Things you need to know
- TSLA blows the roof off the house
- Bill Ackman likes to Buy High and Sell Low – records a $400 mill loss on NFLX
- Big, Boring is the NEW SEXY!
- Treasury’s tease 3% and fail – FED meets on May 3rd-4th.
- Oil is at $102/barrel, but JPM suggests it will be $185 by year end
- Try the Pan Seared/Oven Roasted Flank Steak
It was a mixed day…the Dow rising by 250 pts, the Russell adding 8 pts, the Transports up by 260 pts…. all while the S&P fell by 3 pts and the Nasdaq lower by 170 pts. You can blame NFLX for the losses on the Nasdaq and the weakness in the S&P – as it is a member of both of those indexes and with yesterday’s beat down – the stock lost 35% or $123/sh it was not a good day for the ‘sexy hi-growth names. And Cathie Wood’s ARKK ETF is the very definition of that pain…. that ETF lost another 6% – taking it down 41% on the year…. Names in that portfolio include: ROKU, ZM, TDOC, COIN, SQ, etc…and all you have to do is look at those ytd performance figures to assess the damage. – But in the end – why is anyone surprised? Haven’t we been concerned about valuations in a rising rate environment?
Economic data showed that existing home sales fell by 2.7% m/m while last month’s decline was revised to show an even weaker performance. In addition, Mortgage Apps which have been under pressure with rising rates – showed a decline of 5% week over week – continuing a trend that suggests a correction may be coming in the very hot housing sector.
Earnings – well – that is very exciting…of the 67 S&P 500 companies that have reported – 78% of those (52) have beaten their estimates. And we are seeing a real diversion in responses by investors to these results. NFLX – which delivered a disastrous report now puts NFLX down by 70% from its high on November 17th, 2021 – so talk of a stock split is no longer necessary! And as expected – a range of analysts found it necessary to take their ‘buy’ ratings on the stock down to ‘neutral’ at best…. Only one firm came with an outright ‘sell’ rating and they have a $235 target on it….and that is great – it closed at $226 – and looks weaker again this morning.
And Billy Ackman reveals that he blew out his $3 billion NFLX purchase to record a $400 million loss….kind of reminds us of his Valient trade a few years ago…that saw a 96% loss on his position….But – he is still kicking…so…..
TSLA – is the complete polar opposite of what we just heard from NFLX – Musk reported ‘record’ profits – $3.3 billion in just 3 months -despite inflationary concerns….deliveries up 70% and could have been higher if we didn’t have the supply chain issues…and even so, Lonnie expects to produce 60% more cars this year vs. last and he expects a $23 billion ‘bonus’ as a result of this report – giving him more TWTR ammunition….…..the stock fell 5% during the trading day, ending at $977/sh and then rallied in the after hours session after the report – rising nearly $80 or 6.5% to $1040/sh…and this morning it is quoted a bit higher still.
And now the new ‘sexy’ –
IBM – which many have seen as dead money for a while – surprised investors – reporting inline earnings – while reporting larger gains in revenues…. credited to their hybrid cloud offerings. Investors loved it and took the stock up 7% on the day. Morgan Stanley offers this assessment – “The outlook reflects improving execution and a constructive IT market backdrop, where software services spend should remain resilient, even in a challenged environment.” This leaves IBM up 4.5% on the year and add in their 4.7% dividend yield and it is off to the races.
Next up is another American stalwart – PG +2.7% on the day, add in the 2.2% dividend yield and that falls into the ‘value’ camp that I have been talking about. Better sales growth and better ‘organic revenue growth’ – a measure that strips out some items – rising 10% vs. the expected increase of 6.2%. In addition, the maker of Charmin toilet paper raised their full year ‘organic revenue growth’ number from 5% to 7%. Now full year earnings are expected to grow at 3% due to increased costs (think inflation) and foreign exchange challenges. In any event it falls into that big, beautiful, yet boring core holdings…. that offers stability and growth in an uncertain time.
And just now – AT&T reports and beats across both the top and bottom lines…$0.77 cts/sh vs the estimate of $0.59 cts/sh. HBO Max added 12.8 mil new subs, revs up, and future guidance is strong….and the dividend yield of 5.7% is not bad – again think the ‘value camp’. There is a recurring theme here….
And like I have been saying – while the indexes suggest weakness in the broader market – money is not fleeing; money is just moving around as it looks for the new opportunity – and boring is the new ‘sexy.’ Coal names, fertilizer names, energy names, consumer staple names, essential stock names like COST, MSFT, WM, XOM, UNH, ADP, JNJ, BMY, ADM, IP, VZ etc are all the ‘new sexy.’
