Things you need to know
- And the hits keep coming
- The S&P breaches 4,062 – putting 3800- in the line of sight
- The VIX surges, 10 yr. treasury yields surge, and the dollar is making new highs
- Mega Cap multinationals are the last ones to fall as capitulation wreaks havoc
- Bitcoin and Ethereum adding to the angst as prices collapse
- Try the Angry Lobster
The hits keep coming….and stocks extend losses as a wave of risk aversion continues to wash over the globe……it is now 5 weeks in a row that equity prices continue to collapse…. investors trying to gauge where the bottom is….as the Fed continues down the path of raising rates to combat ‘out of control inflation’. And it appears as if we are entering the 6th down week…. Global markets continue to fall as the new week begins….
At 4 pm on Friday – the Dow gave up 100 pts or 0.3%, the S&P lost 24 pts or 0.6%, the Nasdaq fell 175 pts or 1.4%, the Russell gave back 30 pts or 1.7% and the Transports fell 185 pts or 1.2%. The 10 Yield ended the week yielding 3.12% – and this morning is yielding 3.184% – solidly above 3% and likely not going back there anytime soon….In fact – I’m willing to bet – Treasury Yields will not go back under 3% in my lifetime……30 yr. mortgage rates are now kissing 5.6% and only going higher and that is starting to put pressure on housing – ..both existing and new…..I am still in the camp that we will see 7%+ 30 yr. mortgages by year end………and that is up from the 3% rate in January. (a 100% jump in rates).
Let’s be clear right now….the volatility in the markets is not because of Russia/Ukraine, it is not about covid – even as China continues to lock down whole cities, it is not about earnings – they are expected to slow…..….they are all convenient subplots….to the main plot – which is the recession story and the role of the FED in delivering it…..
Now, The FED continues to run with the argument that not only can they raise rates and reduce the $9 trillion balance sheet but they can do this and engineer a ‘soft landing’…and that is where the story falls apart…..What investors are telling you is that they do not believe for one second that the FED cannot engineer a soft landing at all….so rather than continue making that the narrative – let’s just get on with it. Stop telling the markets that ‘you got this’ and tell them that ‘we missed it and the path to stabilization is going to be rough’……
Recall that months ago – when I advanced the argument that when the FED stopped being the buyer of last resort in the bond market – there would be a void in price demand – anyone interested in buying bonds were no longer going to be forced to compete with the FED – paying prices the FED was willing to pay to control interest rates…. ….and now that the FED has stopped buying bonds (at least stopped buying them at the rate they were) there is a vacuum in bids – institutional buyers dropping their bids to lower levels – because they are not competing with the FED. So as sellers hit lower bids – prices fall and yields surge….and this is only the beginning…. because we have only had 2 rate hikes – and the market is pricing in at least 5 more this year with more next year. ….and every time the FED raises rates or hints at the next move – the bids in the bond market continue to move lower – and the cycle continues…. lower prices/higher yields…. Capisce? It is Econ 101 – Supply and Demand. And that story has only begun to be told….
What the bond market is trying to figure out now is – will the FED ‘actively consider’ raising interest rates 75 bps at the next meeting…. because that is what the market is telling you……. Fed Fund futures are now pricing in a 60% chance of a 75 bps hike in June – when last week – they were only pricing in 50 bps hikes….which is why the market rallied hard on Wednesday after JJ’s press conference (otherwise known as a relief rally or dead cat bounce)…..he spoke out of both ends – saying A but meaning B (recall I told you to beware of that as well). And another truth is that 2 more 50 bps increases will not do anything to slow down inflation. (And btw – one 75 bps increase will not do it either…. but it will send a very clear message that the FED recognizes that they are behind the 8 ball – something that we all know – it’s like the big secret – It’s the elephant in the room….).
At 9 pm Sunday evening – futures were getting slammed and this morning at 6 am we find the Dow -525 pts, the S&P’s down 80, the Nasdaq down 310 and the Russell down 40 pts. Asian markets all closed lower, and European markets are off to a negative start as well.
Remember – good stocks get taken down when they start throwing everything out the window….Large cap multinationals suffer because it is easy to sell them and raise cash and is usually the final step before complete capitulation….….the VIX is up 11% this morning and likely going higher and as it does prices will go lower….But again – I must ask – Why is anyone surprised at this selloff?
