Things you need to know
- Russia continues to push, Ukraine keeps fighting, US and Europe consider banning Russian oil – Stocks plunge
- Oil hits a 14 yr. high…. $125/barrel – OPEC laughing all the way to the bank
- US oil producers held back by ESG mandates and Biden energy policy – Gas hits $7.19/gal in LA.
- Crypto’s are not the inflation/safe haven play that they told us it was
- Try the Spaghetti Al’ Olio
Stocks continue to sell off and are doing so again this morning…..as the Russia/Ukraine crisis enters its third week….The strong NFP (Non-Farm Payroll) on Friday doing little to divert the conversation…..not that they didn’t try to make it divert the conversation – but the truth is the geo-political chaos – that we are all witnessing live – will remain on center stage and will trump any economic data points that are announced until this settles down at all, if it settles down……..the market clearly in a downtrend amidst all of the uncertainty…….the path of least resistance is lower and any rally at all gets sold…
At 4 p m, the Dow was off 180 pts or 0.5%, the S&P down 35 pts or 0.8%, the Nasdaq off 224 pts or 1.6%, the Russell down 32 pts or 1.55% and the Transports down 11 pts or 0.07%.
The 10 yr. treasury ended the day yielding 1.73%, while the VIX traded as high as 34.50 before settling in at 32. The commodity complex which includes – precious metals and food along with energy also continues to advance – with the BCOM (Bloomberg Commodity Index) notching new high after new high…. up 50% over the last 12 months and 28% since the start of 2022. WTI (West Texas Intermediate) trading at $122/barrel up 6.5% as the week starts, continuing its parabolic rise…. Gold is now up 12% since the talk of a possible Russian invasion began one month ago and is now kissing $2k/oz as money moves into the time-tested safe haven space.
Energy – XLE gaining 2.8% is now up 36% ytd, Utilities – XLU gained 2.2% (flat on the year), Healthcare – XLV +0.5% (-6% ytd), Real Estate – XLRE up 0.8% (-9% ytd)….every other sector in the S&P ended the day lower with Financials – XLF leading the way off 1.8% (-4.6% ytd), Consumer Discretionary – XLY -1.6% (leaving this sector down 16% ytd), Tech – XLK – 1.7% (-14% ytd), Communications – XLC -1.4% (-14% ytd).
The Tech disrupter short ETF – SARK gaining 5% leaving it up 45% ytd while the Tech disruptor long ETF – ARKK continues to be a trainwreck losing 4.8% leaving it down 40% ytd. The Short hedgies – DOG, PSQ and SH all gaining (and will continue to gain as markets come under pressure) rising 0.5%, 1.5% and 0.8% respectively.
Now – what has been surging in all of this mess – COAL…. SXC (Suncoke) +50% ytd, BTU (Peabody) up 160% ytd, ARCH (Arch Resources) +68% ytd….
And watch the steel producers….On Thursday – Arcelor Mittal announced that they are closing their Ukraine plant as the war worsens….Russia is the 5th largest global producer – so expect everyone to stop buying Russian steel as this crisis unfolds….US steel names include: X (US Steel) up 32% ytd, NUE up 24% ytd, STLD (Steel Dynamics) + 27% ytd….and if you want to play it via an ETF – look at SLX (Van Eck Steel ETF) up 17% ytd…and includes a list of global names – Vale, Rio Tinto, Nucor, Cleveland Cliffs, Tenaris SA along with others. You can also play this via the S&P Metals and Mining ETF…XME which is up 45% since the January lows and likely going higher and includes names like Peabody, Alcoa, Arch, Century Aluminum, US Steel, Hecla Mining and Freeport-McMoRan.
Overnight – global markets continue to retreat…. Asian markets ended the day lower – Hong Kong down 3.8%, China down 3.1%, Japan down 3%, Taiwan down 3%, South Korea down 2.3% and Australia off by 1%.
