Things you need to know –
– Stocks churned as they found support at the trendline.
– FED Governor Philly Jefferson suggests the road ahead is going to be tough
– Oil backs off yesterday and rallies today.
– Gold rallies yesterday and backs off today.
– If you ‘stuck’ try the Bran Muffins!
Here is my appearance with Liz Claman yesterday on The Claman Countdown
https://video.foxbusiness.com/v/6321332961112#sp=show-clips
Stocks moved up on Monday…..taking off right out of the gate as investors/traders and algo’s reconsidered the ridiculous move lower from Friday….and while the indexes did not end the day at the highs – the did take back some of last week’s losses…Yesterday’s macro data showed a weaker than expected Durable Goods orders coming in at -4.5% down from +5.6% last month…but – if you take the CORE Durable goods (Ex Transports) it rose by 0.7% vs. the -0.2% last month….So, that’s confusing….Pending Home Sales m/m were up a whopping 8.1% (surprising nearly everyone) while y/y rates plunged by 22.4% on top of last months plunge of 34.3%. Again, while a bit confusing, neither data point was the real focus.
By the end of the day the Dow gained 72 pts or 0.2%, the S&P added 12 pts or 0.3%, the Nasdaq zoomed ahead by 72 pts or 0.6%, the Russell gained 6 or 0.3% and the Transports was the day’s winner up 200 pts or 1.3%.
Industrials, Consumer Discretionary, Tech, Communications, Energy, Basic Materials, Real Estate, Housing, Retail, Airlines, Semi’s, Disruptive Tech, Metals and Miners, Cybersecurity, Solar & Renewable Energy names were all winners, loses included the ‘safety stocks’ Utilities, Financials, Consumer Staples, Healthcare, – which is just a bit curious to me – along with Defense, and Artificial Intelligence to name just a few.
News in the M&A (Mergers and Acquisitions) heated up as PFE is reported to be in talks to take over Seagen (SGEN) for more than $30 billion and that helped to send the Biotech’s higher – XBI + 0.9%.
Look – stocks remain volatile because we have gone from TINA (There is No Alternative) to TIAA (There IS An Alternative) as rising treasury and bond yields are now posing a real challenge for stocks. Investors can now get 5+% for short term money and considering how markets performed last year and all the uncertainty this year – we are seeing money move into that space sacrificing the equity markets and that will continue to be part of the story this year. Both the 6 month and 1 yr. T-Bill are yielding 5.1% plus while the 3 month and 2 yr. treasuries are yielding ~ 4.8%. Considering that both stocks and bonds suffered double digit losses last year; 5% for ‘guaranteed returns and safety of principle’ is appealing for the short term. Remember though, – inflation is still running at 6+% so don’t go crazy….You’re still losing 1% against inflation.
While the most recent eco data has caused anxiety for some, the sell offs appear to be short lived, the sense is that investors are taking it all in stride. Now the question is – while rates are expected to go higher will they or won’t they derail the US and global economy? That is the million dollar question….the March FOMC meeting is expected to see rates rise by another 25 bps…..but will the March CPI And PPI cause the FED to rethink that? Talk of a 50 bps increase is now out there in the GPS (Global Public Square) and while that is a possibility – it is not one that I see yet. It would cause a ‘panic selloff’ and be an admission that they have lost control. I suspect that if the March data remains strong – then the 50 bps move begins more of a reality for the May FOMC discussion – as there will be ‘more time’ to assuage the markets (a month and half) vs. 7 days to try and get everyone on board. CPI and PPI due out on 3/14 & 3/15 while the FOMC meeting is on 3/21 – 3/22. – the May FOMC meeting is on May 2 -3rd.
Now yesterday while I said that there were no FED heads scheduled to speak to the media – There was FED Governor Philly Jefferson that spoke at Harvard University yesterday and since he was the only FED head speaking anywhere – the focus turned to what he had to say to a bunch of students….and he said something very clear.
“Inflation for services remains stubbornly high. I am under no illusion that it’s going to be easy to get the inflation rate back down to 2%. There is a lot to resolve on the part of the FOMC and I am committed to doing what it takes.”
In his speech – he did not define his views on where the terminal rate has to go, but he made it clear that it is NOT 4.5% or 5% and that is what caused the markets to give up the early gains – he also interestingly re-affirmed the FED’s 2% inflation target…….……Which brings up another question – and one that is casually being introduced into the narrative and opposes that very fact….….Currently the CPI target is 2% – and there has been lots of conversation about how much damage will we have to do to get there? And can we (really) get there? And that brings up the idea that the FED will move the ‘goal posts’ – why not? It makes the whole thing easier. I suspect that by the summer – we will hear rumblings of the CPI target going to 3%…..with all kinds of reasons why it is necessary, blah, blah, blah. Yeah, it’s necessary because they won’t be able to get it to 2% without a lot of pain…and remember – 2024 is coming and that is a Presidential Election year…Just sayin’.
