Things you need to know
- FB causes all the drama – but is it really about the Metaverse?
- AMZN and SNAP report after the bell and guess what? They crushed it – algos taking those names up sharply – making yesterday’s action appear a bit overdone.
- OIL is now trading with a 9 handle – yes WTI is trading at $92/barrel up 98% in one year.
- Try the Southern Fried Chicken
Brace yourself for more ridiculous decisions – all built around FB….
Facebook implodes and takes the whole ‘shebang’ with it! Everything got dragged lower – made no difference who you were….and all that reveals is how such high concentrations of mega cap tech stocks can hijack the psyche and the conversation – Because FB has nothing to do with financials, consumer discretionary, basic materials, real estate, industrials…. Does it? I mean – do not go and try to connect the dots to explain the broad weakness vis a vis FB………. the broad weakness is a direct result of all the angst – think FED and monetary policy – that is simmering on the back burner Because what had really changed between Wed and Thursday – other than FB’s results? Nothing. So, is FB really the reason to see the Dow give up 520 pts or 1.5%, the S&Ps lose 112 pts or 2.5%, the Russell down 40 pts or 1.9%, the Transports down 271 pts or 1.7%? or even a reason for the Nasdaq to give up 540 pts or 3.8%. FB is an individual issue – it is company specific…it has nothing to do with HON, KO, HAL, XOM, IBM, CL, and the list goes on.
By now you know what happened…. FB reported a disastrous quarter and that is all the algo’s needed…they switched gears going from active buyer to PANICKED seller…sending FB and the other social media names down the drain…. FB – 26%, SNAP – 24%, TWTR -5.5%, PINS -10%…. while also deciding that it was a risk off day across the board…. nothing was spared other than Consumer Staples – things like PG +1%, CL flat, JNJ flat…the XLP closed 0.03%, which is a real win when you consider that Tech – XLK – 8.6%, and FB is not even in that ETF! FB is 18% of the Communications etf – XLC – 6.9%, Consumer Discretionary – XLY – 12.6%, Now you want to know what’s in that etf – names like AMZN – which is 21% of that etf and it was down 8%, TSLA is 18% of the etf and it was down 1.5%, MCD -0.6%, NKE -2.3%, HD – 2.2%, LOW’S -2.2%, SBUX -1.8%… Basic Materials – XLB – 1.7%, Industrials – XLI – 1.6% and Financials – XLF – 1.1%. And why again are all those sectors lower? Because FB disappoints? Challenge!
And you want to know why? Did you see the AMZN results after the bell yesterday? Needless to say – they BLEW THE ROOF OFF THE HOUSE….and suddenly – all the sellers from yesterday – realized that the decision they made to sell AMZN because FB disappointed – was an emotional, ridiculous, thoughtless trade…Now for all those people that were buying AMZN yesterday in the height of the panic – good for you! Because AMZN lost 8% during the day and gained 21% after the close. This morning – AMZN is quoted up $331or 11% and likely going higher…Revenues of $137.4 billion, Operating Income of $5.9 billion, AWS net sales of $17.7 billion and they are RAISING THE PRICE of Prime Membership by 17% or $20 to $139/yr.….Today, investors and the algo’s can’t get enough of it….buying up anything for sale in the pre-mkt…….and that is causing the tone today to be very different than the tone from yesterday -for AMZN………SNAP also is up 59% this morning after they reported their earnings….and guess what – investors liked what they heard. But enough of all this drama….
Today is all about the NFP report and what is expected to be a disaster…. exp for +150 new job created is now being replace with a range of results…. from -400k to +200k jobs…. but not to worry – the administration is front running this – coming out on Monday to try and push this report to the end of the line. Saying that the survey was taken during the height of Omicron – so therefore it is not valid – whatever… Within this report – look for unemployment to remain at 3.9% (which would make zero sense), Avg Hourly Wages up 5.2% and the labor force participation rate to remain at 61.9% which is below the pre-pandemic level of 63%.
