Things you need to know
- Stocks fall yesterday as investors re-think some of the issues
- Stocks rise this morning as confusion reigns.
- Oil surges by another 4.7%, Commodities rise by 2.6%
- New Home Sales fall – Mortgage rates RISE – Hello?
- Ukraine crisis is now 1 month old
- Try the Cauliflower Risotto w/Truffle Butter and Shaved Parmegiana
Stocks go into reverse and fall broadly across the board – suddenly the algo’s weren’t sure that they should just keep creating buy orders in light of a more aggressive FED, rising energy prices, ongoing supply chain ‘issues’, a marked slowdown in the US economy and surging inflation. Fed Futures are now pricing in 8 rate hikes this year – which means that we are going to get an ‘off month’ increase…. Considering there are only 6 meetings left (the FED projects 6 more hikes). At this point – does that even matter? The Dow lost 450 pts or 1.3%, the S&P down 56 pts or 1.23%, the Nasdaq lost 190 pts or 1.3%, the Russell gave back 38 pts or 1.7% and the Transports gave up 300 pts or 1.8%.
The 10 yr. treasury yield backed off a bit – ending the day 2.29%, while OIL soared higher…rising 4.7% or $5.10 barrel to end the day at $114.35. Gold rose by 1.2% or $23/oz. The BCOM (Bloomberg Commodity Index) rose 2.6% to end the day at 128.38 – as it churns at the highs and well above all 3 trendlines. This index includes corn, wheat, soybean, hogs, cattle, aluminum, nickel, steel, platinum, copper, coffee, sugar etc. Capisce.
Now look, there are regular calls for $150 – $200 oil and if we continue along the path we are on – we should get there in no time…I mean – in one month – Oil is up 30% ……so if we continue on that path – we’ll be at $150 by the end of April and then $200 by May. Yesterday’s surge being credited to news that Russian oil exports via the pipeline from Kazakhstan to the Black Sea ‘may temporarily fall’ (due to storm damage) by 1 million bpd – which equates to 1% of global demand.
Now – you’ll say – 1%, that’s no big deal….and maybe under normal circumstances it wouldn’t be so much of an issue, BUT that is not where we are right now…. the tension is high, the air is thick enough to cut with a knife….and so the reactions are exacerbated. Supposed repairs on that pipeline could take months…. think supply chain shortages on the parts needed or consider that Vlad may not be in a rush to get oil to Europe causing Europeans untold pain on their pocketbooks.
In any event – rising oil prices are causing gasoline prices to rise…and that acts as a tax on consumers…– but California Governor Gavin Newsome has a plan….he is going to issue $400 debit cards to ‘anyone that owns a vehicle’ to help fill the tank…and considering that gas is over $7 gal in California – and the typical car takes 18 gals – it would cost $126 to fill your tank…..so $400? Yeah, that’s good for 3 tankful’s…. how’s that working for you?
As you might imagine – Utilities – XLU and Energy – XLE were the only two sectors that rose…. Utes (considered defensive) by 0.2% and Energy by 1.7%…. Losses led by Healthcare – XLV – 1.8%, Financials – XLF – 1.8%, Tech – XLK down 1.5%, Communications – XLC – 1.4%, Consumer Discretionary – XLY down 1.25%, Industrials – XLI down 1%. The short hedges all gaining – DOG + 1.3%, PSQ + 1.5% and the SH + 1.3%.
Eco data showed exactly what I warned you about…New Home Sales FELL by 2% vs. the expected increase of 1.1%….and that should not be a surprise at all…rising mortgage rates and supply chain issues continue to cause concern in the housing sector….
I mean – here’s the simple math…. a $500k home with 20% down means you have a $400k mortgage. Two months ago, you would have gotten a 3% rate and they would equate to $1686/mo to carry the mortgage. Today you will get that same mortgage with a 4.5% rate….and that equates to $2026/mo – a 20% increase in the cost to carry….and if what we expect to happen, happens – then next month that same mortgage will cost you 5% or $2147/mo…. or a 27% increase over the 3% rate. And that’s before real estate taxes, homeowners’ insurance and turning the electricity on. And if you heat you home with oil – oh boy……. And that’s a $400k mortgage – the numbers get more exaggerated the bigger the mortgage – should we go there? I didn’t think so….so expect housing prices to begin to retreat as talk of a 50 bps increase in interest rates in both May and June marinates through the system. Remember – mortgage rates are VERY sensitive to daily moves in the 10 yr. and 30 yr.
