Things you need to know.
– FED Heads urge caution – leaving the door ajar.
– Traders continue to push for multiple rate cuts.
– Investors continue to push on NVDA, S&P rebalancing pushing too.
– Oil & Gold hold steady, VIX near historic lows
– Try the Spaghetti Con Salsa di Cippole Carmelata
Stocks rose on Tuesday in what was a light volume day ahead of the Juneteenth Holiday. The ongoing rally in the tech (chipmakers) drove the S&P and Nasdaq to another new high as the trader types continue to push for ‘multiple’ rate cuts before year end…and in fact – some of them continue to push for cuts as soon as July/September – which has been clearly denied by almost every FED head out there….but the trader types are not buying it……and they are betting that the coming cuts will continue to power the most recent ‘rally’.
Speaking of the chorus of talking heads last week – what we learned is that they are all urging patience – falling in line with what Minneapolis Fed President Kashkari said last week. Fed Governor Adriana Kugler telling us that is would be appropriate for the Fed to cut rates ‘sometime later this year’. St Louis’s Berty Musalem – told us (in his first walk down the runway) that it could take ‘quarters (plural) for the data to support a cut. Johnny Williams and Tommy Barkin underscoring the need for more data before committing to a specific date….all of this suggesting that a July/September time frame is NOT in the cards…but a November/December time frame could be….And I say could, because I continue to believe we don’t need one – but I am not on the FOMC committee. In any event -the idea that a rate cut is still alive will continue to drive the sentiment. It will be if the FED says (definitively) that we will not get a cut this year, which might cause some angst.
At the end of the day – the Dow added 57 pts, the S&P +13, the Nasdaq gained 5, the Russell gained 3 pts, the Transports lost 35 while the Equal Weight S&P lost 18 pts.
We are only 19 pts away from another S&P century mark (5500) and it appears that if futures hold – we will see 5500 at 9:31 am – recall – we started the year at 4782, it took 12 days to pierce 4800, another 15 days to pierce 4900. On February 8th it was 5000, 5100 on February 29th, 5200 on March 20th, 5300 on May 15th, June 12th brought 5400…leaving many to ask – how long before we see 5500?
Now the move up has been driven by the companies that are driving the AI Tech Revolution….NVDA – at a $3.35 trillion valuation is now at the top of that list (with some calling for a $5 trillion valuation in the next 12 months) and is now the MOST valuable company in the S&P 500 – as it pushed MSFT at $3.32 trillion aside on Tuesday leaving AAPL at $3.285 trillion in 3rd place. It has been nothing short of amazing…but then – have you used AI recently? Do you understand what and how it is changing the world?
On the other hand – Are we setting ourselves up for a disaster? Have we set the expectations too high? Do you realize how much the rapid ascension of NVDA only makes it harder to keep it up…..as it has become somewhat of a mania – everyone you know talks about NVDA – which is in itself a ‘warning signal’….(recall the Dot com bubble and the NYC cab drivers????) …. How will Jensen (CEO) sustain the growth? Are companies so misguided that they have warped expectations for how generative AI will contribute to the bottom line?
Google tells us that ‘the proportion of global companies planning to increase spending on AI over the next 12 months has slipped to 63% from 93% a year earlier.’ The decline is a result of AI hallucinations – which is information that is completely incorrect, misleading or entirely fabricated, cost and data security concerns. (Survey down by software company Lucidworks Inc). So many questions – not enough answers yet….
On the eco data front – we got more mixed news….Retail Sales came in weaker at +0.1% (vs. the expectation of +0.3%) Ex autos was -0.1% (vs. expectation of +0.2%), Ex autos and gas of +0.1% (vs. the expectation of +0.4%)….and by the way – last month’s reads were ALL revised lower – something that only supports that traders argument that the FED needs to cut rates sooner……….which is interesting – because – as my friend Jimmy Iuorio (@jimiuorio) recently reminded us on X – ‘Every piece of economic data is revised down after it leaves the public’s eye. Every expense is revised up after it leaves the public’s eye.’ – Note the revisions above and then we learned that the CBO (Congressional Budget Office) just revised the 2024 US budget deficit estimate to $1.9 trillion up from $1.5 trillion – which is only a 27% miscalculation….so JoJo isn’t concerned.
On the other side – we did see strength in Industrial Production – which came in much stronger than the estimate -at +0.9% vs. the expected +0.3%. Capacity Utilization also coming in a bit hotter at 78.7% – inching closer to that 80% mark which begins to suggest more upward pressure on prices and inflation – which would argue for no rate cut for now.
As of Tuesday evening – we have Info Tech way out in front at +31.5%, Communications at +23%, and then we drop to the single digits…Financials +9.2%, Consumer Staples + 8.5%, Utilities + 8.3%, Industrials +7.7%, Healthcare + 6.6%, Energy +5%, Basic Materials + 4%, Consumer Discretionary + 3.2% and Real Estate the only one in negative territory at -4.8%.
Down the line the best performing sub-sectors within the S&P include – the Semis are blowing it out of the water at +90% (think names like NVDA +175%, MU +80%, AVGO + 61%, QCOM +57%, FSLR + 52%), and then Semiconductor equipment at 44% (think AMAT +52%, KLA +48%, TER + 40% & LCRX +40%). Internet Media +30% (think META), Expanded Tech +27%, Homebuilders + 9.5%, Retail +5.5%, Aerospace and Defense at +4.4%, Oil & Gas Exploration +4.4%. The Growth Trade – SPYG + 24% while the Value Trade – SPYV +5%.
