Things you need to know.

–         U of Mich Consumer Sentiment plunges.

–         Stocks ended the day mixed but ended the week up.

–         Bond Yields continue to decline – but will that be true this week?

–         Oil struggles at trendline even as the Mid-east tension builds

–         Gold thrashing around as it looks for clarity.

–         It’s all about the PPI and CPI this week.

–         Try the Lemon Pasta

Stocks ended Friday mixed – U of Mich consumer sentiment falling by 10 pts – coming in at 67.4 down from 77.2 (a 6-month low) – suggesting that some parts of the economy are cooling…and that caused swaps traders to once again push the idea that rate cuts are near!  Dow +125 pts or 0.3%, the S&P up 8 pts or 0.2% the Nasdaq lost 6 pts or 0.1%, the Russell gave up 14 pts or 0.67%, the Transports up 85 pts or 0.5% while the Equal Weight S&P gained 10 pts or 0.2%, but they ended the week higher – as investors put the April angst to bed.  Just to be clear – the Dow, S&P, Equal Weighted S&P and Nasdaq are up more than 3.5% in May, The Russell and the Transports are both higher by about 5.5%.  This is a complete and welcomed reversal from the April performance when investors dealt with the start of the 1 qtr. earnings season, one that caused all kinds of concern – stocks that disappointed got whacked, while stocks that surprised did rally, just not as much as expected…..As of today- 92% of the S&P 500 companies have reported and 80% of those beat the estimates.

Then there was Tax Day – another event that causes last min pressure on stocks as well as economic data points that revealed what we all know – inflation remains stickier upending expectations of rate cuts anytime in the near future and that caused some last min month end drama.  

As a result – the bond market also struggled in April – the TLT down 7% the TLH lost 5.3% as we saw yields push higher…. the 2 yr. kissed and pierced 5% while the 10 yr. bumped up against 4.7%. This morning – the 2 yr. is yielding 4.84% while the 10 yr. is yielding 4.48%

But May has proven to be another story – we are nearly done with earnings and the idea that rates are not going down in June, July or September appear to have been accepted by market participants – the push is now for a November or December cut which is better than no cut at all. Now they just won’t let go – Can you imagine the fit they are going to throw when they realize that that’s not happening either?

Last week – we heard from a host of FED heads….and most of what they said was in line with what JJ said after the FOMC meeting…. rates will remain higher for longer and they are in no rush to cut them because the data does not demand it.  In fact – Fed Governor Mishy Bowman along with Dallas President Lorie Logan, Boston’s Suzy Collins, Minneapolis’s Neely Kashkari, Richmond’s Tommy Barkin all saying that it’s too early to speculate…Mishy said.

“I, at this point, have not written in any cuts for 2024.  I’ve sort of had an even expectation of staying where we are for longer, and that continues to be my base case.”

Logan had this to say – ‘It’s just too early to think about cutting rates given disappointing inflation data so far this year.’

Kashkari chiming in with ‘rates will likely stay high for an extended period of time’.

Now – even with all that – stocks are now kissing their all time highs and the bond market has rallied just a bit – ahead of this weeks latest inflation data that is sure to be the focus for markets….the PPI (producer prices) is due out tomorrow while the CPI (consumer prices) is due on Wednesday.  Now, this is where the rubber meets the road – the PPI is expected to be +0.3% m/m (which is up over last month) and 2.2% y/y (which is also up over last month).  Now Ex food and energy is up 0.2% m/m (in line with last month), while the y/y read is +2/3% (down 0.1% vs. last month).  So that’s a mixed picture – the question is – what will the market focus on? 

Wednesday’s CPI is also expected to give us a mixed picture.  Top line CPI m/m is expected to be up 0.4% (in line with last month), y/y is expected to be +3.4% (down 0.1% vs. last month) while Ex food and energy m/m is expected to be up 0.3% (down 0.1% vs. last month) while the y/y read is expected to be +3.4% (vs. 3.5% last month)….

And so, my guess is that IF we get these numbers then I think the market holds steady and churns right here – just because I think it feels a bit tired and stretched here.  If they are worse than expected – then watch as the algo’s once again all go running for the door, causing stocks to decline…and if we see a drop beyond the expectation – then I do think they will try to push higher – but will have some difficulty in doing so – again because it feels like it already priced in a ‘better than expected’ result – so I’m not sure there is much more gas in the engine to push us significantly higher just yet.  So, what I’m saying is – it feels toppy right here, which only means relax…. sit tight – the bottom does not feel like it’s about to fall out.

