Things you need to know.
*I am travelling in Europe – spotty internet access…This morning I come to you from Montenegro*
Stocks continued their move higher last week….…as investors/traders and algo’s digested the latest round of earnings against the more recent round of economic data. On Friday – we all witnessed the final collapse of First Republic Bank – a bank taken down by hysteria created by all of those VC guys that sh*t their pants after they realized that the little world they had created at Silicon Valley Bank had now spread beyond that one bank causing all kinds of angst and devastation to the regional bank industry leaving a once ‘high flyer’ floundering to catch its breath….but in the end – unable to do so…..FRC entered into official receivership on Friday evening…April 28th 2023.
At the end of the day – the Dow had gained 270 pts or 0.8%, the S&P up 35 pts or 0.8%, the Nasdaq up 85 pts or 0.7%, the Russell gained 18 pts or 1% while the Transports added 225 pts or 1.6%.
Amazon – which reported earnings on Thursday evening beat the estimate but did send up a warning flag – pointing to weaker cloud services – which caused some investors to hit the sell button (cloud services only grew by 16% – down from 37%) causing that stock to come under pressure – by 4 pm traders/algo’s had taken 4% – out of it in a move I think is way overdone…. we discussed this on my Friday morning appearance with Stuart Varney on Fox Business (while the stock was only off 1.5%) …. You can find that here.
https://video.foxbusiness.com/v/6326389481112
But Amazon did not detail the drama during the day… Earnings from XOM (+1.2%), INTC (+4.0%), CVX (1% ), NYCB (16.3%) & SAIA (14.5%) helped stoke the move higher in stocks and then news that the FED is calling for broad changes in banking rules in the wake of the SVB, and now FRC sent the algo’s into a frenzy at about 11 am….that news sent stocks off their highs and back to the unchanged level as the algo’s tried to decipher what it all meant….– the failure of the regulators and the failure of the San Fran Fed were the main plots of a report released earlier that morning….and now the response was MORE REGULATION vs. regulators doing their job…. In any event – stocks traded back to unchanged and then found their footing once again only to end the day right near the highs….
In the end – the takeaway is that earnings have not been as bad as expected and by the time this is over, we may only see earnings decline of 4% vs. the 6.2% estimate…despite the many widespread macroeconomic issues.
Investors are playing it safe and while stocks did move higher – it was not with much conviction…. Many investors remain in a wait and see mode until we get the latest FED data this week. We are expected to see a 25 bp hike on Wednesday, the question now is – will the FED hint at leaving the door wide open for a June hike (yes) or will they suggest that lower rates are coming? Something you know I do not believe is going to happen…. again – how can they justify raising rates due to stubborn inflation only to CUT rates in mid-summer to stimulate an already overheated economy? Makes zero sense…so I am not in that camp at all. My sense is that they will take rates to 5.25% – 5.5% by June (which means a June hike) and then hold them there thru at least year end.
By the end of the day – we saw 10 yr. treasury yields drop to 3.45%, the 2 yr. slipped to 4% while the 3- and 6-month bills are yielding 5.08% and 5.03% respectively. The idea that treasury yields fell, suggests that bond traders think that the FED hikes and pauses on Wednesday and then hints at potential CUTS later in the year….Remember – the only reason to cut would be because the economy is going off the edge….we would have to see unemployment surge past 6% for the economy to go off the edge…something that does not appear to be happening YET…..Unemployment is currently 3.5% and Friday’s report is expected to show it tick up to 3.6%….still 2.4% away from ‘the edge’.
Oil – which has been under pressure (filling that gap created on April 3rd at $75.80) did find support at $74.50 – and ended the day up 2.5% at $76.78/barrel. Good news from XOM and CVX helped to boost sentiment and suggest that they are ‘riding the wave of demand’ and there is also data that suggests US demand is rising and we know that demand from China and India is rising, never mind nearly every other country in the world….…. According to the EIA – US production is about 12.5 mill bpd, while demand is 20 mil bpd. This morning oil is trading at $76.20 – leaving it in between the short and intermediate term trendlines…the line to watch will be the long term trendline at $79.10 – a push up and thru that will see oil challenge the most recent highs at $84.50. A failure here will see us test last week’s low of $74.05.
Gold ended the week at $1,999/oz…holding the line as it awaits the next FED move…. Remember – if they hike and pause – then Gold moves up, but if they hike and suggest another hike in June, then we could see gold continue to struggle and fall back. A failure to hold $1,995 could see gold test trendline support at $1,956/oz. This morning – gold is trading lower – down $8 at $1,990 and this suggests that the gold traders are expecting both a May and June hike…Sit tight…. we are 72 hours away….
Eco data today includes S&P US Manufacturing PMI – of 50.4….leaving it in expansionary territory…..Construction Spending +0.1% m/m…Later in the week – we will get Factory Orders, Durable Goods Orders, ADP Employment (+150k), ISM Services PMI and Friday will bring us the all-important NFP Report (which is also expected to show an increase of 180k jobs)….but Wednesday will be the day to watch -because that is when we get the FOMC rate decision and the press conference that may suggest what the next moves will be.
This morning – at 4 am – European time – US futures are flat…. Overnight trading in Asia was thin, BoJ kept its monetary policy unchanged… – markets in Hong Kong and China are closed in observance of May Day. Markets in Europe ended the week higher last week – the EZ economy grew by 0.1% in the first qtr.…. even as Germany flatlined.
The S&P closed at 4169 up 35 pts…. leaving it kissing the 2023 highs…. It feels tried to me…and I think we top out here. A pullback will find support at the trendline – 4033 which is only a 3% move down from here…. It is another big earnings week – and this one dominated by Apple – which reports on Thursday May 4th after the bell. Other earnings to watch for BRK/A, SOFI, BEN, DD, RGEN, LNG, VAL and the list goes on….
Remember – stay the course….be patient…. it feels tried to me…. we remain in the 4000/4200 trading range.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace Capital Advisors.”
Orecchiette & Baby Clams in a Champagne Cream Sauce
Here you go – for this you need: 1 lb. of Orecchiette, butter, Olive oil, 1 bottle of clam juice, 1 chopped shallot, 6 cloves of chopped garlic, 2 lbs. of baby clams, 1 c of Champagne, 1 c of Chicken Stock, Fresh Thyme, 1 tbsp. of Fresh Tarragon, ½ c of heavy cream, lemon zest, the juice of 1 lemon, s&p and fresh grated Parmegiana.
Bring a pot of salted water to a rolling boil.
Start by melting 1/s stick of butter in a large sauté pan – add the chopped shallot – sauté. Add the garlic and sauté for another 5 mins…on med low heat…. Add the baby clams and the clam juice…. Cook until they all open up then remove them and set aside.
Add the pasta to the boiling water. Cook for 8 mins.
Now add the champagne, chicken stock, thyme, and tarragon. Bring to a boil and reduce to about 2 cups…Now add the cream and another tablespoon of butter…. simmer for 3 mins…. Add back the clams…stir to coat. The sauce will begin to thicken…Remove from heat and add the zest and the lemon juice.
Strain the pasta – reserving a mugful of the water…. Add the Orecchiette to the sauté pan and mix. If it thickens to much, add some of the pasta water to moisten. Serve immediately. Have the cheese on the table for your guests.
Buon Appetito
