Things you need to know
- Lael Brainard makes history- becomes a Hawk after living life as a Dove
- Algo’s did not like what they heard and boom – they shoot first and ask questions later.
- The Dow was the winner – falling less than 1% while the others got slammed (think large cap VALUE – Hello?)
- Oil retreats on economic slowdown worries…. Bonds continue to fall – sending yields surging
- Twitter ‘finds a spot’ for Lonnie on their board
- Try the Pork Loin w/a scrumptious peach sauce
The lights flickered and then went dark………the band begins to play…….and the curtain rises…. not a sound from anyone in the theater……. the spotlight shining a single beam of light onto center stage……and then…
Enter stage left – Fed Governor Lael Brainard – formerly a ‘Dove’ but yesterday was a ‘Hawk’….Addressing the crowd – she says that she expects the FED to raise rates more aggressively and runoff the $9 trillion balance sheet at a quicker pace than originally thought in order to bring US monetary policy to a more ‘neutral position’ – a position that has yet to be defined by ANYONE….promising to tighten further as needed…..
In fact – here was her opening line…–
“I think we can all absolutely agree inflation is too high and bringing inflation down is of paramount importance. To do so – the FED will raise rates methodically and as soon as next month, begin to reduce its $9 trillion balance sheet, quickly arriving at a considerably more rapid pace of runoff than the last time the FED shrank its holdings. The rapid portfolio reductions will contribute to monetary policy tightening over and above the expected increases in the policy rate reflected in market pricing and the Committee’s Summary Economic Projections.”
So, what exactly does that mean? Let us be clear – first off – Strap In…. Next – rates will rise at a faster pace than what the market is expecting, and the balance sheet reduction will happen even faster. The tone of her comments were anything but Dovish – and that caught markets off guard because Lael was always the soft spoken one, one of the more dovish, guarded policymakers….…so her words are important…investors/traders and algo’s were listening intently – especially because today we will get the FOMC mins from the last meeting and they are to detail what the FED think is….but now we know what the FED think is….and so stocks took it on the chin.
By the closing bell – the Dow was the clear winner (in percentage terms) – falling only 280 pts or 0.8%, the S&P’s fell 57 pts or 1.26%, the Nasdaq off 329 pts or 2.25%, the Russell gave back 50 pts or 2.4% and the Transports continued their nosedive…losing 435 pts or 2.8%……giving back 10% in the last 3 days……breaching every trendline and ending the day 300 pts below its 200 dma…..leaving it only 700 pts or 4.5% away from the February lows….
Only 3 groups ended up on the day….and they are all considered defensive/value play….…. Utilities +0.6%, Consumer Staples +0.1% and Healthcare +0.21%. – all things that you NEED no matter what the economy is doing….
And all of the names/groups that rallied on the back of the Lonnie Musk news on Monday were the first ones to go down the tube…In fact – in yesterday’s note I said
“As you can imagine –it was the most beaten-up sectors that were the winners (on Monday) …… Tech, Consumer Discretionary, Communications, Retail, Housing and Innovation technology.
Do you see the pattern? All of the money went into the most beaten-up sectors as Lonnie Musk lit the fuse and created all kinds of excitement for traders……– no matter that the yield curve remains inverted, and the FED is about to get very aggressive…. but do not think that this is long term money just yet…it is trading money…. when the mood turns sour – these will also be the sectors that take it on the chin.”
Well, the mood turned sour and boy oh boy did they take it on the chin! Those same groups getting slammed – giving back all of their Monday gains and then some…. – Tech – 2.1%, Consumer Discretionary – 2.4%, Communications – 1.3%, Retail – 2%, Housing – 2% and Innovation technology- 6%.
The bond market fell sending yields surging – the 2’s up 9 bps, the 5’s up 14 bps, the 10’s up 15 bps and the 30’s up 11 bps….as of last night the 5’s and 10’s remain inverted and the 5’s and 30’s remain inverted….which continues to add to the confusion. There are those that are saying the inversion means nothing and that that metric is no longer reliable because of all the stimulus in the system…so pay no attention to it….Ok – I’m not paying attention – but that does not mean we aren’t going into a recession….we discussed this….if rates go to where they should go then we are going into a recession – if they try to hold rates at artificially low levels then maybe all we’ll get is ‘stagflation’ and not a recession.
