Things you need to know 

• Stocks remain weak ahead of tomorrow’s inflation print
• Dollar keeps kissing new highs pushing commodities lower
• Treasury prices rise sending yields lower
• Earnings angst sending stocks lower
• Amazon Prime Day Extravaganza cutting prices across the board – TGT, WMT, M and others follow suit…. some cutting prices by 70%!
• Try the Grilled Pork Chops with Sweet Vinegar Peppers

So, stocks began the week – weaker….as investors and traders ready themselves for another ‘hot’ inflation read…. coupled with the start of the beauty pageant – otherwise known as the earnings season…. 10 yr. treasuries rose in prices sending its yield plummeting to finish the day once again on the south side of 3%….The dollar index – DXY – rose by 19 cts sending it to another new high of $108.21…..and that helped to put downward pressure on oil – down $1.20 or 1.14%  and other commodities….gold, wheat, lean hogs, silver, palladium, copper, lumber etc.…recall the inverse relationship between the dollar and commodities…dollar strength usually means commodity weakness and dollar weakness translates into commodity strength.  (Not 100% of the time depending on what else is happening to screw that relationship up).

In any event – by the closing bell the Dow gave up 165 pts or 0.5%, the S&P fell 45 pts or 1.15%, the Nasdaq got smacked – falling 263 pts or 2.25%, the Russell fell 38 pts or 2.1% and the Transports gave up 155 pts or 1.1%. 

Now while all of this was happening  –  Twitter was coming undone at the seams……recall that Lonnie announced that he is walking away from his Twitter bid….and yesterday I commented that this announcement stunned the board of directors at Twitter along with some of the arb traders that were betting on this deal – I was quickly corrected by a very dear friend (also an arb trader) who told me that they were NOT surprised – that the options market had been forecasting this for weeks now…so in fact – I was misinformed  ….so, I stand corrected, ….in any event – the news was not well received and the stock promptly sold off by 11% or $4.17/sh to end the day at $32.65 – still probably $7 – $10 dollars overpriced if not more…..Because who in fact wants it?  Apparently, no one else is standing in line to take it over…and the $54.20 price tag – that is now a pipedream, no matter that both sides have lawyered up…. you can hear the register go ‘CHING, CHING, CHING….’   Oh, it is good to be a lawyer these days….so much to do and so many people to sue…. I cannot wait for the Netflix version of events….

Add in the uncertainty around what the FED is going to do at month end and what profits will or will not be along with speculation that we may see companies cut forecasts significantly and you have an environment ripe for a sell off……Please do not say this is a surprise….it should not be….

It is a battle between street analysts and street strategists….- you see the analysts are telling the strategists to ‘back off’ that everything is fine…..that corporate America is resilient and able to pass on higher costs to the consumer all while the strategists – myself included – are not buying that narrative….consumers are growing weary…..and disgusted as the cost of living continues to rise.

Now to be clear – the market has sold off hard this year…but that was all about the FED and pricing in changes to monetary policy – what the market has not done is price in declining earnings estimates for the balance of this year and next.  So, if we start to see that happen over the next 4 weeks – then it would be natural for us to see stocks fall further as investors/traders and algo’s price in that new dynamic …. Just sayin’ – get ready for more potholes ahead.

By now, you know that Wednesday’s CPI report is expected to show a m/m rate of +1.1% (which translates into a 13.2% annual run rate)  while the official y/y rate is supposed to be closer to 9% (that’s because it’s lagging)…..and this will serve to solidify the FED’s base case of another ‘jumbo’ increase….I think that if the CPI is that ‘hot’ then they are going to make the case for a 100 bps increase….so hold onto your hat….and tighten your belt….

Yesterday – WH Press Secretary Karine Jean-Pierre told us to expect a ‘highly elevated’ CPI report -but then quickly reversed course and said, ‘but do not worry – it is already out of date because of falling energy prices.’  Expect to hear all about how the CPI report is essentially irrelevant because as she pointed out – it’s ‘backward looking’….Hmmmmm, now that’s an interesting take on it…How come it wasn’t backward looking a year ago when the CPI was coming in at 5% in May 2021 up from 4.2% in April 2021….or when it came in at 5.4% for June 2021 up from 5% in May?  It was not backwards looking then….

