Things you need to know.

–        Stocks continue to advance…. Earnings are not a disaster.

–        JPM, WFC, BLK, UNH all reported and all BEAT.

–        Many expect the FED to raise and pause – Chris Wallers says Not so FAST.

–        Dollar breaks 100 – oil kisses $77.50 – Saudi’s are loving it.

–        Try the Linguine & Clams with Sweet Italian Sausage

Stocks continued to march higher…..after we got another data point – the PPI –  that suggests and confirms that inflation is still rising just at a slower pace –  all while core inflation  remains above the target rate…..and this follows the CPI data that we got on Wednesday that revealed the same thing….……and that just confirms that the FED appears to have avoided that CRASH landing that so many of us had expected and instead appears to be coming in for a hard, bouncy landing – some describing it as a ‘Goldilocks scenario’…. And that is causing investors and asset managers to pile into the markets…. Much of this because so many of them ‘got out’ earlier this year as they fled to short duration treasuries and bank CD’s when it was assumed that we were about to wipe out……

And as has been the story in 2023 – Tech mega caps and Communications stocks led the way higher – both sectors up 1.4%……AMZN + 2.7%, AAPL + 0.5%, NVDA + 4.7%,  MSFT 1.6%,  NOW + 2.8%,  META + 1.3%,  GOOG + 4.3%, AMD +1.2%,, NFLX + 1.4%,   – You get the picture….

In addition we got some very strong earnings reports from PEP, DAL, CAG, CTAS – all beating on the bottom line with some of them beating on both the top and bottom lines….and then – recall I told you on Tuesday that the ‘mo-mo’ (momentum) guys were just aching to get the S&P to pierce up and thru what WAS the April 2022 highs at 4480 ish….and they did…..Yesterday – the S&P rose 38 pts or 0.8% to close at 4510…..the Dow gained 48 pts or 0.15%, the Nasdaq rose 220 pts or 1.6%, the Russell rose 17 pts or 0.9% while money continued to move out of Transports – leaving that index lower by 2 pts…..

The narrative now is that the FED will raise rates by 25 bps next week and then call it quits….Although – don’t ask Fed Governor Chris Waller – he still see 2 more rates hikes before year end…which leaves some to ask – What exactly does he mean….2 more including next week’s or 2 more after next week’s?  Which means he favors a terminal rate in the 5.75% – 6% range…. a level that many other FOMC members have floated…and one that is still very much a possibility…. Waller reminds us that while it appears as if inflation has been tamed – there is always the possibility that it turns up (again) and that is exactly what we don’t want to see….so staying more hawkish and vigilant is the better course of action.  I am in the camp that they should raise in July and in September and then pause…but I am not a member of the FOMC….so I don’t really have a say!

Today marks the official start of earnings season – but I would argue that the season has already begun – as we have heard from more than 20 S&P companies already…..….and we are not seeing a disaster – 75% of them have beaten on the bottom line while 70% have beaten on both lines….And this morning UNH (a Dow stock) reported a BEAT on BOTH lines!  Unbelievable, no?  $6.14/sh vs. the expected $6.01, all while they raised their 2023 year end guidance…..going from $24.50 – $25 to $24.70 – $25…..tightening the lower end up by 20 cts and reporting sales of $92.09 bil vs. the $91.0 bil…and that is sending the stock higher in the pre-market….up nearly 3% and that is helping to support Dow futures…which are up 50 pts…and we haven’t heard from JPM yet….(another Dow name). 

I expect Jamie Dimon to kill it ‘again’ – Estimates call for JPM to earn $3.82/sh…. a number I think is well below what he is going to announce…. I wouldn’t be surprised to see him announce earnings with a 4 handle! And they are out!!! And what did Jamie do???? He KILLED it….EPS of $4.37. vs. the $3.82…. Revenue of $41.3 bil vs. the estimate of $38.6 bil, Credit losses of $2.89 bil vs. $1.1 bil last year…. – but that is not a surprise….so don’t overreact.  The stock is quoted up $2 or 1.5%…. but don’t go running right in…. the stock was up 11% in the past month alone….so I would expect to see the trader types of lock in some profits….