What is interesting is that Disruptive Tech – ARKK is down 17% ytd…. (Think names like TSLA -25% (it represents 12.15% of the etf), ROKU – 42%, RBLX – 21%, CRSP – 3.25%, NTLA – 18%).
Today’s eco data includes Initial Jobless Claims +235k and Cont. Claims of 1.81 mil…Housing Starts m/m +0.7% (down vs. last month) and Building Permits m/m of +0.7% (up vs. last month) and finally the Philly Fed Business Outlook of 5.
Bonds did better – demand for $13 billion of 20 yr. treasuries was well rec’d with yields reaching 4.45% (down from 4.48%). The 2 yr. yielding 4.73% while the 10 yr. is yielding 4.24%.
Oil is holding now at $81.50…. after piercing up and thru trendline resistance at $79.40…we are now in the $79.40/$85.50 trading range. – It’s the same story…. summer demand to drawdown oversupply….and overall global demand growth for energy…The recent spike in temperature across the US and now the official start to summer (June 20th) – only creating more demand for energy to cool homes and businesses and that will only support energy prices for the next 3 months. Watch the utilities during this time period- they are the 5th best performing group of the 11 S&P sectors – will we see them move the 4th or 3rd position? ……. demand for electricity is not going away and wind and solar are not cutting it.
Gold continues to churn in the $2300/$2350 range…this as gold bugs wait for further clarification on the FED’s next move…. Gold is up 13% ytd – reaching a high of $2477 on May 5th…before retreating back to current levels. Foreign buyers – think China and India along with geo-political concerns – think Ukraine and the Mid-East all driving forces behind the move this year. We remain in the broader $2300/$2400 trading range.
This morning US futures continue to surge…. Dow futures +56, S&P’s +22, Nasdaq +135 while the Russell is ahead by 5. This rally only proving that the AI frenzy and the strong resilient US economy will continue to support growth in earnings, profits and margins – which again causes me to ask – Are rates really that restrictive?
NVDA is quoted up another 2.5% or $3.20 at $138.70 – think the end of the week S&P rebalancing (XLK) and the role that NVDA will now play in a range of ETF’s and funds that need to mimic the performance of the Nasdaq…..recall that the NVDA weighting in the XLK is expected to go from 6% to 20% and that’s just one ETF…And while the change has already begun – expect to see big opening and closing volumes on Friday – when it becomes official. The Russell Rebalance happens on Friday June 28th – so expect to see a repeat of surging volumes then as well.
European markets are higher…. The Swiss National Bank (SNB) cut rates for the second time this year…. taking them from 1.5% to 1.25% – a move that was expected by economists…. leaving the SNB as the ‘front runner in the global policy easing cycle’. The BoE is due to announce their decision today – which by all accounts is a nothing done – leaving rates at 5.25% – but investors will be waiting for future guidance on a possible cut in August. Yesterday the UK reported that the annual inflation rate in May was 2% – hitting the banks target. At 6:30 am – markets across the Eurozone are all up better than 0.5% with Italy +1.2% – keeping it the best performing country in the zone at +10.7% ytd.
The S&P ended at 5,471 – up 13 pts – leaving us just 19 pts away from the next century mark…and if futures remain positive – we can expect that to happen at 9:31 am.
The VIX (fear index) remains at historic lows – currently 12.53…. well below all 3 trendlines and very much in the complacency camp with almost no chance of spiking higher…at the moment – because there does not appear to be any negative catalyst (yet). Which is exactly why you need to remain vigilant…. because you never know what could ignite a fire. The real next piece of revealing data – will be next Friday’s PCE deflator report… (FED favored inflation gauge) and that is expected to show a slowdown – which will only keep the rate cut narrative on the front burner….
Next Thursday – the 27th – brings us the first national Presidential debate – and while that won’t drive stock prices – it will drive the entertainment factor…So, sit tight.
Remember – having a plan is key for a long-term investor…and while the surge higher is great – emotional FOMO decisions are never a good idea. Give me a call to discuss.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Spaghetti Con Salsa di Cippole Carmelata Vidalia (Sweet Vidalia Onions)
See the pictures on my X account – @kennypolcari
This is so good and btw – you can use the caramelized Vidalia onions for so many other things as well.
You need: 4 Vidalia onions, peeled and sliced, butter, olive oil, s&p, egg yolks, fresh grated Parmegiana Cheese, and 1 lb. of spaghetti.
Begin by adding 1 stick of butter and a splash of olive oil to the sauté pan and then sautéing the onions over med high heat – once the pan gets hot – turn the heat down to med/med low and let them caramelize – this will take about 40 mins or so. Make sure to turn the onions as they caramelize. Be sure to season with s&p.
While this is happening – you can put a pot of salted water on the back burner and bring it up to a slow boil – so that it is ready when you need it.
Once the onions are caramelized – remove and let cool a bit. Then put them in the food processor and add – 3 egg yolks and a handful (or 2) of the fresh grated cheese. Blend.
Add the pasta to the pot of water and cook for 8 mins or so – you want it to be aldente.
While the pasta is cooking – take a ladle of the ‘tears of the Gods’ (pasta water) and add to the onion mixture to thin it out a bit.
Using the same sauté pan -add the onion sauce to the pan – When the pasta is done – using tongs – add directly to the sauté pan and mix well. You will need to add another ladle of the pasta water to the sauté pan to keep the pasta moist.
Serve in warmed bowls and dust with more cheese. Enjoy with a side of toasted garlic bread and a chilled white or rose wine.
*Side note – you can always make the sauce and then use with grilled chicken, grilled pork chops or sliced steak – be creative – they are sweet, caramelized onions….
Buon Appetito.