On the geo-political agenda – The war in Ukraine is now one month old and Vlad is not happy. Ukraine is pushing back and causing Vlad to be humiliated on the world stage. He has now put chemical weapons and nukes on the table as an option ‘if needed’ – knowing that this should cause global leaders to stand down – but will it? Joey is in Brussels at a trio of meetings….an emergency NATO summit, a G7 meeting and a meeting with the European Union…. The G7 – the US, UK, Canada, France, Italy, Germany & Japan are all prepared to warn Putin against the use of either chemicals or nukes….and if he does – then he has crossed the RED line…. but what does that mean? Obama drew a RED line in Syria and when they crossed it – nothing happened. So, while it sounds dramatic – Vlad is not changing course due to any RED line.
US futures are up this morning as the S&P tries to hang onto the long term trendline at 4474. Last night the S&P closed at 4456 – below that line but still above the short term trendline at 4420. We are at an interesting point…. the range between the short term and intermediate term trendlines is 4420 – 4548. We are at 4456 – smack in the middle. The key levels to watch here are 4420 and 4548…. Why? Because if we fail to hold 4420 – then expect a renewed push lower to potentially test the lows of March (4200 ish) because ‘technically’ the market is broken and buy side inline supply will dry up leaving a void in prices causing stocks to fall, and a push up and thru 4548 could see us challenge 4800 (early January highs). Why? Because ‘technically’ we would have broken out of all 3 trendlines and the Algo’s will see this as a positive – causing buy orders to be created and inline supply to be cancelled – leaving a void in prices on the way up…. So, you see – that supply chain issue is also an issue for stocks.
Eco data today includes the usual suspects – Initial jobless claims of 210k, Cont. claims of 1.4 mil, then we will get Durable goods down 0.6%, Ex transports of +0.6%, Capital Goods Ordered of 0.5%, Capital Goods Shipped of 1%, and S&P Global US Manf PMI of 56.6. S&P Global US Services PMI of 56 – both expansionary numbers but trending lower…. remember – 50 is the neutral line and Sub 50 is contractionary mode….
European markets are all lower….as investors there are following the trio of high-profile meetings……NATO’s Secretary General Jens Stoltenberg announcing that the alliance is prepared to commit major increases in troops along the eastern borders. At 7 am – those markets all lower by about 0.3%.
Bitcoin is trading at $43k while Ethereum is at $3,100.
In the end – remember investing is not static, it is dynamic and it is long term. The issues surrounding the markets right now will fade over time…but will continue to cause volatility in the months ahead. Stick to your plan, have names that will provide stability. Big, boring and beautiful US megacap names will help protect your capital in an anxious time.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Cauliflower Risotto with Truffle Butter and Shaved Parmegiana
This is another great risotto dish that is easy to make and easy to present. For this you need:
Diced Spanish onion, olive oil, salted butter, 2 Cups Arborio rice, 1/2 Cup dry white wine, Cauliflower Florets Cut Into bite size pieces, warm chicken broth, s&p, truffle butter and shaved Parmegiana cheese.
Heat the olive oil and salted butter in a heavy saucepan over medium heat.
Add the onions and cook until tender – maybe 10 mins…then add the risotto and stir until well coated with the oil mixture. Add the wine and continue to cook until it is almost completely absorbed.
Next – begin by adding one ladle of the hot chicken broth, stirring frequently until it has been almost completely absorbed before adding more. Continue to cook the risotto in this manner adding the broth one ladle at a time until the rice cooks.
While the risotto is cooking, heat some more olive oil in a frying pan and add the cauliflower. Cook over medium low heat adding a tablespoon or two of broth until the cauliflower is tender and just beginning to turn a golden brown. Remove from the heat.
After cooking the risotto for about 25 mins, should be tender to the bite, stir in the cauliflower. Season with s &p to taste.
Once it is well mixed – serve the risotto into individual bowls, drizzling the top with the truffle oil or a spoonful of truffle butter. Garnish with shaved cheese and serve immediately.
Buon Appetito.
