Things you need to know.
– It’s FOMO vs. FOBI
– CPI due out in hours – Investors handicap the FED.
– S&P surges into a new century…. Will it stay there?
– Oil in a technical downtrend – MBS having a stroke!
– 3 Central banks announcements this week – FED, ECB and BoJ
– Try the Roasted Sea Bass
Wait! Stocks (S&P & Nasdaq) close at another new 2023 high …. as the flight continues and the ‘fear of missing out’ (FOMO) gets more exaggerated….Like I said last week the FOMO is worse than the FOBI (Fear of Being In)….which has led so many to be ‘out’ of the market waiting for the Mikey Wilson collapse that calls for the S&P to trade down to 3000 – before the bottom is in…. …..investors now convinced that the FED has navigated a soft landing and that the HARD landing that so many expected (myself included) won’t be hard at all….and so, investors that went to cash are all rushing into the market (which sadly probably marks the top for now) – and more importantly – they want anything that sounds like TECH….The Dow (which has Apple, MSFT, INTC & IBM, along with JPM, GS, CRM – all names that can be connected to tech and AI) rose by 190 pts or 0.6%, the S&P that has all of those plus so many more rose by 40 pts or 0.9%, the Nasdaq – well that is TECH surged by 202 pts or 1.5%, while the Russell added 7 pts or 0.4% and the Transports gained 62 pts or 0.4%. But let’s be clear – tech is everywhere…. mega caps, large caps, mid-caps and small caps….it just depends on what ‘tech’ you are looking for.
The headlines outlining it…
“S&P 500 Closes at Highest Level Since April 2022 as Traders Hope the FED will SKIP a Rate Hike.”
“Nasdaq 100 Climbs About 2% in Run Up to CPI Report”
“S&P 500 Closes at its Highest in Over a Year”
Ok – well this morning is the moment that we have all been waiting for. At 8:30 the gov’t is due to report the latest CPI (Consumer Price Index) and the excitement is building…..Many now expecting an even larger decline that what they have prepared us for and that is behind the recent surge into the next century…..(the S&P pierced 4300 – settling at 4338). Investors are now convinced that we reached or are at most one tick away (25 bps) from the end of the rate hiking cycle… They are also convinced that Wednesday’s FOMC announcement will skip an increase and hopefully sound ‘less’ hawkish’ than previously thought. And that has caused all of those asset managers and retail investors that have been sitting it out, as well as all of those hedgies that made a big, short bet to reassess the next move. And what are we seeing? The re-assessment is causing those players to jump back in…. some allocating cash from the sidelines (that has missed the move) while others are covering their short bets and licking their wounds.
The move higher led by a handful of mega-cap tech names and the realization that artificial intelligence is taking on a new role in the world feels like it is broadening out…. with investors looking for opportunities in beaten down sectors that have yet to participate in this move up. I pointed this out last week….Investors now adding Industrials – XLI +0.7%, Basic Materials – XLB +0.5%, Healthcare – XLV +0.4%, Retail – XRT +1.5%, Aerospace and Defense – ITA +0.8%, SMID’s (Small and Mid-Caps) – IJJ +0.6% and IJT + 0.25% – all of these groups have been shunned for most of the year as money piled into ‘tech’ but are all now suddenly picking up their heads as investor money moves in – gaining nicely in the last couple of weeks as the rally broadens out.….
Now to be sure – those sectors are not rallying by double digits like Tech – XLK + 36%, Consumer Discretionary – XLY + 27%, Communications – XLC + 33%, Disruptive Tech – ARKK 38%, Semi’s – SOXX +44%, Even Homebuilders – XHB +25% and Airlines – JETS +16%, (all sectors that got slammed last year – falling by double digits) because they were the winners last year, only falling by single digits. Which explains the logic….Some sectors (we all know which ones) got walloped as rates began to rise – money moved into cash or into the big, boring ‘non-sexy’ names….looking for shelter from the storm….and as investors got more comfortable with the FED’s narrative and the economy did not circle the drain, and the labor market remained strong and the recession remained elusive – money began sniffing out opportunity….and so – where did it go? Bingo! Into all of those names that got walloped…. Why? – because for the most part – those are good names, with good products, and good guidance and they were all on SALE – down 25%, 30%, 50% – the perceived weakness, the cautious forward guidance forced so many of them to slim down – which wasn’t a bad thing – recall the reactions every time one of them announced layoffs and cost cutting measures…..investors celebrated going all in.