10 yr. treasury yields ended a bit lower as investors continue to digest the most recent push higher…. On Monday – we kissed 3% and backed off. This morning 10 yr. yields are hovering around 2.86%….and with the FOMC (Fed Open Market Committee) meeting only one week away – investors are preparing for that 50-bps move. Listen over the next two days to see if we hear any more talk of a possible 75 bps move (as revealed by Jimmy B) because next week is the ‘quiet period’ we will not hear from any of the committee members ahead of the meeting scheduled for May 3 – 4th. And like I said yesterday – if that were a real possibility for a 75-bps hike at this meeting – the FED would have been leaking this from every angle to make sure that it is out there in the public square so that they can point to the fact that this was not a surprise. So, I am betting on the 50 bps increase but leaving the door wide open to a larger increase at the June meeting….
Economic data today includes the Philly Fed Survey, Initial Jobless Claims and Cont Claims. Tomorrow brings us Manufacturing and Services PMI along with the Chicago and Dallas Fed surveys.
Oil – continues to churn in line here at about $102/barrel…. Europe is said to stop all Russian oil imports by next month – JPM thinks that if that happens – we can see oil surge to $185/barrel…. let us hope JPM is wrong….
This morning US futures are …Dow up 221, S&P’s up 35, Nasdaq down 145 and the Russell up 18. Treasury prices are a bit lower and that is sending yields a bit higher, but no one will pay attention to that yet, because they are more focused on the earnings……. and that is helping to calm the psyche and send stocks higher….…..but don’t get lulled into anything just yet….let’s pierce 3% on the 10 yr. and see what happens then – In addition let’s see what the FED has to say on May 4th….what language will be changed and how does that impact the tone of the message?
Earnings today DOW, DHR, ALK & T (all reported and all beat). Still to come – NUE, FCX, BX, NEE, PM TSCO……
European markets are all higher…. 10 yr. bund yields (German Bonds) rose by 7 bps. Investors are betting on 3 rate increases this year – totaling 75 bps while the ECB begins a more restrictive policy set that is intended to slow the swift pace of inflation. Today they will get the Eurozone CPI. What will that show – recall German PPI the other day revealed a 30% increase at the producer level……At 7 am – markets across the board are up about 1.5% with the exception of the UK – which is flat.
The S&P closed the day at 4459…. leaving it still between 2 trendlines…4415 (support) and 4496 (resistance). I would expect the markets to continue to thrash around as 10 yr. treasury’s tease and kiss 3%. Again – like I said yesterday – one of two thing is going to happen when we do…. either the administration and their talking heads will tell us how great 3% is for the economy and that there is nothing to worry about – hoping to calm markets OR a kiss at 3% will ignite a firestorm of selling as the reality of higher interest rates takes a further toll on the economic recovery. Either way – there is always an opportunity for those that are paying attention and do not discount the definition of the ‘new sexy’!
Bitcoin is creeping higher and is trading at $42k while Ethereum is trading at $3150.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Pan Seared/Oven Roasted Flank Steak w/Red Wine Shallot Sauce
This is easy to make and will present like you spent hours in preparation.
Cost: $50 to feed a family of 4
For this you need: A Flank Steak, butter, garlic, s&p, Red Wine, Shallots, Balsamic Vinegar (a good thick one) and olive oil.
Begin by melting a stick of butter – now season the steak with s&p, add chopped garlic and massage. Now pour the melted butter onto the meat and massage that as well. Cover and set aside. (Now you can use olive oil – but trust me – the butter is so much better!)
In a small pan – melt more butter (1/2 stick) with some olive oil – so that the butter does not burn. Now toss in sliced shallots – like 4 shallots in total – sauté for 5 mins or so. Now add in ¾ cup of red wine (your choice) and 2 tblsp of the nice thick balsamic vinegar. Bring to a boil and then turn to simmer. Reduce by half – will only take a couple of min. Turn off the heat and whisk in one more tblsp of butter. (Can never have enough butter)
Preheat the oven to 400 degrees.
In a large ‘oven proof’ cast iron skillet – add a touch of olive oil and heat up. When ready – add the flank steak to the pan and sear on both sides – 3 – 4 mins per side. Now put it in the oven for 5 – 8 mins (depending on thickness). Remove and cover with tin foil – let rest for another 5 mins.
Prepare you to serve platter with fresh kale – When ready – slice the flank steak across the grain and arrange on the platter with the kale. Looks good, no? Now you can spoon the red wine shallot sauce over it all or you can keep it on the side and let your guests serve themselves. Serve this dish with smashed roasted potatoes and a lg mixed salad.
Buon Appetito.
