Things you need to know.
– Stocks continue to retreat as investors reconsider the ‘bank issues.
– Apple reports a 3% decline in revenues but still reports $94.8 billion in the qtr.
– Gold surges – suggesting the FED is done, Oil collapses – suggesting a global recession….
– Today is all about Non-Farm Payrolls…What will that say about the economy?
– Try the Grilled Shrimp over the Bed of Feta and Orzo
*I will be travelling back to the states on Monday – so the next blog will be Tuesday, May 9th. Thanks. Kp
So, it happened – rates around the world are going up…. first it was the RBA on Tuesday, then it was the FED on Wednesday and then the ECB on Thursday….
The FED raised rates by 25 bps and left the door wide open – suggesting a ‘potential pause’ but not committing to one…. allowing them to go either way in June based on what we hear next…. something that we discussed, so no one should be surprised. JJ saying
“People* did talk about pausing, but not so much at this meeting…. We feel like we’re getting closer or maybe even there. I think that policy is tight, but we are prepared to do more if greater monetary policy restraint is warranted.”
(*People are defined as FOMC members.)
Stocks fell on Wednesday, and they fell again on Thursday…as investors digested all of the news…. The Dow down 290 pts or 0.9%, the S&P down 30 pts or 0.7%, the Nasdaq down 60 pts or 0.5%, the Russell down 20 pts or 1.2% while the Transports gave up 180 pts or 1.3%.
Treasuries rose sending yields lower while gold shot higher…ending the day yesterday at $2,056/oz. Up $56 or 2% in two days …. which tells us that they think we are done…. Rates have hit their limit and by the way – the FED will be cut rates at the July meeting.
And the BANKS continued to get hammered….
Powell went onto say that he thought the banks were just fine – this as investors/traders and algo’s continued to punish them. The KRE – the S&P Regional Bank ETF – was already down 33% since the SVB crisis….continued to get hit…..and has fallen another 13% in the last two days …Yesterday it was PACW – PacWest – which by the way is another CA bank (Beverly Hills address) that was also overlooked by regulators…..as they too have a concentrated tech client base…who’s portfolio ‘apparently’ doesn’t match its needs….Leaving many of us to ask – what is the San Fran Fed doing? (They are the ultimate regulator)
Any weakness/conflict that PACW is experiencing is a direct result of regulator failure…. Now, the bank keeps telling us that it’s all ok – yet investors are telling us something different and that has led PACW to ‘confirm talks with potential partners as their shares slide’ – down 50% yesterday bringing it total loss to 90% since March 3rd leaving so many investors to ask – What is going on?
Well, PACW – is telling us that core deposits have increased and that the bank has not experienced any ‘out of the ordinary deposit outflows and that liquidity remains solid and exceeded their uninsured deposits. OK – so then why the hate? Why do investors not believe that? The turmoil in the ‘sector’ suggests that investors are not buying JJ’s assurances…. nor are investors buying the banks assurances…. Essentially saying that where there is smoke there is fire…. ongoing rate hikes have hammered the bond portfolios of these banks with some estimating losses of $1.8 trillion. And then toss in the brewing trouble in the CRE (Commercial Real Estate) market and it’s a flash point and a reason for depositors to take their money out of these banks as they seek ‘safer’ returns…and those returns are in the treasury markets with short duration – guaranteed money yielding 5% – rates that the banks can’t compete with and all of this has reignited the debate over who wins and who loses….
On Wednesday I commented and said that the weakness in both the KRE and BKX would lead to further downside and that is exactly what we saw…KRE lost another 5.5% yesterday while the BKX gave up 3.8%. Just to be clear – ALL 21 names in the KBW index fell….and that has helped to drive stocks lower over the past week.
The VIX – Fear Index – shot higher….rising 9% to end the day at $20.09…..leaving it up 37% this week and that tells us that the anxiety is building….and that investor confidence remains fragile…as the pressure builds on the banking sector despite anything JJ Powell tells us leaving many street analysts to say that the banking turmoil is not over….and the sooner the FED recognizes that the sooner it will calm down…and that means they are all calling for the FED to pause and pivot…. And there it is…. the pivot…. because they are telling us that it is an interest rate issue and not a credit crisis.
After the bell last night- we heard from Apple…and they beat the estimates…reporting $1.52/sh vs. $1.44/sh but reported that overall sales fell (for the second straight qtr.) but Timmy found strength in India……remember – when they opened two stores in India back in April? Remember how the lines of people were down the street and around the corner for days? Remember also how Timmy announced how he is looking to diversify the supply chain away from China and into India? Maestri went onto say that “the emerging market was a great driver, the upside overseas is really, really good.’
