Things you need to know.
- The FED served up a bowl of Lucky Charms.
- And they are sticking around now until at least 2024!
- Rates to remain at zero, while inflation and the economy heat up.
- 10 Yr. Yields spike to 1.71% and the sun has not even risen yet.
- Bitcoin up, Oil down
- Try the Halibut.
Bingo –
Fed Chair Jay Powell keeps serving it up……Now, I would say Kool Aid, but yesterday was St Patrick’s day so I’ll say – a bowl of ‘Lucky Charms’ that was ‘magically delicious’…..investors loved it and ate it all up…..because he said just I had suggested he would……Let me repeat – RATES ARE NOT GOING UP (EVER)…..- that’s me not him – but that is what the market heard….Never ever…..again…..and the Nasdaq which had been flirting with negative territory all day – heard those words and went BOOOOOMMMM! Going from -160 pts to + 120 pts or a 280-pt. swing in 60 mins…. before it settled 54 pts or +0.4% by the closing bell. The Dow, S&P and Russell had all been up all day and ended the day higher – up 190, 11 and 16 pts respectively.
Now I say never ever because guess what he did say…. he said that the FED is projecting near zero interest rates now through 2023……. that is not a typo…. I did say 2023…so he just added another 12 months onto the original plan – which had been through 2022…. ….so, to quote my good friend Larry Kudlow – “I don’t think they will ever raise rates in my lifetime!”
In his press conference – Jay said as he referenced the dot plots –
“The strong bulk of the committee is not showing a rate increase during this forecast period, the time to talk about reducing the central bank’s asset purchases was NOT YET.”
The DOTS now show that 7 out of 18 officials see higher rates by the end of 2023 – which would only mark the start of any withdrawal of the ultra-easy monetary policy program currently in place.
In his statement he also recognized that while economic activity and employment have ticked up ‘recently’, some of the sectors and a large part of the minority community that got hit the hardest during this crisis remain weak and inflation continues to run below the magic 2% target. Now speaking of inflation – he also reminded us that he and the FED expect to see a ‘bump’ in inflation in the coming months but believes it will be short-lived. Now let us be clear – Websters Dictionary defines Bump as ‘a sudden rise or uneven area in a road surface likely to jolt a passing vehicle’ Key words here include – sudden, uneven and jolt! So here is what the brain trust is thinking…. Inflation will spike to 2.4% this year then fall back to 2% next year……and if you take out the very volatile food and energy names – then they expect inflation in 2021 to only be 2.2% before falling back to 2% in 2022. So, is 2.4% HOT? Or is it within the range of a normal standard deviation? I mean my thought was more like 3%+ as HOT – so in retrospect 2.4% is hardly what I would consider HOT…. but again – What do I know?
So – here is the bottom line – rates to remain at zero – where they have been for more than 12 months and the FED will continue to buy $120 bil of Treasury bonds and mortgage-backed securities – otherwise known as MBS’s monthly. They also expect the economy to recover MORE quickly than before, raised their estimates for GDP and acknowledged that vaccinations and trillions of dollars of stimulus will cause the US economy to push ahead even faster than originally thought…….
Which leaves me to ask – if you have upgraded all of those things then why would you push out zero rates for an additional 12 months? There is a disconnect, no? Is it because of the coming massive tax hikes that the FED thinks they should remain accommodative because those tax hikes imposed during a period of crisis may just send the economy reeling again resulting in another gov’t created crisis? Is that why they are extending zero rates? I mean – it is food for thought…. just sayin’….
Now to be clear – he also reiterated that idea he would be concerned if the markets became unstable…. saying that “I would be concerned by disorderly conditions in markets or by a persistent tightening of financial conditions that threaten the achievement of our goals – and that the stance of monetary policy is appropriate.” Really? So – it is all about the stock market…. because – apparently the market is not going to be able to self-correct as it should when conditions become stretched……. Can you imagine what’s gonna happen then in 2024?
Now overnight – futures continued to trade higher as the celebration continued….and then as the sun made its way around the globe and the clocked ticked at 5 am along the east coast – traders/investors and algo’s began to reconsider what’s next…..Now understand – Asian markets ended higher, European market are trading higher but now US futures have turned lower… while the 10 yr. treasury is spiking higher…..at 5:45 am – the S&P’s are off 16 pts, the Nasdaq looking to open lower by 150 pts, the Russell off by 12 – only the Dow remains positive – up 15 pts but also appears to be coming under pressure. The 10 yr. treasury is now yielding 1.72%! That is also not a typo – It ended last night at 1.61% and is now yielding 1.72% and likely going higher…. So, what does that mean? It means that the markets do not believe that there is NO inflation….it is not buying it (at least right now).
