Things you need to know.
- Stocks continue to rally.
- Is someone confused? Is it Donny or XiXi?
- More Democrats plan on retiring – Who will lead the party?
- Scotty and JJ cozy up…. Pillow talk anyone?
- Try the Farfalle with Creamy Feta Shrimp.
So, the party continues – stocks advanced…..investors, traders and algo’s reacting to the headlines about tariffs, trade, the FED, the eco data, the bond market, earnings, the recession, year-end S&P targets, slowing economic growth etc… I’m gonna go out on a limb and credit the move to the announcement that Dicky Durbin (80 yrs old) and 6 other Democrats have ‘decided’ to retire…..Now all we need is for Chucky (75) and Nancy (85) to call it quits as well and that leaves Davey Hogg and AOC in charge of the DNC…oh boy….think of that!
Now the big question is: Are we in talks with China over trade or not? Will Donny play ‘nice’? I mean, it is confusing…. Trump says we are ‘deep’ in talks with Beijing (in fact they had breakfast yesterday morning), while XiXi says ‘that is not happening’…which leaves us to wonder – who is bluffing?
Now, I for one do not believe one thing that comes out of China, not one, they just don’t play by the rules…and you can find that all over the place….they don’t adhere to WTO (World Trade Org) rules – they never did (that’s 24 yrs of non-compliance) – yet no one ever challenges them, they don’t adhere to GAAP accounting rules for the publicly traded companies listed on the NYSE – which by the way – I would argue is our own fault for even letting them list their shares here when they don’t play by the rules, they don’t adhere to trade agreements, they steal IP and for sure you can’t trust their eco data…..do I need to go on?
So, I’m curious – if we are not in talks with China and we don’t have any definitive trade agreements (yet) and the FED is not cutting rates and the earnings parade and forward guidance has been cautious at best all while more than 45% of economists and analysts are warning about a coming recession (no, really, this time it’s really coming, no joke) – then something else is going on, someone knows something because stocks rallied hard again….the broader market (S&P) has rallied 13% in 2 weeks – but nothing is going on? Or is it just that the market is a discounting mechanism so the rapid and painful selloff over the past month has already ‘discounted’ this bad news and is now looking thru it to see the sunshine….?
Yesterday, The Dow added 490 pts or 1.25%, the S&P up 110 pts or 2%, the Nasdaq tacked on 460 pts or 2.75%, the Russell up 40 pts or 2%, the Transports added 255 pts or 1.9%, the Equal Weighted S&P up 110 pts or 1.7% while the Mag 7 advanced by 645 pts or another 3% and remains the most recent outperformer.
Now that does make some sense because tech and the Mag 7 have gotten completely smashed over the past 4 months…The index falling 33% off the December high…..some individual names fell even more….NVDA lost 43%, TLSA lost 55%, AAPL -35%, GOOG -32%, MSFT – 26%, AMZN – 33%. But over the past 3 weeks – the Mag 7 index has rallied back by 14% taking all of these names up off their recent lows….and this is all happening even as there has not been one solid outline of an agreement. We are told they are coming, but they are not public – capisce? I say – check the personal trading accounts of any elected official…..House, Senate & WH. But that’s another conversation……
So, here’s a secret…..rumor is that Scotty and JJ have been having weekly breakfast meetings and now the whisper is that JJ is set to cut rates or at least that is what the market is betting….
Bonds advanced – the TLT + 1%, the TLH + 0.8% while the AGG added 0.6% and that sent yields lower – the 2-yr falling to 3.8% down from 3.86%, while the 10 yr is now yielding 4.30% down from 4.43% last week. ….
Traders betting that JJ will be under real pressure to cut rates IF the labor market unravels…. but let’s be clear…. the labor market is NOT unravelling yet…. Unemployment remains at historic lows (currently 4.2%), Initial Jobless Claims are declining not increasing….so when is the labor market going to unravel? And what is the definition of unravel? 4.5%, 5%, 6%?
The concept of a labor market “unraveling” is subjective and not precisely defined in economic terms, but it typically implies a significant deterioration (what’s your definition) where job losses accelerate, layoffs spike, and economic confidence plummets, often signaling or coinciding with a recession – but let’s be clear – NONE of that is happening (yet)…..and I am not in the camp that believes 4.25% fed funds rate is usurious…it is not, it is historically normal…
Now yesterday we learned that existing home sales plummeted by 5.9% – worse than the -3.1% expected….and they blame that on ‘high’ mortgage rates….I’d argue it is NOT high mortgage rates at all, I’d argue it’s high housing prices – and that sellers are not being realistic. Why? Because the FED created an asset bubble in housing by keeping rates at near 0 for way too long… (12 yrs too long) …
If JJ cuts rates and mortgage rates decline – housing prices will rise, unless of course we run into a recession – then they will decline…..but if you want to see home sales rise, we need to see housing become more affordable and the only way that is going to happen is if rates remain where they are and sellers recognize that their expectations are too high….so they reconsider and cut their price….
