Things you need to know.

–         S&P ticks at 5000 in the final minute!

–         30 Yr. Bond Auction – finds buyers – relieving the angst.

–         Janet does not expect prices to decline.

–         CPI Revisions due out – What will they show?

–         Oil up on rising tensions, Gold holds steady.

–         Try the Chicken Scarapiello.

It was exhausting…. we had to wait all day before it happened….

It was 3:59 pm when someone hit the buy button on one of the algo’s that sent the S&P from 4999.99 to 5000.40….before it quickly retreated – ending the day at 4997.91….And while some will say it is just another number in the vast sea of numbers that we digest every day….this one is a bit different… and while we move thru century marks easily – 5000 represents a new millennium…..and so it does  create additional excitement…so I would expect the excitement to continue for a bit more….

Stocks struggled all day…. only to end the day just a bit higher…the Dow added 49 pts, the S&P up 3, the Nasdaq +38, the Russell tacked on 30 pt or 1.5% – way outperforming the others – but remember – it has way underperformed the others ytd, the Transports add 67 while the Equal Weight S&P advanced by 25 pts. 

The bond market digested $25 billion worth of 30 yr. bonds – with the yield settling in at 4.36% – which was up from where it was yesterday morning at 4.33%…. comments suggesting that the successful auction ‘reduced jitters about an oversupply’ of treasury funding….  Which was feared to cause a plunge in bond prices and a surge in bond yields – which would ultimately have been the death knell for stocks….…. but that has not happened – yet…. Bonds though did end the day lower……The TLT and TLH both declined on the day – down about 0.5%.  This morning the 2 yr. yielding 4.46%, the 10 yr. yield is 4.165% and the 30 yr. is at 4.363%.

Janet Yellen appeared on Capitol Hill in front of the Senate Banking Committee and was quizzed by a number of senators….one of the most entertaining was with Senator John Kennedy.  He complemented Janet on defending Bidenomics as vigorously as she does but added that it is like trying to defend a ‘fungal infection’…he then said that he believes the high prices are here to stay, ‘aren’t they?’…. Janet’s response “I don’t expect the level of prices to go down”, but they don’t need to because wages have risen considerably …”  (The thinking there is that the new level of prices is a non-event because your income has gone up – so stop complaining!)  

BAM!!!  And there you have it…. She doesn’t expect them to decline, which must mean that neither does JJ – and she is not going to worry about it….  Essentially it is what it is…. She once again though, blamed the high prices on ‘a pandemic…’  – high prices have nothing to do with the out-of-control Bidenomics spending, absolutely nothing to do with it…. Anyone who believes that should see a psychiatrist asap.   

It has been the drumbeat of mostly ‘better than expected’ earnings reports, cooling inflation, stronger economic data, a bet that the next move in rates is down (vs. up) and the expectation of even better earnings in 2024….  Supply chains are normalizing allowing production/manufacturing to improve and that is also helping margins to expand – which all adds up to earnings growth and history shows that stock prices follow earnings growth up and earnings declines down.

Economic news yesterday – showed that Initial Jobless Claims declined – and all that means is the job market remains strong – but this should not be a surprise – we have seen this theme repeat itself across a number of data points…..and it adds credence to the recent cautious comments coming out of the FED – the latest – Richmond Fed President Tommy Barkin (who is supporting his team) reiterating the idea that the FED needs to be patient and the timing of rate cuts may not be what the market wants or is pricing in and that could be what causes the markets to stumble.

While I will be the first one to say – ‘sit back and enjoy the ride’, I won’t say that there is nothing to worry about.  We are trading at 22.5 x’ current earnings – well above the historical average of 17.5 x’s and so that is just something to consider when you are putting new money to work.  And while anything tech has been the golden goose for so many (and there is no reason to unload any of it) – the rally is broadening out….Industrials, Financials and Healthcare have broken out and Consumer Discretionary is about to break out….So,  there ARE other  opportunities….They may not be as ‘sexy’ as AI/Tech, but they are solid performers that can help diversify your portfolio should we run into a storm.

Today we are going to get REVISIONS to CPI data – some expressing concern while others are already dismissing what the results may show…. …. look – seasonally adjusted data is subject to revision for up to 5 years after their original release.  Every year, economists calculate new seasonal factors for seasonally adjusted series and apply them to the last 5 yr. of data…. The fear is that the new adjustments may show a different CPI than what the market has been pricing off of and that could create some angst and shift the narrative – recall that last year the ‘revisions’ were larger than expected and that cast doubt on the overall picture of inflation…..Now, that does not mean that’s gonna happen today, but it could…..….. Remember – the January CPI report is due on Tuesday and that is expected to be up 0.2% m/m and 2.9% y/y – while Core CPI is expected to be up 0.3% m/m and 3.7% y/y.  PPI data is out next Friday.

