Things you need to know.
– Negotiations continue – will little clarity – Meeting 2 takes place at the WH today…
– GOP rejects the latest Democratic proposals to slash spending.
– Yellen continues to stir the pot of anxiety.
– More mixed message out of the FED yesterday and expect more today.
– Mikey Burry goes LONG the Regional Bank Stocks
– Try the Linguine w/herb Pesto and Sauteed Shrimp
So much to say…. Where do I begin to tell the story? Sounds like a song, doesn’t it?
Ok – stocks continued to thrash around remaining stuck in a tight range as investors, traders and algo’s wait patiently for clarity about whether or not elected officials will reach a debt deal or not… Word that they are making progress did help to support markets and investor psyche in the early morning hours….…and then at about 3 pm – we got an announcement that the WH gave Kevin McCarthy and the GOP a list of proposals to reduce the deficit by closing some popular tax loopholes that were swiftly rejected by the GOP…..and interestingly enough, the market went higher on that headline…
And then to add more fuel to the fire – Treasury Secretary Janet Yellen reaffirmed the fact that ‘the debt ceiling must be raised soon, or the gov’t ‘could’ run out of money to pay all of its bills as soon as June 1st’. Notice the language…. ‘could’ vs. ‘will’. As we discussed yesterday – the US gov’t is not running out of money to pay its obligations….(treasury bills and bonds) on June 1st…..and not even on the 15th….but do not be surprised if this forces the furlough of gov’t workers or stops paying our military or stops sending SS payments to the record number of seniors living in this country…..Of course the billions being sent to Ukraine nor all the money being used to support the 6 million illegal immigrants that came across the border over the past 24 months will not be affected – It’s just a matter of priorities….what’s important and what isn’t?
And then – not to be dismissed – we continue to get mixed signals out of the FED. This after two FED heads – Atlanta’s Raffi Bostic and Chicago’s Austin Goolsbee told us that they favor a pause in tightening…. while Minneapolis’s Neely Kashkari said, ‘Not yet’. He said that the labor market and inflation are still too ‘hot’…. Now just to be clear – Goolsbee and Kashkari are voting members – Bostic is an alternate member and does not get a vote UNLESS one of the other FOMC members is unable to attend a meeting. So, of the 3 – Goolsbee and Kashkari are the ones to listen to….because they will be in the room to vote….Bostic – while a respected member can talk all he wants – but will not have a vote….but they could USE him to test the water, to float a balloon, to see how markets react….the same way they could use the other FED members that don’t have a vote – Bullard, Mester, Barkin, George and Collins – they could use San Fran’s Mary Daly too, but that’s probably not the best idea…. considering that she fell flat on her face when regulating 3 regional banks in her part of the country….…SVB, First Republic and now PacWest…. She has gone radio silent ever since SVB and my guess is that they are keeping her in the basement with Jo Jo….
News that famed investor Mikey Burry – (think the Big Short) bought up significant stakes in a bunch of the regional banks – (when they were getting clobbered last month) helped them to catch a bid as well. The KRE – S&P Regional Bank ETF gaining 3.1%, PACW +17%, WAL +12%, NYCB +2% and HBAN +2.5%. Now to be clear – he was not buying them yesterday – he already bought them a month ago – when other investors were tossing them out the window…. recognizing an opportunity created by histrionics and hysteria…. We discussed this…. go back and look…. In any event it provided lots of action yesterday. And like I said – chaos creates opportunity and Burry has a keen eye for identifying the opportunities that chaos creates.
At the end of the day – the Dow added 48 pts, the S&P rose 12, the Nasdaq gained 80 pts, the Russell tacked on 20 pts and the Transports added 64 pts.
Tech was hot – the XLK up 0.8% – but it was artificial intelligence that was even hotter – C3.ai (AI) a name I own and talk about a lot – rose $4.50 or 23% on the day….bringing it ytd performance to better than 114% – it was all about 4Q revenue beats and forward guidance….Releasing a statement – the company said
“Interest in applying predictive analytics to business processes has never been greater. This manifested in significantly increased business activity at C3.ai”.
Additionally, – the investigation launched after Kerrisdale Capital (a big, short, focused fund) alleged ‘serious accounting and disclosure issues’ was found to have NO merit at all…. The stock had now taken back all of the damage done to it when Kerrisdale released that statement. I wonder if he was one of the guys scrambling to buy it yesterday – or did he cover his short position when the stock tanked after creating the chaos last month?
The strength in AI boiled over into anything tech…. Semis were hot…. SMH was up 2.6% while the SOXX was up 2.7%. NVDA +2.5%, AMD +2.25%, INTC + 3%, QCOM + 2.5%, Cybersecurity +1.3%, Disruptive Tech – ARKK + 2.4% – all these names benefiting from the AI excitement. Financials – XLF rose 0.8%, Basic Materials – XLB rose 0.8% all while the traditional ‘defensive sectors’ came under pressure… Utilities -1.2%, Consumer Staples down 0.25% and Healthcare lost 0.15%. Interestingly enough, the value of trade beat out the growth trade with the SPYV up 0.5% while the SPYG only gained 0.15%. Aerospace and Defense names also rose – with ITA gaining 1.2%. Metal and Miners – XME +1.3%, Airlines – JETS + 1.2%.