But then you had a bevy of street analysts/strategists that remained skeptical, calling for caution and restraint, telling investors to move money into cash, or treasuries – get out of the market! As treasury yields rose – some investors chose the ‘safe trade’ for the majority of their money….convincing themselves that a 4% treasury with no risk, was better than an uncertain equity market…yet stocks did not fall….they did not collapse the way so many had expected…The savvy investor kept sniffing out opportunities, staying invested – albeit a bit more defensive – as I told you all along…. put money into those ‘big, boring, beautiful’ divvy paying large cap names that would offer shelter in the storm. Do not ‘get out’ of tech, just let it take on a lesser role until the coast was clear…keeping your toes in the water….and if you did – you should be celebrating right now because you never got out, you stayed the course and now you don’t have to ‘rush in’ because you are already in! So as stocks have rallied, you have gone along for the ride……It’s a beautiful thing….
So, now we are at a crossroads….does the rally continue or has it gotten a bit toppy – I mean I thought it was toppy 100 pts ago – but clearly I was mistaken….but you have to ask – has the surge up already priced in what the market expects? If they skip and become less hawkish – will investors hit the sell button in ‘buy the rumor/sell the news’ type of reaction? Well, we are about to find out.
Futures are up again this morning…. not big, but they are all in the green…. Dow futures +30, S&P’s +11, Nasdaq +74 and the Russell +4.
The bet is that CPI will be weaker (good), and Wednesday’s PPI will be weaker (good) and that the FED will skip any hike on Wednesday…. leaving the FED funds rate in the 5% – 5.25% range at this meeting, but now the question is – Will the guidance be hawkish or a bit more neutral – not dovish, but not hawkish…so that NO ONE thinks they are about to pivot and cut rates…
Now if the FED for some reason suggests that they will continue to push rates up towards 6% then there will be re-allocation of money and the answer would be NO, but if the Fed signals that the rate hiking cycle is over – and the economy appears to have avoided a deep recession – then the answer is YES – investors will look for opportunities outside of ‘tech’ that will also benefit from a stable rate environment and that should lead to broader participation of sectors. And that might also mean that some investors take some money out of the biggest gainers and redeploy it into those underperforming sectors causing a re-balancing of risk. More on that in the days to come.
Oil was under pressure again yesterday…. the media telling us that investors are being cautious as they wait for the FOMC announcement…. Yeah……not so much…. Oil has technically broken down…. this morning oil is trading at $68 – yesterday it tested as low as $66.80 – but my sense is that it is now set to test the lows of March that would take us to $65 ish….a level that would cause Saudi Prince MBS to have a stroke….Expect to hear more about production cuts.
Gold on the other hand is trading right in line at $1977/ …. Gold remains in the $1950/$2000 range.
European markets are mixed…. the Eurostoxx up 0.2% while Spain is down 0.5%…. Every other center is somewhere in between. In the UK – wages remain strong…. rising by 7.2% – up from 6.6% in the latest quarter….and this will only force the BoE to be more aggressive when they announce their policy decision next week. Talk of a 50 bp hike is now the narrative, while the ECB is expected to hike rates by 25 bps on Thursday.
The S&P closed at 4338 – up 40 pts…. Blasting right up and thru a new century mark….and with today’s data, tomorrow’s data and tomorrow’s FOMC announcement – it appears that investors remain hopeful that the FED won’t be overly hawkish. But even if that is the case – does it guarantee a continued push higher? No, it does not. What it does guarantee is that the FED did manage to navigate a softer landing than many anticipated – but I do think that so much of that is already reflected in the recent surge. So, no one should be surprised if we see some consolidation (think pullback) on any of this news. Which doesn’t mean you need to sell – unless of course you are day trading – then you buy and sell all day…. If you are a long-term investor – sit back, you’re invested, let the data sink in and then pick your spots and your names wisely. Stick to the stuff you know and feel comfortable with.