European markets are all down better than 2.7% as the crisis continues and both the US and Europe consider banning Russian oil from the global supply chain. Secretary of State – Tony Blinken telling us that Washington is in ‘very active discussions’ with our European allies about banning imports of Russian crude and while that will hurt us, it will really hurt the Europeans – as they have become so dependent on Russian oil.
At 6:30 am – US futures are following suit and are down substantially…. Dow futures off 600 pts, S&P’s down 80, Nasdaq lower by 260 and the Russell is down 40 pts. Talk of banning Russian oil from both the US and Europe is raising the flag on stagflation……which is an economic condition caused be the combination of rising prices and slowing economic growth…it is usually accompanied by high unemployment which at the moment isn’t the case – US unemployment at near all-time lows of 3.9% – but could become the case as the economic conditions deteriorate.
The last time the US suffered stagflation was 45 yrs. ago….in the mid to late 70’s….and for those of us that experienced it – it was not pretty….so for the generations behind the boomers – get ready…you’re about to be educated.
Eco data due out today includes nothing…..later in the week – we have what I think is the most important data point this week – the latest CPI report and analysts expect m/m to be up 0.8%, Ex food and Energy of +0.5% while y/y reports are expected to be +7.5% and +6.4% respectively…both of those readings would be greater than they were last month – only reinforcing upward price pressures putting the FED more directly in the line of fire as many question how they missed this while recognizing that more aggressive moves may be needed to break the cycle. But remember – the cycle doesn’t just break, it doesn’t just happen, it has to stop advancing first…and that takes months after the FED begins a tightening cycle…so get ready for higher prices for the rest of 2022 and possibly even into 2023.
And considering what happened over the weekend in Ukraine – this crisis is not ending anytime soon…. stock action tells the story and with oil at its highest level since 2008 – the fear of a Russia/Ukraine induced slowdown becomes more of a reality…and this continues to create some angst about what Xi Xi’s sleeve is up. Is Taiwan next? In any event – what it does make clear – is that we need to protect ourselves, we need to manufacture technology in this country. We need to be energy independent; we need to manufacture our own drugs and we need to be super cyber vigilant…because an attack on the US and global financial system is next…. don’t kid yourself –
Treasuries prices are up sending yields down, gold prices are higher in what continues to be the traditional ‘haven’ plays…I would expect this to continue as the headlines unfold.
In the end – surging oil and commodity prices along with the geo-political unrest threaten to unleash more volatility in the days ahead and stocks are still in a downward trend. We are just days away from what could be a death cross – that is when the down trending 50 dma pierces the rising 200 dma…. indicating the potential for a bigger sell-off….so keep your eyes focused on the technicals over the next week or so…. the death cross (if it happens) could see the S&P retest the February 24th low of 4,114 before this is over…. Do not be surprised if we test the January 24th lows of 4221 today…. with S&P’s down 65 are 7 am…. that takes us to 4260 ish…. another 40 pts and boom….there we are…4221.
Crypto’s which were supposed to be the NEW safe haven play and inflation hedge – are proving to be neither…Bitcoin is back below $40k – trading at $38,300 while Ethereum is trading at $2,500 down from $2800 last week.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Spaghetti Al ‘Olio
Since today is all about oil – won’t you try this simple yet classic favorite?
For this you need: 1 lb. of Spaghetti, 5 big cloves of garlic – thinly sliced, olive oil, fresh grated parmegiana cheese, toasted breadcrumbs and if you like – some red pepper flakes.
Bring a pot of salted water to a rolling boil. Put the spaghetti in and let it cook for about 8 mins…
While this is happening…. add enough olive oil to a lg sauté pan to cover the bottom. Now add the sliced garlic and sauté on med heat – do not burn the garlic…you want it ‘toasted’ really – nice and nutty brown…. should not take any longer than it takes the pasta to cook. (Here is where you will add in the pepper flakes if you want)
Now remove the pasta and add directly to the sauté pan. Toss to coat.
Serve in warmed bowls. Top with a handful of the toasted breadcrumbs and some fresh grated cheese. Simple – yet so good.
Buon Appetito.
