Things you need to know.
– And the rally continues…Tech just won’t stop.
– JJ finished his appearance on the Hill.
– He said one thing and as usual the trader types heard something else.
– Today CPI, tomorrow PPI and the start of earnings.
– Try the Steamed Lobster
Good morning!
And I am back…. after taking some needed time away- I am back in full form….and you can’t imagine how excited I am! Lots has happened since I last wrote – so let’s get going…
Stocks continue to power higher….in my last note – July 1st – the S&P was standing at 5473, last night -the S&P closed at 5633 – that is up 3% in 2 weeks…taking the S&P now up 18.10% ytd…..the Nasdaq now up 24.20% – stood at 17,879 and now closed at 18,647….up 4.3% during the same time period. It is nothing short of amazing as the algo’s push higher forcing some investors to buy stocks all because of the ‘fear of missing out’ (FOMO). Many waiting for the pullback that remains elusive (but trust me – is coming) causing them to throw in the towel paying elevated prices…… (again this speaks to having that long term plan….)
In any event – at the closing bell it was more celebration – the Dow gained 430 pts or 1.1%, the S&P up 57 pts or 1%, the Nasdaq added 218 pts or 1.2%, the Russell added 23 pts or 1.1%, the Transports up 105 pts or 0.7% while the Equal Weight S&P gained 60 pts or 0.9%.
JJ Goes to Capitol Hill – (aka – Humphrey Hawkins Testimony)
For those of you unfamiliar with it – It is also known as the Full Employment Act and Balanced Growth Act of 1978 – and it requires the current FED Chair to testify twice a year (Feb & July) before Congress to report on the State of the US Economy and Monetary Policy. This is where he gets to discuss inflation, employment and economic growth – giving lawmakers a chance to ask questions and gain insight into what the FED was thinking and is thinking about the future path of policy. This testimony is supposed to promote transparency and accountability.
JJ finished his two day ‘Humphrey Hawkins’ testimony in front of both houses of Congress on Wednesday…His remarks only continuing to fuel the speculation that the FED is preparing to cut rates…… …On Tuesday he intimated and set the table for a possible September rate cut (5 weeks ahead of the Presidential election) -warning us about the dangers of keeping rates high for too long…..as if he needed to remind us of that very salient fact – Saying specifically that ‘he did not need inflation to be below 2% before cutting rates’ (currently it’s 3.4%) while also saying that FED official still have ‘more work to do”. He went onto say that there is still a ‘good ways to go on the balance sheet run-off and he doesn’t think that commercial real estate will threaten financial stability. And so, the ‘smart logic algo’s’ took that as RATES ARE GOING DOWN – sooner rather than later. The market is pricing in a 75% chance of a September cut, 48% chance of a November cut and a 78% chance of a December cut.
And then yesterday – after he realized that he created all this excitement (as if that’s a surprise)– with markets now pricing in 2 or maybe even 3 rate cuts before the ball drops in Times Square. (Remember after the July meeting – we have September, November and December). He found it necessary to pull it back a bit – saying that he did not and IS NOT offering any timeline for a rate cut – while confirming that there are ‘mounting signs of a cooling job market’…citing the rise in the unemployment rate last Friday…. going from 4% to 4.1%.
What he failed to mention though, is that job creation continued to surge (although last months read was revised lower – but still higher than original consensus – the usual trend) – Last week’s report coming in at 206k jobs vs. the 190K that was expected…The rise in the unemployment rate was a direct result of more people entering the job market – putting them back on the ‘active job seekers list’ which then pushed the unemployment up….
So, what I am saying is that the rate didn’t go up because people are getting fired – it went up because more people who can’t keep up with rising prices (think inflation) are looking for new (or additional) employment opportunities. That is a marked difference in how the data is interpreted. If the rate was going up because people were getting tossed out – that’s one narrative (not good), but if the rate is going up because MORE people are looking for jobs – that’s a different narrative – some might say that that’s a negative as well, because it speaks to the struggle but I would say it just a sleight of hand….Those people have not been working all along – and have not been counted because they weren’t actively looking – but once you enter or try to enter the workforce again -suddenly you’re counted – Capisce?
The same way we got 2 different Services PMI’s…S&P gave us 55.3 – well into expansion territory while the ISM gave us 48.8 -putting us into contraction territory….so when they needed a negative data point, they used the ISM number – because it fit their narrative….I ask – why not the positive number? Why just dismiss it as if it didn’t happen – Remember – we are a 75% services economy…. Again – it is a tangled web we weave……
In any case – it was the comments by JJ that poured gas on the fire – raising hopes, once again that we will get multiple cuts this year… JJ said one thing, and as usual the players heard something different – reminding us that people hear what they want to hear vs. what is being said….. but it COULD go either way – because JJ sat squarely on the fence – leaving him room to play on either side.