BTW – remember what I told you last week after Goldman published that 2% report? Remember how I said – market expectations were for a 2% yield by December – yet the Goldman report ‘pushed’ or ‘tested’ that theory (at the FED’s request) and suggested that we could see a 2% yield by spring…. Guess what? Yields are now inching up and spring is only 3 days away…. Another 3 or 4 days of spikes like today and we will be at 2% by Wednesday…. – Funny how Goldman set that in motion……but that is what the FED does….the get Davey Kostin to write a report and then put it out there as research – confirming their diagnosis by quoting ‘many of their institutional clients’ to ‘float the idea’ of 2% yields to get the markets and investors comfortable….Then all the business channels run with the Goldman report and now look what’s happening….Rates are now approaching 1.75% on their way to 2%…..So now the question is – Is Goldman right? Is the market ok with it or will we see another round of re-pricing? Remember – what Jay said…. he would become concerned if we saw market instability…. well – here it comes…. Spikes in rates will cause a bigger re-pricing…. vs. a slow and steady rise in rates that gives everyone a chance to adjust….and today we are seeing a spike in treasury rates and mortgage rates….
Eco data today includes Initial jobless claims of 700k and Continuing Claims of 4.03 million. The Philly Fed Business Survey of 23.3 and the Feds tell us that they have handed out $242 billion worth of stimulus checks….so far…. with more to come….
European markets are now backing off a bit – still up, but down from where they were…. The ECB (European Central Bank) is set to make their announcement today and no change is expected…. but the market awaits to see if they make any other comments that suggest any change in their longer-term thinking…. the guess is NO. At 6 am the FTSE +0.03%, CAC 40 +0.17%, DAX +0.8%, EUROSTOXX +0.35%, SPAIN -0.10% and ITALY +0.28%.
Oil – is off again today – currently down 27 cts at $64.31/barrel. Last night we got a gov’t report that showed an unexpected rise in inventories which is causing some in the short term to create hysteria about falling demand…. Are you kidding me? Do we really have to go there? Inventories rose – because all those refineries in TX came back online and starting refining again…. Capisce? What would you expect inventories to do? Demand remains strong…. Oil remains in the $60/$65 range….
Bitcoin – is trading at $58,000 and Ethereum is at $1820.
The S&P closed at 3974……after once again testing higher at 3983 before backing off….as the FED induced rally continued…. This morning – expect to see more of the growth into value trade as yields inch higher….and investors continue to shift as stocks re-price. And the tax increase conversation is heating up daily…. now a household that makes more than $400k is under fire…. vs. the original narrative that spoke to individuals – and that is only the beginning…. this administration remains opaque about what is next…. Sit tight.
We remain in the broader 3770/4040 channel – any move lower should find support at the century mark – 3900.
Stick to the plan, do not chase, trim where necessary and put money to work when its right….and that may not be today……and that is ok.
The Nasdaq remains in the 13,300/14,400 channel…and last night it closed at 13,525….so this is KEY to watch…A breach of trendline support could see us test 10,550 again which would represent a 22% decline..
Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss what I can do for you. You can now get a video version of this note on my IG (Instagram) feed – my handle is Kennyp1961 (https://www.instagram.com/kennyp1961/)
Take Good Care
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Halibut w/Leeks, Mushrooms and Clams
This is easy and delicious. It makes you feel like you are on the beach with the sand between your toes…. Enjoy
You need if you can get it Pacific Halibut – because the Pacific Ocean is colder year-round vs the Atlantic and the fish does not fall prey to some of the parasites that exist in warmer waters. Atlantic Halibut is best eaten in the colder months when the water is at its coldest….
Ingredients: Halibut, mushrooms (preferable oyster mushrooms), butter, 3 lg leeks, s&p, chicken broth, 2 doz littleneck clams and chopped Italian parsley.
Season the Halibut with s&p. Set aside.
Start by melting the butter in a sauté pan over med heat – do not burn the butter – add sliced mushrooms – like 2 cups and the sliced leeks. Trim the leeks and use only the white and light green part of the stalk – discard the rest. Season with s&p and reduce heat to med low and cook for about 10 mins or until the leeks are soft. Now add about 3 cups of the chicken broth and raise the heat to med hi – let it come to a boil.
Now add the fish and clams to the sauté pan – wait for it to re-boil and then reduce heat to low and cover. Cook for about 6 or 7 mins…make sure all the clams have opened. If you still have some unopened clams – remove the fish and the opened clams and continue to cook for another 3 mins or so to give the stubborn ones a bit more time. At this point throw out any unopened clams.
Serve this dish in a full-size bowl (shallow is best) bathing in the clams and broth topped with the mushroom and leeks. Sprinkle with the chopped Italian parsley at the end. Enjoy this with a crisp, chilled white wine.
Buon Appetito.
