Things you need to know
- WMT is not the problem….Guidance was realistic.
- Private Credit? BOOM – Blue Owl light the match.
- Geo-Politics remain front and center – investor psyche challenged.
- Oil UP, Gold Up, Bonds Up – yields down.
- Try the Baked Cod.
So more of this back and forth, back and forth…stocks closed lower yesterday. There are at least 3 issues (at the top of the list) that caused the angst yesterday…
WMT reported better than expected earnings, revenues grow 5.6%, the stock was priced to perfection…. but when the C suite offered more cautious, in my opinion, realistic guidance about the consumer – the trading community and algos lost it!
At the end of the day – WMT lost 1.4% or $1.75 to end the day at $124.87. Ok – but let’s be clear – the stock was up 20% ytd as of the 13th….but then earnings were only days away, and here is where the dance starts….remember what I said, the stock was priced to perfection – trading at all time highs, up 20% in the past 8 weeks….It’s a Consumer Staple name! It’s usually boring and stable, so up 20% in 8 weeks is anything but boring….
So when the C suite offered some cautious guidance in an ‘antsy’ environment – the trader types took the opportunity to ring the cash register, to lock in those short-term profits and create some alpha…. Ok – Mission accomplished for the trader, but for the long term investor – there was nothing in that report that should cause you any agita….this was a classic – Buy the rumor/Sell the news reaction……If you zoom out – it’s less about the earnings report and more about the fact that management acknowledged what we all know….the consumer is normalizing and becoming a bit more intentional. And btw the – WMT is WMT – Good or bad – it’s a quality name that should be in a core portfolio.
The chart suggests that we could test trendline support at $119. OK.
Another issue (and there is one more after this) causing stocks to sell off is the ongoing geo-political drama in the Mid-East…. that is causing oil and gold and silver all to push higher. Oil is up 5% this week, Gold is up 2.5%, Silver is up 7%, Aerospace and Defense ETF – XAR is up 6.6% this week and 18% ytd…. And if Iran chooses to NOT come to the table – watch what happens next to these assets.
And the 3rd issue yesterday – Private Credit! So you ask – what is private credit? Private credit is non-bank lending — debt provided outside of the public markets. Instead of issuing bonds or going to banks, companies borrow directly from private lenders. Private lenders that were born out of the 2008 GFC regulations that squeezed bank lending. Now, the key here is that these firms lend to companies through negotiated deals that aren’t publicly traded. Because these loans are less liquid and more bespoke, lenders command higher interest rates — which translates into juicy fees and yield.
Enter Blue Owl – OWL – the disaster of the day that pays a 7.7% yield. It got clocked down 9.4% by noon…..after this headline hits the tape…..
‘Blue Owl permanently halting redemptions at one of its retail focused private credit funds’
Translation – you can’t get your money……they locked the door….and when someone tells you that you can’t get you money – what happens? You want your money……and so that triggered broad selling in OWL and across the industry…. think TPG – 7%, BEN – 2.4%, AMG – 2.6%.
Now, expect OWL to come out of the gate this morning swinging……PUSHING BACK AGAINST THAT NARRATIVE….telling investors that the news is that they are ‘changing the way’ redemptions will be paid out – not that they are halting them….and that the media got it wrong….OK – let’s hear it……OWL is quoted down another 1.2% in the pre-mkt. Seems to me that if you are changing the way redemptions are paid out – you would be very clear on that narrative to avoid exactly what happened…. but let’s see how this plays out.
Next is the contagion effect –
Quotes that one structured note – offered by C – was selling for 47 cts on the dollar only amplifying the angst….and that took names across the banking sector lower as well. C – 0.6%, GS – 1.8%, MS – 1.3%, BAC – 1.1%….
But you say- the banks don’t run retail-gated private credit funds – and you are correct – but markets don’t trade in silos – there is this thing called a ‘contagion effect’ and that MUST mean if there is a problem here then there MUST be a problem over there…..and right away the finger gets pointed at the banks and BOOM! Down we go…. the XLF lost 0.8%……
By the end of the day – the Dow lost 267 pts, the S&P lost 20 pts, the Nasdaq gave up 70 pts the Russell added 6, the Transports lost 313 pts, the Equal Weight S&P lost 21pts while the Mag 7 gave up 58 pts. And so, another bell rings….