We just saw that happen in the equity markets – buyers became exhausted, prices got out of line and buyers decided to pull back….so sellers had to reconsider their options….and just look at any chart to see what happened……Bang – Prices came down to more reasonable levels. Look – A market correction is NOT a fundamental change in a specific company or business – it IS a temporary change in market pricing – it’s predictable that it WILL happen from time to time and is EXPECTED within the context of any market trend. If you get comfortable with that then you will see corrections as long-term opportunities.
Gold, which has been on a tear as the ultimate safety trade is also experiencing a bit of back and forth. It was up $50 yesterday and is down $50 today….this as the same buyers that took it higher look for someone else to take them out of their very expensive position….My sense is that if ‘something’ happens, if we get more of a definitive announcement on trade or rates or the tax bill or more democrats deciding to retire then stocks will rally and gold will retreat….and $3200 would not be out of the question and if that doesn’t hold – then a retreat to the trendline ($3,080) would be the next stop. Remember – they took gold up more than 30% in 4 months – 30%…That’s like a disaster scenario……and we are not in a disaster situation…this is not 1987, 1999, 2007 or 2020 – so stop the histrionics.
US futures are mixed this morning…. Dow futures – 120, S&P’s up 3, Nasdaq up 12, while the Russell is down 11 pts. Asian stocks rose overnight, and European markets are trading up in early morning trade.
Eco data today is all about the U of Mich sentiment surveys…..and it is expected to be 50.5 -in line with last month and fairly negative. The 1 yr inflation expectation is now 6.8% – that is not a typo…. while the 5 – 10 yr expectation is now 4.4%.
Earnings today include CNC, FAST, SLB, LAZ, LYB..
After the bell last night we heard from GOOG and Sunny Pichai did not disappoint…..they crushed it – EPS of $2.81 vs. the expectation of $2, ….beating on ad’s, beating on search, raised their divy by 5% or 21cts/sh every qtr….They announced a $70 billion share buyback program and they are still going to spend $75 billion in CAPEX all while consolidating teams and cutting back on costs where they can – this will – as Sunny explained – ‘help us to have a more resilient organization, irrespective of macroeconomic conditions.’ The stock is quoted at $8.
So, this is why I keep saying that you need to do a ‘reality check’ and assess your portfolio – making sure that you own fundamentally strong, diversified, stable, high-quality companies that will recover much faster. Not making emotional decisions during tough times is KEY to creating long term wealth.
The investment decisions you make today have the potential to shape the rest of your lives, and long-term investment remains a proven key to financial success. While today’s markets are more complex and volatile than ever, market corrections are an inevitable part of the landscape. Talk to your advisor and know your risk tolerance, know what you own and why you own it. At SlateStone Wealth, we expect every stock to decline to some degree during corrections, but our philosophy is built on resilience and so should yours. Call me to discuss.
The S&P closed at 5484 – up 110 pts…now a look at the charts reveals gaps all over the place – because of all the volatility suffered over the past month. These will need to be filled with before they all settle down. So, do not expect it to be all a bed of roses yet…. While the tone is better, we know how fast that can change…..so stick to your plan and remain resilient. We remain in the 4835 (lows of April) / 5658 (trendline resistance) trading range.
Take good care,
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.
Farfalle with Creamy Feta Shrimp
This is a simple dish – one that takes a total of about 30 minutes to make.
You need: a block of feta cheese, 1 lb. of cleaned and deveined large shrimp, sliced cherry tomatoes, sliced garlic, fresh spinach, olive oil, s&p and of course the Farfalle pasta.
Begin by preheating your oven to 400 degrees.
Bring a pot of salt water to a rolling boil.
In a large oven proof dish – put the feta cheese in the middle and slice it, now add the shrimp, spinach, tomatoes and garlic. Season with s&p, drizzle with olive oil.
Place on the middle rack in the oven and roast for 20 mins.
Now boil your pasta and leave it a bit aldente. Strain, reserving some of the pasta water (tears of the Gods).
After 20 mins, remove the dish from the oven. The cheese should be soft enough to mix with the blistered tomatoes and wilted spinach. After mixing, add the pasta and a bit of the pasta water to moisten.
Bang – it’s done and you’re eating a delicious quick meal. Cost $30 – feeds 4….so that $7.50/per person. Not bad!
Buon Appetito
