It was RISK ON yesterday and RISK OFF Today! – Try the Linguine & Clams with a Twist

Kenny PolcariUncategorized

Things you need to know.

  • ECB promises to buy more bonds – stocks surge
  • FED promises to buy more bonds – stocks surge
  • Growth tries to catch up with Value
  • This morning – the tone has changed – the 10 yr pierces 1.6% again
  • Futures go negative and Tech under pressure again
  • Dollar bounces off of support, Oil is flat
  • Try the Linguine & Clam Sauce with a Twist

Markets were on a tear!  The buying frenzy accentuated by the complete lack of inflation and the lack of upward pressure on interest rates and the idea that the ECB (European Central Bank) stands alongside of the FED – showing no interest in seeing rates rise in Europe and will become very ‘active’ in the role to help stabilize rates there as well – saying that they expect bond purchases to increase significantly next quarter – resulting in lower yields.
In her statement – Christine Lagarde – ECB President said

“The Governing Council will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation,”

Yeah – whatever that means…but whatever it does mean helped to send investor enthusiasm soaring in Europe and here in the states – because what it says is that central banks around the world will do ‘whatever its takes’ to control a spike in rates…whether they are US rates or Eurozone rates……

So they came for everything yesterday…. both value and growth – with growth outperforming as it tries to catch up with the value names.  Yesterday the S&P value ETF (SPYV) remained flat while the S&P growth ETF (SPYG) surged by 2%.

Investor demand for stocks is alive and well – after bond markets appear to have stabilized and yields fell from 1.615% last week to 1.49% on Wednesday before settling in yesterday at 1.525% and that has once again brought calm to the markets.  (That was until overnight – more below).   The surge in growth (think Tech) while under pressure 2 weeks ago – was nothing but a distant memory…. the angst felt then has been replaced by sheer excitement – because in the end – TECH is not going away at all….and while value and cyclicals may do well on the global recovery – do not discount the role that tech will play today, tomorrow and in the decades to come.

By the end of the day – the Dow added 188 pts or 0.58%, the S&P up 40 pts or 1.04%, the Russell by 52 pts or 2.3% and the Transports by 152 pts or 1.1%.  The Nasdaq went up by 330 pts or 2.5% leaving this index only off 4.8% from its highs on February 12th but up 7% from the recent lows on March 5th.

And this morning suddenly – the tide has turned…. the fun and games from yesterday being replaced by doom and gloom this morning…. What happened? Bond yields overnight have spiked higher, and this morning are once again up and through 1.6%.  Talking heads are rehashing the whole inflation story, China has censured the country’s biggest conglomerate – Tencent Holdings as it expands the ongoing crackdown into Jackie Ma’s empire…and this piece of news is putting pressure on some of the biggest fintech names in Asia which is rippling around the world.

In addition,  Joey signed the $1.9 trillion relief bill yesterday and then took to the airwaves last night to mark the one year anniversary of the official start of this pandemic here in the US, honor those who have passed and pled for Americans to slow down, wear your mask, pay no attention to those governors who have opened up their states,  get your shots, and then hopefully by July 4th, you can have 10 people at your house for a BBQ.  So that by Christmas you can hear Santa say ‘Ho, Ho, Ho’ – unless of course Santa goes the way of Peter Pan and Dumbo even the Swiss Family Robinson. But that is a whole other conversation.

And then the bond market began to ponder what’s next…..and it once again realizes that the huge tax increases and the coming bond issuance needed to pay for this ‘most progressive stimulus package ever’ AND the coming additional $3 trillion package that Chucky Schumer alluded to,  is sure to cause pressure on bond prices which will send yields surging (again)….and then suddenly it will send inflation to levels that no one expects…..Sounds like a broken record, no?  Isn’t this what the markets were concerned about 2 weeks ago before we were all told to sit down and shut up? Nothing to worry about.

And so, this morning – the markets are setting up for an ‘off’ day…. with Nasdaq futures down more than 250 pts (which is really, honestly NO SURPRISE at all – which is why I have been saying and continue to say DON’T CHASE THE STOCKS).  But – it is what it is….and while the S&P and Dow futures are also lower – the focus is squarely on the Nasdaq and on the high flying TECH names that will be the first ones to get slammed….this morning we see Tesla, Peloton, Zoom, DocuSign, ROKU, Shopify, all down between 3% – 6%…and Cathie Wood’s ARKK ETF – that is also quoted down 4% in the pre-market….and that new one – Roblox?  Yup – that is quoted down nearly 5% as the angst builds and the sun rises over the Atlantic.  So, get ready for the continued volatility that I and others have been warning you about…. because this yield and inflation story has only JUST BEGUN….

