Things you need to know.

–        Stocks churn as they digest the most recent move.

–        Kashkari leans hawkish – doesn’t understand the ‘robustness’.

–        Bonds continue to rally, sending yields down – just a bit.

–        Dollar index up, Oil down and Gold unchanged.

–        Try the Bran Muffins – especially if you’re feeling stuck!

Stocks churned as the participants digest the latest move up and await more data….at the closing bell – the Dow was up 32 pts, the S&P +7 pts, the Nasdaq down 17 pts, the Russell up 4 pts, the Transports up 54 pts and the Equal Weight S&P up 19 pts.

So, Minneapolis Fed President Neely Kashkari – tell us that.

“It’s hard to explain robustness of the economic activity” (which is in itself a problem if he has no clue…) and then he went onto say that the

“Most likely scenario is for the FED to hold rates where they are and SIT here for an extended period of time.  If disinflation starts to come again or inflation starts to tick back down or we see some marked weakening in the labor market, then that might lead us to cut back on interest rates.”

And there you have it…sounds to me like he is supporting the commentary made on Monday by his colleagues – who were both more cautious than not –  and the commentary made by JJ us last week – who was very clear, in my opinion –  and it also sounds like rates are NOT going anywhere anytime soon. Again – how can they if the data doesn’t support it?  Is one NFP report suddenly defining the trend?

While there were not any fireworks to speak of in terms of implosions – other than DIS which fell by 9.5% on the back of a very disappointing earnings report coupled with poor guidance – Neely’s commentary did not cause the algo’s to panic (yet).  The latest rally that has powered stocks recently appeared to struggle a bit…. – but remember what I told you yesterday

 “Understand that while this move (Friday and Monday rallies) was impressive – it happened on below average trading volume…. which is NOT so impressive – Capisce?  When you have an advance like this but do not have the supporting volume – it tends to question the sustainability of the advance…”

And that is what I think is happening…. traders and algo’s once again got ahead of themselves…. recreating a multiple rate cut narrative on the back of one data point…. because they continue to stamp their feet and suggest that 5.25% rates are usurious! Usurious suggests that someone is charging illegal or exorbitant rates of interest for the use of money – Now, I’d say FED Funds at 5.25% are not usurious, Mortgages at 7% are not usurious, but revolving credit card rates at 30+%- now THAT is usurious …. but that’s another story.

The recent rally in stocks that has us kissing all-time highs (even with rates at 5.25% which some people are calling ‘too restrictive’) does have to consolidate a bit.  Valuations are a bit stretched in some parts of the market which is why I say be strategic……Strategists around the street remain conflicted….JPM is going with a more cautious stance while strategists at BAC, C and GS are all suggesting this is not the time to back off…..jump in the water is fine!

Now recall that on Monday – traders and algo’s pushed the S&P up and thru trendline resistance at 5131 ending the day at 5180 – leaving me to tell you that ‘technically’ this was a bullish signal – but we needed to see some real follow thru and we need to see some accompanying increase in volumes in order to believe that the move is real…..Barring that – I would not be surprised to see us ‘fizzle out’ and retreat a bit as stocks churn – awaiting more economic data that offers clues on the health of the economy and the future of monetary policy.  Look – stocks can go higher if the fundamental conditions and future guidance remain strong even with rates right here….but if the conditions change then the outlook changes then yes, the analysis must change, but right now the conditions don’t really appear to be changing….economic activity is strong, the labor market remains strong (despite one report to the contrary) all while inflation remains sticky.

And we are going to get another look at inflation next Tuesday and Wednesday when we get the April PPI and CPI reports – Now, the jury is still out on what they reveal but here are the estimates –

Topline m/m PPI (Producer Prices) rising by 0.3% – which is above last month’s +0.2% while the y/y estimate is expected to be +2.1% – in line with last month.  Now Ex food and energy m/m is up 0.2% while y/y is expected to be up 2.3%.  Topline CPI (Consumer Prices) m/m expected to be +0.3% vs. last month’s +0.4% while y/y is expected to be +3.4% – down from +3.5%.  Now Ex food and energy m/m of +0.3% and y/y of +3.6% – so there is a lot riding on this….If we get these numbers then I would expect the rally (and the rate cut narrative) to continue but if the numbers are stronger – then I would expect the market to back off a bit – because it would not support that narrative.

