Things you need to know.
– The S&P Makes a New High!
– NVDA continues to stun investors – becoming a $3 trill company. Split happens tomorrow after the bell for trading on Monday.
– Eco data continues to suggest weakness. NFP tomorrow.
– Bonds have Rallied by 5% over the past 4 days.
– Gold up, Oil struggling, Dollar down.
– Try the Rigatoni con Crema di Zucchini e Burrata.
OK – Sports fans…. here we go…. On Monday I said this –
“The S&P closed at 5277 – up 42 pts….leaving us just 53 away from the May 23rd high of 5340….And with the ongoing rate cut narrative alive and well and more positive news out of NVDA that is affecting nearly any industry that uses tech -which is ALL of them, I suspect that we will try to kiss and test 5340 today – which is just up 53 pts or 1.1% from here – futures are already up 10 pts – so what’s another 40 amongst friends?”
So, I was a couple of days early……You see – they are keeping the rate cut narrative very much alive and NVDA continues to impress – up 5.2% or $60 to end the day at $1,224 becoming a $3 trillion mkt cap stock surpassing AAPL in that space. – just fyi – NVDA is up 31% since they announced earnings, the stock split and new chips on a rolling 12-month basis on May 22nd. It is now up 147% ytd…. Amazing!
Yesterday the S&P teased, kissed and pierced the May 23rd high….and ended the day up 63 pts or 1.2% to score another record – 5354. The other indexes all basking in the sunlight…the Dow Industrials + 96 pts or 0.25%, the Nasdaq + 330 pts or 2%, the Russell adding 30 pts or 1.5%, the Dow Transports + 176 pts or 1.2% and the Equal Weighed S&P up 41 pts or 0.6%.
Just 24 hrs. ago – we got another data point – the 4th one this week – and learned that the ADP Employment Change rose by 152k new jobs….25k fewer jobs than estimated…..in addition the prior months read was also revised downward…..and this followed the Tuesday JOLTS report that showed 300k fewer job openings and this followed Monday’s manufacturing PMI’s for both the S&P and the ISM that declined well into contractionary territory…..and this comes just hours away from Friday’s Non-Farm Payroll (NFP) report which is expected to show 185k new jobs and 3.9% unemployment….So, do not get up from your chair…..Order breakfast and lunch in and stay tuned.
On the other hand yesterday, we also got S&P Services PMI and ISM Services PMI – and both coming in strong…..S&P at 54.8 and ISM at 53.8 – well into expansionary territory – (50 is the dividing line) and since we are a 75% services economy this is important as it speaks to the cost of services which are too damn high.
If the NFP report surprises to the downside and the unemployment rate has a 4 handle on it – then watch how much faster this rate cut narrative story gains momentum (clearly if it comes in HOTTER, it will throw that story into chaos) ……but again, be careful what you wish for….Cutting rates because they slayed inflation while keeping the economy firing on all 8 cylinders is VERY different than cutting rates because the economy is about to go over the edge, banks are about to fail, unemployment rises above 4% all while inflation remains HOT…. That is NOT the same bullish story at all.
That, for those of you who have never experienced it, is called STAGFLATION and that is not a pretty place to be. Stagflation is defined by high inflation, high unemployment, and STAGNANT economic growth – the combination of these factors creates a BIG economic challenge for policymakers and everyday Americans.
The last time that happened was in 1978 – 1981 (Carter Administration into the Reagan administration). So, it’s been a while (44 yrs.) since we have experienced stagflation – so the odds are rising that it just might be time….Not what I want to see, but let’s be honest……the odds seem to be favoring that outcome – we’ll find more out tomorrow and next week.
Today we will get a few more data points…. First are the usual suspects – Initial Jobless Claims of 220k (unchanged) and Continuing Claims of 1.79 million (unchanged) and then revisions to the trade balance (non-event for you). Now the two that I think are most important today include – Unit Labor Costs and that is expected to be 4.9% up from 4.7% (suggesting inflation remains sticky). And the Challenger Job Cuts report y/y – This data point tracks the number of announced job cuts in the US. It provides insight into the labor market by focusing on the reasons for the cuts – which range from ‘weakening economic conditions’ to restructurings and mergers. It captures the ‘planned layoffs’ – not the number of people let go, if we get a positive number that is a signal of distress in the economy (increase in planned cuts) while a negative number would indicate stability (decrease in planned cuts). Last month the number was -3.3%….and was considered bullish. Capisce?
Now, bonds loved this news……a weakening economy has to mean lower rates and so we saw the TLT gain 0.7%, the TLH gain 0.6% and the AGG gain 0.3%…and this sent 2 yr. yield to 4.72% and 10 yr yield to 4.27%. Shorter duration bills – the 3 month is now yielding 5.24%, while the 6-month bill is yielding 5.14% on an annualized basis. For those of you wondering – the TLT is up 5.3%, the TLH is up 4.3% while the AGG is up 1.9% in just the last 4 trading days and while they are still negative on the year – they are just a little bit less so.
Swaps traders are now fully pricing in TWO rate cuts in 2024 – one in November and the other in December…but there is a building wave of support for the FED to cut sooner…and while next week is most likely not happening – July appears to be getting HOT….and while they could consider September – I caution you – 6 weeks ahead of the Presidential election? Really? (I also think July is risky as well). I expect everyone to pay very close attention to what and how JJ speaks at the presser at 2:30 pm on Wednesday….and no matter what he says – remember – people hear what they want vs. what is being said….and there is the rub….