Now what is interesting is the BLS (Bureau of Labor Statistics) announced that coffee prices will no longer by factored into the inflation data – so Wednesday’s announcement will not include it – which left the guys at the Kobeissi Letter wondering why not?  And what did they find?  They found out that coffee prices are up 78% in the last 9 months….Now to be fair – the BLS did announce this change to the CPI back in January – so this isn’t coming out of left field – but just to be clear – coffee prices were up 35% in the first qtr. – so if we just eliminate it from the equation it takes some of the pressure off of higher prices…(Capisce?)…..Recall that SBUX reported a 6% decline in traffic at their stores – Maybe it’s the price of a Venti café Latte at $4.50?  My Dunkin ‘ex large’ coffee with cream and 1 sugar costs me $3.50 – I was never a SBUX drinker – the coffee leaves a bitter taste in my mouth – maybe because it’s bitter?  In any event – how much longer before the BLS starts eliminating other ‘problematic’ parts of the puzzle to try and bring down the monthly CPI data?  I mean – if you don’t like something – just change the definition or change the equation – that always works. I mean – 2+2 = 4, but 2+1 = 3 – see how that works – it’s not rocket science…it’s just math.

This morning US futures are UP – and this is because of the building speculation that both the PPI and CPI will not surprise to the upside.  Dow futures + 25, S&P’s +7, Nasdaq + 35 while the Russell is ahead by 8.  Markets are looking for any reason to rally, they will tear apart both the PPI and CPI looking for the data points that support their story (rate cut) rather than those points that do not…At the very least – they will try to show us that even if both reports come in as expected – the rate HIKE narrative is completely false despite a boatload of eco data points that suggest otherwise.  These reports will be this week’s focus and will be a key gauge in determining the near-term future path of monetary policy.  I wouldn’t do anything until I see what the data says…. I’m hoping it’s still a bit hot – pushing stocks lower, I mean I always like buying good stocks on sale – don’t you?

Oil continues to trade around the trendline…. ($77.90) – Overnight – we tested and bounced and at 7 am – oil is up 30 cts at $78.60.  It appears as if we are in this $77.90/$81.30 range. Now what is interesting is that oil has failed to rally significantly even as tension builds across the Mid-East and Jo Jo ‘suspends’ weapons delivery to Israel after he stamped his feet for all of this aid – $28 bill for Israel now on hold as Jo Jo panders to the left while giving Ukraine another $60 bill & Taiwan – $8 bill. In addition, the US $ is steadying at 105.27 – down 1.2% from the most recent – but still up 4.1% on the year. Again – the trendline at $77.90 is key…if we fail to hold then again, I suggest we will see oil trade down to the mid $70’s.

This morning – Gold is down $25 at $2,348 – this as traders continue to consider a possible slowdown coupled with sticky inflation, higher for longer and the most recent hawkish commentary coming from that range of FED heads.  Gold remains in the $2300/$2400 trading range as it looks for clarity…. something that may be come to us later this week.

European markets are churning – slightly lower (down 0.2%) ….as investors there await the latest US inflation data…. We know that inflation is supposedly coming down across the Eurozone, the bank of Sweden – cut rates last week, the BoE and the ECB both considering rate cuts as well…. European bank stocks are hitting new highs on the back of upbeat earnings…. shipping giant Maersk up 8% while Siemens is down 4%.

The S&P ended the week at 5,222 – well above trendline resistance at 5141 leaving us 40 pts away from the early April high of 5263.  Recall that last week – when we broke up and thru resistance, with was significant – I told you that it was a KEY move.  Why?   Because technicians view this push up and thru resistance to be very bullish…..but we needed to see an increase in volume to confirm this move….This week – might just prove this point…If inflation remains sticky then look for volume to increase as stocks sell off and if inflation appears to slowing – then watch to make sure that we see increasing volumes taking stocks up. A failure to see increasing volumes on UP days will be a warning sign suggesting that investors are growing a bit tired and are no longer going to ‘chase’ stocks.

As a long-term investor – what the past couple of weeks have shown you is that remaining calm, staying the course and being strategic is the way to go. 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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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.

Lemon Spaghetti

It’s summertime and using lemons is always a summer favorite.

For this you need ½ lb. of spaghetti, butter, olive oil, a block of Parmegiana that you are going to grate when needed, fresh lemon juice, lemon zest, lemon peels & basil.

Bring a pot of salted water to a rolling boil on the back burner.

Begin by peeling the lemon to get lemon peel slices. set aside.

Now squeeze 2 lemons for the juice. Set aside.

In a large sauté pan – that will accommodate the pasta – melt ½ stick of butter, Add some lemon peel slices and a basil stem with 2 or 3 leaves.

Now add in 1/2 cup of water and some of the lemon juice – (add less – because you can always add more if you need it) and some good olive oil.

Boil the pasta until aldente.

When done – – remove the lemon peels and the basil stem.  Add the pasta directly to the sauté pan.   Now add some lemon zest, some fresh basil and some freshly grated cheese directly onto the pasta. Mix – if you need to – add in a ½ ladle of the pasta water and continue to mix until it becomes creamy.  Serve immediately always offering more cheese for your guests.

Buon Appetito