Things you need to know.
– PPI comes in HOTTER yet stocks rally.
– CPI today – the clock ticks towards 8:30.
– Bonds also rose – sending yields a bit lower.
– Oil up, demand strong.
– Gold UP – Think Geo-political and foreign demand.
– Try the Porcini Rubbed Rib-Eye Tagliata Style
Stocks surged on Tuesday – as a rally in tech – XLK + 0.9%, Real Estate – XLRE + 0.7%, Communication – XLC + 0.5%, Financials – XLF + 0.5%, Healthcare – XLV + 0.5%, Consumer Discretionary – XLY +0.5%, even Utilities – XLU rallied +0.3%. What I found very interesting is that Consumer Staples – XLP (think the stuff you need vs. want) fell by 0.2%! Home Builders – XHB + 0.9%, Retail – XRT + 2.8%, Airlines – JETS + 1.1%, Disruptive Tech – ARKK + 2.15%, Semi’s – SOXX +1.6%, Metals & Miners XME +1.1%, Exploration & Production – XOP +0.9%, Aerospace & Defense – XAR + 1.3%, etc. dragged everything (except transports) higher. – the Dow gained 126 pts or 0.3%, the S&P gained 25 pts or 0.5%, the Nasdaq up 122 pts or 0.75%, the Russell ahead by 24 pts or 1.2%, while the Transports lost 66 pts or 0.5% and the Equal Weight S&P added 28 pts or 0.5%.
And you know what else surged? Inflation! The PPI rose MORE than expected, in fact it rose so much it even surprised JJ! PPI top line was expected to be up by 0.3% – but came in at a HOT +0.5% and the Ex-Food and Energy reading also came in at +0.5% (vs. the expected +0.2%) – if you annualize – either of these numbers you get the same result…. 6%! (12 x 0.5 = 6) – and so you ask – And the market rallied as traders and algo’s saw little reason to pull back on their narrative of a rate cut? It’s illogical, right?
Ok – here we go…pay attention…while yesterday’s number was HOT, they took last month’s number which was +0.2% and REVISED it to -0.1% – they went negative for last month! And if you annualize that you get (PPI at -1.2%) So what did that do? Well, it blunted yesterday’s hot number…because now that they created a negative number in the recent sequence of positive numbers – they just broke that ‘trend higher’ narrative….and that must mean that it’s ‘ok’! – see how they did that? Once they break the trend – then the prior trend no longer exists and you have to start all over….so while the number was strong – the ‘rate cut’ guys are still at it….They essentially ‘shrugged it off’ as a non-event- continuing to suggest that we can still expect 2 to 3 rate cuts this year! Which, again is illogical for me, but hey – What do I know? LOL. Here was my appearance on the Liz Claman Countdown on Monday afternoon – I keep saying no rate cut, while Dryden Pence – CIO at Pence Wealth Management thinks we are getting 2 cuts towards the end of the year (think November and December) – (Goldman thinks we’re getting 3! – Sept, Nov & Dec)
https://video.foxbusiness.com/v/6352856835112
Now I say traders only because as a long-term investor I did not buy anything yesterday – I sat back and let it ride, (my portfolio gaining 0.7% overall – my VZ, APCX, IBM & XLP were the drags). I am still waiting on today’s number…. to drive the next decision…. money that is waiting to be put to work is working in my MM fund earning 5.25%- so I am good! Now to be fair – IF I was playing in the MEME space – I would have seen much bigger returns – but that is not where I hang out – although maybe I should! (GME +62%, AMC + 33%, UBXXSHRT +5.9%) Recall that the UBXXSHRT is the ‘high interest short index’ that tracks the 100 stocks in the Russell 3000 with the HIGHEST SHORT Interest, screened for names that are > $1.5 billion of market cap.
Now you know what didn’t surge. The contra trades lost ground…. the DOG -0.3%, the PSQ – 0.7%, the SH -0.4%, the VIXY – 1.9% and the SPXS (triple levered short) lost 1.3%.
Today is all about the CPI (consumer price index) – essentially what is happening at the consumer level – something I think we all know – but we still have to play the game…. will it come in as expected at +0.4% m/m or will it too be ‘hotter’? After yesterday’s PPI – it is ‘game on’…. analysts and economists lining up on both sides of the fence – as they prepare to dissect and digest today’s number due out at 8:30 am. And you can believe there is a lot riding on this…. Who is calling it and how will the algo’s react? If it is HOT – will they still convince themselves that there is nothing to worry about, that it’s a flash in the pan or will it suddenly hit home that inflation is not only ‘sticky’ but is now taking new root in the economy? What will they do to last month’s number? Will that also get revised LOWER to soften any blow of a higher number today? I mean – can we even consider the idea that it comes in ‘softer’ than the expectation? I mean, you can, not sure how, but you can…. All we can do is wait as the clock ticks… I can feel the excitement all the way down here in south Florida!