In any event – and I said this yesterday – do not expect that this report no matter which way it goes – will change any of the thinking at the FED. And THAT is why stocks came under pressure yesterday and why they remain under pressure this morning….The reality of 5 rate hikes (supported by voting member Jimmy Bullard – on Tuesday when he told us that 5 hikes ‘would be a good bet’) and a reduction of the balance sheet IS the issue….and again – it is nothing more than a math problem…..when Fed Funds rates go from 0% to 1 or 1.5% and the 10 yr. goes from 1.2 to 2.2% and the 30 yr. goes from 2.5- 4% – all while the economy appears to be slowing IS THE ISSUE. Valuations must change – period. Especially if those hikes are going to force a recession in 2023. And that change suggests that we will see lower valuations and that will cause stock prices to re-price…. How long have we been talking about this? I mean – are you really surprised that we are seeing this volatility?
This morning Dow futures are down 150 pts, S&Ps off 5, Nasdaq is up 65 pts, and the Russell is down 15 pts. Lots of volatility yesterday will cause investors to continue to consider what is ahead – and it is not about earnings…. it is about broader central bank policy. Yesterday we saw the BoE (Bank of England) raise rates for a second time and the pressure is now on Christine Lagarde – President of the ECB (European Central Bank) to make a move…. why? Because inflation is at multi decade highs across Europe the way it is across the US. The continued confused chatter coming out of the different FED heads will only continue to add to the volatility,…So, stop the baloney….make the decision and run with it….the pain is not going to get any better by stalling or being indecisive….in fact, the pain will only get worse the longer the FED remains tone deaf.
But – we do have a mid-term election coming up…. wink, wink….so you have to ask – what role is the election playing in Fed policy decisions. Is this election causing the confused conversation?
And while stocks are declining in value -guess what is going up? OIL! This morning – WTI (West Texas Intermediate) is trading with a 9 handle…. that is right – WTI is up 2% or $1.80 at $92.00/barrel…. up a stunning 98% since January 2021. The latest move being credited to the winter storm…. ok, you go with that…. It is about demand and supply – period. And the demand destruction story – yes, not so much. $100 is now clearly in sight and it is a big round number – one that will draw investors in just to see it tick there…. like winning the brass ring at the circus.
European markets are all weaker…. Energy stocks up…. after the UK allowed for the energy price cap to rise by 54% meaning that UK households will see their annual heating bills go up by $1000. As I stated, the BoE raised rates for a 2nd time, while the pressure is on for the ECB to do something – all while Christine Lagarde said that she does expect inflation to remain elevated for longer (think not transitory) but expects it to ease by the end of 2022….maybe she wants to rethink that…..US inflation is not expected to ease until mid-2023 at the earliest….and while the US is not the Eurozone – inflation is the same no matter where it breeds….end of 2022 – not happening Christine…..At 7:30 all markets are down about 1 – 1.2%.
Bitcoin is lower – trading at $37k while Ethereum is at $2,800.
The S&P closed at 4477 – down 111 pts…. after attempting to kiss trendline resistance at 4622 only 2 days ago…. 4442 is the 200 dma…and that is only 30 pts from where we are…..that will be a KEY level to watch, but if we do pierce it – I would then expect us to test the lows of January 24th– 4222……I have been saying this ever since it happened two weeks ago and I am still in that camp.
Take Good Care
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Southern Fried Chicken
Who does not love fried chicken – I always find it to be a source of comfort in an uncomfortable time so here we go…?
For this you need: Chicken pieces, 1 1/2 cups evaporated milk, 2 large eggs, about 2 1/2 cups flour, s&p (some people use cayenne pepper or hot red pepper sauce), garlic powder, and 4 cups of vegetable oil or Crisco.
Next you need to rinse the chicken pieces… then pat dry and set aside.
Next mix the milk and eggs in a bowl – (if you are using hot red pepper sauce – add here also) whisk until blended.
Combine the flour, s&p and garlic powder and put in a paper bag. Now – dip 2 or 3 chicken pieces in the milk mix – lift and allow the excess to drain – Place in the bag, fold the top and shake to coat the pieces well. Remove and put on a plate and repeat with the remaining pieces.
Now – be careful here… heat the oil to 350 degrees in a large heavy-duty pot – when ready – fry the chicken – a bit at a time – The breasts will cook a bit faster – about 10 mins, the thighs and legs should take about 15 mins. Make sure the juices run clear when you pierce with a fork. If so – remove from the pot and place on a plate lined with paper towels to drain. Serve immediately with a large mixed salad and some garlic mashed potatoes.
Buon Appetito.
