Need to know.
– Markets churn – they did not react to the drama in Moscow.
– Tech continues to come under pressure – no surprise there.
– Smids, Industrials, Energy, Utilities and Real Estate all higher
– Tech, Consumer Discretionary, Communication under pressure.
– Oil trades lower – Saudis to cut production by 10% in July.
– Try the Spinach/Ricotta Salata/Orzo Summer Salad for your BB Q
Stocks struggled for direction….as the week began…..and while you would think there wasn’t much to talk about – you’d be wrong….there was plenty to discuss, and react to, but investors and traders appeared to be uninterested…..and are getting ready to go and celebrate the July 4th holiday – which is one week from today. Which is a bit curious to me…. but it is what it is…. The Russia coup – No. Rising rates – No, Sticky inflation – No, Investor exhaustion – Yes….that is what it appears to be…..investors just tired of it all….Even as they grow a bit more anxious about where the FED will take us…..now that JJ has taken any thought of a rate cut off the table…..
The Dallas Fed Manufacturing Survey – came in a bit weaker than the expectation but better than last month…. the impact – negligible at best…and then while there was plenty to discuss concerning Vlad and Yevegeny – none of that caused any of the global markets to throw a fit. We saw little action in the industrials or the smids, we saw, we saw the transports rally a bit and we do continue to see money move out of the very crowed ‘tech’ space as we move in the qtr. end. But NONE of it was ‘dramatic’, it felt more like a churn…. By the end of the day, we saw the Dow down 12 pts, the S&P down 19 pts, the Nasdaq lost 156 pts, the Russell gained 2 and the Transports gained 203 pts.
The best performing sectors yesterday were Real Estate – XLRE + 2.25% – think Self storage REITS like PSA +1.9%, EXR +2.5%, CUBE +1.8% or industrial real estate like PLD + 1.8%, STAG + 2%. Energy -the XLE + 1.8% came in second place (although that does not mean OIL per se) – it means names like XOM, CVX, SLB, HAL, BKR and CRK – all up by better than 1.5% – in fact BKR and HAL were up more than 2.5% while CRK was up 4%. We can point to the weekend turmoil in Russia (although not really) or an oversold condition or the upcoming ‘5 day long holiday weekend’ which is supposed to see record travel – Triple A telling us to expect 43 million people to hit the highways this weekend (think of all that gas) and if you add in all other forms of transportation – rail, air and busses – that number surges to 51 million. Or you can explain it away technically – as the group is down 12% ytd trying to find support right here at the $75 level…. a level that has been tested 4 times this year….
The worst performing sector? Consumer Discretionary – XLY down 1.3% – think AMZN – 1.55% (which you can also say is TECH), TJX, ROST, BURL – all down nearly 1%, restaurants like MCD, YUM, WEN all lower on the day. Again – this is not so much of a surprise since the group is up 27% ytd.
Tech – XLK – 0.7% yesterday, down nearly 4% in the last 2 weeks but still up 34% ytd…..and I expect more pressure on this group over the rest of the week as it continues to come under quarter end selling pressure as asset managers take some money off the table in names like AMZN – 1.55%, AAPL – 1.5%, META – 3.5%, MSFT – 2%, TSLA – 6%, AI – 4.2% – all names up nicely ytd and the ones that we have been talking about as money gets reallocated into the end of the qtr. – and plow it into the SMIDS and the transportation names…like ODFL, NSC, UPS, FDX, UNP – all up by more than 1%.
Industrials – now up 6% ytd, and a subset of that is the First Trust American Industrial Renaissance ETF – AIRR + 17% ytd…with names like HUBB, MTZ, FSS, MWA – all up more than 35% ytd.
Even Utilities – XLU +1%– which you can argue is a ‘safety trade’ bet…as Utilities are big, boring, not sexy but good and consistent divvy payers that still give you equity exposure while paying you 4+% to own them. Utilities are down 6% ytd bouncing around the lows of the year. And while you can argue that CD’s or Treasuries are paying you 5% with no downside risk (unless you pull money out early) – those are not AS liquid – right – you have to commit to 12 months, 24 months, 60 months….and yes 3 month and 6 month bills are yielding 5.4% – but that is quoted in an ANNUAL yield – which means you have to roll them for 12 months to get those yields…..Capisce? Now, it’s not bad, but just understand the commitment.
