Things you need to know –
– Janet Yellen tells everyone to ‘calm down – everything is good.’
– And it was Risk On again….
– Regional Banks surge…..after the beating…..
– Growth outpacing Value – suggesting investors are getting comfortable.
– Oil rallies after Russia cuts production and the Saudi’s threaten to cut
– Gold backs off after the Banking Crisis Surge…
– Try the Pasta & Cecce
Stocks continued to march higher on Tuesday – as the FED lock down began….Janet Yellen telling the American Bankers Association – that the fed has taken the proper steps to calm the markets and assuage any fear that the recent upheaval will lead to a full blow crisis…. and that the US banking system is strong and that the public should have confidence in the banking system. She also went onto say that she and they are considering how to insure all deposits at every bank in the country all the time….a feat that would be very very expensive and one that I think they already did (whether they meant it or not) – when they backstopped SVB, SBNY and FRC. They made it very clear that they stand ready to prevent depositor losses…at least for now…..do I expect that to remain – honestly NO, but for right now, yes.
By the end of the day – the Dow gained 316 pts or 1%, the S&P up 51 pts or 1.3%, the Nasdaq ahead by 185 pts or 1.6%, the Russell gained 32 pts or 1.8% and the Transports added 230 pts or +1.6%.
Eco data showed us that the Philly Fed Survey was fairly weak at -12.8 while Existing Home Sales shot higher by 14.5% vs. the expected +5%. – this as prices for existing home are coming down a bit and 30 yr. money has also come in a bit – currently at about 6.35% – 6.5% depending on credit score – and that is down from more than 7% only 3 weeks ago. Now – what is amazing is that 30 yr. rates are still high vs. what they have been, but the truth is that they are more ‘normal’ relative to the long term. Today’s eco data is all about the FOMC – period.
And then today at 2 pm we are all going to find out what happened…..Goldman will know before anyone else -because they will get the ‘nod’ ahead of the 2 pm hour….so that they can position themselves for when the news hits the tape – but let’s all pretend that doesn’t happen….…. remember –
It’s all about the messaging and the DOT plot today….How will JJ deliver the message and will investors/traders and algo’s believe him? Listen, focusing on inflation should be the mandate…..and he has made it clear that that is the mandate….It’s the circus that is trying to take over the narrative….Both Lonnie Musk and Billy Ackman – two of the wealthiest people in the world – calling on the FED to CUT rates by 50 bps…saying that that’s all it will take to restore confidence and bullishness to the markets….. Are you kidding me? Two of the wealthiest guys in the world – unaffected by how inflation is killing the majority of the country – are now giving the FED direction on how to combat inflation? Is it me?
And the Dot plot – Vegas odds have the FED revising the Dot plot higher! You see, if the FEDS revise it up – then that suggests that they are NOT sounding the alarm bells…and that they remain focused on inflation and that would be seen as strength, not weakness. Odds are that the plot will be revised to 5.375% up from 5.125%…..suggesting that there is a clear line between price stability vs. financial stability – Note what Christine Lagarde (ECB) did last week….moving rates by 50 bps and then telling the markets to stop whining. She had made it clear months ago and she followed thru on her clarity. Period.
As I mentioned at the top of the show – Stocks climbed, bonds tumbled as all of the coordinated actions by central banks around the world helped to resolve the most recent bank turmoil – leaving investors and traders assured that the battle is about inflation even as so many warn of the growing risk of a recession if they tighten too much. Look – there is no ‘risk of a recession’ – it is here, we have already entered it – it’s a 21st century ‘rolling’ recession – not hitting the whole economy at once, but hitting sector by sector which is why the paparazzi refuse to see it…. If the FED hikes by 25 bps today – then that brings the range to 4.75% – 5% – a level that they identified months ago as a possible terminal rate………
It was only 3 weeks when JJ was on capitol Hill – telling lawmakers in both houses that he needs to remain ‘open, fluid and aggressive’ and that we could see a 6% terminal rate if the data doesn’t respond…. Now if you look – you will see that the macro data has NOT changed significantly since then……. The only thing that changed was the collapse of SVB ignited by a few flamethrowers – in what they would like you to believe was due directly to FED policy while I think it was due to complete mismanagement in the C suite – and overly inappropriate exposure to long dated ‘unhedged’ bond portfolios that didn’t reflect their demographic. And to add salt to the wound – This morning we learn that the ‘bank’ also made $219 million worth of loans to ‘insiders’ last quarter – more than tripling the value of loans to insiders y/y….and it was a RECORD amount of dollar loans to insiders going back 20 yrs. Again – management at SVB apparently lacked any knowledge of how to run a bank while living under rock – because they had no idea the FED was raising rates – while they whined that it happened ‘so abruptly’.
I say that because – how can ANYONE say that the FED rate changes were a surprise or abrupt? Can you honestly tell me that they were unclear in their messaging? Can you honestly tell me that they hadn’t identified a path forward? Can you honestly tell me that they didn’t telegraph their concerns about how ‘transitory inflation’ became ‘embedded inflation’ requiring more aggressive action? We heard from nearly every single FOMC member and every one of them was singing the same song…. I guess what I am saying is it wasn’t unclear at all.
Now I still think it goes up from here because I don’t believe 5% is the terminal rate…I continue to believe that it is somewhere between 5.5% – 6% and THAT has also been telegraphed loudly.
