Investors Wait….Lack of Clarity accentuates the Path of Least Resistance – Try the Stuffed Pork Roast

Kenny PolcariUncategorized

Free Drama Comedy And Tragedy vector and picture

Things you need to know.

–          CPI due out at 8:30

–         Debt Ceiling drama continues…Neither side gives 1 inch.

–         Rate Cuts in the fall? Don’t go betting the ranch on it.

–         China trade suggests a slower comeback.  Challenge!

–         OPEC meeting only 3 weeks away…

–         Try the Stuffed Pork Roast /Provolone and fresh herbs.

Stocks started the week a bit mixed on Monday and continued to go lower on Tuesday.….all as investors awaited today’s  KEY economic datapoint along with any news of progress in DC on the debt ceiling, a meeting described as ‘high stakes’ and as expected – there was no progress,  so the ‘glitterati’ continue to use inflammatory terms when discussing this issue just to raise the temperature in the room and create angst in the marketplace.

Press Secretary KJP continues to describe Kevin McCarthy and the whole GOP team as ‘MAGA’ republicans (which is shameful but understandable since she works for the opposing team) and that only creates more drama.  Terms like disaster, catastrophe, debacle, tragedy etc. also all adding to the drama…..and this morning I heard it described as ‘kamikaze politicians’ – now if that isn’t enough to make you laugh…..I would define the politicians as clowns – I think that is more appropriate. In any event – there were no dramatic moves in any of the indexes and as discussed so many times – when the path forward is ‘unclear’ then the path of least resistance tends to be down…. so, by the end of the day – the Dow lost another 56 pts, the S&P gave back 18, the Nasdaq lost 77 pts, the Russell lost 5 pts while the Transports gave up 58 pts.

Remember – its about the clarity….the news can be negative as long as it’s clear, then investors and the markets can price it….but when the news remains unclear then that is what raises the angst…and causes some to become more aggressive sellers leaving the buyers to take full advantage…and stocks fall….  Be aware though, the minute the tone changes, the minute it becomes clear then the sentiment in the market changes…and that is when negative turns to positive and it is the buyers that are begging for supply, leaving the sellers in control.  Until a deal gets done, expect more angst as June 1st approaches.

And today investors and markets are on the edge of their seats…. What will the CPI (Consumer Price Index) reveal? (I think it will be a bit stronger). It is expected to show an m/m gain of +0.4% – which is UP from 0.1%, y/y is expected to be flat at +5% (which remains sticky).  And if you take out Food and Energy – m/m is expected to be +0.3% while y/y is expected to come in at +5.5% – both slightly lower than last month (0.1% lower) – but that’s after you take out everything we need!  Food and Energy!  And if you’ve gone to the grocery store or paid your electric bill recently then you know what the deal is….you don’t need the gov’t telling you what you already know……

Now – unless the report is completely different, and I mean weaker – than I think the market already knows what the FED will do in June.  Remember – you need to also consider the stronger than expected NFP report last Friday and the role that higher wages and DECLINING unemployment are playing as well.  Now look – we are due to get 6 more INFLATION reports before the next FOMC meeting.  2 more CPI reports (today and then again on June 13th), 2 more PPI reports (tomorrow and then June 14th) 1 more PCE report at month end and 1more NFP report on June 2nd  and while the NFP report is not so much an inflation report – it does speak to wages…which continue to go up and that continues to drive inflation…along with the unemployment rate which is moving in the wrong direction as well,  as far as JJ is concerned.  Remember – many economists tell us that the unemployment rate has to have at least a 5 handle on it before the FED succeeds, with some (Larry Summers) suggesting a 6 handle.  Friday’s reports revealed that unemployment went down to 3.4% from 3.5%…. leaving it at least 1.6% away from that 5 handle. Just sayin’….

I think the markets and investors are already pricing in another 25 bp move in June….so I don’t believe that is or will be a surprise…the surprise is going to be when the FED refutes the idea of 3 – 25 bps CUTS in the fall…. that my friends is not happening. I mean think about how ridiculous that sounds……the FED needs to get to a point where then can pause and then allow all of the 11 hikes to permeate thru the system before any talk of a rate cut is put on the table. Why traders are pricing that in remains an enigma to me as well as to many of the large asset managers across the country…. They are not buying into the idea that the FED will pivot….and neither am I. And that is the real risk to the markets right now…. because a ‘non-pivot’ will allow them and the algo’s to stamp their feet and hit the sell button to show their ‘dissatisfaction’ – attempting to force the FED to change their minds (something they did in December 2018 – remember?)

Remember when the FED was hinting (Dec 2018) at moving and the market sold off 13% in 2 weeks? (Inflation was pushing 1.5%!)  Taking the S&P from 2750 to 2400?  Yeah, I do…. Remember how they all cried about how tone deaf the FED was?  Well, now we are 71% higher from then (so if you bucked the trend and bought stocks you’re feeling pretty good)  – the FED has raised rates by 500 bps, inflation is pushing 5.5% and does not feel like it’s ready to roll over just yet and these guys are calling for the FED to cut rates?  Makes no sense…. Remember – the pendulum always swings too far in both directions before coming back to the middle…. we are not at the top of the arc yet….

Tomorrow, we get the PPI – which is the producer price index – will be a report that reveals what producers are paying for the raw material they need to produce.  PPI on the top line is expected to be up 0.3% (a 0.8% swing) while PPI final demand y/y is expected to be +2.5%.  Once again if you take out food and energy – PPI is expected to be up 0.2% m/m (vs the negative 0.1% print last month) and +3.3% y/y….

In any event – unless these numbers veer so far from the expectation – my guess is that it means nothing for any change in what I expect the policy to be.  One more hike and then a pause…. (Not a pivot). 

