Things you need to know.

–        Stocks started the week with a BANG!

–        40% of the S&P to report this week.

–        All Eyes on TECH – Can they deliver?

–        Oil & Gold Retreat as Tensions Ease.

–        Try the Sweet and Sour Chicken

Stocks had been under pressure for 6 days, tech names and smids taking it on the chin as investors finally accepted the idea that there won’t be any rate cuts in 2024 and in fact – there may be a rate hike…..on the back of that news – we saw the S&P decline by nearly 6%, the Nasdaq down by 7.5% and the smids (small & Mid-caps) lose 8.3%…….

And this is how yesterday’s note started –

The Nasdaq RSI (relative strength index) is now at 30.1323 – leaving this index sitting atop the oversold trendline (30) … the S&P RSI is sitting at 31.2916 – again right atop the oversold trendline- which doesn’t mean it can’t go lower – it just means we might get a bounce before we go there.

Stocks kicked off the week with that BOUNCE….  The Dow rose 254 pts or 0.7%, the S&P up 44 pts or 0.9%, the Nasdaq rallied by 170 pts or 1.1%, the Russell up u20 pts or 0.9%, the Transports gained 140 pts or 0.9% while the Equal Weight S&P added 52 pts or 0.8%.

Investors, traders and algo’s seemingly unaware of the $2 trillion selloff over the past couple of weeks – appeared to go ‘all in’ on Monday as the markets ready for a deluge of Treasury notes to hit the bond market while a deluge of earnings reports hit the stock market this week.  Big hedge funds – who have been net sellers of stocks over the past month have suddenly all turned buyers – according to Goldman Sachs’s trading desk telling us that they can’t ‘buy stocks fast enough’ – which is always interesting to me because when they all turn negative – they can’t sell them fast enough and then when they change their minds – they can’t buy them fast enough…

More than 180 of the S&P 500 companies will walk the runway this week in the quarterly beauty pageant…..and the stakes are HIGH across the board – but even higher for the BIG Tech names that are due to report – Bloomberg Intelligence reports that profits at the Magnificent 7 are expected (meaning the market has priced that into current prices)  to rise by 40% y/y – so any sense of a miss or any sense of weaker forward guidance any sense that AI is NOT delivering on earnings and future profits will be a disaster and will send the algo’s into a selling frenzy.  Remember – the market also expected 5 – 7 rate cuts in 2024 and when it realized that that was NOT happening – what did they do?  They sold stocks hard!  So, if big tech misses on earnings, then get ready for another downdraft. It is going to be an interesting couple of weeks, and it all starts today…. TSLA after the bell, META Wednesday after the bell, while AAPL, INTC & MSFT all report on Thursday after the bell.

Concerns about whether or not they can deliver on these earnings are now top of mind…..JPM’s Mislav Matejka is in the camp that hotter inflation, higher rates, stronger dollar and rising geo-political tensions are creating legitimate concerns for earnings, while Morgan Stanley’s Mikey Wilson – who wrongly expected stocks to crash in 2023 – is expecting profits to improve as the economy strengthens… In a quarterly ‘Bloomberg Markets Survey’ 275 analysts out of 410 are expecting earnings to send stocks higher in the weeks ahead – it should be noted that this is the highest vote of confidence in quarterly earnings reports recorded since this poll was born in October 2022 and in a funny way – could end up being a contra indicator – 2/3rds of the respondents expect the market to go higher – which is exactly why it may struggle.

Every one of the 11 S&P sectors ended the day in the green – and it was a tight race –  with Financials – XLF leading the way – up 1.2%, Consumer Staples – XLP added 0.95%, Utilities – XLU up 0.92% followed by Tech  – the XLK up 0.89% while Real Estate – XLRE added 0.80%, Industrials – XLI + 0.75%, Energy – XLE +0.65%, Healthcare – XLV + 0.4%, Consumer Discretionary – XLY +0.4%,  Communications – XLC +0.15% and Basic Materials – XLB +0.1%.

We also saw strength in the airlines – JETS + 2.5%, Homebuilders – XHB +0.8%, Disruptive Tech – ARKK + 1.4%, Semi’s – SOXX + 1.6%, Oil & Gas Exploration – XOP + 0.8%, Aerospace & Defense – XAR + 0.5%, Value – SPYV + 0.8% while Growth – SPYG gained 1%.

As expected – you found weakness in the contra trades – the ones that get you short the market – DOG – 0.6%, PSQ – 1%, SH -0.8%.  And FEAR had no place in investor minds yesterday – as the VIX fell 9% and the VIXY -7.5%.

Bond prices declined just a bit –as investors are preparing for record amounts of 2, 5 & 7 yr. treasury notes to hit the market this week – potentially causing yields to rise.  The TLT lost 0.2% while the TLH was down 0.25% – 2 yr. yields holding steady at 4.98%, 10 yr. yields at 4.62%.

