Things you need to know
- Stocks rallied hard on Tuesday and are set to give it back on Wednesday
- Treasury yields approach 3.3% and stall
- JJ Powell is on Capitol Hill today and tomorrow – markets await
- UK inflation hits a record high of 9.1%! – Germany, France and the EZ up next
- Try the Croatian Baked/Broiled Chicken Pieces
Stocks rallied hard on Monday – offering investors a ‘lifeline’ in the ongoing storm that has seen trillions of $’s circle and go down the drain…..…the Dow up 640 pts or 2.1%, the S&P up 90 pts or 2.45%, the Nasdaq gained 270 pts or 2.5%, the Russell up 28 pts or 1.7% and the Transports ahead by 195 pts or 1.5% – this was all very exciting -yet you have to remember that the indexes got crushed last week and have gotten crushed this year – all down more than 20% ytd with the exception of the Dow industrials – which is down 16%.
Why the rally? No reason other than we were in a very short term oversold position as anxious sellers began waving a white flag last week (this usually signals defeat) leaving buyers in control – setting prices (by bidding lower) that forced nervous sellers to choke……and choke they did – leaving stocks, bonds and crypto’s in a weakened position – all the indexes suffering the worst losses in two years. This as investors remained paralyzed by the growing fear that the FED and all of its members will plunge the US into a deep recession…. – sellers were exhausted, and buyers were looking for bargains…. Period. There was nothing new that would have ignited the rally, Nothing….nothing has changed at all…..the recession is still coming, inflation remains an issue, interest rates are rising (maybe faster than what the market expects), the cost of housing continues to surge, food prices go up daily and the cost of gasoline at the pump is pushing all-time highs.
Take note – JJ (Powell – Fed Chair) and his cohort of big investment banks have been telling us about how he (they) would navigate a ‘soft landing’ that he (they) ‘got this’, that ‘there is no evidence of a coming recession’ has now turned into ‘how to navigate a hard landing’, they ‘don’t’ have it and the recession IS coming…..the question now is – How hard will the landing be and how deep will the recession be? As you can imagine – they are still working on that narrative – but expect to hear a bit more today and tomorrow when JJ appears on Capitol Hill before the Senate Finance Committee (today) and the House Banking Committee (tomorrow). Expect all of the ‘smart logic’ algo’s to be scanning the headlines as they too try to decipher the mess that JJ is calling his testimony. In fact- they will get a ‘pre-look’ at the testimony – JJ must release it to the committee – BEFORE he testifies – so the algo’s will have a head start on the interpretation. And it appears that they don’t like what they are seeing – US futures are down between 1.6% and 2.2%. (Erasing all of yesterday’s 1.6% – 2% gains). European markets (which just opened) are also all down better than 2%.
Remember – smart logic algo’s are NOT that smart – they cannot ‘hear’ the language, they cannot ‘hear’ the tone, they cannot ‘hear’ the intent of the word in a sentence. All they do is ‘see’ the words and then make a judgment as to its meaning in that particular sentence – which is usually wrong 50% of the time…..and that causes all kinds of volatility as the algo’s generate buy or sell orders based on what they think the words mean – which in the end also usually creates both short term and long term opportunities for savvy and strong investors.
It’s like when you talk about the latest fishing boat (that might cost upwards of $700k) in front of your iPhone – next thing you know – you are getting ads for that exact boat EVERY TIME you open your internet browser…..because the algo ‘assumes’ that since you are talking about it (as your iPhone does listen to you) – you MUST want to buy it – so let’s slam the guy with ads for this boat! Or to be more mainstream – you buy a pair of Dunning golf shorts ($89) and a matching golf shirt ($69) online and then every time you open a website there are suddenly all kinds of ads for Dunning golf shorts and shirts – the algo’s have ‘made a decision’ based on behavior and the same is true with stocks – they make a decision based on past behavior and the words they ‘see’ in the headline and story.
Every sector was in the green led by Energy – XLE up 4%, Tech – XLK, Consumer Discretionary – XLY, and Healthcare – XLV all up more than 2%, Industrials – XLI, Financials – XLF, Consumer Staples – XLP and Real Estate – XLRE all up better than 1.5% with Communications – XLC and Basic Materials – XLB up less than 1%.
The triple levered Direxion S&P long ETF – SPXL gaining 7.3% while the contra side triple levered Direxion S&P Short ETF – SPXS lost 7.3%. Retailers XRT gained 0.9%, Semi’s – SMH gaining 2.5%, and coal stocks like BTU surged ahead by 7+% after the Europeans are forced to convert to coal to generate power to replace the lost Russian oil…. (I have been pointing this out for months now and re-iterated that point yesterday).
