Things you need to know.

–        Cautiously optimistic

–        APPL & Lonnie get into a fight…. Or is Lonnie just trying to pull rank on Timmy?

–        It’s all about the CPI & the Dot Plot on Wednesday.

–        Bonds flat, gold flat and oil up as speculation builds that JoJo is re-supplying the SPR.

–        Nicky T – drops an article in the WSJ – Telling us what to prepare for.

–        Try the Greek Shrimp.

Cautiously optimistic……that is how we can describe yesterday’s action…. Stocks eked out gains as the week began and investors, traders and algo’s prepared themselves for 2 readings on inflation and the latest FOMC (Federal Open Mkt Committee) meeting…. …the Dow up 70 pts, the S&P up 14 pts (to make another closing record high), the Nasdaq + 60 pts (it too making another closing record high), the Russell added 5 pts, the Transports up 137 pts (standing out as the clear winner in percentage terms +0.9%) and the Equal Weight S&P added 16 pts.

What is interesting is that APPLE did not participate…. The stock fell nearly 2% and this morning it is down another 0.9% – as the market was apparently unimpressed at the Apple WWDC (Worldwide Developers Conference). The stories all appear to be exciting – New Apple Intelligence, ChatGPT, New products, next generation iPhones, iPads and MacBooks, they announced a new software generation – IOS 18.  All while Sr. VP – Craig Federighi jumped out of a plane to kick it off. Maybe Timmy should have been the one to jump? 

One issue is that Lonnie Musk is not happy with Timmy and has threatened to ‘ban all devices’ at his respective companies IF Apple integrates OpenAI into its operating system….saying that it is ‘patently absurd that Apple isn’t smart enough to make their own AI, yet is somehow capable of ensuring that OpenAI will protect your security and privacy.’  To be clear – Apple has apparently created their own AI tech – called Apple Intel and ChatGPT was only an additional feature – but this is where the big boys get to duke it out….

The VIX (fear index) fell by 4.25% – testing a low of 12.10 –  suggesting that there aren’t going to be any surprises this week….which is in itself a ‘red flag’ – considering that both JPM and C are out there ‘urging investors to prepare for a jolt after Wednesday’s CPI and the US rate decision’.  In this case – a jolt is more indicative of move lower rather than a move higher….

Remember – CPI – while expected to be benign and come in inline – could see an unexpected tick higher (reiterating the stickiness of inflation)  after last month’s stronger than expected PPI report….and while the FED is expected to hold still on rates – it will be the language that JJ uses in his press conference along with the latest ‘DOT Plot’ results that could cause any rumblings…. 

Recall that the Dot Plot is the individual projections – by each member – regarding the future path of interest rates. Each dot represents their own view on where rates should be at the end of the current year and then the next 2 yrs. This is a quarterly event – so the June meeting (like the March, Sept & Dec) carries a little ‘extra anxiety’. 

Now, there are a number of economists who still expect them to signal that 2024 will bring 2 rate cuts, while others see just one or even none ( I remain the none camp)….It remains a guessing game – and we can guess all we want – but if the FED is going to follow their own analysis – then I do not see how rates can come down at all, as the data is not supporting it (at the moment) – but if they do suggest a cut or two – it is because they ‘think’ that the data will turn and support it in the months ahead – which is always a hoot, because remember what they ‘thought’ in December of last year….3 cuts and then the trader types took that and morphed it into 6  – 7 cuts – one each month starting in March….Yeah, not so much…But it is what it is and the dot plot will be what it will be, JJ will say what he says and investors and traders will hear what they want to hear and the algo’s will either go into ‘buy mode’ or ‘sell mode’.  Doesn’t’ get any more complicated than that. 

I guess what the market’s action is telling us is that investors, traders and algo’s are all moving to that camp as well, but doing so ever so cautiously…as the move up yesterday was NOT accompanied with any surge in volumes – which would represent real commitment – it more just drifted higher….which again is another sign of cautiousness.  And don’t discount the fact that the market is a predictor, it is NOT trading on what is happening today – it did that 4 months ago, it is trading on what it thinks will happen 4 months from now…so if they do suggest 2 cuts in 2024 – the market has already discounted (expected) that so, do not be surprised if we saw some ‘profit taking’.  Additionally, if the plot does NOT suggest 2 cuts, then watch out even more – as the algo’s will all run for the door – in what is an all too familiar ‘panic trade’. 

The Bond market sold off a bit more after a weak $58 billion 3 yr. note auction and ahead of today’s $39 billion 10 yr. auction.  The TLT – 0.7%, the TLH – 0.4% while the AGG -0.1% – Yields on the 2 yr. held steady at 4.87%, while the 10 yr. yield added 3 bps to end the day yielding 4.46%. 

Gold – which tested resistance on Friday at $2400, when traders thought the NFP & unemployment data pointed to lower rates, did a 180 when it was no longer clear what the data suggested. (NFP was ‘good’ – was it? While the Household Survey was ‘not so good’) Yesterday morning it tested support at $2300 before settling down at $2328/oz.  This morning it is down $5 as gold traders await…. –

The dollar index – which moves int the opposite direction of gold (and other precious metals/commodities) pushed higher yesterday (suggesting no rate cut) – piercing thru its short term moving average trendline (resistance) at 105.09 to settle at 105.18 and this morning the dollar is up  0.8 – trading at 105.23….Remember – the dollar will move higher when global investors think that US rates will remain higher (or go higher) – higher US rates will attract investors into the dollar, causing it to move UP,  while lower rates will see the dollar pull back.  So, again, the action in the dollar is telling us that dollar traders are not yet convinced that lower rates are in the near future.

