Things you need to know ~
- FED Heads reiterate that rates are going up, no matter how much traders stamp their feet
- Every analyst trying to handicap Thursday’s CPI print and then the market reaction
- Investors await the start of earnings season
- Is the atmosphere so negative that it’s positive?
- Try the Chicken Piccata
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Stocks rocketed higher again on Monday morning and then failed as the sun set over Wall St…. this after San Fran’s Mary Daly said she expects the FED to raise rates ‘somewhere over 5% – making the comment that there is an argument for both a 25 bp move or a 50 bp move, while Atlanta’s Raffi Bostic said that the FED should raise rates above 5% and then hold them there for ‘a long time”. This fits right into the Minneapolis FED’s Neely Kashkari comments last week that he see rates at 5.4% before he is ready to call it….and it all falls in line with what JJ has been preaching….
Now these calls are in direct contrast to what some analysts and asset managers are saying….they are convinced that they know what the FED is going to do vs. what the FED is telling everyone they are going to do….You see –Fed Chair JJ Powell has been very clear….rates are on track to go higher, > 5% and remain higher for longer…..he has said it, he has charted it, he has repeated it, and he has hammered it home, yet somehow there is a ‘faction of the party’ that is in opposition to this policy….and that faction is making all kinds of noise – as they try to drive the bus – and stamp their feet until they get what they want….but you see, here is the issue.
They got what they wanted for 12 yrs.….(2009-2021) – zero rates, free money and a massive stimulus program and now we have stubborn inflation and a global economy that is about to go into a deeper recession than many are not prepared for….and let’s be clear – rates haven’t normalized yet, normal rates should be in the 5% range…
Rates are 4.25% and going higher, 3 month notes are paying you 4.44%, 2 yr. treasuries 4.2%. 12-month CD’s can get you 4.5%. There is now ‘competition’ for investor dollars as investors look to ride out this storm. And the idea that policy makers continue to push for higher rates is sending some analysts / strategists into a tailspin.
Stocks which had been up sharply in the morning suddenly turned after those comments in mid-day, leaving the Dow and S&P in negative territory while the Nasdaq, Russell and Transports ended their day off of the early morning highs. At 4 pm the Dow closed down 112 pts, the S&P off 3, the Nasdaq gained 66, the Russell up 3 and the Transports added 142.
The opposition party says that the FED’s narrative is wrong and that higher rates are ‘not happening’….rates might go to 4.75% and that’s it……Period…and then JJ comes out again and says – No, you are mistaken…we need to tame inflation and break the back of the strong labor market before the wage/price spiral inflation becomes completely embedded in the system…. and the only way to do that is to remain hawkish and aggressive – Period….yet the opposition continues to push and stamp their feet – hoping that if they scream loud enough, they will force the FED into the corner and force them to change the narrative…and this could go on for a while…It will be a test of wills….who will blink and who will not….
Now, we might just see who is about to blink on Thursday, when we get the latest CPI report, by now you know – it is expected to be better, CPI m/m and y/y is expected to be lower…and that plays directly into the opposition party’s hand, but if that is the case why is the FED remaining so aggressive? What is it that they see that the opposition does not? How can so many analysts say the FED is wrong? I mean members of the FED are the best and the brightest, aren’t they? Don’t they know what they are doing? Now, that’s a rhetorical question because clearly many might say that the FED does not know what they are doing since they are at least 70% responsible for the situation we are in – they left rates too low for too long when obvious signs of inflationary pressure were staring us all in the face…
Which leaves me to say – maybe the opposition is onto something? And maybe – the narrative will suddenly change on Thursday….and how funny will that be? Because if the FED changes the narrative – then you have to wonder – What is going on? Where is the credibility? The circus that occupied the House last week is now at the Federal Reserve Building!
Look, the market expects a 25 bp move on February 1st and then a 25 bp move in March with a pause…..after what we heard yesterday – the pause isn’t happening until the MAY meeting….when they move by another 25 bps…and that is what the FED heads are saying. And remember what JJ said last week –‘ Stop being so enthusiastic’… if stocks and bonds continue to move up, it will make the FED’s job that much more difficult forcing them to become even more hawkish…..did you forget that?
And then Mikey Wilson of MS fame came out with his weekly prognostications….saying that corporate profits estimates are still too high – this after they have been slashed and burned already ….leading him to say that the S&P could fall much lower than the 3500 level that the market is currently estimating as it expects a mild recession. Recall, Mikey is calling for S&P 3000 to be the low (which would suggest a deeper recession). And not to be outdone by MS – our friends at Goldy say that they expect profit margins to come under pressure and that is what will force stocks lower in the months ahead…Remember, they too are calling for S&P 3000. In any event with the CPI, earnings and the upcoming FED meeting just in front of us – do not expect volatility to go away anytime soon, nor should you change your investment plan because of the expected volatility. Keep putting money away, even if it’s just in a money market account for now. What you need to do is be able to take advantage of the opportunity that the chaos and volatility creates.
Ok, next –
Oil – continues to thrash around….it traded as high as $76.74 and as low as $73.47 on Monday. China re-opening causing the early morning surge, all while the higher rates story caused it to back off in the afternoon…In addition Goldman says that they see the Saudi’s restoring output – meaning adding supply back to the market and that also helped to send oil lower which is in direct contradiction to what the Saudi’s want. They want to see oil in the $80 range, not the $70 range. This morning oil is trading up 10 cts at $74.75/barrel.
