Things you need to know.
- St Patrick’s Day – but Markets are RED not Green
- T-8 hrs until the clock strikes 2 pm
- 10 yr treasuries ticking UP in early trade
- Global markets await…
- It’s all about DOTS
- Try the Corned Beef and Cabbage
Happy St Patrick’s Day –
Drum roll please………oh it is so exciting….T- 8 hours…..until Fed Chair Jay Powell opens the door and enters the room….taking to the podium in an attempt to ‘walk the line’….in fact ‘walk the fine line’…..as global investors hang in the balance…..not knowing if the status quo today will be the status quo tomorrow….reminding us all of the one and only Johnny Cash…..as he sings –
“As sure as night is dark and day is light…I keep you on my mind both day and night….and happiness I’ve known proves that it’s right… because you’re mine…. I WALK THE LINE….”
And walking the line is exactly what Jay Jay must do……in fact – he must convince everyone that the current plan IS the plan no matter what happens…. That he will remain steadfast even IF the economy begins to heat up…….and it will heat up….and so my friends that is the challenge for today…. And now –
The Dot Plot! Close your eyes and take yourself back to 4th grade math…. recall your favorite 4th grade teacher – mine was Mrs. Greenwood – when she introduced the idea of the dot plot. The dot plot is a simple form of ‘data visualization’ and all you do is create your data point (dot) and put it on a graph – with an X & Y axis….it’s simple, does not need a complicated computer program or app – all you need is a #2 pencil and some graph paper….(I’m not sure that any of that actually exists any longer….I mean – Do Gen Zer’s even know what a #2 pencil is????) Remember how you could only take a test with a #2 pencil?? What a great memory that is….it represents such a simpler, less complicated, innocent time….)
Ok – back to yesterday……It was a game of musical chairs…. Stocks changed position…. The Dow, S&P’s, Russell, and Transports all ended the day lower while the Nasdaq ended higher – eking out an 11-pt. gain……all this as the 10 yr. rose to end the day at 1.6197%.
Yesterday’s economic data disappointed – many analysts were quick to blame the massive snowstorm that swept across the country and knocked Texas offline for days while impacting a host of states in the storms path that stretched all the way up to New England…. – retail sales were off a whopping 3% vs. the -0.5% expectation….and ex food and energy it was off 3.3%….Industrial Production which was expected to be +0.3% came in at -2.2%, again it is curious when compared the latest PMI Manufacturing reports – which show strength…..Capacity Utilization of 73.8% below the expected 75.5% rate…..so the conflicting macro data caused investors and markets to pause and that is ok – as the focus remains squarely on the Fed.
Declines in energy, financials, industrials, retailers, materials, and consumer discretionary all sending the broader market lower. While tech, consumer staples, communications and utilities ended the day in the green.
In the end – the action yesterday was driven purely by speculation about today – period. Loose monetary policy for the last 12 years, near zero interest rates, a flood of cash that keeps washing over the market, rising interest rates on the 10 yr. Treasury, rising inflationary pressures, massive stimulus spending by the gov’t with even more promised in the months ahead, $1400 checks being deposited into bank accounts across the country and now talk of increasing corp taxes, wealth taxes, capital gains taxes, to rates not seen since 1993 only adding to the angst…..all as the world comes to grips with a stubborn virus that refuses to give up while vaccines attempt to stall the spread……
SPACs are you kidding…. that is a whole other story that has yet to be written……The latest victim – RIDE – lost 6% yesterday bringing its loss to 53% off its February high as news hits the tape that an ongoing investigation into the company suggests that they have issued false or misleading statements or has failed to disclose pertinent information to investors…. Oh boy, oh boy, oh boy….
And in the middle of all this – is a surging stock market…. right? Because in the end we are much closer to all time highs than not…….Everything is feeding of the fact that investors expect and in fact we are experiencing a ‘huge recovery’ ….and while it is far from over – all you have to do is wake up and you can feel the energy building….you can feel the recovery in your bones….and you can’t wait for that 4th of July family BBQ that Joey told us we ‘might’ be able to have…
Eco data today away from the FOMC is all about housing…Housing starts expected to be down 1.3%, Building permits -7.2% – all while the average 30 yr. fixed rate mortgage is approaching 3.4% and that is up from 2.875% only a month ago…. or an 18% rise in 30 yr. rates….and likely to only go higher if Jay Powell cannot convince investors that he is in control…. – this is KEY.
