Things you need to know.
– Stocks back off, VIX rises as the debt debate heats up.
– FED Pres Mester – calling for more hikes.
– HD disappoints – Investors focus on the DYI metric and take 2% out of the stock. TGT, WMT and LOW are due to report in the week ahead.
– Shell announces AI technology to assist in finding new oil…. Stock up 0.5% in the pre-mkt.
– US futures are up but are churning….
– Try the Pasta Carbonara
**No video today – I’m travelling…**
Another day, another lackluster session….as everyone just sits and waits and waits and waits for the latest updates from the WH…. leaving the investment community wondering – Will we raise the ceiling or not? Will we get pushed ‘over the edge?’ Is this the year that we witness a ‘historic default’ that will define the Biden Presidency for eternity the same way Monica helped to define the Clinton Presidency, the Iranian hostage crisis defined the Carter presidency, the Watergate Crisis defined the Nixon Presidency, Vietnam defined the Johnson Presidency and Marylyn Monroe defined the JFK Presidency? Is that what Jo Jo wants his legacy to be? Never mind – that was a ridiculous question….
Let’s hope not….
Stocks remained in a tight range but did end the day lower –the Dow gave up 336 pts or 1%, the S&P lost 27 pts or 0.6%, the Nasdaq LOST 20 pts or 0.18%, the Russell gave back the 23 pts it gained on Monday while the Transports lost 200 pts or 1.5%.
Tech was the only sector that ended the day up – XLK + 0.1% – anything AI had another good day…. NVDA, AMD, QCOM, GOOG, AMZN, IBM and MSFT all up again…. Disruptive tech on the other hand had a bad day, losing more than 2%.
Every other sector in the broad S&P ended lower with Energy, Real Estate and Utilities all 2% lower as the prospects of higher rates remain top of mind. Basic Materials lost 1.6%, Financials down 1% and all the other sectors down less than 1%.
Outside of the 11 sectors – we saw weakness across the board and that reflects the weakness we saw in the indexes……Nothing was spared (other than AI). The VIXY – which is an ETF that plays on the FEAR trade rose 2.6% as the VIX – the FEAR Index rose by 5.2%….to end the day at $18….remember – yesterday I mentioned how the VIX had fallen to extremely low levels – suggesting way to much complacency…And then look what happens….We get a couple of negative economic headlines, more mixed messages out of the FED coupled with the circus at the WH trying to solve the debt ceiling crisis and BOOOMM! Markets weaken and ‘fear’ increases.
Yields rose across the whole curve……the 1 month yielding 5.8% (one month ago it was yielding 4.25%), the 3- & 6-month bills yielding 5.2%, the 2 yr. pushing 4.10%, the 10 yr. is yielding 3.54%, the 30 yr. is yielding 3.87% while mortgage rates are pushing 7.15% and going higher. It’s a mess in the bond market……
At about 3:30 pm – the camera’s panned the oval office and there we saw Jo Jo, Kammy, Chucky and Kevy – all sitting there…smiling for the camera’s, Jo Jo telling us that nothing has been done yet…missing from the picture was Mitchy and Hakeem. What did we did hear? We heard that the GOP is fighting for a work requirement…for single able bodied people that are on federal aid, (Dems oppose), we heard that the GOP wants to recall the $65 billion of unused covid funds (Dems oppose) and we found out that the GOP wants to ease up on energy permits…(and Dems oppose)……
At 4:10 pm – they emerged from the WH and blew smoke up everyone’s ARSE… (that’s the British way). Telling us that they are committed to finding a bi-partisan plan by the end of the week – end…. – now that’s’ funny, because Jo Jo is leaving to attend the G7 meeting in Hiroshima, Japan today. But overnight word leaked out that he was cutting his trip short because he is ‘sure a deal’ can get done. My money says they don’t succeed this weekend, it will be an 11th hour deal – on whatever date the 11th hour is! The first 11th hour would be May 31st 11 pm….
Kevy came out and said that they are ‘far apart’ but said an agreement is still possible. Chucky said that they all agree that a default is not an option – (Oh, thank God for that), So, while a default is off the table – every day that takes us closer to June 1st (which is arbitrary anyway) without a deal – will just cause the algo’s to go berserk and create more volatility in the markets – which some think will bring on that elusive recession.
Look – As Rahm Emanuel used to say, ‘never let a good crisis go to waste’ and they will make sure to drag this crisis out as far as they can.
Ok – Let’s make one thing perfectly clear…. No rational investor is concerned one iota about a default – that is not happening…. Investors are concerned about monetary policy, regulation, interest rates, earnings, profit margins, legislation overreach and inflation…. Etc.…
And would someone please put a sock in Janet’s mouth? As all she does is continue to stir the pot warning us all that ‘time is running out’ before we hit a wall that will result in an economic catastrophe – almost apocalyptic in description…. Come on – like Jo Jo likes to say – “Gimme a break, man!”
On the economic front – we got weaker Retail Sales on the top line, but ex autos and gas was stronger, the NAHB (National Assoc of Home Builders) came in a bit stronger and that helped some in the group move higher – PHM +1.2%, HOV +4.4%, TOL +0.8%, DHI +1.8% while the XHB ETF (homebuilders) fell by 1.2%. and that is because it includes names like HD -2% (after a weak earnings report), LOW – 1.2%, FND – 3.5%…in addition to some other ‘industry’ names.
