Things you need to know
- Yesterday’s rally fades into today. Markets in Europe down 2+% after surging 7% yesterday.
- Diplomatic talk in Turkey between Putin & Zelensky fail to produce a cease fire. (Putin = Russia/Zelensky = Ukraine)
- Oil – in rally mode after yesterday’s decline
- ECB getting ready to make a statement on policy
- US bracing for a strong CPI report
- Try the Grilled Skirt Steak with Pesto Sauce
It was a ‘rip your face off rally’ yesterday…… US futures suggested that it was going to be ‘good’ day in the US and investors were not disappointed at all….algo’s, traders and investors went all in….taking stocks higher….by the time the closing bell rang – the Dow gained 655 pts or 2%, the S&P up 107 pts or 2.5%, the Nasdaq +460 pts or 3.6%, the Russell up 55 pts or 2.7% and the Transports up 406 pts or 2.7% and while this was good, it paled in comparison to what the European markets had done…..investors in Europe – took European markets up more than 7% during their trading session on Wednesday.
They scooped up names that had gotten beaten up over the past 3 weeks….that were in well oversold conditions….some of my favorites – NVDA+7%, AMD + 5%, JPM + 4%, BAC +6%, AAPL + 3.5%, MSFT + 4.5%, AMZN +2.5%, and names that I pointed out in prior notes that investors might consider – CLF + 4.6%, X +5.8%, NUE + 3.2%, STLD + 2.8%, RTX + 3.8%, HACK (cybersecurity) + 2.5%, ITA (aerospace and defense) + 2.4%.
Across the sectors – what we saw were the most beaten up sectors doing the best – XLK + 4%, Communications XLC + 3%, Basic Materials – XLB + 3%, Financials – XLF + 3.7%, Consumer Discretionary XLY + 3.2%……Energy which has gone parabolic – came under some pressure as trader types and investors rang the cash register….sending the XLE ETF down 3% and as you would expect – Utilities – XLU fell 0.7% as money moved to more beaten up sectors.
And yes – as the market went higher the offsetting hedges that we have been talking about all took it on the chin – DOG -2%, PSQ – 3.7% and SH -2.5%. The 3x levered Direxion ETF got hit – 3 x…. the SPXS (short) fell by 8% while the 3x levered Direxion Long ETF – SPXL advanced by 8%..…
In the end – it is the war between Russia and Ukraine that is fueling the chaos in stocks, commodities, currencies, bonds and crypto’s and as headlines continue to hit the tape the moves become exaggerated and challenging. The economic impacts only beginning to be felt will also continue to cause analysts and strategists to have to redefine valuations. The idea that rising inflation coupled with lower economic growth are going to collide should not be a surprise and when they do – we could end up with that 1970’s style stagflation…..and let me remind those of us who lived it – how ugly it was and let me inform those of you that were not around how ugly it can get…..and while you think it ‘can’t happen because this time it’s different’ allow me to offer up an opinion…….wishful thinking.
Add in the predicament that the FED has gotten us into and is now trying to get us out of…and remember – they are still stimulating…. they are still buying up bonds and they are still holding rates at zero…. but that is about to change….and today’s economic data will offer up a clue on just what we can expect… The consumer price index report (CPI) is due out today at 8:30….and we are bracing for the announcement. Survey says – that core CPI m/m will be up 0.8% (up from 0.6%) last month, Ex food and energy of +0.5% which would be down from last months 0.6%. CPI y/y is expected to be +7.9% up from +7.5%, while ex food and energy of +6.4% which is up from last months 6%. And these numbers don’t even include the inflationary effects that we are going to see as a result of this geo-political crisis…. oh no, those inputs will be reflected in reports in the months ahead.
The producer price index (PPI) survey is due out next Tuesday and that is expected to be even more inflationary – think a 10 handle – and what you need to understand about that is that the increase at the producer level usually take about 2 months to work its way thru to the consumer level…which should tell you to expect higher prices going into the late spring/early summer.
And what do we hear from members of the FED and the FED chair? “It’s temporary (kind of), we got this (kind of), no need to worry (oh boy…) ….and while we expect a 25-bps interest rate increase next week, future moves remain vague…. will they be 25 or 50? Well, that depends on just how much more inflation pressure we get……and my guess is that we are going to get plenty of it…. I just don’t see how anyone thinks it’s going to ‘ebb’ over the summer and how it will suddenly retreat…but I could be wrong.
Remember – oil has spiked and oil touches so many things that we use every day…. things that you don’t even think about but will go up in price because of the increase in the price of oil….and this all feeds into the ‘producer’ level…. (See how this works…now do you see how important the PPI report will be?) And we haven’t even discussed how the price of oil affects the transportation industry…. trains, planes, shipping and railroads…. think FEDEX and UPS, think airlines, think cargo ships, think cruise ships, all those AMZN delivery trucks, think UBER and LYFT. Who exactly do you think will foot this bill? I mean we’ve already seen UBER and LYFT rates skyrocket…. recall the story I told you when I was in NY last year….an UBER to go from the west village to midtown – a total of 4 miles – was quoted at $60…. $60! I’m afraid to think what it is now….