Oil rose by $2.70 or 3.25% to end the day at $78.20 – you want to guess why?  ‘Hopes’ of higher seasonal demand (think summer driving season), stronger eco data out of China and the potential for JoJo to buy oil to resupply the SPR (Strategic Petroleum Reserve).  Ok – look, if JoJo was going to do that – he should have been doing it when oil was trading down at $72/barrel not when it’s trading up to $80/barrel, but then again – is JoJo really making that decision? Oil remains in the $70/$80 trading range…. this morning it is sitting on top of its long term trendline ($77.50) rather than below it, so that is a positive…it just needs to stay there.

US futures are all lower….…. The Dow futures down 150, S&P’s down 15, Nasdaq down 60 and the Russell down 15.  Futures markets are now pricing in a 49% chance of a September cut (down from 60%) and upping the odds for a November cut….so for now, just sit tight…there is no reason. 

Nicky T – WSJ fame – naturally publishes a piece in this morning’s WSJ –

“Investors on Tenterhooks for Fed’s Latest Rate-Cut Projections”

 and in it he says that the FED does not NEED to do anything and that investors ‘will obsess’ over Wednesday’s decision…. (which is true on both counts) …. Capisce?  Remember – he is ‘deep throat’ – he speaks for the FED when the FED can’t speak for itself and right now the FED can’t speak for itself…. but they can tomorrow!  Nicky just prepares the markets and investors for what we can expect to hear from JJ.  He goes onto say that the FED is on hold and ‘likely to keep the guidance in their closely parsed policy statement that teases that their next rate move is more likely down than up’.  (without committing to a specific date or time).  He then goes onto explain how they are backed into a corner, so navigating the next move is KEY…and is obviously the obsession….

Investors and traders ARE bracing for more volatility this week ahead of the FED/CPI double whammy and we are seeing that this morning… The VIX is up 2.6% in the pre-mkt ……Trendline resistance is at $14.10….up 8% from here….a spike higher today – will suggest that traders are becoming a bit more unsettled over what they will hear tomorrow….which is why – you – as a long term investor just need to sit back and be patient….a 25 bps move 4 months from now is not a historical event by any stretch – it still leaves rates well within the long-term normal band of 4% – 6%…. but it is the message that a cut makes…does one cut mean more are coming?  Not necessarily…. that is yet to be determined.  Remember it is all about being hawkish or dovish…. or how hawkish or dovish he is…

European markets are all under pressure – this after France’s Manny Macron called for a SNAP election – suggesting that his days are numbered…. Rumor has it that he is ready to resign – which has been emphatically denied. French bonds (known as OAT’s – Obligations Assimilable du Tresor)) fell, sending 10 yr. yields higher overnight…rising 8 bps to 3.31% – and this has widened the spread between the French bonds and the 10 yr. German Bunds by 64 bps (German 10 yrs. are yielding 2.67%). Recall the US 10 yr. is yielding 4.46.  Mkts across the zone are all down between 0.7% (FTSE) and 1.4% (Spain).

The S&P closed at 5360 – up 69 pts to close at a record. I still expect that we will have plenty of volatility this week – as investors, traders and algo’s prepare for and then digest the information. Remember – people hear what they WANT to hear vs. what is being said… So, what will JJ say? How will he say it?  Will he have changed any of the language? 

While a pullback is imminent – do not rush…. Short – term Trendline support is at 5190 – representing a 3.25% move, Intermediate Trendline support is at 5115 or a 5% move….Keeping cash on hand – that is earning 5%+ is an investment decision as we wait to see how this unfolds…You are invested – so you are not missing out and if we pull back you will have new opportunities to put more money to work.  Remember – do not chase names/sectors that are extended. 

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.

Greek Style Shrimp

This is another simple summer dish – works well for a back yard cookout and considering that the summer is about to kick off – then make plans for this dish.

You need:  1 ½ lbs. of cleaned and deveined Jumbo shrimp, olive oil, ouzo, smashed garlic cloves, lemon zest, s&p, 1 med yellow onion, 1 med red bell pepper, 1 med green bell pepper, ½ tsp red pepper flakes, 1 -28 oz can of diced tomatoes – drain the juice but keep it in a bowl, white wine, chopped parsley leaves, feta cheese and fresh dill.

In a large bowl – mix – olive oil, 1 tbsp of ouzo, 2 smashed garlic cloves, the lemon zest, s&p, – add the shrimp, toss to coat and set aside.

In large skillet – add some more olive oil and add in the chopped onion, and the diced red and green peppers – season with s&p – cover and cook until soft.  Maybe 5 mins….and then remove the cover and cook for another 5 mins… Add more smashed/chopped garlic, and the red pepper flakes.  Add the diced tomatoes and about 1/3 c of the juice, 2 tbsp. of ouzo – raise the heat to high and then turn down to simmer for about 5 mins….it should thicken a bit, but do not let it dry out.

Now add the shrimp with any of the juice that might be in the bowl directly to the skillet. Stir to coat, keeping the heat on simmer.  Cook until all the shrimp turn pink on both sides…maybe 7 mins or so…. Remove the pan from the heat and top with the crumbled feta – add the dill and bang – it’s done.  Serve immediately….

Buon Appetito