Yesterday after the bell – Lennar Home Builders posted a better-than-expected earnings report – despite a drop in new orders……….and saw its shares rise in the post trading session….
– Lennar CEO – Stuey Miller – told us that he sees no problem in rising home prices – and is happy to slap price increases on a Lennar home because there is plenty of money floating around, and covid 19 has caused a surge in savings and years of underbuilding has created a supply chain shortage but the real reason he is happy to slap price increases is because the cost of building a home has soared…..….Lumber is now up 30% since January alone and is up 100% since late October…..but don’t worry – there isn’t any inflation….the chart shows us nothing….the fact that lumber futures which were trading at $500 in October and are now trading at $1000 is a myth….Nothing to see here….move on…….So at the moment he does not appear to be concerned about rising mortgage rates….but that story is far from over…because as the economy heats up, and inflation heats up and the long end of the treasury market heats up – then expect 30 yr. mortgages to heat up…..and that will at some point bring the surging home prices to a halt….and when all of those people who are on the fence right now – expecting prices to be higher tomorrow realize that the party is over – then watch how many homes come on the market for sale…..and so the pendulum will swing in the opposite direction….. And don’t get me started on NFT” s (non-fungible tokens).
Ok – so back to the FED since that is what will consume us…..all eyes will be on the Dot Plot…..and this sophisticated analysis shows the projection for the Fed Funds Rate – the short term rate that affects savings and consumer loan rates…Each dot represents a rate that each FED member is projecting at the end of the year shown on the X axis…with the rate on the Y axis…..in the end the markets typically focus on the median dot……so get ready…the 10 yr. Treasury is trading up this morning at 1.639%….. suggesting what? Yup…. come on, you know….
So, we await the 2 pm press conference. Expect Jay to be dovish as he always is, but understand that there is a faction of professionals that suggest he could indicate that rates could rise before January 2023 because of new economic data…and this has the ability to send tremors through the stock market…..and expect him to remind us that the inflation rate calculation that he is using is now a ‘modified’ calculation which allows him to let inflation run HOT without any concerns….Or at least that is what he will try to convince us of…..in the end the market will decide what it heard vs. what he said….Capisce?
This morning US futures are churning in place…. Dow futures are up 30 pts, the S&P ‘s is down 3 pts, the Nasdaq off by 40 pts and the Russell is down 3 pts.
European markets are all down….as the clock ticks…..and investors there attempt to speculate on what the FED will do….and again – all expectations are for no change in rates……but the conversation about the future is unclear…and so investors there are hitting the sell button this morning…In addition there is more Astra Zeneca news – more countries halting the distribution of this vaccine -sending Drs. into a frenzy as they suggest this whole blood clot thing is a big overreaction. Again, the WHO (World health Org) insists that the vaccine is safe – so now you can decide what you think. At 6 am – the FTSE -0.31%, CAC 40 -0.13%, DAX flat, EUROSTOXX -0.12%, SPAIN -0.46% and ITALY +0.11%.
Oil – is off again today on more renewed lockdown concerns across Europe all while demand in the US and the rest of the world remains strong. US crude inventories fell by 1 million barrels last week helping to stem the selloff. Ok great…. Oil remains in the $60/$65 range….
Bitcoin – is trading at $55,000 and Ethereum is at $1765.
The S&P closed at 3962 after inching higher and testing a new intraday high at 3981 before backing off…. Once again inching closer to the channel trendline at 4040 – there is still plenty of reasons to think we will test lower in the days ahead….and today is one of them…. Any sense that the tone has changed at all will leave stocks vulnerable to another pullback – the extent of which should not be a crash, but more of another round of re-pricing that will take some of the fluff out. 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.
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
Corned Beef and Cabbage
Corned Beef and Cabbage
Considering St Patrick’s Day – here you go. You need a slow cooker…
For this you need: 1 – 4 lb. corn beef, big white Onion, 4 cloves of garlic, 3 cups of water, 2 lbs. of potatoes, 2 large carrots and 1 head of cabbage and 2 bay leaves.
Now – peel and chop the onion into large chunks and place in the slow cooker – add the corn beef and the seasoning packet that comes with it. Add the water – just enough to cover the beef – add the garlic and bay leaves.
Cook on low for 4 hrs.…. then add the potatoes and carrots and cook for 3 more hours…. now add the cabbage and cook for 2 more hours…… After the 9 hours – remove from the slow cooker and let it rest for 10 mins…. Slice and serve with the veggies.
Enjoy