Oil – tossed and turned yesterday – falling by 0.7% to end the day at $75.76 – but not to worry – this morning it is up by 1.6% at $77….because of ‘hopes of a solid economic rebound in China’. Chinese Factory Orders which are due out this week – is expected to show a rise and that suggests that the Chinese economy is recovering – driving demand for oil. Get it? And don’t forget the whole Saudi position…..$80/barrel is their sweet spot….
Gold rose by $7 yesterday – taking it to $1824 – as the dollar backed off a bit only to give it all back today – now down $8 at $1816/oz. – Why? More hawkish FED commentary (think Philly Jefferson) and that will cause the dollar to go higher. Now if the hawkish talk turns dovish, then we can expect the dollar to retreat and gold to rally – this is NOT what I expect to happen at all right now. Remember – here are the levels to watch….if the dollar continues to push up then expect gold and other precious metals to push lower. $1800 is the key level to watch for gold – currently trading at $1816 while $106.50 is the level to watch for the dollar index – currently trading at $104.66.
Remember – the market is repricing the risk of higher rates and a slowing economy….….Expectations for a terminal (neutral) rate are now anywhere between 5.5% – 6% – with some suggesting that it might need to go even higher…..and while it is still early to make that call – it has to be part of the analysis when putting money to work.
Eco data today includes Wholesale and Retail Inventories, FHFA Housing Price Index and the conference board consumer confidence number of 108.5. None of these data points will drive the action…..the focus remains on the FED and on what’s next.
US futures are UP small this morning….as investors appear to be shrugging off the latest surge in bond yields as inflation remains an issue. Dow futures are +45 pts, the S&P’s up 6, the Nasdaq is up 20 and the Russell is ahead by 4. Now, Citibank tells us that investors are becoming more ‘pessimistic’ – building larger positions in ‘short bets’ + $3 billion – while taking some money off the table in equities ($5 billion) putting that money into short duration treasuries….Ok….The only difference I would say is that I keep my longs (all mega-cap names – that will weather the storm – across a range of industries that are good divvy payers and consistently grow those divvy’s), and buy the downside protection. Keeping cash or treasuries just depends on your outlook and risk profile. If you expect to use it in the near term – just keep the cash – if you are planning on waiting then parking it in treasuries is preferred.
European markets are all slightly higher…. Inflation in France and Spain came in hotter than expected for February…..and that’s not good…..ECB now expected to take rates to 4% before considering anything close to a pause. ECB President Christine Lagarde has also been very clear about this….as inflation remains stubbornly high.
The S&P ended the day at 3982 up 12 pts. Recall that yesterday I pointed out that we were sitting right on the trendline support at 3970 and that this was a KEY level to watch.. Would investors hold the line or not? Yesterday, they did….Let’s see if it continues today…… My sense is that we will see some consolidation for stocks this week as we digest the most recent data and digest the latest FED speak.
Next week we will get the all-important NFP report….and that is expected to show a gain of 200k new jobs…. recall last month showed an increase of 517k jobs – much of that credited to ‘seasonally adjusted’ data.
Remember, the market wants clarity…. The question is – can we really ever get it? The answer – no….so create the plan that works for you and then stick to it. Investing is dynamic not static – it’s not a set it and forget it type of trade – it’s constantly changing – you need to be fluid….not crazy, just fluid enough to take advantage of the opportunities that are created by the chaos.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
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Bran Muffins
This is a classic Kellogg’s recipe – you can find it on the side of the box…. but it is always good when you are feeling a bit ‘stuck’ – and right now – it feels a bit stuck…. So, try the warm bran muffins with a large glass of milk.
For this you need: 1 1/2 c of flour, 2 tsp of baking powder, 1/4 cup of sugar, 1/4 tsp salt, 2 cups of Kellogg’s All Bran, 1 1/4 cup of whole milk, 1 beaten egg, 1/4 cup of veg oil, raisins (you can also mix it up with banana’s & walnuts, and I add in one stick of melted butter…. (of course, I do!).
Preheat oven to 400 degrees.
Combine all the dry ingredients and set aside.
Add milk to the bran cereal and let it sit for a couple of mins…. then add egg and oil.
In the mixer add the cereal and then slowly add the dry ingredients – mixing well. Now add in the melted butter and continue to mix for another min or so.
Now using a tablespoon – fill the muffin pan (that you have greased). Bang on the counter to remove any air pockets and then place in oven and bake for 20 mins or so. Serve these immediately when warm with more butter on the table. Include a large glass of cold milk……
Buon Appetito.