Look the last time inflation was running at 10% was in 1980 – actually it was 13.5%, interest rates were 20% on their way to 21%…The cause? Well, it was the inflationary spiral that was brought on by rising oil prices (check), government overspending (check) and rising wages (check again!). Today inflation is running at 10% (and some say even higher), Oil has spiked, the gov’t has overspent AND the FED has unleashed the printing presses all while wages are rising (check, check and check!) and interest rates are where? Fed funds are at 0.25%- 0.5% and the 10 yr. is at 2.54%…. Does anyone else see this as an issue? Am I the only one……??? Come on Man! We are WAAAAAYYYY behind the 8 ball……who is kidding who?
Oh, but this time it is different – I forgot!
Oil – which has also been psychotic rallied higher in the early morning and then collapsed falling 1.8% to $101.40 on the day but falling 3.5% from the intraday high after traders types took in the latest commentary from the FED….because a downturn in the economy (brought on by rising rates) will be a cause for demand destruction – as unemployment rises and the cost of living surges….…… And remember – many oil analysts on the street have much higher year end prices for oil…. which can change, but right now – it is what it is.
Stocks around the world are all lower this morning –Dow futures down 140 pts, the S&P’s down 21 pts, the Nasdaq down 105 pts and the Russell off 10 pts. Bonds and sovereign debt around the world are in selloff mode taking stocks with them…..….In Asia – Hong Kong and Japan took it the hardest – falling 1.9% and 1.6% respectively….In Europe – markets across the region are all down better than 1% at 5 am…..Investors sending stocks lower after Brainard’s comments while we all wait for the FOMC minutes….and any new news concerning new Russian sanctions. Rate sensitive sectors getting hit the hardest….
Economic data today is all about the FOMC mins….and that happens at 2 pm….
Bitcoin is trading at $46k and Ethereum is at $3,500.
The S&P closed at 4525 down 58 pts…. after trading in a 4514/4593 range… We busted right thru what was perceived as support at 4540 – the intermediate 100 dma trendline and appear ready to test 4490 – or the long term 200 dma trendline….Now to be clear – the S&P is nowhere near testing the lows of January (4220) or February (4130)….but you must be prepared for a sudden shift in thinking..
Earnings start in one week…. with JPM, BLK, BBBY & DAL hitting the runway… (remember that JPM is the first DOW name to report so that is marked as the official start to the season). Jamie Dimon – JPM CEO already warned us on Monday of billion-dollar losses due to the chaos in Russia – who else will surprise investors and what will the forward guidance look like? Look – earnings are expected to be up 3.5% y/y while revenues grew by 9.5% y/y that is great, that’s history…the question is what they will be in the 2nd 3rd and 4th quarters.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Pork Loin with Peach Sauce
Had this last night – soooo good and so easy to make…. Just season the loin, massage it with a bit of olive oil – sear it on the stove and then place in a roasting pan – uncovered in a 350-degree oven for 40 mins or so….
For this you need the Pork Tenderloin s&p olive oil, adobo (if you have it). It is a Spanish seasoning you can find it with all of the other seasonings in your favorite grocer.
For the sauce you need – 1 can of sliced peaches with the juice, honey, peach jam (preserves).
Preheat the oven to 350 degrees… season the pork with s&p and adobo – put a bit of olive oil on it and massage it all over…making sure you work it….
In a large pot that will accommodate the loin,….heat up just a bit of olive oil and when it nice and hot, add the loin – you can hear it sizzle as it sears on one side, then the other and then the other…..transfer to the Pyrex roasting dish and place in the center rack in the oven – uncovered.
Now in a sauté pan – add the can of peaches with the juice…2 tbsp. of honey and 2 tablespoons of the peach jam…turn the heat to hi to get it going and then turn it down to med so the peaches warm thru and thru…maybe the whole thing takes 10 mins – be careful not to burn it…….now – in a blender or food processor – blend the peaches and juice…do not liquefy, just blend so that there is still some chunk left in the peaches…. When there is about 10 mins left for the pork – pour the peach sauce over the loin and put it back in the over – remove after 10 mins (total of 40 mins for the pork – capisce?).
Let it rest for 5 mins and then slice it at an angle and then present on a platter with the peach sauce poured over it. Yummmmm! Serve this with a side of your favorite salad and a glass of wine…this meal should cost you no more than $30 (without the wine) and it will feed a family of 4.
Buon Appetito.