Investors were excited….as they sold the boring stuff…..Utilities -2.8% and Consumer Staples – 0.8% and moved money into Regional banks – which have been the hardest hit of late were the biggest gainers…..FRC up 45%, PACW + 18%, WAL + 20%, KEY +10%, the KRE up 6%, BKX +5%. Away from that – Energy was the winner too…..the XLE + 3%, Financials, Consumer Discretionary up better than 2.5%, and as you might expect – as the market rallies and investors look for opportunities, AI – BOTZ +1.5%, Metals and Miners – XME +1.5%, Aerospace and Defense – ITA +0.8%, Airlines – JETS +3%, Disruptive Tech -ARKK +4%, Exploration and Production – XOP +3.4%.
The Growth trade (SPYG) is far outperforming the value trade (SPYV) for the year….up 6.3% vs. up 1.9% and this suggests that investors are getting more comfortable with the narrative and in fact are supportive of it…..The S&P just 40 pts away from where it was on March 3rd while the Nasdaq has regained all of the losses suffered since SVB imploded.
This morning US futures Dow futures are up 20, the S&P’s up 1, the Nasdaq down 14 and the Russell up 3 pts as the clock ticks….
Oil shot higher again on Tuesday…..up $1.80 or 2.8% as they tell us the banking fears subside….I say – the rise in oil is not a banking crisis issue….that’s just more noise….because you see when the bank crisis hit – they turned that into a collapse in demand for energy – because the global economy was gonna go off the rails, they turned it into less availability of capital from the banks – because of the crisis…. ….blah, blah, blah…..No, that was not the story….building inventories, rising output, new opportunities for drilling, rising Russian output, and weakening China demand all played a role to suggest weaker prices……and then suddenly when they take it down 18% – the Saudi’s wake up and say – Oh no……we might have to cut production at our next meeting in 2 weeks….our sweet spot for oil is $80/barrel not $60 and then we got some industry reports suggesting that inventories fell vs. the expectation as well as news from Russia that they were CUTTING production .and boom – up it goes….It closed last night at $69.50/barrel. Up 5 pts or 8% off the lows late last week.
This morning we got another industry report (API) and that one showed a surprise inventory build and BAM – down it goes…..not much – only 30 cts. but that will be the narrative today….how inventories are rising which must mean something…..
Gold – which traded up to $2031 in the immediate aftermath of the SVB & Credit Suisse debacle has also now come down in price as the crisis subsides…closing last night at $1958…….this morning gold is holding steady at $1962….as it awaits the 2 pm announcement. My sense is that we could see gold test the trendline at $1910/oz…unless we get another crisis at hand…. I think we are in the $1910/$2050 trading range.
And with all this excitement we saw treasuries prices decline sending yields up again as the anxiety subsides…. the 2 yr. yield now at 4.18% (up from 4.05%) and the 10 yr. is at 3.60% (up from 3.52%) yesterday. The 6-month Treasury is now yielding 4.68% up from 4.50%.
European markets are up across the board….between 0.3% – 0.6%. Again, the rally being credited to declining banking turmoil. The banking sector which got pummeled yesterday is in the lead again. UK inflation came in much stronger than expected at 10.4% in February up from 10.1% in January…and well above the 9.9% expectation. The BoE meets tomorrow and they are now expected to raise rates by 25 bps…recall – that last month – they weren’t so sure they were going to continue to raise – saying that they had beaten inflation and it was on its way out the door…apparently that is not the case….Capisce?
The S&P closed at 4002 up 51 pts…. It was a Risk ON day…. that was driven by the tone of the headlines and the expectation that investors are welcoming a 25 bp rate hike…..in fact – if they do nothing – I think it will turn into a RISK OFF day. We blasted up thru trendline resistance at 3955, we kissed resistance at 4012 and this morning it feels like it wants to kiss it again….and if it kisses back then – we will see the market rally again – and test the March high at 4080…..If it doesn’t kiss back – then expect a retreat for the S&P that could see us test support at 3955.
Much will depend on investor reaction to the FED and remember – everyone will hear what they want to hear…. So, when someone says ‘the sun is out’, someone else says ‘Yeah, but look at the clouds way over there!’. So ask yourself, Will the sun be out today or will it be cloudy?
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
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Pasta and Cecce Beans
This is a feel-good meal and is considered an Italian staple.
You need: Extra virgin olive oil, celery diced, onion diced, carrots diced, 4 cloves garlic chopped. 2 -16 ounce cans chickpeas drained, but don’t rinse, chicken stock, 1 cup canned plum tomatoes hand crushed, 1 Parmigiana rind, ½ pound small shell pasta or ditalini, elbows and s&p to taste
Instructions
Heat a large heavy pot to medium-low with the extra virgin olive oil and sauté the onions, celery, carrots and garlic until very soft (about 12 minutes).
Add the tomatoes, chickpeas, Parmigiana rind, chicken stock, and bring to a boil. Once boiling, lower the heat and simmer for 15 minutes.
Lower the heat to medium and crush some of the chickpeas by smashing them against the side of the pot with a wooden spoon or you can use an immersion blender – just don’t blend them all.
Add the pasta and cook until al dente. Keep an eye on the pot and stir very frequently to avoid sticking. The pasta will absorb much of the liquid so add more water or stock as needed. The final consistency is your call…..if you want soupy – then add more stock, if you want more thickness – add less stock. In any event – if you have leftovers –you will HAVE to add more stock the next day…because the pasta just sucks up the sauce.
Once the pasta has reached al dente turn off the heat and taste test. Adjust salt, pepper to taste.
Serve this with toasted garlic bread…. Offer grated cheese and drizzle your best extra virgin olive onto each bowl. Enjoy!