The VIX – Fear Index – is trading back at the lows….closed at $17.11…suggesting renewed complacency…Is that because so many just assume that the debt crisis isn’t’ a crisis and that the FED will pause in June and that the regional banking crisis is over and that the recession that we are headed towards will be soft vs. hard? Well, we’re about to find out…. because all of these issues remain on the front burner and all of them have the ability to disrupt the tone of the market at any moment.
Eco data yesterday showed that the Empire Manufacturing Survey fell by a whopping 31.8 vs. the expected loss of 3.9 (that’s not good)…..Today – we get Retail Sales m/m expected to be up 0.8%, Ex autos and gas +0.2%, Industrial Production – expected to be flat, Capacity Utilization of 79.7.
Oil rallied 1.8% yesterday taking it to $71.30/barrel. News that Jo Jo wants to buy 3 million barrels of sour crude to begin refilling the SPR were confirmed by Energy Secretary Jenny Granholm – who said – ‘the US could start repurchasing oil for the SPR AFTER completing a congressionally mandated sale in June…’ In addition – wildfires in Canada also caused traders to suggest that supplies could tighten and then those ‘additional cuts’ that may come out of OPEC+ on June 4th are leaving traders no option but to push prices up as they assume a better than 50% chance that the Saudi’s float that idea. This morning oil is trading in line at $71.17/barrel.
Gold –like stocks – is churning in place…. not moving very much in either direction…. closing yesterday down $2.50 at $2020/oz. Gold traders awaiting today’s meeting at the WH on the debt ceiling stalemate. This morning we see gold trading down $9 at $2,013/oz and this suggests that a deal is imminent.
Treasury yields did nothing…. the 2 yr. yielding 3.99%, the 10 yr. yielding 3.47% while the 3 & 6-month bills are yielding 5.2% and 5.12% (annualized) respectively. Janet though did point to the 1-month T-bill that we discussed yesterday – saying that borrowing costs (by the gov’t) have risen for 1-month bills and that reflects the uncertainty of where we are going…. The risk goes up, then the cost of funding that risk goes up as well. (That is in Econ 201) – Yesterday it was yielding 5.74% and this morning it is yielding 5.66% (again it is suggesting that a deal is in the works as the cost to fund it came down).
European markets are slightly higher – all up less than 0.2%…as they too watch the standoff between the Democrats and the Republicans – with many asset managers choosing to do nothing new until there is more clarity. (The bet is that the US will not default). The biggest news today across the continent came from Vodafone – after reporting weak earnings and announcing massive job cuts (11,000)- investors took 4% out of it. CEO Margherita Della Valle told investors that their ‘performance was not good enough’. In Italy – Telecom Italia fell after a report revealed that the state will not pursue its offer to buy their landline network….
The S&P closed at 4136 up 12 pts….after trading in a very tight range yesterday and for the last 2 weeks….all a direct result of the uncertainty over the debt negotiations…And if that has kept you on the sidelines then so be it, but these negotiations while dramatic will not price stocks in the long term. Of all the issues – it is the economic data points that will drive the action in markets…. The debt debate will add nothing to move….it will though, create opportunity if the algo’s suddenly go into sell mode because they think we are about to go into default….
An array of FED officials will be seen around town talking their book. Vice Chair of Supervision – Mikey Barr is on Capitol Hill while Bostic, Williams and Goolsbee are all due to take to the stage at different events. Expect the investors to pay attention to what they have to say – as that will speak to what they are thinking about at the FED. (HPP – Hike, Pause or Pivot).
You know the deal – As a long-term investor – stick to the plan. Eliminate the noise…. In the end – it’s the emotional decisions brought on by those creating the hysterics that present an opportunity 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.”
Linguine w/Herb Pesto and Sauteed Shrimp
I love pesto in the summer…as it is easy to make, and you get the ingredients right from your garden. Today’s pesto is a combination of basil, arugula and parsley, lemon juice, pignoli nuts, grated parmegiana cheese, garlic, and olive oil. (You can also add in spinach if you like).
Begin by making the pesto in the blender. Add the garlic cloves, the basil, arugula, parsley and olive oil. Blend…. Next add 1 tblsp of fresh squeezed lemon juice, pignoli nuts (lightly toasted) and the cheese. You can add some pepper – but do not add salt – the cheese takes care of that. Make sure you add enough oil so that it is not ‘pasty’ Set aside.
Bring a pot of salted water to a rolling boil. Add the linguine. Cook for 8 mins or until aldente. Strain – always reserving a mugful of pasta water to remoisten.
While this is boiling – heat up a large sauté pan and add a bit of olive oil. When nice and hot – add in the seasoned large, cleaned and deveined shrimp. (Season with just s&p). Cook over med heat until they are nice and pink. Reduce heat to low and add the linguine to the sauté pan and combine.
Turn off the heat and add in a couple of scoops of the herb pesto and toss well to coat. If it looks a bit dry – then add in a bit of the pasta water.
Serve immediately with toasted garlic bread and your favorite summer Rose. Try the Sancerre from the Raimbault Vineyards. This Rose is made from Pinot Noir and is created by lightly pressing the grapes right after the harvest. Its pink color has a light summer fruit bouquet complemented by a burst of raspberry flavor and is a ‘must have’ for the summer season. Retails for about $20.
Buon Appetito