In the end – the uncertainty over the economy is what is driving the action…. HD came in with significantly weaker earnings and weaker forward guidance…. this line taking responsibility for the hit….
– “DIY orders are being delayed” … (This suggests that consumers are putting off those projects and that is perceived as a negative.)
Really? That one little sentence is responsible for taking 2.5% out of the stock. And that led to a ‘what is happening’ conversation…. Are we about to enter that elusive recession? (A default only adding to the depth of that recession). Will TGT, LOW, and WMT deliver the same message?
And then Loretta Mester – Cleveland Fed President mimicked what Neely Kashkari had to say – inflation remains an issue and as far as she is concerned – rates need to go higher….and that contrasts with what some of her colleagues are thinking and that helped to push stocks lower….…. There is now a real debate – is the terminal rate below, at or above the inflation rate – well that depends on which inflation reading you are focused on. If you look at CPI y/y it is 4.9% which means the terminal rate is above inflation, so a pause is warranted. If you look at CPI y/y EX food and energy – it is 5.5% which means the terminal rate is BELOW inflation which means a hike is warranted. So, pick your poison…. You can make the argument both ways…In the end – higher rates will continue to put a cap, if not pressure on stocks.
Eco data today includes everything housing…. Mortgage Apps, Housing Starts & Building Permits.
Oil – WTI went lower on the day…. The API reported that US crude stockpiles ROSE by 3.69 mil barrels for the ‘sweet crude’ and that suggests weakness. Sour crude though went up and why might that be??? Because Jo Jo put a sign on his head and announced that he is ready to buy it (sour vs sweet) to begin to refill the SPR….and because there is ‘stiff competition’ for that product prices have jumped higher… Now putting a sign on your head is like telling a home seller – I know you’re trying to sell your house for $500k, but I can pay $700k…. How do you think that works out? The seller draws the offer and reoffers at a higher price to ‘satisfy the demand’! Comical, really…. Jo Jo should have said nothing and used a ‘beard’ to go into the market to buy it…maybe he could have called his buddy Xi Xi or Volodymyr to be the front man…. This morning – WTI is trading at $70.09/barrel. Sour Crude is trading at $70 up from $67 only a couple of days ago…
Gold – collapsed…. falling $30/oz or 1.5% to end the day at $1,993/oz. They are blaming the whole debt ceiling thing on the collapse…suggesting that a deal is in the works (and all will be solved by Saturday) …which is ridiculous, because a deal was ALWAYS in the works…it’s just a matter of when not if. Additionally, there are some that are also now pushing the ‘soft landing’ narrative again and if we have a soft landing – investors who ran for the safety play of Gold will give it back…. This morning gold is trading down $4 at $1,988.
US futures are UP…it’s the ‘deal is done’ narrative, it is the soft-landing narrative, it is the FED will pause narrative…. all trying to reverse the negative tone from yesterday…. now while futures are up – they are not taking all of yesterday’s losses back. Dow futures + 85, S&P’s +9, the Nasdaq is +15 and the Russell is up 6. Earnings from TGT happen before the opening…. some investors are ‘bracing’ for what they might hear…. Earnings are expected to be $1.77/sh…anything less will create another HD type reaction….and then what does that say about WMT and LOW?
European markets are slightly lower….UK unemployment rose to 3.9%. Investors are now betting that there is a 30% chance of a pause vs. a hike by the BoE in June.
The S&P closed at 4109 down 27 pts…. Or 0.6%…….Everyone talking about the spike in the 1 month, 3- & 6-month bills…. Yields have spiked higher and that reflects the risk that investors are placing on default. If the assumption is a default on the short end of the curve – then investors will sell those bonds sending prices lower and yields higher…. Note the 1 month has gone from 4.25% last month to 5.75% today…. a 35% increase in yield…
You know the deal – As a long-term investor – stick to the plan. Eliminate the noise…. Do not make long term decisions on a US gov’t default….
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.”
Classic Spaghetti Carbonara
Outstanding…this is so simple and easy to make and so easy to eat.
For this you need: 1 lb. of spaghetti, a package of thick cut bacon (or guanciale), 2 eggs and 2 egg yolks, fresh grated Pecorino Romano & Parmagiana Cheese, one lg clove of garlic, pepper and more cheese!
Bring a pot of salted water to a rolling boil – and put it on the back burner to simmer.
Beat the eggs and add a handful of the cheese to the eggs directly – mix well.
While this is happening – place the diced bacon (or guanciale) into a frying pan – no oil, no nothing. Turn up the heat. Now take your garlic clove – press it gently with the back of a knife just enough to ‘crack it open’ Do not smash it. Place in the pan with the bacon and stir. Cook the bacon until nice and crispy – keeping all of the ‘fat its produces’. Discard the garlic. Turn off the heat.
Add the pasta to the boiling water – cook until aldente. Strain – while always reserving a mugful of water.
Turn the heat back up on the bacon, add the aldente spaghetti to the sauté pan, add in ¼ of a ladle of the pasta water. Mix well…until the water is absorbed…. now Turn off the heat again and add the egg mixture. Toss immediately the eggs with the HOT pasta. Mmmmm. So good. Serve immediately with a glass of chilled white wine. Always have more cheese on the table for your guests.
Outstanding!
Buon Appetito
