quell the excitement – the latest was San Fran’s Mary Daley – who also issued cautious guidance (think slightly right or hawkish) – this on top of Neely Kashkari, Johnny Williams and Tommy Barkin…today we will hear from Chicago’s Austan Goolsbee – now this will be interesting as he tends to lean left, tends to be more dovish, so don’t be surprised if you hear him say that it’s time to consider a rate cut and if he does – then it’s ‘Rally On!’  Just a note – futures this morning is suggesting exactly that…. See below.

Additionally – Janet brought $25 billion of 30 yr. bonds to the market and there was plenty of interest – the median yield was 4.585% that is down from the April yield of 4.608% – and all that means is that the demand/supply story remains strong…buyers of the bonds bid UP as they scrambled to lock in purchases – and that sent yields down – and this suggests that bond buyers are not panicking… remember – the bond buyers are institutional investors – think life insurance companies that need to lock in long term fixed rates, think foreign countries that want to own a ‘piece of America’ (think safety trade), think the primary dealers (financial institutions) that are active in the gov’t security space…No matter who it was – the claim here is that the supply of new bonds did not deter buyers….and falling yields suggests that the FED’s next move is down.  And so – the algo’s take stocks and bonds UP….

Remember what I said earlier this week after we busted up and thru trendline resistance at 5131….I said that the next target was (the March high) – 5262 Ish….and if futures open the way they are acting at 5:30 am – then I suspect that we will hit that magic number before the bell stops ringing…And here is the test…..Will 5262 prove to be a wall or not….are the sellers lining up ready to give buyers all they want at that price?  – we are about to find out….

Bonds rallied as well- the TLT up 0.5% while the TLH gained 0.4%…..the 2 yr. is now yielding 4.81% while the 10 yr. is yielding 4.45% – down more than 20 bps in the last 10 days….30 yr. fixed mortgages ticked a bit lower at 7.1% (for a FICO score of 740+, anything less than that gets you a higher rate)  – I was on a flight yesterday and sat next to a woman who works in the DR Horton (home builder) mortgage division…she said demand is strong for new homes…they can’t keep up…but she also said that it is because Horton is buying DOWN the rates offering buyers 5.99% 30 yr. money.  In addition they can offer you ‘free upgrades’ to make it even sweeter – think quartzite counter tops, upgraded tiles in the baths, flooring, specialized moldings etc.….A $400k mortgage at 5.99% = $2395/mo. while a $400k mortgage at 7.1% = $2690/mo. – a difference of 12% on a monthly payment.

Oil – rises on the back of the increasing tensions in the mid-East, voluntary production cuts promised by OPEC+ and decent demand prospects…..Earlier in the week – we saw oil trade down to trendline support – (both the 100 and 200 dma’s converged at $77.90 ish…) as the idea of a ceasefire was a possibility…..but when it became clear that that was not happening and that Jo Jo withheld the  Israeli aid that he demanded of congress – oil ticked up and is now trading $2 higher at $79.80…..a 2.6% rise….leaving oil in the $77.90/$81.30 trading range….It is Friday – the weekend can bring a range of outcomes in the mid-east – We’ve already seen Bibi make targeted strikes on the Rafah crossing – he has made it clear that Israel is not backing down until the job is finished (that alone does not suggest we will see weakness in oil) …so my guess is that oil remains strong – a test of trendline resistance at $81.30 is the next move. 

And as you can imagine…. Gold has surged over the past couple of days…going from $2,325 to $2,380…. (this morning gold is trading up $38!).  Now there are 3 reasons that some in the industry are citing….1. are the mid-east tensions, 2. Is booming Chinese demand (both individual and gov’t).  Gold as a percentage of foreign reserves has risen from 1% (2013) to more than 4.5% (2024) with Beijing on track to expand bullion reserves (supporting the price) and 3. Is the rate cut possibility narrative…Like oil – Gold tested near the trendline support at $2,280 and held – sending it up – likely about to test the April high at $2,400.  Like I have been saying – Gold is in the $2300/$2400 trading range.

Do not discount the recent move lower in the dollar index and its effect on both gold and oil…. The DXY fell from 105.74 to 105.25.

US futures are UP…. Dow futures up 117, S&P’s up 20 pts (taking us to 5,260 – capisce?), Nasdaq up 88, while the Russell is up 10. Like I said – I suspect that that the ‘momo’ guys will test the all-time S&P highs…. The question is – will they succeed in piercing it with any force? 

The only eco data out today are the U of Michigan surveys…. Sentiment at 76.2, 1 yr. inflation forecast of 3.2% and 5 – 10 yr. expectations of 3%.

European markets are up….by about 0.8%…. The Euro Stoxx index up 0.8% is also now kissing its all-time high – led by miners and utilities…..Germany, France and the UK also notched new intra-day record highs…..The UK is now no longer in recession – GDP was released today and it rose 0.6% – better than the +0.4% estimate.  BNP Chief Market Strategist – Danny Morris telling us that investors see a ‘bright future’ for Europe – leaving one to wonder what the ECB’s next move will be.   

The S&P closed at 5214 – up 27 pts…. And with futures up again this morning, I suspect that we kiss 5262 early on….… Remember – we will need to see a surge in volumes to confirm this move up….without that – I think it is a false rally….meaning that any piece of negative news would have the ability to send stocks reeling….Which is why I continue to advocate for ‘the plan’. Create on, build one and stick to it…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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Cavatappi w/Arugula and Cannelloni Beans

Cavatappi is a kind of macaroni that looks like a spiral tube.  The word Cavatappi is a combination of Cava & Tappi – whose literal translation means “tap extractor” or corkscrew.  Capisce?

This is a vegetarian dish that is easy and quick to make.

Bring a large pot of salted water to a boil. Add the Cavatappi and cook until aldente – 8 / 10 mins.

While the water is heating up….

In a sauté pan – heat up some olive oil, crushed garlic and a sliced/chopped “red” onion.  Sauté until the onion is soft and translucent.  Now add a can of cannelloni beans – juice and all and stir to heat up…about 4 mins or so. Now add the arugula and stir.  Arugula will wilt – no worries.  Drain the pasta – saving a mugful of the pasta water… Add the pasta to the sauté pan, add 1 ladle of the pasta water…. Toss in a handful of Parmegiana cheese and mix.  Serve immediately in warmed bowls with freshly toasted garlic bread.

Buon Appetito