Word that both Ford Motor and another unnamed seller are selling blocks of 8 million and 13 million shares of Rivian Automotive as the lockup period for that stock expired yesterday putting pressure on an already anxious market. Goldman is representing the Ford trade while JPM is representing the other unnamed seller…. both trades expected to take place at $26.80 – a price 6.6% below Friday’s close of $28.79. Recall that Rivian (the electric car company) went public on November 10th with all kinds of pomp and circumstance – then promptly traded to a high of $179.47…. before falling 83% to Friday’s closing price. Ford still owns 94 million shares of Rivian – in case your counting…. Not sure who the other seller is- but expect to find out before the day is over.
Next up – UBER – joins HOOD and FB – as the focus turns to ‘cutting costs and overhead’……saying there has been a ‘seismic shift’ in the market and that they need to react accordingly…..Oh and that being hired by UBER is now considered a ‘privilege’…..as he tries to change the tone….UBER like so many other disruptors has gotten whacked and is now down 61% from March 2021…..
There is no economic data today that will drive the tone….but Wednesday does bring us the April CPI (consumer price index) report…..Now the CPI m/m number is expected to rise by 0.2% and 0.4% ex food and energy, both LESS than last month – Which makes zero sense and y/y is expected to rise by 8.1% and 6% ex food and energy – again less than last month.. Now why does this not make sense? Because prices are surging everywhere except in used cars….last month’s PPI report came in well ahead of the expectations and that means that CPI HAS to increase….it’s illogical for it not to increase….so this idea that CPI is going to be lower than last month is convenient for the FED narrative – but is difficult to believe as a truth. I am just sayin…. a rising PPI always causes the CPI to rise…. because rising producer prices are always passed onto the consumer (in today’s environment – manufacturers are NOT eating rising input prices – not a chance) …. Period. That is Econ 201. But – it is a gov’t report, and they will tell us what they want to tell us….and if they tell us that prices are weakening – I would ask – Where? And do not tell me used cars….
European markets are all lower as the inflation story IS the story…. And while the gov’ts will point to the war in Ukraine – do not get sidelined…. it is a sub-plot. ……Monetary policy remains the key focus…. And will be the driver for global markets until such time that investors are satisfied that they have repriced the risk. At 6:15 am -European markets are all down better than 1.3%.
Oil is down 2% or $2.15/barrel at $107.57….and this is because they are trying to tell us that that traders and investors are concerned about a global economic slowdown – recession fears and continued China lockdowns….…..all this as the EU (European Union) is about to vote on a Russian oil ban….- which will take supply off the market not add supply to the market. So right now – the markets remain skittish, the action confused as chaos reigns…. Look for technical support at the trendline – $102.64.
The S&P closed the day at 4123 after testing a low of 4,067 – just 5 pts shy of the lows (4,062) created on May 2nd. And that will be the level to watch …..A breach of that level – which happened early this morning has now set the algo’s on fire and ignited a new round of sell orders…..buyers will NOT stand in the way – why should they…..and that doesn’t mean everyone is giving up – not at all, it just means that the market is working and pricing in risk….so wherever it takes us – is where it takes us…You have to decide where you are on this ride. This breach now puts 3800 in the line of site….and that represents a 20% decline off of the high achieved on January 4th taking the S&P into BEAR market territory….
This is a big week for FED speakers…. Minneapolis FED President Neely Khashkari is set to appear on CNBC Squawk box this morning…. Cleveland’s Loretta Mester, Atlanta’s Raphy Bostic, NY’s Johny Williams and Fed Governor Chris Waller are all expected to speak at different times tomorrow. Bostic to speak again on Wednesday and on Thursday – we will hear from San Fran’s Mary Daly. Do I need to tell you what the narrative will be?
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Angry Lobster
For this you need: 1 (2 pound) whole Maine lobster, cup olive oil, minced garlic, chopped fresh basil, lemon zest, red chili flakes, minced red onion, and lemon juice.
You have to prepare the lobster for marinating – so to do so you will need to break the claws off the body and crack them open. Then slit the underside of the body. Mix all of the ingredients together to make a nice marinade…. put the lobster in a large bowl and pour the marinade and let sit in the fridge for at least 4 hrs.
Light the grill…. let it get nice and hot
Now when ready – remove the lobster – and place on the grill – …. just an fyi…a good rule of thumb for grilling lobster – is about 7 min/lb. So, a 2 pounder would cook for 7 mins and then 7 mins…capisce?
When cooked – remove and serve with corn on the cob and cole slaw.
Buon Appetito.