Just to be clear – I am in the camp that no matter what these reports reveal – I still do not think the FED is cutting rates anytime prior to the election – not June, not July, not September – If they are going to cut – it will be in November or December – and that is still a stretch as far as I’m concerned UNLESS the economy suddenly goes into a tailspin – and if it does then we’ll be talking about full percentage point cuts and not 25 bps cuts.  Capisce?

Bonds continued to move up, the TLT + 0.6% while the TLH gained 0.5% and that sent yields just a bit lower…. The 10 yr. is now yielding 4.46% while the 2 yr. is yielding 4.83%.

The dollar index – DXY – has been rising over the past couple of sessions – bouncing off of support at 104.63 to end the day at 105.50…. and that suggests that rates are not going anywhere…. holding rates here will support the dollar and a stronger dollar will put pressure on commodity prices.

Oil – fell again (think stronger dollar as one reason)…now piercing long term trendline support at $77.88 – to trade as low at $76.89….The API (American Petroleum Institute) reported that US crude and fuel stockpiles rose last week – suggesting weakening demand…..The EIA (Energy Information Administration) is expected to report their findings today and they are expected to report a decrease in crude inventories.  Ongoing hopes of a ceasefire in Gaza has been putting pressure on oil, but as of this morning – that ceasefire has not happened and in fact – the Israeli’s continuing to make targeted strikes on the Rafah crossing.  This recent decline in oil only makes the Saudi’s more committed to extending production cuts into the 3Q – as they aim to keep the market tight to support prices against the NON-OPEC suppliers. Given that we have broken support – you have to consider the possibility of a move into the mid 70’s….

Gold did not do much…it continues to hold steady in here at $2325 as it awaits a Gaza resolution.  Gold remains in the $2300/$2400 range.

US futures are mixed…. – Dow futures up 17, S&P’s down 2, Nasdaq down 10 while the Russell is down 10. With the lack of any real economic date due out the rest of this week and earnings season winding down – do not look for anything specifically to drive the action…..I think it just churns – digesting the recent move….…I do not think we push much higher but nor do I think we push substantially lower (right now) either.

European markets are up….by about 0.5%…. Sweden’s Central Bank CUT interest rates by 25 bps for the first time in 8 yrs. leaving their rate at 3.75%.  They also suggested that 2 more cuts are possible if inflation continues to ease. Other factors driving the action are ongoing earnings reports…. Nothing more.

The S&P closed at 5187 – up 7 pts…… Recall that the next target is 5262- which is the all time high….so it appears that we are in the 5131/5262 trading range and while they may want to take it there – I am not sure that’s happening right now….remember – the action has been on weak volumes…and that speaks to sustainability….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

Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment.  The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kenny Polcari or SlateStone Wealth.

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.

While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.

Kenny Polcari is the Chief Market Strategist for SlateStone Wealth.  Neither Kenny nor the partners of SlateStone Wealth are compensated in any manner by the issuers of any securities mentioned in the publication.

Bran Muffins

This is a classic Kellogg’s recipe – that is always good when you are feeling a bit ‘stuck’ – and right now – it feels a bit stuck…. So, try the warm bran muffins with a large glass of milk.

For this you need: 1 1/2 c of flour, 2 tsp of baking powder, 1/4 cup of sugar, 1/4 tsp salt, 2 cups of Kellogg’s All Bran, 1 1/4 cup of whole milk, 1 beaten egg, 1/4 cup of veg oil, raisins (you can also mix it up with banana’s & walnuts, and I add in one stick of melted butter…. (of course, I do!).

Preheat oven to 400 degrees.

Combine all the dry ingredients and set aside.

Add milk to the bran cereal and let it sit for a couple of mins…. then add egg and oil.

In the mixer add the cereal and then slowly add the dry ingredients – mixing well.  Now add in the melted butter and continue to mix for another min or so.

Now using a tablespoon – fill the muffin pan (that you have greased).  Bang on the counter to remove any air pockets and then place in oven and bake for 20 mins or so.  Serve these immediately when warm with more butter on the table.  Include a large glass of cold milk……

Buon Appetito