Things you need to know.

–        The Churn continues – Up on Monday/Down on Tuesday….

–        Moody’s downgrades the smaller banks and threatens the BIG boys.

–        S&P noticeably quiet….

–        IFF gets whacked badly – Why? Because they played ‘I’ve got a secret’ and investors don’t like that game

–        Oil down then up – Negative China news then Positive US news

–        Dollar steady, gold tests trendline support again

–        Try the Vegetable Paella

Good morning…Sorry I missed yesterday…. But I was in Vegas at The Money Show….in any event – what did I miss?  By now you know that stocks rallied hard on Monday….after the 3 day ‘sell off’ last week….investors gave it some thought over the weekend – and did not appear to be fazed at all…and so – off we went – by late Monday – we saw the indexes all surge and the idea that there was anything to be concerned about was just that an idea….

Yesterday morning though, was another story…. stocks in the pre-mkt were under pressure – and remained lower for most of the day – only to have some bargain hunters go on a late day shopping spree looking for opportunity.  By 4 pm – indexes – while lower were all off their lows of the day…. The Dow lost 158 pts, the S&P gave up 19, the Nasdaq lost 110, the Russell fell 11 and the transport gave up 91 pts.

Negative economic news out of China setting the tone initially – and then we got hit with the news that UPS was cutting its forecast going forward for a couple of reasons…. First was that disruptive and expensive Union contract – as workers demanded what?  More money, better benefits and more time off….and then Two – the company reported that both domestic and international markets were hurt by a decline in average daily volumes….- investors did not like that and took 3.4% out of the stock before 10 am….but then cooler heads prevailed….and while it did not go positive – it did take back much of that early loss to end the day off 0.9%…..

But let’s be honest – Why was the company (or investors) really surprised…. We know that they had to pay through the nose on the new contract – that was clear, and they have been complaining of slower volumes anyway – so was any of this really a surprise?  I think that it was the toll that the new contract is set to take on the guidance going forward – as they did not expect it to be as ‘generous’ as it turned out to be….and it was the fact that they had to lower the full year forecast to account for a bigger payroll expense that caught everyone off guard….and to that I am gonna say – get ready for the UAW contract with GM that happens in September…..While CEO Mary Barra – gave us a glowing earnings report – she now has to contend with an ‘angry mob’ of workers that want to ‘share’ in the good fortune of their hard work.   And so, I suspect that GM will be ‘adjusting their guidance at some point this fall….in fact – a quick look at the chart suggests that investors are already preparing for it…the stock is down 7% since their ‘blowout’ earnings announcement.

And then we heard from Moody’s – another ratings agency – that was not left to be outdone by Fitch…. Fitch downgraded US debt last week, so now Moody’s had to do something….and what did they do?  The downgraded 10 ‘smaller’ US banks – that include TFC (-0.6%), STT (-1.6%), BK (-1.3%), CBSH (-0.9%), BOK (-1.9%) and MTB (-1.4%)…along with 4 others…They cited tighter lending standards and their ability to withstand sharply higher rates and then they warned that they could cut the credit ratings of 6 BIG US banks…and that sent the whole banking sector lower….the XLF lost 1% and the KBW Index fell by 1.2%. Individual names like JPM – 0.6%. C – 1.5%, BAC -1.9%, WFC -1.3%.  The only one that hasn’t said anything yet is S&P.  Will they downgrade something to ‘stay in the game’ or will they do nothing?

The healthcare sector – XLV + 0.8% got a boost from LLY +15% – they handily beat street estimates and reported booming sales for Mounjaro – that diabetes drug that everyone apparently is using as a weight loss injectable drug.  Investors seemingly oblivious to the fact that they (and Novo Nordisk – Ozempic) are about to get sued because of some of the side effects of said drugs….

https://www.cbsnews.com/news/ozempic-mounjaro-lawsuit-gastroparesis-stomach-paralysis-side-effect/

In any event – the lawsuit is for another day….

