Things you need to know
- Treasury yields surge to 1.7%, Tech stocks come under pressure
- Big Cap value in energy, industrial, financials and consumer staples are the beneficiaries.
- F – rallies 12% after they doubled their manufacturing outlook! (Love Ford)
- Oil -nearing $80 barrel even as OPEC+ agrees to pump more
- Try the Grilled Pork Chops with Sweet Vinegar Peppers
Oh boy….so much for that ‘tech’ rally! Tech stocks fell on Tuesday taking the Nasdaq down 210 pts or 1.3% while the S&P gave up 3 pts and the Russell gave back 4 pts…the Dow Industrials and Transports were the star performers gaining 215 pts or 0.6% and 277 pts or 1.7% respectively. Investors choosing value overgrowth at least for yesterday as the reality of higher rates starts to sink in… The SPYV etf up 1% while the SPYG etf lost 0.8%. The economic data showed that manufacturing PMI remains strong – yet slightly below the estimate and that job openings remain at record levels. Investors reacted to the data by selling bonds – sending 10 yr. yields as high as 1.71% before they settled at 1.64%, selling high growth tech and buying large cap and mega cap industrials – XLI +2%, Financials – XLF + 2.6%, Energy – XLE +3.4% and Consumer Staples XLP +0.7%. All which represent the ‘value play’. (And this should NOT be a surprise to anyone).
The rise in bond yields confirms what we have been saying all along – bond investors have more confidence in a stronger economy and economic growth – and while they are considering how Omicron will affect the US and global economy – the ‘mildness’ of this variant suggests less disruption and that suggests that the FED will continue down the path of tightening monetary policy……Now, while the FED has been very clear about its motives, they have been somewhat unclear about the clarity of the coming moves. When will the tapering end? Will it be in mid spring (April) the way the market expects, or will we suddenly get hit with a more aggressive plan? Will rates rise 3 or 4 times in 2022 and will those increases be 25 bps or 50 bps or will they be some combination of each. This is what investors are trying to get a grip on – we know what the market expects, but we don’t know what the ‘FED think’ is now, but we may get more clues in the next two days. Tomorrow afternoon when the FED releases the FOMC mins from the last meeting, and then Thursday mid-day when St. Louis FED President Jimmy B takes the stage to discuss the US economy and monetary policy at some event.
*Warning – Jimmy – a hawk – is now a voting member of the FOMC committee, so investors will pay more attention to what he says, because unlike last year when he was just an observer and did not ‘have an official vote’, this year he will be ‘in the room, at the table’ voting on policy change and that changes what he says and how investors might react. Recall – he is the one that said in December (when the markets came under pressure) that the FED needed to be ‘even more aggressive’ on tapering and consider raising rates in ‘tandem’ – something Jay Powell has assured us would NOT happen and that sent markets into a tailspin – while the msm (main st media) would have you believe it was about rising omicron cases.
The FED was quick to distance itself from the comments in the usual fashion when they use a non-voting member to toss an ‘idea’ out there to see how markets and investors react. BUT – that idea is now out there…. the markets and investors have had time to consider it and if the inflation data continues to surprise to the upside – then expect to hear more about the FED having to become more aggressive. And they can point to the fact that this should not be a surprise to investors as it was discussed by a ‘FED member’ in the public square. If the data weakens – the FED can always hide behind the fact that Jimmy was ‘expressing’ his own opinion and NOT that of the FED. It’s all very orchestrated.
