Things you need to know.

–        Investors wake up and take AAPL up 7.5%.

–        Tech loved it and advanced by 1.8%.

–        10 yr. Treasury auction was well received- prices up, rates down.

–        Oil surges on drop in inventories, Gold continues to bounce around.

–        CPI at 8:30, FOMC at 2 pm

–        Try the Risotto Chianti

So, stocks had another interesting day yesterday…the Dow lost 120 pts, the S&P gained 15, the Nasdaq gained 151 (thank you AAPL), the Russell lost 8, the Transports gave up 136 while the Equal Weight S&P lost 25.  Clearly TECH and more specifically AI – continues to be the way, the light and the hope.   Don’t confuse sectors that USE tech vs. sectors that CREATE that tech as the same – Every sector uses technology, and every sector is using AI but not every sector advanced….

The XLK added 1.86%, while Communications – XLC rose 0.2%, All the other sectors of the S&P lost ground – with Financials down 1.2%, Utilities down 0.6%, Industrials – 0.6%, Healthcare – 0.4%, Real Estate – 0.3%, Consumer Discretionary – 0.25%, Energy – 0.2%, Consumer Staples and Basic Materials – 0.1%.  

AAPL which was weaker on Monday, down ~2% during their WWDC event when there was some confusion over what they were doing at the company in the AI space as Lonnie (Musk) expressed dismay over their plans to incorporate OpenAI into their iPhone 16 – rebranding AI from ‘Artificial Intelligence’ to ‘APPLE Intelligence’.  On Monday – the algo’s went into sell mode and the stock traded lower….but overnight the algos reconsidered the news and suddenly did a 180 and became aggressive buyers….taking the stock up 7.5% or $14/sh to make a new high – $207.15….so much for all of those analysts that were quick to cut estimates on the back of Monday’s events…..It’s like I always say – it’s AAPL – why are we even discussing it?

Beyond AAPL – it was a quiet day as we all await today’s news……by now you know it’s all about the May CPI – which is expected to be benign and the June FOMC meeting (announcement due out at 2 pm) – where JJ is expected to announce nothing new, rates to remain unchanged but could be heading lower in the months ahead IF the data demands it.  It’s hard to see him saying anything but this…in fact – recall Nicky T’s WSJ article yesterday…in it – he laid out what we are about to hear from JJ today at the 2:30 pm press conference – which is exactly what I just told you…. So, the markets should not be surprised at all…

Did you see Senator Warrens letter to JJ Powell yesterday?  In it she says that she wants to express her concerns of the damaging impact of the FED’s 2022/2023 interest rate hikes on major ‘renewable energy’ infrastructure projects across the country (think solar & wind)….She then goes onto tell him that the ‘rapid rise’ in interest rates – (11 months – hardly rapid when inflation shot up from 1.6% to 9.4% in 8 months and he laid out the schedule of hikes very clearly) has taken them to the highest levels in over 20 yrs. ( Let me remind Lizzy that 16 of those were 0 interest rates- or did she forget?) – but here is the kicker – her letter is not because she is concerned about American’s – oh no, it’s because she says that high interest rates has the potential to halt advances in ‘renewable’ energy technology and delay the country’s ability to combat ‘climate change’.  Higher rates are now responsible for climate change?

Let me remind Lizzy – that the FED was forced to raise rates to historically normal levels after congress (both sides) spent money like there was NO tomorrow – What did she really expect? She must have skipped Econ 101 & Econ 201.  Asking JJ to cut rates to support renewable energy infrastructure projects is laughable….…. Renewable infrastructure is not part of the FED’s mandate – can someone please let her know.  What will she say if inflation rears its ugly head again (entirely possible) and the FED raises rates?  Now while I am not in that camp – but I do give it a 10% probability of happening.

On the other hand – at 8:30 am – it will be all about the May CPI report…and the market is actually expecting this report to be better than expected – meaning m/m and y/y data points to be lower than the consensus estimates.  Remember – top line CPI is expected to be +0.1% m/m (down from 0.3% last month) and + 3.4% y/y (in line with last month).  Core CPI of + 0.3% m/m (flat with last month) and y/y of +3.5% (which is down from 3.6% last month). 

If they come in as expected – it would support the recent push to new highs……as the rate cut narrative remains the story….in this case – what a declining CPI will say is that inflation is coming down – and the FED is succeeding, so it’s ok to cut rates…vs. inflation remains sticky, yet the economy is weakening to quickly so we NEED to cut rates to stop the bleed – those are two very different stories….so be careful what you wish for. The first is positive while the second is less so….

In addition investors will be looking for any other clue that inflation is easing….Recall that Jan, Feb and March all came in ‘hotter than expected’ – pushing the idea of a rate cut OFF the table while putting a rate hike ON the table –  April was a bit ‘better than expected’ that suddenly took rate hikes OFF the table and put rate cuts back ON the table – right now November & December are the expectation….some though, are pushing the July/September time frame as the preferred path….a path which you know I think would be seen as partisan as it is well within the 6 month window of a Presidential election.. – so this reading is important….But remember – last month’s PPI was much hotter than expected, so it almost seems illogical that this month’s CPI could be better – because higher prices in the PPI get passed onto us in the CPI….unless of course manufacturers are choosing to eat those higher prices (hurting their margins) and NOT pass them along to the consumer -but again I ask – who is doing that?