This week – will be an all tell….as we hear from 3 major central banks…. the US, the ECB and Japan…. Remember – these central banks are dependent on economic data – so prepare yourself for a variety of outcomes. Remember – the fight against inflation is NOT over yet (it’s getting there, but it’s not over) and it won’t be over until it is….The market is acting like the CPI will not push higher in the months ahead….which is where I will caution you – look at what happened in the UK today….wages pushed higher than expected and that will cause inflation in the UK to become an issue again…(not that it really went away) …..There is still pressure on parts of our economy that could cause inflation to do a 180…..until we get that under control – I remain cautious, which doesn’t mean I am out of the market….in fact – quite the opposite….I’m just being a bit more cautious on where I allocate to. Keep your eyes on the VIX – right now it is at near historic lows…and that is also a problem – because it suggests too much complacency….at at time when the geo-political tension remains hot….
Stick to the plan, DCA (dollar cost average) into it. Build out the defensive part of your portfolio….do not keep chasing tech names that are way overdone… If you are nervous about a decline – position yourself with some of the contra trades that offer protection…. the SH, PSQ, DOG even the VIXY.
The new trading range – if we remain above 4290 – has an upside target of 4600 which is August 2022 high. The near-term downside is the 50 dma trendline at 4150 which is a 3% move lower, which could happen in one day if we get hit with an event we are not expecting. In any event – a move to the long term 200 dma trendline, which is at 3975 – would represent a 7.5% move lower – something well within the normal trading band. And so, what that means is – Stick to the plan…and allocate according to your risk profile and time frame.
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.”
Roasted Sea Bass in A Marsala Wine Sauce
Sea bass is a fish that you find in cold waters of the southern Atlantic/Pacific and other Southern Oceans (Indian). It feeds mostly on squid, shrimps, and other small fish and for itself is the delight of Whales, Elephant Seals and Octopus… You can find this fish around the world called by different names – Chilean Sea Bass in the US, Mero in Chile and Japan, and Merluza Negra in Argentina and Uruguay. It is a white flaky fish that is easy to prepare and can be combined with many ingredients to make the perfect presentation. Today’s meal is a roasted sea bass on a bed of Onions/Mushrooms
You will need: 1 lb. of sea bass, olive oil, butter, onion, Marsala Wine, Fresh wild mushrooms, Chicken stock, s&p, and chopped parsley for color.
Prepare by chopping the onion, slicing the mushrooms and chopping the parsley. Have all other ingredients out on the counter to ease the process of creating this dish….
Preheat the oven to 450 degrees – Do not put the fish in the oven until it has pre-heated to the proper temperature.
In a sauté pan – heat the olive oil and the chopped onion – cook until soft and translucent. Turn the heat to high to make the pan really hot – then remove the pan from heat and deglaze with 1/4 cup or so of Marsala Wine – you can use White wine if you prefer – but you will get a different flavor – just fyi. (I say remove the pan from the heat because – if you use Marsala – the flame can easily ignite the wine and singe your face. – reg white wine – no worries) When the wine has cooked off add the sliced mushrooms and about a tblsp of butter. Reduce heat to med and cook until tender.
Now add the chicken stock – maybe 1/2 cup or so….and s&p… let it cook down…. just so it thickens a bit….
In another sauté pan heat up a bit more olive oil…season the sea bass with s&p and add to the pan skin side down for about 5 mins…you want the skin to be crispy……flip and cook for about 1 min – transfer to a baking dish and put in the pre-heated oven and roast for another 4 / 5 mins.
Warm the serving dishes and place a bed of the onion/mushroom mixture on the plate and then top with the pan roasted filet. Adorn with a bit of chopped parsley. You can serve this dish with herb/garlic wild rice and sautéed green beans. Complement with a chilled bottle of your favorite white wine, light the candles, turn down the lights…. and you are off to the races…. like putty in your hands.
Buon Appetito