This morning we wake up and find that US futures are down…. (I hope you are not surprised). Dow futures down 200 pts, S&P’s down 25, the Nasdaq down 100 and the Russell down 18. Today’s eco data will give us something else to discuss while we try to speculate what this report might cause the FED to do…. Is it already priced in? What if it is even stronger than expected, what if it is weaker than expected? Oh boy….so much to discuss.
Geo-political news will also be fighting for center stage and on that front, there is plenty to discuss. Diplomatic talks between the two countries are ongoing…. word that Zelensky is willing to discuss some options helped markets yesterday but word that there is no progress is hurting markets today…. And then the headline that Vlad accuses the US of waging a ‘de facto economic war against Russia” is putting pressure on markets as well. In addition – scenes of bombed out civilian targets are not helping the tone.
In Europe- markets there are in retreat – after Wednesday’s spectacular surge…the latest Russia/Ukraine headlines driving the action……at 5:15 am…. news that NO PROGRESS was made on any cease fire talks hit the tape, and pleas by Zelensky to have the ‘allies’ impose a no-fly zone appear to be falling on deaf ears. On the economic front – Investors are also awaiting the latest monetary policy announcement from the ECB – European Central Bank. Surging energy prices expected to ignite another round of inflationary pressure across the zone and with the expected economic slowdown – I’m sure Christine Lagarde doesn’t have enough Advil to stop her head from pounding. The key will be in what she says concerning how fast or not the ECB will be in tightening her very loose policy stance. At 5:30 markets across the zone are down about 2% + or -.
10 yr. treasuries fell yesterday sending yields up significantly to close out the day yielding 1.95%. Gold sold off $60 yesterday as stocks rallied on what many thought would be good news…. (ceasefire) but with the latest headline suggesting a nothing done, investors are taking gold back up – currently trading up $10 at $1,998/oz. Oil – is also rallying on the back of the latest news concerning attempts at a cease fire which have failed…. Oil is up 4.5% at $113/barrel.
Crypto’s are again under pressure…the surge yesterday due to the news that Joey has created a panel to discuss the future role of crypto’s – how to create them, regulate them, prevent them from being used for illicit purposes etc.….and that gave them a breath of life…. but in the end – it was very vague and offered nothing of any substance (yet), so crypto’s are once again under pressure. Bitcoin trading at $39k, while Ethereum is trading at $2,600.
Look – the geo-political drama is far from over and the central bank drama is about to begin. Global investors need to brace themselves for surging inflation and the possibility of slower global growth due to rising rates. The next 4 or 5 months will remain skittish and volatile and if this war drags on for much longer then the markets will remain skittish for longer. The idea that the 2nd half of 2022 will improve continues to be the narrative that many analysts are pushing…. While I want to be in that camp – I am not so sure yet…. I need ‘more data’.
Remember – the markets can deal with clarity, good or bad, what it has trouble with is inconsistency and uncertainty.
The S&P ended the day up 107 pts….to end the day at 4277. We remain in the 4114/4460 trading range. 4114 is still the key level to watch on the downside. I suspect any advance will most likely be met with significant resistance unless of course there is a change in the narrative. Put new money in your account but leave it in cash, – ready to jump when the tone changes. Feel free to tweak any of your other holdings, but if they are core holdings and the story is the story then sit tight. If you’re concerned – buy some hedges to soften any blow lower. Continue to make your shopping list and take advantage of the obvious dislocations that are created. (Like the latest moves in NVDA, AMD, JPM, BAC, AAPL, IBM…).
On a side note – did you see the AMZN news? They are splitting their stock 20:1 and initiating a massive $10 billion share buyback…the stock surged 7% on the news…so anyone that wanted in but felt like they couldn’t afford it – sit tight – it’s about to become $150 stocks give or take…on June 6th.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Grilled Skirt Steak w/Pesto Sauce
Skirt steak is underrated (I think). It’s easy to cook, very flavorful and relatively cost-effective. Although, it is up, it isn’t up as much as a rib-eye!
For this you need the pesto sauce that has a splash of white wine vinegar and the steak.
Now you can make the pesto by combining 1 c of packed fresh basil leaves, olive oil, toasted pine nuts, garlic, s&p, parmegiana cheese and 2 tablespoons of white wine vinegar. Set aside.
Now – preheat your grill – get it nice and hot. Season the skirt steak with s&p. Set aside.
Clean the grill with a grill brush when it’s nice and hot. Turn the heat to med. Rub a bit of oil on the grates with a cloth – (do this quick). Now grill the skirt steak; 3 – 5 min per side should produce a medium rare, finished product.
Place on a platter, brush the steak with the pesto and let it rest for 5 mins…. You can tent it with tin foil. When ready, slice on an angle and serve with a large mixed salad. Keep the dressing simple- Fresh lemon juice, olive oil, s&p, dried oregano. Perfect. Enjoy this with a nice chianti…. this is not a Super Tuscan type meal.
Buon Appetito