US futures are trying desperately to tick higher…The Dow up 1 pt, the S&P up 4 pts, the Nasdaq is up 40 and the Russell is up 7.  There are 5 earnings reports due today…the big one is PEP – they beat on earnings but missed on revenues….and traders are taking the stock down 2.5% in the pre-mkt and other than the CPI revision data – there is no other economic data to consider.

Yesterday I pointed out that oil was trading higher and kissing trendline resistance at $75 and that if we pierced it then $77 was only a few ticks away…. Well, guess what?  We pierced it and traded up to $76.69 before it settled at $76.22.  The latest move driven by the escalation in tensions in the RED Sea…. the Hootie’s pushing back on Jo Jo – threatening more disruptions after the US launched more strikes on the terrorist group.  This morning it is up 10 cts at $76.32.  My gut says that we test $77 and then push up towards $80.  Recall – JPM analysts think oil will be trading in the $85 range by May.

Gold traded in a $16 range yesterday as the 30 yr. bond auction caused all kinds of angst…in the end – the auction went off with a hitch and gold settled in at $2048 – remaining in the $2030/$2100 range.  I see no reason for it to break out of that range unless we get hit with something out of left field.

European markets are a bit higher……German inflation fell in January to 3.1% and that is good…. L’Oréal disappointed and is down 7% while Hermes surprised and is up 4.5%.  Markets across the region are up small.  

The S&P closed at 4997.91 – up 3 pts…… This morning S&P futures are once again suggesting that S&P 5000 is calling…. but it does continue to feel a bit tired to me, so I would just say – don’t get emotional, ‘don’t go chasing waterfalls….’ Be strategic, look outside of the box…. here is my appearance with Charles Payne yesterday….and we discussed this very idea…. ‘Don’t Get Drawn into the Mania’

https://video.foxbusiness.com/v/6346524410112

My gut says that once we breach 5000, there will be a short celebration – everyone will pat themselves on the back and tell you what a great investor they are…and then BOOM…. We retrace about 5 -8% – Which would take us back to S&P 4700 ish…. something I want to see happen….and you should too! 

Talk to your advisor if you are concerned or better yet – talk to me!

Take good care.

kpolcari@slatestone.com

Sources:  Bloomberg, CNBC, Reuters, Wall Street Journal

Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. 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 Kenny Polcari or SlateStone Wealth.

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, which may not necessarily align with our firm’s standpoint.

While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.

Kenny Polcari is the Chief Market Strategist for SlateStone Wealth.  Neither Kenny nor the partners of SlateStone Wealth are compensated in any manner by the issuers of any securities mentioned in the publication.

Chicken Scarapiello

This is the classic Chicken and Sausage dish.

Ingredients:

Chicken pieces on the bone!  Legs and thighs are always best – the dark meat is tender, juicy, and moist.

Sweet Italian Sausage (you can use hot sausage if you prefer), sweet cherry peppers (you can substitute hot if you like), potatoes, garlic, olive oil, s&p, Italian Herb seasoning, red wine vinegar, white wine, Chicken stock and Italian Parsley.

Preheat the Grill and Preheat the oven to 475 degrees.

In a roasting pan – add in the potatoes (you can slice them, qtr. them, cube them – your call) – season with s&p and some of the Italian herb seasoning, drizzle some olive oil – toss and roast for 25/35 mins…. stirring occasionally. Remove. 

Wash the chicken and dry with a paper towel.  Season with s&p and the Italian herb seasoning.

On Med – hi – Heat some olive oil in a large frying pan.  When hot – add the chicken pieces skin side down – do not crowd…Cook the chicken until golden brown – careful not to keep turning the pieces – the trick is to let them brown nicely before turning…. When browned – remove the chicken and place in the roasting pan with the potatoes arranging nicely.  –

Next place the sausages on the grill – the trick is to just get the grilled flavor…. stay close so that they do not burn…. turning as they cook.  When done – remove and slice into bite size pieces.  Add to the roasting pan.

Now – add the chopped garlic to the frying pan and sauté until golden – do not burn. Next add in the sweet cherry peppers – you can cut these in half and remove the seeds.   Sauté.  Now add in about ¼ cup of the red wine vinegar – allow it to come to a boil – scrape the sides of the pan to release any of the browned bits.  When the vinegar is reduced by half – add ½ c of dry white wine – or so…. bring to a boil and then reduce by half.  (no longer than 4 mins max).  (If you want a thick sauce – then feel free to add some flour to thicken it up).

Now the chicken stock – about 1 full cup – once it comes to a boil – remove from the heat and pour the whole thing into the roasting pan with the chicken, sausages, and potatoes.   – Place back in the oven and roast – as it is roasting the sauce and all the parts will blend nicely.  You should only need to keep it in the oven for 15/20 mins….  Remove from the oven – toss in the chopped parsley and serve.

This makes a great dish for a Superbowl party – along with the Short Rib Burgers, I gave you the other day – Easy to make a lot of it and present it family style on a nice platter – accompany with a large mixed salad and you are good to go.

Buon Appetito.