This morning – US futures are down, the Dow down 165 pts, the S&P’s off by 23, the Nasdaq lower by 65 pts and the Russell off by 10 pts as we head into what will surely be an interesting week. There is no eco data today – but investors and traders are bracing for the rest of the week as it is becoming more apparent that the FED will have to keep pushing rates higher in order to tame run-away inflation – and that is expected to push us deeper into a recession.  The question is – which issue IS the plot and which issues ARE the sub-plot…. Are investors more worried about the FED and inflation, the recession or it is more about a downside risk to earnings…?  Oh, boy – it is a tangled web we weave……

And remember – the ECB (European Central Bank) has not even begun moving on rates yet…. they are still negative, and investors are now pricing in what happens to the European economy when the ECB starts to move up…. And that is expected to be later this month as well….

European stocks are also lower…. with all the major markets across the zone down about 0.50%.  There are a number of issues causing today’s weakness….….Concern over the coming US inflation data along with the start of earnings season, The energy supply crisis exacerbated by the start of the shutdown of the Nord Stream gas pipeline to Europe (for maintenance) leaving many to wonder if Vlad will extend the shutdown to punish the Europeans just as winter approaches (the Europeans do not have enough natural gas to make it thru the winter)  and finally the economic weakness that is putting pressure on the Euro –  all weighing on stocks.

Now if there is a silver lining here – it is the fact that the Euro is now trading on parity with the US dollar – which means that the dollar and the Euro are trading 1:1…. making it less expensive for Americans to take a summer vacation across the Eurozone.  So – go out and buy your tickets! Spend money to help support the allies!

The S&P closed at 3854 yesterday – falling 45 pts….and if stocks remain under pressure – then look for support somewhere between 3760/3800….…. Remember, I think we could be on our way of testing 3600 again as we move thru the next couple of weeks.  CPI, PPI, and the start of earnings all keeping investors on the edge….10-year treasuries prices are UP again this morning and that is sending yields lower – currently at 2.92%…. Oil is under pressure – down another 2.4% at $101.52 as the dollar notches another new high – up 53 cts at $108.54.

And today begins the 2 day extravaganza – it’s Amazon Prime Days 2022 – where everything is ON SALE…(or at least that is what they tell us) and that is causing other retailers to offer mid-summer SALE DAYS as well…with some retailers trying to unload inventory by cutting prices by 50% – 70%….Hmmm…feels like what they did to stocks…but the issue here how people will go running INTO TGT or WMT or AMZN to BUY this crap while they run OUT of the stock market as  stocks go even deeper into SALE
territory…..…..I mean it is illogical…..but, it’s a prime example of how the ‘herd mentality’ takes hold of investors…Remember what Uncle Warren says – “Be greedy when others are fearful..”  Capisce?

Stay focused….  continue to put money away in tax advantaged accounts….
Take Good Care
KP

Chief Market Strategist
kpolcari@slatestone.com

Grilled Pork Chops w/Sweet Vinegar Peppers

This is an easy dish and not one that you might think of readily… but make it easy on yourself… for this you will need only 4 things really. You need center cut bone-in thick pork chops, olive oil, sweet vinegar peppers (you can use hot if you prefer), s&p and chopped scallions.

Preheat the grill.

Rub the chops with olive oil, salt, and pepper – just enough to massage the chops and prepare them for the grill. Place chops on grill and sear for about 3 mins then turn over and continue cooking for another 4 or so mins on reduced heat. Do not burn them.

While the chops are cooking – open the jar of sweet vinegar peppers, slice in half and sauté quickly with some of the juice in a sauté pan – really just to warm them up – you are not “cooking them.”

Now remove the chops from the grill – place on a warmed plate. Top with the sweet vinegar peppers.  Serve a lg salad – maybe mixed – romaine, some spinach, Boston bib, sliced red onions, and tomatoes. Dress with fresh lemon/olive oil.
This dish should cost you $40 to feed a family of 4.

Buon Appetito.