Remember – he doesn’t play this game to lose (and he hardly ever loses – unlike Davey Solomon at GS) …and if Goldy disappoints this quarter – which IS the expectation – then expect to hear about the ‘firing squad’ down at 200 West St, NYC.   Goldman is due to report next week….so he has another weekend to prepare as he transitions from Investment Bank CEO to Long Island DJ.  (Yes, he spins records on the side to earn a little extra cash – as if his $2 mil salary, $7 mil cash bonus and $16 mil restricted stock isn’t enough – but that is another story!)

BLK – another financial services name – also just reported and what do you think happened?  They beat and beat handily on the bottom line….the expectation was for $8.45/sh and they came in at $9.258/sh….that is a 10% miss by the street analysts that are supposed to have their finger on the pulse….or maybe they did – maybe they cut the estimates so much – that it looks that much better!  Oh, did I just say that?  Assets under management rose by 11% while the top line did suffer a miss…. $4.46 bil vs. the estimate of $4.47 bil. 

Other reports due out today include WFC, STT, FRCB, & C. 

US futures are mixed – after the dramatic move up over the past month…..Remember – earning season has just begun….we are going to be discussing this for the next 4 weeks….and while the forecasts were mostly downbeat – expectations were for the S&P to post a 7% y/y drop – my sense is that we will do better……If earnings are down 4% y/y I would be surprised….But it is early in the game…..

Eco data today includes June Import prices (a non-event) and the usual U of Michigan reports…. Sentiment of 65.5, 1 yr. inflation outlook of 3.1% and the 5 – 10 yr. inflation expectation of 3%…. (a report I think is useless, but what do I know).

Bond yields slide as investors digest the two most recent inflation reports….as the market is now assuming the FED will become more dovish…. The 10 yr. ended the day yielding 3.76% (down from 4% on Monday) while the 2 yr. is yielding 4.6% down from 4.8% on Monday. 

Oil continues to push higher…. this morning it is trading at $76.80 – after trading as high as $77.30 overnight…. We are now well above all 3 trendlines….and $80 is in sight…

The dollar index continues to get slammed – dropping below 100!  This morning it is trading at $99.13 – a level not seen since March 2022 but a level that should provide some support – but that is going to depend on what the FED does next and what message they deliver.

Stocks in Europe are mixed….…. as earnings season kicks off. 

The S&P ended the day at 4510 – up 38 pts.  It’s about the good macro data reports, it’s about future FED policy and it is about the momentum….and until we get a really negative catalyst that derails the market – then expect any pullback to be met with plenty of buyers.  The push up and thru 4480 did exactly what the mo-mo guys wanted….it ignited the algo’s (as it was a technical buy signal) and that helped to send stocks higher.    While I love the action, I think it is a bit of a disconnect with reality…which is why I keep saying – have a plan and stick to it.  Do not chase the names that are already stretched, put new money into those sectors that have underperformed and may be boring but have strong fundamentals….

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 and Clams w/Sweet Italian Sausage

For this you need:  2 doz clams, plus a container of minced clams, olive oil, Sweet Italian Sausage (out of the casing), garlic, shallots, Onions, white wine, clam juice, Linguine, Parmegiana Cheese, breadcrumbs and butter.

Start by bringing a pot of salted water to a boil.

Next – Heat up a bit of olive oil in a pot and brown the sausage in the pot.  When browned – remove and set aside.  Next dice two shallots, the onion and at least 3 cloves of smashed/chopped garlic. If you need a bit more oil – go for it.

Sauté for about 4 – 5 mins…careful not to burn. Now add some white wine – I just pour it in…but I am thinking like no more than two cups…. – bring to a boil…. Now add the bottle of clam juice and the 2 doz clams and the container of minced clams. Turn heat to low and allow the clams to open – remembering to discard any clam that does not open on its own.

While this is simmering – in a frying pan – add a dollop of butter and some Italian seasoned breadcrumbs – turn heat up to med high and turn the breadcrumbs and allow them to toast – they will get crunchy – be careful not to burn. Set it aside.

Add the linguine to the pot of water and cook until aldente – maybe 8 mins. Strain – always reserve a mugful of pasta water always. Return the pasta to the pot and add back a bit of the pasta water to re-moisten…. Now add the clam sauce – mix well – add 2 handfuls of Parmegiana cheese – mix again. Serve in warmed bowls adorning each portion with 3 or 4 clams still in the shell along with half a ladle of the clam sauce.

Top with a spoonful of toasted breadcrumbs and serve. Have extra cheese on the table for your guests. Serve with a chilled white – Pinot Grigio.

Buon Appetito