Just so you know- the y/y Ex food and Energy CPI reading is predicted to rise by 3.6% – Bloomberg is out there making sure we know that 3.6% is the SMALLEST y/y rise in 3 yrs. Do you see how they position that? They are not focusing on the fact that prices are still rising – they are trying to convince you that there is nothing to worry about, that a 3.6% rise is a GOOD thing. It’s all about the ‘power of persuasion’. Now to be clear – the y/y number will most likely stay even or fall slightly – because of the way they calculate it, which is why you should be looking at the latest m/m number – because that is where you see the change in trend….…
And so – guess what bonds did? They rose on all of this excitement – the TLT + 0.6% and the TLH rose by 0.4%. The AGG gained 0.3%. The 2 yr. is now yielding 4.81% while the 10 yr. yield has dropped to 4.44%. Shorter duration bond yields are also down – the 3-month yielding 5.22% while the 6 month is yielding 5.15% on an annualized basis. These rates are down from 5.5% just a couple of months ago.
Oil is trading at $78.20 – just above the trendline support at $78. Crude inventories fell by 3.1 mil barrels last week…The API reports that gasoline inventories fell by 1.26 mil barrels while distillates rose by 673k barrels. Today we will hear from the IEA, and they are expected to tell us that the oil demand outlook is softening! We remain in the $78/$81 trading range.
Gold gained 1% yesterday ($23) and is up another 0.7% this morning…. trading at $2,375/oz….and this is after that HOT PPI report and ahead of today’s CPI report. Now why do you ask? Because Gold traders are betting on a softer CPI and if they get it, then they are betting on guess what? Rate cuts! If you want my opinion – I, think gold is trading up because of the ongoing geo-political risks as well as demand from foreign nations that are building up their reserves. I just don’t see the rate cut story causing gold to rise…We remain in the $2300/$2400 trading range.
US futures are paralyzed this morning ahead of the all-important CPI read…. Dow futures +16 pts, the S&P’s up 2 pts, the Nasdaq down 11 pts and the Russell is +6.
European markets are mixed…. France is down 0.2%, while Spain is ahead by 0.5%. Investors there are focusing on yesterday’s PPI and today’s CPI.
The S&P closed at 5246 – up 25 pts and only 18 pts away from piercing the April highs…. Yesterday – Fed chair JJ told us that inflation is NOT cooperating, remaining higher than he expected causing him to reiterate that rates will remain higher for longer. Yet – the market didn’t hear that…. or if it did – it no longer cares about rates…. Which I find interesting…. Aren’t 5.25% rates ‘astronomical? I mean what happened to the “How can the US economy survive argument”? Recall, that I have been and am in the camp that 5.25% are ‘historically normal’ and that the market can function when investors embrace it, So higher for longer isn’t an issue for me, but I just think that the rate cut narrative drama has gotten a bit ahead of itself – which is why I don’t chase….I let it run when it wants to and I am there when it pulls back. Capisce?
Keep your powder dry for now…. Let’s see what today’s reaction is. Stay the course with the names you own, unless the fundamental story has changed – your cash is earning 5+% – as long as you have it in an interest-bearing account.
As a long-term investor – you need to eliminate the noise and focus on the plan. Discipline is key. As a short-term trader – all you want is the noise – you need to decide who you are. Call me to discuss.
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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Porcini Rubbed Rib-Eye – Tagliata Style
For this you need: Dried porcini mushrooms, sugar, s&p, garlic, olive oil and balsamic vinegar, boneless rib-eye, arugula, red onion, shaved parmesan cheese and one lemon.
Grind 1 oz of dried mushrooms until fine…you can use a mortar and pestle or a food processor.
Next combine the mushroom powder with 2 tbsps. of sugar, 1 tbsp. of s&p, 4 garlic cloves (chopped) and about 1/4 cup of olive oil. Set it aside. You can make a container of this rub up to this point and store it in the fridge in a sealed jar. When you get ready to use it – take it out of the fridge. Mix and then massage it into your meat of choice.
In this case – we are using a bone-in rib-eye – again you can use a different cut if you want, but I love the rib-eye.
Season the meat with salt. Now massage the porcini and rub it into the meat, making sure to coat it well.
Preheat your oven to 400 degrees.
In a large cast iron skillet – add about 1 tbsp. of olive oil and heat it up. Add the steak and listen to it sizzle, brown on both sides. Now, place the skillet into the oven and let it cook for about 5-8 mins – depending on its thickness. If you have an instant read thermometer it should read 135 degrees when inserted in the center. Remove and let stand for 10 mins – tent it to keep it warm.
Now slice the steak at an angle so that you can fan it out on the plate. Lay down some arugula and red onion, place the steak on top and then drizzle with a bit more of the olive oil and a squirt of fresh lemon juice. Then top with the shaved cheese.
Buon Appetito