Next week starts the beauty pageant……(earnings) and analysts are predicting that profits from the S&P 500 companies grew by 22% in the 4th qtr. from a year earlier – but questions remain about how the C-suite will tackle the latest covid mutation and how it might affect business going forward – here’s a clue – it won’t…..Just refer to Tesla’s latest comments about deliveries and yesterday Ford Motor (the old classic) rose 12% or $2.54/sh after they ‘doubled the goal’ for manufacturing the new (and sexy) F-150 pickup truck…you know the one that lights up the house in those Christmas commercials….(which I thought was a brilliant commercial) and as an owner of F – I couldn’t be happier! Ford is this year’s ‘best performer’ up 20% since January 3rd. (That’s 2 days)
I expect that the outlook remains bright which does not mean that the market won’t have a short-term negative reaction – it very well may – stocks rallied hard in the last qtr., so we might see some ‘sell the news’ action….and then add in the latest FED comments and we are ripe for a pullback. The consensus among street analysts is that we could see a 10 – 15% pullback in the broader market as investors adjust to the changes in monetary policy early on…but then after that happens, stocks will stabilize and push higher into year-end…..which is why I said yesterday – don’t take your 2022 retirement money and invest it all at once….’feather it in’ over time….take advantage of the coming weakness that is sure to happen as the FED pushes rates up.
Oil prices are continuing their trek of higher prices…and this after OPEC + agreed to keep pumping oil – saying that they don’t expect covid or any of its cousins to destroy demand the way the original virus did when the world had zero protection… Brent crude pierced $80 and WTI (West Texas Intermediate) traded at $77/barrel. Estimates for $100 oil remain intact…and that would represent another 30% move up from here…. leaving us to ask – will Joey beg OPEC + to produce more to help stall the advance or will he attack the industry for price gouging the way he just did with the meatpackers? We will see….
Remember – it is also an election year, and you can already see how this is shaping up….so expect the election theme to be an ongoing sub-plot this year as we watch how the field develops. And omicron- yup – the country is awash in it, Monday had one million new cases – ‘a record’ – how’s that workin for you? What we need to understand is that 60% of those ‘cases’ were sick with something else, covid is an additional diagnosis and not the primary diagnosis. So, let’s make sure we understand what the media is reporting and what we are comparing.
This morning – US futures are mixed – the Dow is up 30 pts while the S&P, Nasdaq and Russell are all down (not big) but down. The 10 yr. Treasury is hovering at 1.64% as investors await today’s economic data. ADP employment and Markit US Services PMI are due out before 10 am and the FOMC mins will arrive at 2 pm.
European markets are all a bit higher – up about 0.4% across the board. There is no specific Euro economic news that will drive the markets so investors there await the US FED mins….
Bitcoin and Ethereum have done nothing…both trading right where they were yesterday…. $46,700 and $3,850.
The S&P closed at 4793 – Support can be found at 4660 ish while resistance is at 4920 ish…. Today’s eco data is important, so watch what the FED says…. New money – might want to stick with the value theme, the dividend payers, and big multinationals in the Energy, Consumer Staples, and Industrials. If you are a long-term investor that does not mean you toss out your tech – it just means maybe you let it settle down a bit.
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Take Good Care
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Grilled Pork Chops w/Sweet Vinegar Peppers
Time for some Pork!
Grilled Pork Chops with Sweet Vinegar Peppers – This is an easy dish and not one that you might think of readily…but make it easy on yourself…. for this you will need only 4 things really.
You need center cut bone-in thick pork chops, olive oil, sweet vinegar peppers (you can use hot if you prefer), s&p and chopped scallions.
Preheat the grill. And if you are in the northeast – you can use a ‘ribbed grill pan’ on the stove and then finish in the oven at 450 degrees for 5 mins.
Rub the chops with olive oil, salt, and pepper – just enough to massage the chops and prepare them for the grill. Place chops on grill and sear for about 3 mins then turn over and continue cooking for another 4 or so mins on reduced heat. Do not burn them. (This is when you would put them in the oven for another 5 mins if you are in a cold weather state).
While the chops are cooking – open the jar of sweet vinegar peppers, slice in half and sauté quickly with some of the juice in a sauté pan – just to warm them up – you are not “cooking them”.
Now remove the chops from the grill – place on a warmed plate. Top with the sweet vinegar peppers. Serve a lg salad – maybe mixed – romaine, some spinach, Boston bib, sliced red onions, and tomatoes. Dress with a simple balsamic vinaigrette.
Buon Appetito