Treasury yields continue to climb as investors wait for all the macro data points, I alluded to yesterday….and what that means for the FED. Today gives us Durable goods, Capital Goods ordered and shipped, New Home Sales, Consumer Confidence, and both the Richmond and Dallas Fed Survey detailing manufacturing conditions and services index.
We are preparing for another rate hike in July and possibly more in the fall…. the idea of rate cuts – is no longer the narrative as the Fed remains concerned about sticky inflation….and what happens if we get an uptick in that sticky inflation? Overnight – we heard Christine Lagarde tell us that ‘inflation in the Eurozone is still too damn high’ and that the ECB will remain on course to continue to raise rates…. Something that should surprise no one – as inflation across the Eurozone is still running at better than 7%. This morning – 2 yr. treasuries are yielding 4.69% while the 10 yr. is yielding 3.77%. 3 month and 6 months bills are still yielding 5.3% and 5.34% respectively – again assuming you roll them for 12 months.
Oil is down this morning trading at $68.60/barrel……Ahead of US inventory data and ahead of the long weekend. We will hear from the API today and the EIA tomorrow. – Estimates are for inventories to fall for the week ended June 23rd. Traders shrugging off the drama in Russia over the weekend. Remember – the Saudi’s are cutting production by 10% next month and the market is awaiting what Chinese demand will look like in the second half of the year. Oil remains in the $65/$72 trading range.
Gold doing nothing really….it remains at $1,933 – smack in the middle of the $1895/$1975 trading range.
The dollar index is also doing nothing to push commodities in either direction. It remains at 102.60.
US futures this morning is up small…. Dow futures + 5, S&P’s + 10, Nasdaq +65 and the Russell is up 2. Expect the action to quiet down as we move into the end of the week…. Remember – moves can be exaggerated as portfolio managers are away from their desks – I still expect to see Tech come under pressure into Friday, while those sectors that we identified as undervalued to be the beneficiary.
European markets are also up very small…in fact they are almost flat…. Other than the Lagarde comments – there isn’t anything to point to…. from a ‘data point’ perspective.
There is a lot of analysis about what happened in Russia over the weekend and how Vlad may fair…. I just wonder when Yevegeny will turn up dead…. Joey coming out at mid-day re-affirming our commitment to continue to support Ukraine – by sending them even more money as well as telling us that he is in constant contact with our NATO allies concerning Russia and what may be next. My sense is that the situation is not over – and that there is more to this story than what we know…
The S&P ended the day at 4328 – down 20 pts…. It is now off 2% from the June high and could most likely test trendline support at 4210…. which would only represent another 2.5% move from here – completely within the range of possibilities and one that I expect to happen and NO reason at all to get concerned…in fact – I want to see it back off….and so should you.
Don’t forget – it is the end of qtr. week… My suggestion is to sit tight as this week progresses…. Stick to the plan…Do not make emotional decisions.
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.”
Orzo Salad – Get ready for the July 4th BBQ!
This is a great dish to serve at your BBQ or even better to just have in the fridge for summer. It is simple to make – no longer than 12 mins max. For this you need:
1 lb. of Orzo pasta, garlic, olive oil, fresh chopped spinach, Ricotta Salata Cheese and s&p.
Bring a pot of salted water to a boil and add in the Orzo. Let it cook until aldente – maybe 8 mins.
While this is cooking – heat some olive oil in a pan and sauté garlic…. just allowing the oil to take on the garlic flavor – do not burn the garlic…. now remove from heat and set aside. Cut the Ricotta Salata into small bite size cubes – set aside.
When the Orzo is cooked – strain – always keeping a mug of pasta water – just to remoisten a bit. Now return the Orzo to the pot and add back a bit of the water – mix to re-moisten – do not let it puddle – let it absorb….Err on the side of less- b/c you can always add more…..….now toss in the fresh spinach leaves, and the oil and garlic – mix well to coat. (You want just enough oil to coat the pasta – you do not want the pasta bathing in the oil) Now add in the Ricotta Salata and mix again. Put it in a bowl and refrigerate. Done. It is a perfect side dish to any summer BBQ meal or is even good to just eat right from the bowl….
Buon Appetito