There is NOTHING more to it than that…. the concern over rising yields and surging inflation is front and center….and at 8:30 we are going to get the February reads on PPI – Producer Price Index.  Remember this index details the prices that producers are paying to manufacture their products.  Last month’s read rose by an astounding 1 full % above the expectation….and that is what set the market off 2 weeks ago and that is what will set the market off again……. especially if today’s report is ‘worse than expected’.  Now if it is not and it comes in line then it will be interesting to see how they explain last month’s surge away…. I do not think you can…. but what do I know????  I guess they will say.
“Pay no attention to the man behind the curtain… just click your heels together 3 times and say – There’s no place like home…’  And before you know – Auntie Em and Uncle Henry will take care of you.

European markets are all in the red…. not significantly yet, but they are all down….as investors consider the latest commentary out of the European Central Bank as they promised to ramp up their bond buying to ‘control’ yields… (although – they cannot really say that out loud because it is not part of their official mandate…).  Look – it is the same issue right…. rising bond yields will derail the recovery across the ‘zone’ as many of those countries continue to struggle.  The UK economy contracted by 3% in January – but that was better than the expectation as that country re-entered lockdown mode.  The European Union (EU) has now approved the 1 shot JNJ vaccine and that should help change the psyche. At 6:30 am – the FTSE -0.21%, CAC 40 -0.03%, DAX -0.52%, EUROSTOXX -0.41%, SPAIN +0.36% and ITALY -0.03%.

Oil – is flat at $66/barrel…… Same story…. No change there.

DXY tested lower yesterday – almost touching support at 91.20 (as discussed in yesterday’s note) before bouncing up and now trading at 91.89.  We remain in the 91.20/92.82 channel.

Bitcoin – is down $600 at $56,900 and Ethereum is off $50 at $1786.

The S&P closed at 3939 after testing the all-time high at 3960 – again as discussed in yesterday’s note – This morning and today – we are sure to see some pressure as the normal digestion from the latest move takes place and investors once again consider rates and inflation.   All eyes will be on the PPI report….and I for one cannot wait to see how they present it today.  Remember – the last thing the administration wants to see is for rates and inflation to spin out of control….  We remain in the 3770/4040 channel – and if the macro data suggests continued pressure at the producer level – you must realize that it will put pressure at the consumer level – so its not if, but when.

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.

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

Linguine & Clams with a Twist

Here is a twist on a classic dish….

For this you need:  2 doz little necks, plus a container of fresh shelled diced clams in their juice, onion, garlic, butter, white wine, olive oil, s&p, and a bottle of clam juice.

Start with the clams – a couple of dozen or so should do nicely (in the shell) – wash thoroughly to remove any sand from the shell.    Drain.  In a saucepan – heat olive oil next adds sliced and crushed garlic and 2 big sliced white onions – sauté around until it takes on a nice golden hue and the onions are translucent.  10 mins.

Add clams, S&P, a splash or two of white wine and cover.  Reduce heat to med….continue to move the clams around to get them to open. If you need a more juice – feel free to add a bottle of clam juice.   (Never use a clam that is open before you cook it…capisce?) …. Currently…. remove some of the clams from the shell – return the clam itself to the sauce and discard shell –   While keeping some in their shell for the presentation to come.

The Rue – (here is the twist).

In a separate saucepan – melt stick of butter, whisk in some flour and add whole milk.  Whisk until the “rue” becomes nice and thickened – not real thick but thickened.  …. the longer it sits the more it will thicken ….so you need to make this when the put the pasta in the pot to boil.  If it thickens up too much…. just add a bit more milk…. (the trick is to go slow on the flour and give the rue time to come together)

Put the linguine in the pot of boiling salted water to cook for 8 / 10 mins…. or until aldente.  Strain – always reserving a mugful of water…. return the pasta to the pot – add back 1/2 mug of water to re-moisten.  Toss – wait a min or two and then add the rue and the clams and the clam sauce….re-toss and serve immediately in warmed bowls.  You should have grated Romano cheese available on the table for your guests – although some Italians would cringe at the thought of putting cheese on a fish dish…. but I gotta tell you – it is delicious!

Enjoy this dish with Sliced Italian garlic bread. A glass of white wine.  Nothing fruity…. I always like a Pinot Grigio with this dish as I find it complements the sweet taste of the clams.  This dish should take you no more than 40 mins…start to finish.

Buon Appetito.