Now to be fair – the energy component of CPI will or should show some relief as oil prices did decline from April thru May – so in fact – we might see lower energy prices offset higher prices in other parts of the reading….so we need to see the report….but anything that shows a decline will be met with all kinds of applause.

10 yr. treasury demand surged yesterday on the $39 billion auction….Demand jumped to its highest levels in many many months….….Indirect bidders taking 74.6% of the sale – this vs the average 64.1%…Bid to cover was 2.67 x’s – suggesting a spike in demand – which might suggest investors are worried about slowing economic growth – thus locking in higher rates.  You can also argue that Int’l bond investors rushed into the US market as political unease across Europe intensified – (think France) …and US yields are at least 1 full percentage point above French rates (3.31%) and nearly 2% points higher than German Bunds (2.67%).  The 10 yr. yield fell to 4.40% down from 4.46% on Monday. The 2 yr. fell 5 bps to end the day yielding 4.83%, down from 4.88%. 

Gold which has tested $2300 twice now – Friday and again on Monday on the idea of lower rates – bounced a bit yesterday to end the day at $2325…and this morning it is up $3 at $2328…. leaving it still well withing the $2300/$2400 range.  Now if we get a softer CPI and a dovish FED – then watch as gold moves lower – slicing right thru $2300 – testing intermediate support at $2255….as the rate cut narrative takes on a new life….and if that is so, I would expect to see the odds favor that July/September time frame – so sit tight.

OIL – which rose 3+% on Monday – taking it through long term resistance at $77.54 – left it kissing intermediate resistance at $78.45.  Yesterday – it churned in a tight range.  $77.90/$78.36 and this morning – oil is up $1 or 1.27% at $78.89 pushing right up and through intermediate resistance – putting it now in the $78.45/$79.85 (intermediate/short term trendlines) trading range.

The API reported that crude inventories FELL by 2.4 million bpd vs. the expected 1 million bpd all while the EIA raised their 2024 world oil demand growth forecast by 1.1 million bpd up from 900k.  OPEC is also maintaining their strong growth forecast for 2024.  The IEA though (yes IEA not EIA) is pushing the idea that the industry is facing ‘major surpluses’ before the end of this decade – which is 6 yrs. away….

US futures are all up this morning…. Dow futures + 30, S&P’s up 5, Nasdaq + 25 and the Russell up 1.  Look – the FED is no longer in the lead….we’ve seen Sweden, the ECB and the BoE all cut rates last week….even in the face of simmering inflaton….so while today might be a big day in the US for this discussion – it is not driving the global conversation…..that has already happened….so will the FED follow suit or will they hold the line? 

And that is what the Dot Plot will reveal…. recall our discussion on this point on Monday…. speculation says that the dot plot will indicate 2 rate cuts this year…. vs. the 3-rate cut plot introduced in March. Analysts are suggesting that a dot plot that reveals 2 rate cuts will be a positive pushing markets higher… I say – the market has already pushed higher – ahead of that move…that is the narrative that the market believes even as JJ has NOT committed to that specifically.  The question is – Will he finally commit to a time frame or not? THAT is what will push the market– a commitment, not an innuendo. And remember – one cut does not mean more are coming…it just means we had one cut….and now let’s see what happens.

In any event – do not get up from your chair….it all begins at 8:30 am…. And btw – the FED has already made their decision…. today’s CPI is not changing today’s outcome…it might though ‘tweak’ his responses to reporters’ questions during the presser.  I will be on with Liz Claman (Fox Business) at 3:20 ish to dissect and digest this latest event…Join me, won’t you?

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

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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.

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Risotto Chianti

A Tuscan favorite.  This works great as a first dish or it works great as a side dish with a grilled steak, veal chop or pork chop.

For this you need the basics: Chicken Broth – heated, Butter, 1 Finely Chopped Onion, 2 Cups Arborio Rice, 3 Cups Chianti Wine, Grated Pecorino Toscano Cheese*

Heat the butter in a heavy saucepan, then add the onions and cook until they are translucent.  Add the rice and stir until it is well coated with the butter.  Add 1 cup of the wine and stir continually over medium heat until it is absorbed.

Now add ½ cup of hot broth stir – now add ½ cup more of the wine alternately, stirring as it is absorbed until you have used it up. (Do not add more than 2 cups of Chianti).  Continue doing this for about 20-25 minutes or until the rice is cooked but remains slightly firm to the bite.

 Remove from the heat, add a dollop of butter and a handful of cheese.  Stir.

 Serve in a warm bowl and always have more grated Pecorino Toscano cheese at the table for your guests.

(*Pecorino Toscano cheese is a firm textured cheese that is produced in Tuscany – thus adding to the allure of the dish.)

Buon Appetito