Things you need to know.

–        So today it’s about the PPI.

–        What will the Treasury Auction Result be?

–        Oil is now solidly in the $80 range – Supply deficit anyone?

–        Gold and Bitcoin steady.

–        Turtle Beach anyone? (HEAR)

–        Try the Sweet Sausage Risotto  

Stocks seesawed yesterday, wavering around the highs, debating the next move as markets awaited a couple of potentially market moving events.  One, the sale of $22 billion worth of long-term treasuries and two, the release of today’s all-important PPI (Producer Price Index) report.  Which is the final inflation ready before next week’s FOMC meeting?

Now remember the treasury sales are important because it speaks to psyche of bond investors…. My friend Tom Essaye wrote this.

“A weak outcome could send yields higher, which would act as a renewed headwind for stocks, while a pullback in yields would be welcomed.”

– the implication here is that if the auction is not well received – meaning buyers are not willing to ‘scoop them up’ at current prices – then bond prices will fall, and yields will rise and that will pose a challenge for stocks.  Now, if the buyers compete for these treasuries (think less price sensitive) then prices will rise and yields will fall – and that would be boost to stocks….Currently the 2 yr. yield is now 4.63% – up from 4.40% while the 10 yr. is yielding 4.19% up from 4.07% just 5 days ago.  Now, using the logic I just defined – what have prices done?  They have fallen – and that suggests caution ahead.  And if you look at what stocks have done – they have waffled in here, one day they surge, the next day they digest and retreat, but the trend (interestingly enough) in stocks remains in an upward pattern, even as bond prices fall.    

Yesterday on Mornings with Maria – we debated this issue – Adam Johnson now suggesting that investors have ‘moved on from inflation concerns’, noting that PPI is ‘below’ the FED’s 2% target while the latest PCE report remains sub 3%. And he is right, but I remain on the fence as I fear inflation still has the potential to turn up.  Today’s report may just end this argument.  You can find the clip here.

https://www.foxbusiness.com/video/6348817112112

So, why am I still cautious?  Well, think of Tuesday’s CPI report – which suggested that inflation may be heating up again (both m/m & y/y numbers were up) …and today’s PPI report may shed more light on those concerns.  At 8:30 am – the gov’t will report what is happening at the producer level – Expectations are mixed …. Top line PPI is expected to be up 0.3% m/m (in line with last month), but the y/y number is expected to be up 1.2% which is UP over last month’s +0.9%.  Ex food and energy m/m up 0.2% -which would be below last month while the y/y report is expected to come in at 1.9% just below last month’s 2%.  Now, the interesting thing here is – IF the numbers are ‘hotter’ (like CPI) then how will investors (algo’s) react because if they are in line or weaker then I would expect stocks to push higher….….Futures this morning (like Tuesday morning) are higher, suggesting that investors have already thought about it and (like Adam said) are moving on……It’s almost as if – we have tired of talking about it…. 

In any event – By the time the closing bell rang, The Dow gained 37 pts, the S&Ps lost 10 pts, the Nasdaq gave back 88 pts, the Russell rose by 6 pts, the Transports lost 62 pts while the equal weight S&P added 1 pt.

7 of the 11 broad S&P sectors were higher – Energy – XLE leading the way was up 1.6%, Basic Materials – XLB + 1%, Utilities – XLU up 0.7%, Financials – XLF +0.7%, Consumer Staples – XLP + 0.25%, Communications – XLC +0.2%, and Industrials – XLI +0.3%.  Sectors under pressure – Tech – XLK – 1.1%, Consumer Discretionary – XLY – 0.2%, Healthcare – XLV – 0.4% and Real Estate – XLRE – 0.6%. 

Down the food chain – we saw strength in Housing – XHB + 1.5%, (we saw mortgage apps rise 7.1%),  Retail – XRT + 0.7%, Airlines – JETS + 0.7%, Disruptive Tech – ARKK + 0.25%, Oil & Gas Exploration – XOP + 2%, Aerospace and Defense – XAR + 0.15% and the Value Trade – SPYV gained 0.15%. 