It is the 3rd time in 10 yrs. that Apple reported falling revenues in back-to-back quarters… Let’s be clear on this…. AAPL reported 3-month revenues of $94.8 billion with net income of $24.2 billion – a decline of 3% in both measures…but a beat over what the estimates were looking for…$92.9 and $22.6). $94.8 billion in one quarter….is that clear enough? They boosted the dividend by 4% and authorized an additional $90 billion of stock buybacks…. this morning the stock is quoted unchanged at $165.70/$165.80 after trading up in the after-hours session by 2.5%….
Oil continues to get slammed…. having now broken down and thru $70/barrel….as the global recession story builds…. This morning oil is trading at $69 after having traded down and thru $65/barrel yesterday – breaking below the March low. The panic over rising rates and the coming recession is driving that narrative, but like I said – don’t be surprised to see what the Saudi’s do now…Remember – $80 is their sweet spot…so oil trading at $69 only infuriates them.
Eco data today is all about the NFP report and as discussed – it is expected to show 185k new jobs created (I’d say restored but let’s not quibble), the unemployment rate is expected to tick up to 3.6% still well below where the FED has identified that it needs to go (5+%)…Avg Hourly Earnings m/m +0.3% and y/y of +4.2%. Now if we get a stronger report then that will confirm what the FED did was right and will give them the cover to consider raising again next month. A weaker report will do the opposite and give strength to the pause and possible pivot narrative…. We will find that out at 8:30 am.
In the end – the tone remains negative…concerns rising over what the next FED move will be and what the economic data will tell us. Next week – will bring us the April CPI and PPI reports…will they show an uptick in the inflation rate the way we have seen in both the UK and the EZ this week? And if they do – what does that mean for the FED – Remember the FED is caught is between stubbornly high inflation and weakening eco data and that spells – STAGFLATION….and that won’t be pretty.
In the end – the markets remain skittish…. And I think the narrative remains a bit hawkish…. the terminal rate is now 5%-5.25% – still below the inflation rate, and next week’s CPI / PPI reports will determine whether or not they hike again. Another 25 bp hike will then put the terminal rate at 5.25% – 5.5% – a level that matches / exceeds the inflation rate and that is where the FED needs to be. It is then that I see a pause… not a pivot or a cut, just pause….and unless inflation plunges and unemployment surges, I don’t see how they can justify cutting rates at all.
The S&P closed at 4061 down 30 pts….and now down ~2% from the latest high should not surprise anyone….…. I’ve been saying that it feels tired to me…and that the recent high of 4165 ish felt toppy…the 50 dma is now at 4039 and a test of that would not be a surprise….Investors will have to decide – will it be the Apple earnings that drive the action today or will it be the NFP report…..For a bounce – we will need to see the NFP report be weaker than the expectation and if it is – then I would suspect we could see stocks bounce…anything different could just see us limp into the weekend….as we await all of the economic data next week. While we remain in the 4039/4200 range (support /resistance) I would not be surprised to see us retest the March lows of 3800 before this is over.
In any event – as a long-term investor – stick to the plan, build a more defensive portfolio to help weather the storm…. Use short duration treasuries as a holding place for cash – until you get ready to deploy it…. In the end – broader market weakness – presents an opportunity the big mega cap names across the sectors…. for the long-term investor.
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.”
Grilled Shrimp on a Bed of Orzo and Lemon Infused Feta Cheese
For this you will need: about 2 doz large, clean & deveined shrimp, 10/12 skewers, olive oil, oregano, fresh lemon juice, minced garlic, s&p, feta cheese and some Orzo (Orzo is a rice shaped pasta – used in many types of pasta salads or soups or in this case as a bed for the shrimps).
**if you are using wooden skewers – you must soak them in water for at least 20 mins. **
Now – pierce the shrimps onto the skewers – maybe 4 at most per. Set aside in a deep Pyrex dish.
Next mix the olive oil, garlic, oregano, some lemon juice, s&p – shake well and then pour 1/2 over the shrimps. Place in fridge and let marinate.
Heat the grill – using a grill brush –clean the grill rack.
Bring a pot of salted water to a rolling boil and add the orzo…cook for about 8 mins or so…do not let it get mushy…. keep it a bit aldente. Strain and mix with the feta. Now pour the remaining mix into the pasta with the feta and stir well to coat. Place the orzo in a large family style platter and make a bed.
Next – remove the shrimps from fridge and place on hot grill….be sure to not burn…. should take no more than 5 to 7 mins max. Now place the skewers on top of the orzo and feta. Take a picture to remind yourself of this great and simple dish.
Buon Appetito