Oil – is churning as it also waits for the data today….this morning, WTI is down 80 cts at $72.95/barrel…..yesterday Chinese trade data suggested that their ‘revival’ is not happening as fast as previously thought…and that heats up the ‘demand destruction’ story again….(something I don’t believe at all…) and then Saudi ARAMCO reported that quarterly profits FELL by nearly 20% as oil prices tumbled during the qtr. on those same global recession fears…Now to be fair they still reported profits of $31.88 but that is not where they want to be, which only reinforces my argument that unless Brent and WTI recover  – the Saudi’s are prepared to announce further production cuts (on top of the ones that go into effect this month) to try and ‘stabilize’ the price of oil at $80/barrel – their preferred sweet spot….their next meeting is on June 4th…  just after the Memorial Day weekend and the official start of summer in the Northern Hemisphere….

Gold is holding the line at $2,040 as gold traders await today’s CPI report and more analysis about what’s happening in DC with the debt ceiling…. Ongoing confusion and angst will trigger another move up in gold – think ‘safe haven asset’.  Trendline support is at $1,983 with resistance at about $2,063/oz…. A weaker CPI report will cause all the talking heads to suggest that pivot is coming and that would put pressure on Gold, while a stronger CPI will help to push gold higher.

Treasuries yields are steady as well….no change to speak of.  The 3 month is yielding 5.23%, the 6 month is yielding 5.16%, while the 2 yr. and 10 yr. are yielding 4.04% and 3.50% respectively.  Banks are fighting for deposits – and now realize that they are going to have to pay more for deposits or risk losing them to short duration treasuries (speaks to the loss of deposits) …5.23% annualized rate for a 3-month T-bill isn’t too shabby under the circumstances. I mean they are paying you 0.5% on your savings or checking accounts while lending at 6+%…. Hello?

The VIX – Fear Index – is trading at $18…which still suggests complacency…. which I think is a danger.  And should cause you to remain cautions… The banking sector turmoil is not over, the debt ceiling debate is not over, Janet Yellen warning of a disaster if the US defaults (which might be true IF the US defaulted -but that ain’t happening) and Stanley Druckenmiller is telling us that he is now prepared for a ‘HARD landing’ – really?  Join the club…. Where have you been all these months?  I have been saying that soft and landing should not be used in the same sentence for months now…. Did Stan just wake up from his nap?  I mean come on!

US futures are down…Dow down 40 pts, the S&P down 6, the Nasdaq lower by 15 and the Russell is down by 3 pts.  Now, these are not dramatic, but it speaks to the path of least resistance when the news remains unclear…and that should change at 8:30 am…when we hear what that news is…Capisce?  I think the news will clarify the fact that the FED will raise again in June and then pause… 

European markets are also a bit lower…all down about 0.2% across the board as investors across the continent sit and wait as well. The BoE (bank of England) is due to announce their rate decision on Thursday and they are expected to raise rates…. that would be their 12th hike….

The S&P closed at 4119 down 19 pts…. ….…. Trendline support is at 4045 – a stronger CPI could see us test that on the opening bell….an inline report might see a small rally…and a weaker report will see a more significant rally….I still think that the recent highs of 4165 remain resistance….More news out of DC will also create noise for investors….and remember – both sides have to WIN something….Jo Jo has to appear as if he did not give up anything and that congress raised the debt ceiling with NSA (no strings attached), while Kevin McCarthy needs to show that he got something…Otherwise he risks a revolt by his own party in the House…..led by Matt Gaetz…(another clown).  Jo Jo knows this – and so he is ready to push that envelope to the edge – the Dems thinking ‘Can we really negotiate with McCarthy if his own caucus support is so tenuous? Oh boy…. Here we go….

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 while using the contra trades to help protect you in a downdraft….…. In the end – broader market weakness brought on by histrionics – presents an opportunity in big mega cap names across the sectors for the long-term investor.  A look at the charts proves this… (think the 2018 sell off…. we lost 13% in 2 weeks on histrionics and have gained 71% since then….and that was after the covid nightmare).

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 Pork Roast Stuffed w/Provolone &Tuscan Herbs

The Tuscan herb mix consists of Sage, Rosemary, Garlic and sea salt.  You can add other herbs as you wish – maybe bay leaf, or that fresh basil that you have growing in your garden.  There is no magic, the creation is completely up to you – but here is a good guide…use 6 parts sage, 2 parts rosemary and 12 cloves of garlic.  About 1 tblsp of Salt and some pepper…do not kill it with too much pepper.  Your guests can always add pepper.

Remove the herbs from their branches and pile on the cutting board with sliced garlic and the salt.  Now begin chopping and mixing the herbs…

Chop until the herbs are fine – now transfer to a cookie sheet and allow to dry for a day or two.  Now put them in a jar and seal.

Ok – next – the pork roast… have the butcher slice it open – (tell him you want to stuff and roll it).  Open it up and massage a bit of olive oil – s&p.  Now you can line the pork roast with the herbs and then the provolone cheese.  Carefully roll it and tie it with kitchen string.  Now season it on the outside with s&p and set aside until ready to cook it.

Heat the grill to high and get it really hot… using your BBQ brush – clean the grate…. place the pork on the grill and turn the heat to a medium.  Cover and allow to cook – turning it to grill all around.

When the pork is cooked – remove from the grill, cover with foil and let rest before slicing.  After 10 mins – slice and serve with apple sauce.  Set the outdoor table with cloth napkins, wine glasses and water goblets.  Serve the pork with roasted Brussel sprouts or sautéed broccolini, a large salad and your favorite red wine.  Remember – it’s all in the presentation….

Buon Appetito