Things you need to know.
- Stocks were a bit weaker on Friday and are weaker this morning.
- JPM calls for a 5% 10 yr, while Morgan Stanley call for a 2.75% 10 yr.
- Dollar tumbling and that is sending oil and gold higher.
- Bonds prices are lower/Yields are up.
- Try the Bocconcini di Pollo
**Join me this morning as I join Jackie DeAngelis & Liz Peek on Mornings with Maria on Fox Business from 6 – 9 am.**
It was Friday, it was the end of the month, and it is now ‘summer’ – and so the markets were relatively quiet, and they will continue to be that way every Friday until after Labor Day……
As we discussed on Friday morning – I suspected that the markets would churn (and may even end the day lower – which they did) – The Dow +54 while the S&P lost ½ pt, the Nasdaq gave up 62 pts, the Russell down 8 pts, the Transports gave up 59 pts, the Equal Weight S&P down ½ pt and the Mag 7 gave up 216 pts, but as I also noted – it is tired – it has rallied sharply off of the April low so it continues to digest that move….Since April 7th – the Dow is up 15%, the S&P up 22%, the Nasdaq up 29%, the Russell up 19%, the Transports up 17%, the Equal Weight S&P up 16% and the Mag 7 gained 33%!
On Friday I also told you that if you stayed still and rode the waves – your account today (if it was properly balanced and invested) is back to where it was on Liberation Day. Now if you started to panic and hit the sell button on the way down and the buy button on the way up – you’re in a different place – not sure where, but it is different.
Friday’s eco data was a bit of a surprise – Personal Income was up 0.8% vs. the expected +0.2% (that’s bullish), Personal Spending though was as expected at +0.2% and does suggest a more cautious consumer, the PCE Price Index – inflation data also came in as expected m/m but was a bit BETTER y/y (which is also bullish – prices are trending lower not higher – even as so many were screaming about tariffs raising prices – clearly right now they are not). And even the U of Mich sentiment (opinion) surveys – you know the ones that all the bears were pointing to – well, they improved….Sentiment rose to 52.2 from 50.8 in the prior read, Current Condition rose to 58.9 vs. 57.6 in the prior read while 1 yr inflation expectations – which had been at +7.3% – fell to +6.6% and 5 yr expectation came in at +4.2% vs. the +4.6% prior. Remember – these are not hard data points – they are opinion data points – so as I say – ‘take them with a grain of salt’, because who they ask plays a big part in how the survey responds. It’s not rocket science!
Today’s eco data will bring us the S&P Manufacturing PMI – expected to be 52.3, while ISM Manufacturing PMI is expected to be 49.5. So, you ask – Why the difference?
ISM Manufacturing PMI is published by the Institute for Supply Management (ISM), a U.S.-based nonprofit organization. It is based on surveys of purchasing and supply executives from over 300 manufacturing firms across various industries in the U.S.
S&P Global Manufacturing PMI is published by S&P Global, a private financial data and analytics company. It is compiled from surveys of purchasing managers in the manufacturing sector, also covering the U.S. but with a different sample and methodology.
ISM: Surveys a panel of supply chain and purchasing managers from a broad range of U.S. manufacturing companies, with a focus on larger firms. The sample is relatively stable and includes a fixed panel of respondents.
S&P Global: Surveys a broader and often larger sample of manufacturing firms, including small, medium, and large companies. The sample may vary and is designed to be representative of the manufacturing sector.
ISM exclusively focuses on the U.S. manufacturing sector.
S&P Global’s methodology is standardized to allow comparisons across countries, making it part of a global PMI framework.
So based on the data – the S&P is expected to remain in expansionary territory (above 50) while the ISM is ‘officially’ in contractionary territory (below 50) – but it is kissing the neutral line at 50. So, in the end – I’m suggesting that it is more bullish than bearish. And then we get Construction Spending of +0.2% – which would be a big swing from last month’s -0.5%. (Again – more bullish than bearish).
