Things you need to know
- Stocks continue to thrash around
- Geo-political issues driving the action
- Can the FED avoid a recession?
- The West continues to come down hard on Vlad
- Try the Spring Minestrone
Stocks continue to ricochet around…. Down on Monday, Up Tuesday, down on Wednesday, Up Thursday and this morning stocks are essentially flat as they try to digest the moves this week – and prepare for another trading day. The S&P is now at the highest level since February 9th….and the volatility index has fallen by 40% in the last 3 weeks – taking back to the low 20’s…all while Russia continues to bomb Ukraine and the FED (and other central banks) begin the process of taking away the pacifier…...
Remember, the geo-political stuff can cause short term chaos but rarely affects long term value, while the monetary stuff is the stuff you need to listen for the long term. And right now – Jay has convinced the markets that he can fight to control inflation WITHOUT derailing the economy….and that is interesting since the latest poll shows that 56% of respondents think that inflation is OUT OF CONTROL…and that the FED is tone deaf. In any event – investors are giving him the benefit of the doubt….
The Dow rose 350 pts or 1%, the S&P is up 64 pts or 1.4%, the Nasdaq gained 270 pts or 2%, the Russell up 24 pts or 1.1% and the Transports gaining 116 pts or 0.7%. 10 Yr. Treasuries ended the day yielding 2.36% while oil gave up 3% or $3.60 barrel to end the day at $111.30 while Gold rose 1% or $20/oz to end the day at $1,963.
Tech showing the biggest gains as investors and algo’s sift through the mess…the SOXX (iShares Semi-conductor ETF) galloped ahead adding 4.9% or $22/share to its value…. (See below). The Tech etf – XLK rising 2.6% – outperforming the broader market significantly. Basic Materials – XLB in second place adding 2% while Communications – XLC was up 1.6%. Healthcare – XLV and Utilities – XLU rounding out the 1% gainers while everything else rose less than 1%. The value trade – SPYV up 1% while Growth – SPYG gained 1.8% and again that makes sense…. all while the short hedges lost value – with the PSQ (Nasdaq short) fell by 2.2%! – remember the Nasdaq rose by 2%. (See how that works).
Yesterday’s moves came on the back of a bunch of mixed data points…. Initial jobless claims falling to lows not seen since 1969, which is bullish but is expected to continue to put upward pressure on wages that will continue to fuel the ‘wage/price inflation spiral reminiscent of the late 1970’s. Durable goods plunged by 2.2% vs. the expected decrease of 0.6% and Durable Goods EX transports fell by 0.6% vs. the expected increase of 0.6% – and this is considered bearish….but let’s shine a bit of light on why this could be the case – Durable goods are thing that have a ‘shelf life’ They are not purchased very often and they tend to last for at least 3 + yrs.…so think about things like appliances, cars, furniture, consumer electronics, tools, sporting goods, etc.….and so why would Durable Goods orders have fallen while the economy is supposed to be so ‘hot’? Because there is a ‘supply chain’ issue and there is a ‘semi-conductor’ issue….Look – you have to wait at least 6 months if you want to buy a car (think of all the semi-conductors that a car needs), you have to wait 4 months for a new dishwasher, or refrigerator or stove (again think semi-conductors), you can’t find a piece of furniture in the Ethan Allen that you can take home – but if you order it – you can expect to get it in 6 months as well. (that is not a semi-conductor, that is a supply chain issue) So my sense is that people are choosing to stick with what they got…..No need to upgrade the car after 3 yrs., or not going to renovate my kitchen when I can’t plan for a finish date, or not going to renovate my bath when I’m not sure how long it will take to get a toilet….So, while Durable Goods were down – they are not down because the economy is in distress – but when that happens, then watch what Durable Goods do!
And I say distress – because the FED has to force us into a recession in order to stop the advance of rising prices – and when they do the economy will be in distress – when? Maybe late ‘22 or early ’23 – that is not what is important – what is important is that it IS coming…. Look – with inflation rising and expected to continue to rise – rates will have to rise as well…and we know this – the question is will they rise to the 2.5% (which is still historically low) that they tell us, or will they have to go higher to fight the inflation that many expect? I guess you know which camp I am in… – If inflation is running at 9+% and rates are at 2.75% – then we are all losing 6.25% on our money which won’t make sense for very long…..Rates will have to rise to combat this loss in buying power….Again – when inflation was running at 13% in the late 70’s early 80’s – the FED jacked rates up to 21% to kill it….