Subsectors in tech along with members of the Magnificent 7 continue to struggle a bit NVDA – 1.1%, AAPL – 1.2%, META -0.9%, & TSLA – 4.5% (leaving this stock down 36% since the start of the year) – Analysts now saying that TSLA is a ‘growth stock’ without growth! – That’s not very encouraging…  Semi’s – SOXX – 2.45%, Cybersecurity – CIBR – 0.1%, Expanded Tech – IGM – 0.9%. 

Eco data today – in addition to the PPI report is all about the retailer (and by default the consumer).  Retail Sales are expected to be up 0.8% (which would be a complete reversal over last month -0.8%), Ex autos and gas of + 0.3% – again a reversal over last month’s -0.5%.

In the end – we can expect that today’s data will cause lots of chatter around the FED’s next move and since they are in blackout mode – do not expect to hear from any of them…. Just to remind you – the latest narrative is for the FED to remain cautious, that while they do expect the next move to be down, they are not defining a time frame, although traders are…60%  continue to expect the first cut to come in June ….I say, not happening. Because again, current rates (5.25% – 5.5%) have been at this level since July 2023 and investors are not deterred, stocks are kissing new highs and the rally has broadened out….money moving out of tech and into other sectors rather than coming out of tech and into cash…And to me that says that investors are not anxious because if they were – they would be taking money out of tech (outperformers for 2 yrs. now) and moving into cash, waiting for the correction – but that is NOT what is happening…And to me that suggests that we are normalizing – 5% rates are historically normal and with the eco data as strong as it is, there is no rush to cut…But, let’s see how they feel at 8:30.

Oil surged by 2.6% yesterday and is up another 0.9% this morning…. WTI is now trading at $80.50 – up 12% since the February low…. The ongoing conflict narrative in the middle east is fading, the tension and anxiety that it created is no longer the issue affecting oil prices.  Yesterday and over the last month – the conversation has been about demand & supply….and we are now expected to be in a supply ‘deficit’ thru December 2024 (vs. the expected surplus) after OPEC + hinted that their intention is to continue to reduce supply via production cuts thru the year. The IEA (Int’l Energy Agency) announced that they ‘assume’ this to be true as OPEC tries to balance the oil markets even as they raised their forecasts for global demand.  You see – what have we been saying – The Saudi’s want and need oil to be at least $80/barrel to fund their budget – so anything above $80 is gravy for them….Oil now appears to be in the $80/$85 trading range  – and THAT has yet to be reflected in the latest inflation reports.

Gold is down $6 this morning at $2175/oz…. this after kissing $2200 earlier this week – all on two factors.  One – that rates will go down and the dollar will retreat and two that inflation will remain stubborn, and the geo-political atmosphere remains uncertain causing some investors to move into the ultimate safety trade.  And while that seems like a contradiction – Gold is gold – say what you want – but there is a sense of safety in owning it. Gold is up 9.5% off the February low – that is a dramatic move (for gold) so I would not be surprised if we saw it back off a bit and test support at the 2125 ish level…. which is a 2% move lower from here.

US futures are UP….the markets are telling us that they are NOT concerned about the PPI report or the retail sales report and that they still expect multiple rate cuts in 2024……Dow futures are +120 pts, the S&Ps are up 16, the Nasdaq up 90 and the Russell is ahead by 5 pts.  And again, while I am a bit more cautious – as you know I have not abandoned the ‘plan’.  I remain invested and I continue to put money to work in the markets…I am though, not chasing tech at all…other than automatically reinvesting any divvies.  

In a new twist – Every once and a while – I want to toss an idea or two at you  – just a name that I find interesting – it is not a tacit recommendation at all, I am just creating a conversation – you can do your homework and compare it against mine. 