Bonds were little changed on Friday but are a bit weaker this morning….prices are down and so yields are up….the 2 yr is yielding 3.90%, the 10 yr is at 4.43% while the 30 yr is yielding 4.98% – about to kiss 5% rate – the level that once again causes lots of angst. On Friday at the Reagan National Economic Forum – Jamie Dimon CEO at JPM warned us about a ‘crack” in the bond market that is inevitable due to excessive U.S. government spending and Federal Reserve quantitative easing. He also suggested that the 10 yr will pierce 5%, saying –
“You are going to see a crack in the bond market, it is going to happen,”
but after saying all of this he clarified it by saying that he is ‘uncertain’ about when it will happen…. suggesting it could occur in “six months or six years.” Now I love Jamie Dimon, but honestly – that’s not helpful or useful for anyone that is building an investment portfolio. I mean – What do you do with that statement? Do you abandon the plan? Do you sell stocks? Remember – his comments (and the comments of other big banks) can cause volatility and JPM benefits when the markets are volatile…Capisce?
On the other hand – Morgan Stanley is calling for a slowdown in the economy and a CUT in interest rates. They see the 10-yr yield going to 4% this year and 2.75% by the end of next year. They also see the US dollar tumbling to 91 by the summer of 2026 (it is down from 110.50 in January) all of this a direct result of ‘Trumps disruptive approach to trade’. If the dollar weakens, they expect the Yen, the Euro and the Swiss Franc to all be the beneficiaries of the weaker dollar. This morning the dollar is down 0.6% – trading at 98.75.
Oil ticked lower – down 0.25% to end the day at $60.79/barrel on Friday on fears that OPEC+ was planning on announcing another big supply increase – and then on Saturday – OPEC+ announced that they are ‘sticking to their guns’ – and are planning on another big increase in supply – 411k more barrels/day beginning in July….hoping to take back any (or all) of the market share they lost.
Now this put $60/barrel oil at risk… But this morning’s weakness in the dollar and predictions of an even weaker dollar have caused oil to surge. This morning it is up 2.75% or $1.66 at $62.45 – piercing trendline resistance at $62.40. The move is driven only by action in the dollar, NOT by an increase in demand. The May 21st high of $64.20 is the next level to test – so for now we remain in the $60/$64.20 trading range.
Gold fell $30 to end the day at $3,315 – more so on the back of the more positive eco data – stronger Income, stronger PMI data and even better sentiment survey data. Even with the pullback – gold remains above trendline support at $3,257 – a level that has been tested and retested 6 times over the past month… The fact that there is still a lot of uncertainty – supports the idea that the path of least resistance is UP not down. In addition, the weaker dollar this morning is sending gold (like oil) surging…it is up $64 at $3,380. A push through $3400 could see gold test the early May highs of $3475 fairly quickly. And more China trade concerns will only fuel that fire.
At 4:30 this moroning….US futures are down. Dow futures are -190, S&P -26, Nasdaq -130 and Russell is down 12.
The S&P closed at 5911 down ½ point…. My sense is that the mkt will churn here – testing trendline support at 5775 ish – a pullback of 2.3%. Should that fail – then it will fill the gap created on May 12th – at 5691 a pullback of 3.7%.
I don’t really see a surge higher unless we get real clarity – not an understanding, not a handshake, but a real deal. Remember – we had an ‘understanding’ with China 2 weeks ago – and then we learned on Friday – that China already violated it and that trade talks had stalled. So, I suspect that investors, traders and algo’s will try to look ‘through’ the trade drama and focus on the economic data. S&P RSI is bumping its head on being ‘overbot’ – so caution is warranted. As a trader it makes no difference to you, but as a longer-term investor – the call for caution rings appropriate.
Call me for a free (no obligation) portfolio analysis. 561-931-0190
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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Chicken Bocconcini alla Mediterranea
Chicken bites – Mediterranean Style.
This is classic yet simple to make.
For this you need – boneless, skinless chicken breasts – cut into bite size (bocconcini) pieces, Olive Oil, Capers, Cherry Tomatoes, Taggiasche olives, yellow onion, s&p, flour, and water.
Start by heating up a large frying pan with olive oil – add in the sliced onion, capers, olives and cherry tomatoes. Sauté for 5 mins.
While that is happening – toss the cut-up chicken pieces in seasoned flour (s&p) to dredge, then shake off the extra flour. Now add the chicken to the frying pan – season with a little s&p and then cook until the chicken is browned.
Now add in about 1 cup of water – just enough to bathe the chicken, not drown it. Allow it to cook on med low for 10 – 15 more mins or until it thickens.
Served immediately topping with the sauce.
Buon Appetito