Now – I am not saying that rates will go to 21% at all…but 2.75%? That will do nothing to solve the problem…. I see rates going beyond what they tell us….and that is what the market is missing….but remember – the market is a pricing mechanism that looks out 4 – 6 months….which takes us to July – September 2022…..and right now that time frame looks ‘ok’ because the Fed has convinced everyone that inflation is set to ‘ebb’ and come down….and with rates only expected to be up by 1% in that period….the market appears to be trying to stabilize….but the question is – What if the data continues to show rising inflation that is not responding to FED moves? Well, then that’s where the rubber meets the road….and that is where the FED will have to make another decision about how aggressive they will need to be….and believe me, they will make sure to tell you their every move as they attempt to control the reaction in the markets. In any event – investors are giving him the benefit of the doubt…. (For now).
I am not sure how the FED can maneuver a soft landing after all of the stimulus they pumped into the system. Think of a pendulum that swings far to the left and then far to the right before it settles down in the center. The FED overshot stimulus (think swing left) leaving rates at zero for much longer than necessary causing asset prices to surge and now they will most likely overshoot the tightening (swing right) having to raise rates aggressively while rolling the $9 trillion off the balance sheet and that will cause asset prices to ‘adjust’. Notice I said adjust and not crash! That was by design…. Crash ignites fear and panic…. adjust just means adjust….
This morning US futures are up – the Dow is up 70 pts the S&P’s up 10, the Nasdaq up 30 and the Russell is up 5 pts. I think today and yesterday was the news out of Europe and the G7, the European Council and NATO in terms of what to do with Vlad….It appears as if the civilized world will continue to come down hard on him (as they should) but in the end – I don’t think any of this will cause him to change his course – not now – it’s way to late – he has to continue to destroy Ukraine – he needs a way out that allows him to save face, to ‘get something’ in order for him to even consider backing off.
Eco data today includes Pending Home sales m/m – exp of 1% while Pending Home sales y/y are expected to be down 2.2%. We will also get sentiment and inflation expectations…. U of Michigan 1 yr. inflation prediction stands at 5.4% while 5 – 10 yr. (which I think is a useless data point) suggests a rate of 3%. It’s useless because who can predict out 5 – 10 yrs.…come one…. Let’s be serious.
European markets are also a big higher…. all up about 0.5% across the board. The action in Europe being driven by the same factors…. The geo-political crisis, the global response and the tightening monetary policy by central banks.
Crypto’s continue to advance …. Bitcoin is trading at $44,500 while Ethereum is at $3,150.
Like I said yesterday there are two key data points on the S&P to watch. 4420 and 4560….and last night we closed at 4520 – so 4560 is only 40 pts away or less than 1% – this will be key to what happens next…if we kiss it and then pierce it – then the algo’s will kick in on the buy side, they will cancel supply on the sell side – leaving a vacuum causing prices to surge up and challenge the early January highs of 4800! Stay tuned….
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 mega cap names will help protect your capital in an anxious time.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Spring Minestone
For this you need: Zucchini, carrots, onion, celery, potatoes, green beans, plum tomatoes, baby spinach leaves, olive oil, s&p, broth – (Chicken, beef or vegetable – whichever you prefer), Ditalini pasta, fresh basil and fresh grated parmegiana cheese.
So, this is a great dish – easy to make, not heavy, gluten free, always helpful when you are trying to diet. – Fills you up without feeling stuffed.
Begin by heating up some olive oil in a large pot – add the sliced carrots, celery, onion – sauté for 5 mins or so. Now add the beans – and potatoes –diced into bite size pieces. Allow to cook for another 3 mins or so.
Now take the plum tomatoes – cut in half and take the core (seeds) out. Dice into bite size pieces – add to the pot. Now add the broth – add enough that you have covered everything in the pot by about an inch or so. Season with s&p – cover and reduce heat to simmer. Allow to cook for an hour. Keep your eyes on it. Add more broth if needed.
Now – Bring another pot of salted water to a rolling boil and add the ditalini. – only use about half a box of ditalini – any more will suck up the soup. (You can always add more broth or even water if it sucks it up.) Add the pasta and cook for 6 mins or so…
Add the spinach to the soup and stir. Once the pasta has cooked for 6 mins – using a slotted spoon – add the pasta to the soup – saving the pasta water as you may need a ladle or two.
Remove from heat – add the chopped basil, taste for seasoning and let it cool a bit.
Serve in bowls with a drizzle of olive oil and fresh grated cheese. If the pasta sucks up the soup – feel free to add a ladle or two of the pasta water to keep it soupy.
Buon Appetito.