Turtle Beach – HEAR ($11) – it is a small cap name – mkt cap of $235 mil. They are a ‘sound tech company’ – audio and gaming technology. They develop, commercialize and market products under the Turtle Beach brand – headset and handheld solutions for gaming and consoles while ROCCAT brands create gaming keyboards, mice and accessories for the PC gaming mkt.  Yesterday, on their conference call they announced that they are acquiring PDP – a leader in video controllers and this complements Turtle Beaches role as a leader in headsets.

This appears to be a massively accretive deal. Combined – the company should produce ~$400 mil in Revs and $60 mil in EBITDA.  They announced a ‘Dutch auction’ beginning next month to purchase back stock between $13.75/$15 using CASH on hand.  If the stock moves up through $15/sh before the auction – then they won’t buy any BUT they will have set a floor under it. Company management and board are NOT tendering any of their shares.  The synergies appear to be enormous, and they have a new management team.  Margins last year went from 20% to 29% and ‘should’ increase to the mid 30% range. 

This morning the stock was quoted up $2.50 at $13.60/$13.80 (and that makes sense right?) …. It is set to open at the low end of the Dutch auction range but could move up as this story permeates the chat rooms!  My sense is that we could see this stock move into the $25/$40 range over the next 12 months….

Again – this is just a conversation…. You need to do your own homework – I just think it is an interesting story.

European Stocks are up – anywhere between 0.3% – 0.8%…the ECB Chief Economist – Philly Lane – comes out swinging saying that while there is ‘a lot of evidence accumulating……we have to take time to get it right before dialing back on restrictions.’  Hmmmm, kind of sounds like what JJ has been saying too, no?   Lane went onto say that the March meeting was an important milestone, and that the disinflation process is ongoing.  The inflation rate across the EZ now stands at 2.6% – moving closer to the 2% target, but he was very clear…. they are NOT ready to pull the trigger just yet…. Expect to hear more about this in the next few days.

The S&P closed at 5165 – down 10 pts.  …. As the re-pricing continues on the back of the rate cut narrative.  Futures this morning as noted are up suggesting that investors are confident that the PPI will not raise a RED flag. The VIX – fear index – continues to churn at the lows – remaining fairly calm about the FED’s next move…. It is screaming that rate cuts are coming…. we’ll know they are not if we see the VIX suddenly spike. I’m just saying this is NOT the time to chase expensive growth stocks…. There are plenty of other opportunities. This is not the time to go to sleep….

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.

Sweet Sausage Risotto

This dish can be a first or main course depending on how hungry you are.

You will need:  olive oil, butter, onions, sweet Italian sausage (removed from casing), minced garlic, thyme, Arborio Rice, white wine, chicken broth, frozen peas and Parmegiana Cheese.

In a saucepan – heat up about 6 cups of chicken broth.

In a heavy pan – heat the oil and 1/4 stick of butter over med heat.  Add chopped onion and sauté until soft and translucent. Next add the sausage meat and brown. 

When ready add minced garlic – no more than a tblspn, and some thyme….do not overdo…. about 3/4 tspn.   You can always add less and then taste.  Sauté for another couple of mins to blend the flavors.  Now add 1 1/4 cup of Arborio Rice and about 1 cup of dry white wine…mix well and stir until the wine is absorbed.  Season with a bit of pepper.  NO SALT needed.

 Now – one ladle at a time…add the hot stock to the rice and stir…you must stay at the stove – this is the key.  You need to stir the rice and not allow it to stick.  As the stock is absorbed – add another cup and stir…continue this until the rice is tender and creamy…. maybe like 20 mins…. but taste as you go to determine. (You may not need all of the stock – but just in case you do, you have it.)

Now add 1 cup + of frozen peas…you can always add more if you like peas….and a handful of grated Parmegiana Cheese.   Stir well for about another 5 mins so that the peas have time to warm up……taste.  Taste good?  then you are ready to serve…If not – keep stirring.  Do not let the rice dry out…  This meal should take you about 30 mins – (40 max).

Serve in warmed bowls and garnish with a bit of chopped Parsley…always have extra cheese on the table for your guests.

Buon Appetito