And the airlines – JETS did advance by 0.8% but they should be ashamed of themselves – they should give EVERY single penny back that we gave them during the pandemic to ‘remain solvent,’ fully engaged and ready to fly…. because they are NOT flying at all. By now you have heard of thousands of flight cancellations over this past weekend alone…. the issue – NOT enough STAFF…no pilots, no co-pilots, and no stewards (flight attendants). And the idea that the ‘weather’ caused flight cancellations is almost laughable – since when does rain cause the country to shut down air travel? And the flights that do exist – have surged in cost….a one way flight from PBI to LGA or EWR on a Thursday evening was quoted at $800 by JetBlue and United…I didn’t bother to check Delta – because I’m sure that are even more……but hey – inflation isn’t an issue and surging jet fuel prices is just a figment of our imagination……
The airlines have cut the number of flights and are using smaller planes (less seats available forces prices UP) but they give you a wipey to make sure your seat and seatback are ‘covid free’. The idea that we do not have enough pilots is comical – that job pays upwards of $150k/yr. and the planes basically fly themselves…. who is kidding who? Do not even get me started. And where is Transportation Secretary Petey Buttigieg during all of this? Well, he is driving from DC to NY because HIS flight got cancelled too.
Treasury yields rose – to end the day yielding 3.27%...as talk of an even more aggressive FED was all the rage……Richmond Fed President Tommy Barkin telling the National Assoc of Business Economics –
“We are in a situation where inflation is high, it is broad based, it is persistent, and rates are still WELL below normal…. The spirit is, you want to get back to where you want to go as fast as you can without breaking anything.”
They are setting us up…for that 100-bps potential rate hike in July…. because it is clear that inflation is NOT peaking, it is NOT subsiding, and it is going higher. They will need to get it out into the global public square again…they will need to make a 100 bps move part of the conversation over the next 4 weeks so that they have cover….so that they can point to it and say – What surprise?
Oil – ended the day at $110.65 – up 1% as demand is strong….and fuel supplies remain tight. This morning oil is under pressure – down 4.5% at $104.50/barrel on a complete reversal of fortune…. forget demand and tight supplies…its all about the coming recession that the FED is about to create as they raise rates aggressively in a slowing economy and how that recession will crush demand.
Joey is also set to announce also that he is ‘temporarily suspending the 18.4 cts a gallon federal tax on gasoline to try and bring the cost down – which will only ignite demand for more gas….it will not create more supply – What is Brian Deese – Director of the National Economic Council to the President – or anyone else in the administration thinking? This is a SUPPLY issue – Joey, Jen Granholm – Energy Secretary and Petey – Transportation Secretary all need to look at current energy policies and go back to college and re-take Econ 101 to understand the difference between supply and demand and what drives prices.
In any event – oil has now broken it is trendline but should find plenty of support right in here. – Let us reiterate – demand for energy is NOT going away, renewables are not there yet, rolling blackouts across the nation this summer are expected – CA to suffer the most – but hey – you guys voted for it…you made your bed, now sleep in it.
As I noted – US futures are giving it all back this morning….as the algo’s got a chance to re-think yesterday’s move….and with JJ on Capitol Hill today – there will be plenty to chew on.
Eco data today includes ONLY mortgage apps….and that should be a pre-cursor for New Home Sales due out on Friday…. which are expected to be down 0.2% and with the cost of owning a home rising everyday – it will be interesting to see how this plays out.
European markets are all lower…taking back the gains from Monday and Tuesday as sentiment shifts and reverts back to heightened fears over surging inflation across the Eurozone and slowing economic growth that will be exacerbated by a more aggressive ECB (European Central Bank) that is already way behind the curve. UK inflation was reported this morning and it is running at a stunning 9.1% – soaring food and energy prices behind this latest move as the cost to live approaches ‘crisis levels. Just wait until we get reports for Germany, France, and the Eurozone as a whole!
In the end – it is all about how the FED and the administration will navigate this. It is about how the ECB, and the BoE (Bank of England) will navigate this. It is about how central banks from the major developed nations will handle this. Because no retail investor is making long term investment decisions based on what the central banks of the ‘developing world’ are doing. The risk of a global ‘crash landing’ is rising every day – no matter what they tell you as concerns are rising that the central banks will go too far and push the economy into a deeper recession than many have been expecting.
The S&P closed at 3764 up 90 pts…. after gapping UP on the opening….and trading as high as 3779….3800 right now represents resistance while 3600 remains the target on the downside. Recall that both GS and MS have much lower targets on the S&P before this is over…. Expect to hear lots of chatter today and tomorrow based on Powell’s testimony……Listen to his tone, listen to the questions asked by our esteemed elected leaders – they will reveal a lot about what they understand and do not’ understand.
Take Good Care.
Chief Market Strategist
kpolcari@slatestone.com
Croatian Style Baked/Broiled Chicken Parts
Not sure what makes this ‘Croatian’ but let us go with it. This is so simple…you need: Legs and Thighs, Olive oil, garlic, s&p, oregano, chicken broth and fresh lemon juice.
Wash the chicken and pat dry – then salt and set aside.
Preheat the oven to 350.
Next – in a blender – add the garlic and all the seasonings, broth, and lemon juice. Blend well. Now – pour over the chicken pieces and let it marinate for 20 mins.
Now cover tightly and place in the oven. Bake for 75 – 90 mins. Then uncover and turn on the broiler – allow the chicken to turn nice and golden brown – like a nice tan. Remove and serve with a classic Greek salad.
This dish should cost you about $30 to feed a family of 4.
Buon Appetito
