Things you need to know.

• It was a global celebration!  Stocks surged around the world.
• Apparently, everyone worried about where US 10 yr. yields are going.
• Eco data remains strong, almost too strong.
• Fundamentals continue to suggest higher rates so expect volatility to continue.
• Dollar rallies a bit, commodities decline, OPEC hints at supply increases.
• Try the Champagne linguine w/ Shrimp, Mushrooms and Roma Tomatoes

Stormy weather?  You must be kidding! Break out the champagne!  (see my dish for today below). There was not a cloud in the sky yesterday as investors went gangbusters……after pondering all weekend what happened last week…. Central bankers are a bit split…. the FED not worried about rising rates saying they are happening for the right reasons, while Christine Lagarde at the ECB said that the ECB will prevent a premature increase in borrowing costs by pushing back on rates using the flexibility in their bond purchase program.  Street analysts/strategists adding their two cents to the conversation – trying to put it all in perspective…and then our friends at Goldman told us ‘not to worry’ until 10 yr. treasuries hit 4.6%!

The excitement began in Asia on Sunday evening as we got tucked into bed…. Better Chinese macro data and bargain hunters (looking for a bargain) took to the streets – by the end of the day on Monday in Asia – the 4 major market centers all added better than 1.5% with Japan surging 2.4%.  As the sun rose over Europe – the excitement continued to build….Eurozone macro data showed that manufacturing PMI came in at a strong 57.9 – and that just lit the fuse….in addition (just like in Asia) – traders and investors saw opportunity in names that had been beaten up….and so the buying began…and by the end of day on Monday – the European markets were up between 1.5% – 2%….and as the sun rose over the Atlantic – US futures were on fire…….exploding higher in the pre-market chomping at the bit for the 9:30 opening bell…..

But first we had the 8:30 am economic data releases and as expected all 4 data points were stronger…. Markit US Manufacturing PMI coming in at 58.6 (better than expected), ISM Manufacturing PMI had a 60 handle on it – again better than the expectation.  The Prices Paid diffusion index rose to 86 – from 82.1 last month…. now that is a bit of an issue – because it is an inflationary statistic – so a rising prices paid stat is not necessarily good, but no one seemed to care….and ISM new orders was also stronger than expected – it was a palooza….and futures edged higher….

As the bell rang – the indexes never looked back and by 4 pm – the Dow added 603 pts or 1.95%, the S&P advanced by 90 pts or 2.38%, the Nasdaq rose 396 pts or 3.01% while the Russell out did them all – rising by 74 pts or 3.37%.

Yesterday’s gains marked a strong rebound from what we witnessed last week – after concerns rose over the swift spike in treasury yields – after rising to more.
than 1.6% on Thursday – 10 yr. yields slipped to 1.44% yesterday and that turned all the sellers from last week back into buyers, while the buyers from last week, turned seller….and here we go….

As I told you yesterday – expect the names that got hit the hardest last week to be some of the beneficiaries of the rush to buy…..Tech – XLK rose 3.2%, Industrials – XLI which got beaten up on Friday – rose 2.56% yesterday, Financials – XLF up 3.1%, and Retailers – XRT crushed it rising by 5.1%, Energy – XLE up 2.6% and the list goes on…..apparently the concerns of rising and higher rates from last week are nothing but a distant memory….. and the idea that maybe the FED was going to have to put an end to all the free candy that they have been serving up is no longer a concern….

Confusion though, does remain an issue………on the one hand we are vaccinating more people, we are witnessing declines in infections and hospitalizations, risk of spreading the virus dropping every day as those vaccinated are supposed to be free of transmission  – yet the new director the CDC – Dr. Wallensky –  keeps telling us that its not over…and that if we are not careful we will see another spike in cases – leaving many to wonder if she is being a bit hysterical….The house passed the $1.9 trillion relief package and now it’s onto the Senate – where it also appears that it will pass – along party lines –  now that the took out the $15/hr. minimum wage demand that even some Democrats opposed.

On the other hand – many strategists/analysts remain concerned the ‘mounting pressure’ on prices is sure to fuel inflation which will be the rally’s undoing…. now with several FED heads scheduled to make appearances later this week – the KEY one being Fed Chair Jay Powell on Thursday – investors and the markets will listen very closely to what he says and how he says it.  Will he change any words, will he be sweating from his brow, will his tone change, will he look straight into the camera when addressing the crowd – in the end will he give anyone any reason to worry about creeping inflation or rising bond yields or any change in policy….

My guess is no…he will do as did last week when he was on Capitol Hill.  He will tow the line, he will tell us not to worry, he will say that while they will allow inflation to run ‘hot’ – it won’t be hot enough to burn you….and that should hold rates in check – If he fails to do that, or if the market and investors don’t believe him – then we will see yields spike again and stocks sell off…in the end – brace yourself for more volatility until we get more clarity – and btw – that clarity may not come until late spring/early summer.