I was on The Big Money Show yesterday – and we discussed this very point – along with a new challenger to the NYSE – A Dallas based, Citadel and Blackrock run stock exchange – called the TXSE. Click here:
https://www.foxbusiness.com/video/6354386130112
Oil – which has been a nightmare of late as it considers an economic downturn on top of the planned increases by OPEC+ in October – bounced just a bit off the Tuesday low of $72.48 and is now trading at $74.75. Analysts pointing to a short-term oversold condition…. saying that oil traders went too far too fast. The RSI for oil suggesting that it was approaching ‘oversold’ territory – so we got a ‘technical bounce’. I think oil remains in the $70/$80 trading range until we get more economic clarity.
Gold as expected surged higher yesterday on the news – UP $28 to end the day at $2375/oz. Now, we’ve talked about this…. lower rates will weaken the dollar and that will support gold and other precious metals. This morning gold is up another $7 at $2382/oz leaving us in the $2300/$2400 trading range.
US futures are digesting the move up yesterday as they consider the implications of lower rates. Dow futures down 36, S&P’s up 1, Nasdaq +28 and the Russell is down 3. Now we are swiftly approaching the end of the 2nd qtr.….and by all accounts – it hasn’t been a bad year so far…… Now July marks the second half of the year – Goldman tells us that they expect a ‘wall of money to pour into the market in July’ – which sets us up for a continued rally. Scotty Rubner who is Global Mkts Division MD and Tactical Specialist at Goldman tells their clients that it’s a ‘new quarter and a new half of the year and this is when money comes into the market quickly’. He points out that ‘Since 1928, the first 15 days of July have been the best two-week trading period of the year for equities. He also notes that the S&P 500 has been positive for 9 straight July’s – posting a 3.7% return, while the Nasdaq has performed better – up 16 straight Julys – posting an average gain of 4.6%.
In Europe – markets are the edge…. Yes, they are higher, TECH leading the charge, but investors there are awaiting the ECB decision later today. (correction from yesterday, where I said it was expected yesterday – that was my mistake, had my days mixed up). But everyone is now expecting Madam Lagarde to announce a 25-bps cut – why?
Because that is what they have prepared the markets for – numerous ECB members have all but guaranteed it…so if they choose to not cut, watch out below….and since that is something they do not want to see, I like everyone else – expects a rate cut. Expect everyone to be listening to what she says as well….is she suggesting more cuts to come in the months ahead? How many? Will the latest uptick in Eurozone inflation change her narrative? – The smart money says that this is the start of 150 bps cuts that will take the ECB through 2025. At 5 am…. we see Germany up 1% with the UK carrying up the rear up 0.25%.
This move follows the Bank of Canada’s decision to cut rates by 25 bps yesterday…. from 5% to 4.75% while indicating that there is more to come. This makes Canada the leader of the pack – They are the first of 7 central banks to kick off the easing cycle. (FED, The ECB, The BoE, the BoJ, SNB, BoC, RBA).
The S&P closed at 5354..up 63 pts… Closing in on the high….which usually means new highs beget new highs and so we wait….….Now technology is still driving this move up….NVDA is just $100 billion away from taking over Microsoft as THE most valuable stock in the US. And while that seems like a lot, it’s only $100 billion. Now be careful…. The market is being driven by a handful of tech companies and we know how quickly that can all change. Be prudent with your money…. understand the risk of overweighting…. If you are in the 20 – 50 range a bit less so, but in the 50+ range – you just need to get comfortable with being a bit uncomfortable. If you are not – then you’ve got too much at risk.
Remember – the data this week coupled with the CPI, PPI and FOMC announcement next week – can and most likely will create some volatility. The S&P and Nasdaq are kissing the 70 line on the RSI chart – which just means – that Tech is the driver – so don’t chase it…..and it usually suggests a pullback is near….the Russell, the Dow, and the Equal Weighted S&P are not….which just means – There are opportunities out there. Again, while we are not knocking on ‘deaths door’ – evidence is building that the economy is starting to slow – whether we get to deaths door is still up for debate – which is why so many continue to scream for rate cuts….
Call me to discuss a long-term game plan to help you create long term and generational wealth.
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.
Rigatoni con Crema di Zucchini e Burrata (How great does that sound?)
OMG…so good.
For this you need – 3 zucchini, garlic, olive oil. Rigatoni, burrata, s&p, Chicken stock, fresh grated parmegiana, lemon zest and mint.
Begin by bringing a pot of salted water to a rolling boil – set on the back burner.
Now in a large sauté pan – add some olive oil, and 2 cloves of sliced garlic. Now add in 2 zucchini’s – diced up. Season with s&p. Add some mint, maybe 2 or 3 leaves. After 5 mins – add ½ c of stock and let it cook for another 5 – 8 mins. When they are soft and the stock has mostly evaporated – place in a food processor and blend, you can add a handful of grated parmegiana here if you want. I always do!
Now take the other zucchini and slice it into rounds. Now fry them in the sauté pan with olive oil. Season with s&p. When they are all browned – remove and set aside.
Now add the pasta to the water and cook until al dente – 8 mins or so. Strain the pasta, always saving a mugful of the pasta water (tears of the Gods).
Add the pasta to the large sauté pan – add in the zucchini cream, and a bit of water. Stir to coat well.
When serving – place the rigatoni in the bowl, top with a bit of lemon zest and some of the fried zucchini. Finish by slicing the burrata into quarters and then place one qtr. on top of the Rigatoni. Delicious.
Buon Appetito