Oil declined yesterday after it was clear that Tehran is not going to escalate the ongoing conflict with Israel…. WTI ended the day at $81.90.  This morning oil is trading at $82.69 up 80 cts as the focus returns to simple supply/demand fundamentals but do not discount a surge in oil if the conflict heats up again.  As noted, – we remain in the $80/$90 trading range.

Gold is also under pressure – this morning it is down $24 at $2320/oz after the spectacular surge over the past 6 weeks – caused by all of the political tension and threats of war across the mid-east.   Economic data this week is sure to offer clues on what the next move by the FED will be.  Friday’s PCE Deflator – the FED’s favored inflation gauge is expected to show ongoing simmering inflation – which supports the more hawkish narrative that is now the accepted norm. Under normal circumstances – higher rates are good for the dollar and bad for gold – but when you toss in all of the geo-political tensions that argument goes out the window – fear causes investors to go into the ultimate safety trade – no matter what rates are doing…so when that fear subsides – money will move out of gold and into other asset classes.  My sense is that we could see gold retreat to $2225 ish…. IF tensions remain subdued. Another spike in tensions will see it go right back to $2400.

US futures are up this morning as the excitement builds…. Dow futures are up 65, S&P’s up 10, the Nasdaq up 50 and the Russell is up 5.  Earnings this morning include a range of names representing a range of industries: DHR, GM, SHW, NEE, JBLU, LMT, RTX, KMB, GE, HAL, PHM and then after the bell – all eyes will be on TSLA, TXN, STLD & BKR.

Eco data today is all about US Services and Manufacturing PMI’s, New home Sales and both the Philly and Richmond Fed surveys.

Across Europe – markets are higher for the second day…. strong earnings and positive eco data across the Eurozone helping to boost sentiment.  In what we hope will be the story here for tech – yesterday – SAP jumped by 5% as a ‘boom in demand for AI fueled this software giants growth’  In addition – Novartis gained 5% as well after raising full year guidance – think the blockbuster GLP1 drugs  (weight loss)… this morning markets across the region are up between 0.4% and 1.2%.  

The S&P closed at 5010 – up 44 pts after bouncing off of trendline support at 4940 – yet it still remains below the short term trendline at 5116.  Yesterday I told you that the S&P needed to hold the trendline if we were going to have a chance at a rally – we did and we rallied….Now if earnings disappoint today and if forward guidance is not robust – then I suspect we will trade off and test that level again….right now at 5 am – that does not appear to be the case….but we know how quickly that can change.  A failure to hold 4940 will ignite another round of ‘technical selling’ and while futures are pointing higher this morning – I am not sure that the pullback is over…. Pay close attention to the headlines today…listen to what the C-suite says about the future and where they see potholes (if they see potholes).  The next couple of days will be all about AI – so sit tight.

The market continues to reprice the new narrative…- higher rates for longer and no cuts in the foreseeable future. This is the time to remain strategic….. stick to your plan, talk to your advisor…..If you are nervous – then raise some cash and put it aside and if you have a large cash position already then you can relax a bit and let this play out…..This is not the time to bail, but nor is it the time to chase stocks, it is time to sit back , take advantage of mispricing’s and see how this plays out….

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 & Sour Chicken

Sweet and Sour Chicken – kind of goes with the mood…. the markets are sweet, but the geo-politics are sour…. (Work with me here….)

You need: Boneless chicken pieces – thighs and breasts, olive oil, s&p, diced onion, chopped carrots, chopped celery, plenty of sliced garlic cloves – 6+, ¼ c sugar, 1 c Chianti, ½ c red wine vinegar, ½ c orange juice with pulp, *sliced almonds – optional.

Cut the chicken pieces into bite size pieces – Season with s&p – set aside.  In a heavy frying pan – heat up some olive oil, – now brown the chicken on all sides.  Remove and place on a platter.

Now add the garlic, carrots, celery, and onion – sauté for 10 mins on med heat…. Now add the sugar, wine, vinegar, orange juice, and almonds…. bring to a boil – add back the chicken – Place a lid off center and turn heat to simmer.  Cook for about 20 mins.

Now remove chicken and place on a platter, – turn heat up to high and stir until it is nice and thick…not long…maybe like 4 mins max…. taste – adjust seasoning with s&p.  Spoon the sauce over the chicken pieces and serve.

This dish works well with a green veggie – like French cut green beans or broccoli.  Make a large mixed green salad with tomatoes, red onion and cucumbers.  Dress in a balsamic Vinegar and Olive oil dressing.  Keep it simple – as the chicken and marinade carry the dish.

Buon Appetito