And Bingo…US futures are lower…. of course, they are!  Come on – think about it…. yesterday’s surge was probably a bit overdone…. the same way the sell off last week was a bit overdone – it is like the pendulum – that swings both ways – before coming back to the middle….

Today will feature commentary from SEC Chair Gary Gensler – as he delivers a speech before the Senate Banking Committee at 10 am  – this is not expected to be a market mover at all, but it may deliver some interesting tidbits to the market over what the SEC is now thinking concerning new regulations or a peek at some old regulations vis a vis – the Robinhood and GME drama that caused hysteria in January…..And if Gensler adds in his view on the US economy or inflation expectations – the markets will likely ignore them – since his role at the SEC has nothing to do with economic policy.

Later this morning though, Fed Governor Lael Brainard delivers a speech titled.

“US Economic Outlook and Monetary Policy” to the Council on Foreign Relations…. Now this one could be a bit more interesting to the markets because she does have something to say about economic policy – so?  What will she say?  Will she support the narrative or is she in a different camp?  Expect more discussion about here presentation post the presentation.

There is no eco data today – so the focus will be on the conversation surrounding the most recent data points that remain mixed in terms of igniting (or not) the inflation monster.

Asian markets ended lower – after their explosive moves on Monday – the RBA (Reserve bank of Australia) left rates unchanged as expected…saying that ‘the current monetary policy settings are continuing to help the economy by keeping financing rates very low….’.  In China – the top banking regulator making some worrisome commentary about ‘rising risks emerging from bubbles in global financial markets.’ specifically bubbles in the US and European markets saying that we will have to face a correction sooner or later.
European markets which had opened a bit lower – have now all turned positive.

Eurozone inflation data rising by 0.2% as expected.  Investors focusing on treasury yields and on a reopening their economies.  At 6 am – the FTSE +0.53%, CAC 40 +0.22%, DAX +0.24%, EUROSTOXX +0.10%, SPAIN -0.06% and ITALY -0.01%.

The dollar index (DXY) continues to rally and is now kissing intermediate term trendline resistance at 91.328……Where I think it will stall…. especially if the Senate passes the stimulus bill.

Oil is pulling back a bit down 6 cts at $60.58 – after OPEC hinted that they may increase supplies all while Chinese data is suggesting that demand may be slipping after China factory activity slipped to a 9-month low……. which I say is BS……China demand is not slipping at all.  Increase supplies makes more sense….as to why prices are retreating a bit…but we remain in the $55/$65 range.

The dollar rally is another story……and that might be a reason for trader types to lock in profits after the 76% surge in prices since early November. Recall that commodities (oil included) are priced in dollars so as the DXY (dollar index) slipped 4.5% since November the commodity index has risen 20% and oil has risen 76% – both because of a weaker dollar but also because of surging demand as the world wakes up.  So – a slight pullback in oil is nothing to get all worked up about.

Bitcoin – is flat at $48,800.

The S&P closed at 3901 in what was a spectacular rally……surging nearly 2.4% – and while it feels good – the truth is – that the concerns from last week have not really gone away…..an improving economy will cause rates to rise and at some point that will cause a re-pricing for stocks…..Now understanding that there is a floor underneath because of all the stimulus – so the downside at the moment is limited….The FED is not changing its stance and the Biden administration is not going to stop the stimulus efforts…

Again, we are back into the channel of 3770/4040.  Expect more churn today….
As always, I would advise you to stick to the plan, trim where necessary and put money to work in some of the underperformers….

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

Champagne Linguini w/Shrimp, Mushrooms & Roma Tomatoes

I did say – Break out the Champagne – didn’t I?

For this you need:  1 lb. of linguine, olive oil, 1 lb. of cleaned deveined large shrimp, sliced mushrooms, 1 3/4 c of champagne, s&p, minced shallots, 3 plum tomatoes, 1 1/4 cup of heavy cream, freshly grated parmigiana cheese.

Bring a large pot of salted water to a rolling boil – and add the linguine and cook until aldente. 8 mins max……

In a large sauté pan – add some olive oil, the shallots, and the mushrooms – cook until they are soft and tender.  Remove from pan and set aside – 5 – 8 mins.

Next – take the shrimp and the champagne and add it to the sauté pan – turn the heat to high.  Once the champagne begins to boil – remove the shrimp and set aside.

Now add the diced plum tomatoes to the champagne – continue to boil until the champagne is reduced to about 3/4 cup.  Turn the heat down to low and slowly stir in the heavy cream – gradually raise the heat and allow it to thicken a bit – this is fast…maybe 2 mins or so…. Now add back the shrimp, mushrooms and shallots to the sauce and let it heat thru. Season with s&p.

Strain the pasta – reserving a mugful of pasta water – put the pasta in the sauté pan and toss – add some of the pasta water if you need to moisten it a bit.  Serve in warmed bowls and top with the parmigiana cheese.

Buon Appetito.