Today we have the June CPI report – and as you know this is a KEY inflation data point…. Consensus calls for CPI m/m to be up 0.1% vs. last month’s 0%, while Ex Food and Energy m/m is up 0.2% in line with last month. Y/y CPI up 3.1% down from 3.3% and Ex food and Energy up 3.4% in line with last month’s read of 3.4%. So, nothing too dramatic – but expect all kinds of analysis and chatter – and tomorrow’s PPI report only adds to the excitement – because that report is expected to show increases across the board. These will be key data points ahead of the FOMC meeting on July 30th and 31St. Which means the ‘blackout period’ starts on June 22nd….No committee members will speak publicly – so watch for one or all of the ‘Deep Throats’ – the non-committee members (i.e. Kashkari), or WSJ reporter Nicky T or some analyst from Goldman Sachs to lead the conversation about what is happening behind the iron curtain from then on.
Bonds – Yesterday Janet brought $39 billion of 10 yr. treasuries to the market and results were mixed…. They also brought 4 week and 8-week short term bills as they try to manage the gov’t debt and finance federal operations. Indirect bidders taking down 67.6% vs. 74.6% last time while the bid to cover ratio was 2.58 x’s vs. the 2.67 x’s last time. Indirect bidders are often foreign monetary authorities or other institutional investors. It is significant because it speaks to the level of interest from overseas investors. High levels of bids usually suggest strong foreign demand which can influence interest rates – strong demand = lower yields while weaker demand = higher yields. Yesterday’s results ended with a yield of 4.276%. 2 yr. yields remain at 4.622% while shorter duration 3- and 6-month yields remain at an annualized rate of 5.21% and 5.075% respectively. The TLT etf – (20 yr. t bond) rose by 0.3% while the TLH etf (10 – 20 yr. T bond) rose by 0.25%.
Oil remains in a very tight range – $80.50/$84.25 – This morning it is up 14 cts/barrel at $82.25. On one had we have Global Analysts tell us that growth is slowing because of China rebound has run its course….and then the IEA revises their non-OECD crude oil inventories higher because of Chinese demand – citing the rapid building of crude supply storage facilities. China has expanded their storage capabilities by 45% since 2017 – with 10% more expected by 2027.
Now onto Gold – On July 1st – gold was trading at $2335 ish…. this morning it is trading at $2389 – up $10 – the move up being credited to JJ comments about inflation and his hints about possible rate cuts as early as September. Remember lower rates will send the dollar lower – Since July 1st – the DXY (dollar index) has fallen by 1.2% going from 106 to 104.85.
This morning – US futures are lower – but nothing to panic about as investors, traders and algos await the CPI report due out at 8.30 am.. …. The Dow is down 30 pts, the S&P’s down 5, Nasdaq -25 and the Russell is down 1. You see – the market just wants clarity – good or bad – it can price risk appropriately and more efficiently if it has a sense of clarity….…. It is when it remains unclear that we get more volatility. Friday also is the start of Earnings Season (again) – watch for reports from JPM, BK, WFC & C. More to follow in the weeks ahead…What will these guys say about the future…. just fyi – the financial sector is up 11.27% ytd…they are in 3rd place – behind Tech +35.9% and Communications + 30.65%. Real Estate is still struggling, down 3.5% ytd.
In any event – at this point it isn’t about the rate cut per se – it’s about what a rate cut says about the trend. A move down is NOT a move up and that is what the KEY here is…. let’s just hope that a rate cut in September is not premature the way it was in 1981 – when they thought they killed the monster only to find out that the monster (inflation) was very much alive…
European markets are up – between 0.1% (Italy) and 0.45% – France) the move in France being credited to the formation of a new gov’t with the NFP (New Popular Front) demanding that Manny (Macron) pick one of them as the next PM. The rise in the index suggesting a period of gridlock and political uncertainty. Gridlock is good sometimes.
The S&P closed at 5633- up 57 pts….is there anything else to say? Talk of a pullback and even a correction is now all the rage…. Some calling for as much as a 25% pullback – I think JPM is still stuck on S&P 4200 – which would be a 26% pullback (1400+ pts). The short term trendline support is at 5341 – a 5.7% decline, the intermediate trendline is at 5233 – a 7.6% decline…both of those moves well within the what is considered normal trading….The long term (200 dma) is at 4905 – or a 13.4% decline putting us in official correction territory….while the JPM target puts us in ‘Bear Market’ Territory.
Call me to discuss a game plan to help you create long term and generational wealth.
Take good care, 
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Steamed Lobster…
Ok – So we are having a family reunion on Cape Cod – and are having a lobster & clam bake…complete with the ‘chowdah’, corn on the cob, cole slaw and of course the drawn butter…. So, try the steamed lobster.
These are just so simple…. Bring a big pot water to a rolling boil – take the live lobster. cut off the elastic bands that hold his claws shut and plop him in – headfirst…
Bring to a rolling boil again and boil for 8 – 10 mins – depending on size and number of lobsters in the pot…. Remove – and serve with drawn butter – have the nutcrackers available to crack open the claws –
Remove the tail meat by breaking off the tail from the body and then removing the fins on the tail. Place your thumb here and push the meat out the other end…. delish…. dip in the butter and enjoy… This is best eaten outdoors on the deck overlooking the water…. or on the beach on a picnic table… Delish…Simple and so good….
Buon Appetito