Gold – is also all over the place….climbing as high as $1886 yesterday before settling in at $1876….as it struggles to challenge the $1900 level. Like I said last week – I think gold has a $2100 price target on it this year. This morning – Gold is trading up $2 at $1880/oz.
And the dollar index – DXY? That continues to retreat – helping commodities stabilize and move higher. This morning the dollar is trading at $103.06 and is down 10% from the last September highs…It has broken all 3 trendlines and appears to be at a place that might offer it some support…and with Fed head talking rates up – then I would expect the dollar to stabilize and test trendline resistance at $106.
This morning US futures are digesting yesterday’s action….…..Dow futures -60 pts, the S&P -3 pts, the Nasdaq is flat, and the Russell is down 2 pts. Investors await commentary from FED Chair Powell later today as he speaks at an event in Stockholm, Sweden. The world bank is expected to release their estimates on global economic conditions and the ECB governing council will be at a conference in Vienna, so expect some analysis by analysts about what we hear from all of these bankers. On Thursday – we will hear from both St Louis’s Jimmy Bullard and Richmond’s Tommy Barkin along with the start of earnings season…so there will be lots of noise to process.
Next week – kicks off the annual boondoggle – known as the World Economic Forum in Davos Switzerland…. This years theme: “Cooperation in a Fragmented World” – whatever that means….but expect all of the cable business news channels to be present interviewing all of the paparazzi in attendance. Just fyi – the markets don’t respond to the boondoggle at all, It is not a market moving event, but it is a place where many movers and shakers from CEO’s to central bankers to gov’t officials all gather, so expect all kinds of ‘tid bits’ of information concerning future guidance on a range of issues.
Eco data today includes nothing that is going to make a difference to anyone….so we can move on. Thursday begins the Beauty Pageant….Earnings season….so expect to hear more and more about who, what and where. Remember – the journal ran with this headline:
“Wall Street Sets Low Bar for Corporate Earnings Season” So now, let’s see what those corporate earnings say about the state of the US and global economy and if Mikey Wilson or Goldman Sachs are correct.
“Wall Street Sets Low Bar for Corporate Earnings Season” So now, let’s see what those corporate earnings say about the state of the US and global economy and if Mikey Wilson or Goldman Sachs are correct.
European markets are down across the board – with all markets lower by about 0.5%. Nothing specific other than the hawkish commentary yesterday by Daly and Bostic and today’s appearance by Powell in Sweden. Earnings in Europe also begins this week, so investors await the start of that event across the continent.
The S&P closed the day at 3892 down 3 pts after trading as high as 3950 and as low as 3890. Now while we did pierce the 50 dma trendline at 3905, we failed to hold and ended the day below it once again – leaving us caught between the 50 and the 100 dma’s…. After the continued hawkish commentary yesterday and the CPI report due out on Thursday – I suspect that the markets will churn as the clock ticks. It will be very interesting to see how investors interpret the expected weaker data in light of all the recent commentary. Remember, the tone can change on a dime (and usually does) and if there is any indication that the current FED policy will force the pendulum to swing too far to the right then watch as stocks come under pressure.
In any event – you have to ask yourself – is the tone so negative that its positive? Hmmm – now there’s something to consider….
Now, after the first 5 trading days of the new year – the indexes are all up between 1.1% and nearly 2% and that is supposed to mean that stocks will have an up year…Yeah, how’d that work out last year? Not so good….so don’t go making your investment plans on an old wives’ tale. Stick to the plan, design a well balanced portfolio and take advantage of the sale going on in the better names.
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
Chicken Piccata – Delish…
For this you need: Thin sliced chicken cutlets, capers (rinsed), 2 large lemons cut into slices, fresh parsley minced, 4 cloves garlic sliced, 1 cup flour, chicken stock, 1/4 cup dry white wine, butter, olive oil, s&p.
Mix the flour with the s&p in an aluminum dish. Dredge chicken cutlets in the flour and set aside on wax paper. Save the flour for use later in the recipe.
Heat a large sauté pan to medium heat for 2-3 minutes, then add a splash of olive oil and a ¼ stick of butter. When hot, sear the cutlets in the pan until just done (approximately 2-3 minutes total) then set aside on a plate. Repeat until you have cooked all the chicken – using a more olive oil and butter as required for each batch.
After all the chicken pieces are cooked turn heat to low and add the garlic into pan. Sauté for 1 minute then add the capers and cook for 1 minute more.
Next – add the wine, chicken stock, and lemon slices to the pan and turn heat to high. With a wooden spoon scrape the bottom of the pan – bring to a boil for 2 mins or so….long enough for the alcohol to burn off.
Next, turn the heat down to medium. Add ½ stick of butter and melt. Now add a tsp of the flour to the sauce. Using a whisk, stir the sauce to emulsify. Taste test and adjust salt, pepper, add more lemon juice IF required.
When satisfied with the taste of the sauce, Put the chicken back in the pan and gently coat all pieces. Cook for 2-3 minutes to warm through. Turn off heat and add the parsley. Serve immediately on warmed dishes with roasted potatoes and a large mixed salad.
Buon Appetito