Bonds churned in line even with all this noise…..the TLT up 0.1% and the TLH up 0.1% and that sent yields a bit lower…. maybe more so than normal, but that is a direct result of the angst created yesterday. The 10-yr fell 4 bps to end the day at 4.06% – down from 4.09%, while the 30 yr fell 3 bps to end the day at 4.69%. – again, nothing more but more churn.
Oil – we discussed….surging higher based on the rising temperature in the room…..Trump and the Ayatollah – pick a side……Because Trump gave him 15 days (think March 4th ISH) to smarten up…and make this deal…
Oil has now broken out of what was the most recent high – this morning trading at $66.20…..and if the rhetoric doesn’t cool down – expect oil to kiss $70…..Should the Ayatollah decide to make a deal – then expect oil to cool off….but until then – the pressure remains to the upside.
Gold is now trading at $5,035 – up $32 as the drama in the Mid-East unfolds…. For now, it remains in $4,705 (trendline support) and $5,115 trading range. The path of least resistance is to the upside – until we see a conclusion of this latest issue. Miners are benefiting…..XME up 0.2% yesterday and up 13% ytd.
Crypto is doing absolutely NOTHING…Bitcoin is trading at $67,800, Ethereum around $1,960, and Solana is $84.
The dollar? It continues to advance towards for all the same reasons…. anxiety. And when the world gets anxious – they all want the dollar…..We have now PIERCED short-term trendline resistance at 97.99 (We discussed this) and that put intermediate and long term trendline resistance at 98.60 ish in the bull’s eye…. Now, I think it struggles here, but if the situation ‘explodes’ then the dollar will too…..If not, then not…. Sit tight.
European markets are all higher this morning…..Italy – the biggest loser yesterday is today’s winner up 0.9%. France up 0.7%, UK up 0.6%, Spain up 0.6%, Euro Stoxx up 0.4% while Germany is carrying up the rear – up 0.25%. UK Retail Sales up 1.8% in January – up from 0.4% in December…. suggesting an improving economy.
This morning US futures are mixed…. Dow is -16 pts, the S&P’s up 1pt, the Nasdaq up 20 pts, and the Russell is down 3 pts.
Eco data today….is a lot……Real Personal Spending of +0.1%, December PCE m/m of +0.3% and y/y of +2.8% while CORE PCE is expected to be +0.3% m/m and +2.9% y/y and that would be 0.1% higher than last month….Keep your eyes on this data point today…because it will be key in defining the ‘inflation narrative’ and considering that a ‘vast majority’ of the FOMC is concerned about inflation – this report will be a focus.
Next we get 4 qtr. GDP of 2.8%, S&P US Manufacturing PMI of 52.4 and Services PMI of 53 – both in the expansion zone. New Home Sales, Building Permits for December and the U of Mich sentiment survey and inflation expectations.
We have a lot of SMID’s reporting today – not the mega-cap market movers. Names reporting include Chemours, Western Union, F&G Annuities & Life, Select Medical, Lamar Advertising, and Alliant Energy – these are NOT household names and so I do not expect them to drive the broader market, but clearly will drive the Russell – (SMID’s)
The S&P closed at 6,861 – down 19 pts. We are stuck between the trendlines….6,819/6,894….. This morning futures are teasing in both directions…..- It is Friday, the weekend is here and the tension is high…this could go in any direction………Remember what I said – the algo’s are testing the bulls…wanting to see when they will become exhausted….because when they do – they will put pressure on the market- seeing how far they can go….a break below the trendline only amplifies that possibility – so sit tight…..My sense is more churn.
Call me at 561-931-0190. Let’s talk about whether the risk in your portfolio actually matches your tolerance — because this works both ways. You may be taking too much risk… or not enough to reach your goals.
Take good care,
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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It’s Lent – so Friday’s is fish…. (It’s an Italian thing….)
Keep this simple…
Baked Cod with Lemon, Wine and Capers.
You need: 4 cod filets, s&p, butter, olive oil, juice of one lemon, capers, garlic and of course some white wine.
Preheat your oven to 425 degrees.
Season the filet with s&p – place in a greased Pyrex baking dish.
Make the sauce – whisk the melted butter, olive oil, lemon juice, chopped garlic and white wine.
Pour the sauce over the fish – top with capers.
Bake for 10 – 12 mins…..covered.
When done, serve with fresh lemon slices…and a veggie of your choice.
***Cod is thin, do not overcook….12 mins MAX – capisce?
Buon Appetito.