IFF got slammed and fell by 19% after they missed earnings and ‘slashed’ sales forecast for the year, slashed revenues for the year….and suffered all kinds of downgrades….and here is the lesson to be learned.  IFF had to know that they were going to miss street estimates and they had to know that they were cutting the forecast – weeks ago – but instead they played “I’ve got a secret”….and the fact that they waited until earnings day to reveal this only made the reaction that much worse….had they ‘forewarned’ the street that estimates were too high and that they would likely take a hit last week – I can assure you the reaction would not have been as severe…yes, they would have gotten hit, but not to the extent they did yesterday…. But it is what it is and now they have to deal with it…IFF is trading at levels last seen in November of 2012!  But it is yielding 5%!

Bond yields fell as prices rose…The 10 yr. ended the day yielding 4.02% down from 4.07% on Monday…. the 2 yr. is yielding 4.75% down from 4.89%.  Shorter duration – 3- and 6-month bills are still yielding closer to 5.45% annualized.

Oil had a wild day…. trading as high as $83.05 and as low as $ 79.90 before settling in at $82.75 – the weakness in the morning was attributed to the weaker China data overnight while the rebound in the afternoon was attributed to an ‘upbeat’ US economic outlook. The EIA (Energy Information Administration) reported US crude production (fossil fuel) is expected to rise by 850k bpd taking production to 12.76 million bpd in 2023!  In addition – don’t forget that the Saudi’s and Russians are cutting production all while global demand is rising…. Do you see the demand/supply equation – Econ 101?

The Dollar Index – DXY remains hugging the trendline at 102.47 while Gold tested trendline support at $1962.  Gold briefly traded down to $1958, but recovered to end the day 6 pts higher at $1964/oz.  This is KEY – Keep your eyes on the dollar – any strengthening will send gold lower…. while any weakening will help it stabilize here.  I think Gold is telling us that the FED is not done yet…But let’s see.

The VIX – Fear Index – surged in the early morning, but fell as the day wore on……Recall that last week we saw a 30% rise in the VIX  leaving it in the 16.42/19 trading range….Yesterday saw it trade up to 18.14 in the early part of the day – only to end the day at 15.99 still up 1.5%. 

The S&P sits at 4499 – down 19 pts.  I am not changing my outlook – I have been saying that I think the mkt is tired….and I still do…. I still expect it to back off over the next 8 weeks, but I am not expecting a major drawdown…. Why?  Because, I think that there are a lot of buyers out there (that are holding cash) that had been looking for a meltdown that never came – and we are now in the second half of the year and they can’t afford NOT to get involved…so any pullback is sure to be bought….…. but who’s complaining?  Not me…. I won’t complain if they push it up and I won’t complain if they push it lower…. lower is good – as it will shake the branches and surely some anxious investors will fall out and that will create more opportunity for us. You should not be chasing names that are running away…. There are plenty of opportunities that will balance out and stabilize your portfolio for the longer term. Remember – Investing is a ‘long game’….

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

Vegetable Paella

Like traditional paella – this dish is relatively easy to make, and you can easily increase the amount of ingredients to feed a large number of people.  It features no meat or fish, only veggies and rice – made with the traditional paella seasoning.  Try it – You’ll like it.

If you do not have a Paella Pan – no worries…you can use a large nonstick frying pan to accommodate this typical Spanish rice dish.

You will need: Olive oil,   1 red & 1 yellow bell pepper, chopped,  6 scallions thinly sliced,  5 cups vegetable broth,   3 cloves of garlic – minced,   1 tsp. crumbled saffron threads,   1 cup short-grain white rice – like Goya, or Vitarozz,  3 cups broccoli florets,   1 cup fresh (or frozen) baby peas,   1 cup halved grape or cherry tomatoes,   12 pitted green olives – cut in half,  12 pitted black olives – cut in half,   1 lemon, cut into wedges,   ¼ cup chopped fresh parsley

Begin by heating olive oil in a large nonstick skillet over medium heat.  Add bell peppers, garlic and scallions, cook 5 minutes. Next add the broth.   Stir in saffron, bring to a boil.  Add rice and stir – reduce heat to medium-low, cover and cook for about 10 mins.

Next – add the broccoli, peas, tomatoes, and olives over rice. Cover, and cook for about another 10 mins…or until rice is fluffy and tender. Remove from heat.  Let rest, covered, 5 minutes.  Taste and adjust for seasoning.   You can present this on a large family style platter garnishing with lemon wedges and chopped parsley.

Buon Appetito