Non Farm Payrolls Explode!  Investors Chomping at the Bit – Try the Risotto All’ Amarone

Kenny Polcari Uncategorized Leave a Comment

Things you need to know.

  • Markets were closed on Friday, Investors unable to react to eco data
  • European investors got the first crack – US investors gearing up now
  • More macro data will sure to confirm a robust recovery
  • Yet – 10 yr yields, inflation and Biden infrastructure plan will cap short term gains
  • S&P enters a new century  – trendline resistance is anyone’s guess and I have one
  • Try the Risotto All’ Amarone

Good morning…It is Monday April 5th – and there is so much to say…
Thursday saw all the index’s surge – with the S&P piercing a brand-new century – 4000 – to end the day at 4019!   – It was April 1st, the beginning of a new quarter and a new month…. there are 1st quarter earnings to come, and history shows that it is usually a good month for stocks.  Bank of America technical research analyst – Stevey Suttmeier – tell us that.

“Weak late March seasonality could offer an opportunity for the bulls ahead of strong early April seasonality…”

Of the 12 months in the year – April historically has the best return during the first 2 weeks – giving investors about a 1.12% return during that time…. Thursday’s activity saw the Dow rise by 171 pts or 0.52%, the S&P up 47 pts or 1.18%, the Nasdaq surged by 233 pts or 1.76% and the Russell gained 33 pts or 1.5% so it is OFF to the races….

And then it was Friday – Good Friday – markets in the US closed for the holiday……but the all-important Non-Farm Payroll number was due to be released…..and while no one could react – the excitement was building….Recall that on Wednesday, March 31st – ADP reported that we created 517k new jobs for the month of March – well ahead of the recent historical trend but a tad bit below the expectation of 550k…..and investors ate it up…..taking the market higher on the 31st and then again on the 1st….in anticipation of what the NFP report would say……

Countdown to 8:30 am on Friday…….according to analysts – the consensus estimate for job creation was for 660k new jobs to be created….….and then BANG….the  headline hits…..we created some 917k new jobs in the month of March in what economists say could be the start of a sustained run of job  growth across all industries hit the hardest during the pandemic….Now remember – there are still 8.4 million fewer jobs today than there were in February of 2020 but the rebound is gaining momentum as more and more people get vaccinated and states re-open and life for Americans returns to a sense of normal………….Unemployment fell to 6% down from 6.2%, job creation for both January and February was revised UP as well…..all sectors enjoying robust job creation – and the under-employment rate falling to 10.7% down from 11.1% – still a bit high but moving in the right direction……futures surged on the news – teasing US investors who were unable to react…. .…. European investors though were able to react – because those markets were open, and they moved higher on the news – all closing higher by about 0.5% across the board….……US investors will get their first crack at it this morning at 9:30 when the opening bell rings on the NYSE.

And this morning – US futures are UP…Dow futures +200 pts, the S&P’s looking to gain 18 pts, the Nasdaq ahead by 34 pts and the Russell adding 38 more points….as the excitement builds….Look – there is a tectonic shift taking place….massive federal stimulus, ongoing FED support, low interest rates, growing consumer confidence and what looks like an end to the pandemic all contributing to the renewed mood helping to propel economic growth and then by default hiring…..the service sector of the US economy enjoying the biggest robust gains…..and since our economy is more than 75% service oriented – this is a good sign.

But – let’s not get too far ahead of ourselves….10 yr. yields are hovering around 1.71% and likely to move higher, inflation while subdued now (according to the gov’t) is also expected to move higher and these will be headwinds…The Bidens are proposing a massive infrastructure package  – some say it’s $2 trillion while others are in the $3 trillion camp and it includes all kinds of tax hikes in corporate rates, capital gains rates, personal rates along with a host of other surprises – and in an interesting turn of events – Democrats are looking to re-instate the SALT deductions that hit the BLUE states the hardest during the prior administration…..Hmmmm – they want to raise taxes on the bulk of the country yet give back deductions to the blue states…..- that doesn’t make sense does it?   And so, the conversation is far from over…. Kamala on her way to California (a big blue state) to drum up support for this massive infrastructure tax and spend package today…. with Republicans pushing back on so many parts of this proposal saying that at least 50% of it is a waste of money…. but will this really be a conversation, or will the Dems be able to pull it off without any GOP support?  We are about to find out….and as you can imagine – tensions are running high….and these issues could prove to be headwinds for the markets in the near term…. just sayin…

Earnings to start in earnest on the 14th – with JPM kicking it off…. Now look – earnings growth rates y/y is expected to be +23.8% – a massive spike over the 5 yr. avg growth rate of 3.8%……Why?  because of what the pandemic did and what the recovery is about to do……and if this happens it will mark the highest y/y earnings growth rate since the 3rdqtr. of 2018!  Valuation metrics suggest a forward 12-month P/E ratio of 21.6 x – well above the 5 yr. average of 17.8 x and even more well above the 10 yr. rate of 15.9 x….so you could argue that the market is ahead of itself – but if rates stay at zero – then maybe this works…yet if rates rise – this valuation metric will surely ‘adjust’…. Capisce?

Eco data today includes some significant reports…. Markit US Services PMI – exp of 60.2, ISM Services Index – exp of 59.0, Factory Orders of -0.5%, Factory Orders ex transports of -1.1%, Durable Goods of -1.1% and Durable Goods ex Transports of -0.9% – now none of those last numbers appear to make any sense at all considering all the good news…. but let us see how it all shakes out.

European markets are closed for the Easter Monday holiday….

Oil – which had rallied last week is down $1.17 or 2% after OPEC agreed to ease up on production cuts – adding back 350k barrels /day in May, and June and then up that to 400k barrels/day in July – right in the middle of the summer driving season – which might help gas prices a bit – but if the global recovery continues as expected – we can expect energy demand to surge and prices to at least hold steady here – but I still think they move higher…..leaving oil in the $60/$67 range for now….. $60 is now short term trendline support with $67 being the most recent high…

Bitcoin – is trading at $57,500.  Ethereum is trading at $2050.

As discussed, the S&P closed in a new century – rising 47 pts to end the day at 4019 – just 1 pt. off the intraday high……Now remember – I have been saying that the trendline resistance is 4040 and if the mood remains the same – we will test 4040 by the time the opening bell finishes ringing…. (S&P futures are up 22 pts) – which then begs the question…what happens next???  Some will argue that the new trendline is 4086 – so we still have room to run…. – and since we are in uncharted territory – it is anyone’s call….and Tom Lee of Fundstrat tells us that there is some $4.5 trillion sitting on the sidelines…OK -?  So, does that mean that it must come into the market? Or does it just mean that there is $4.5 trillion sitting on the sidelines? Bitcoin and NFT”s are HOT, HOT, HOT…. It is a bit of a confusing headline – because it assumes that the money must come into the market….and I am not sure I agree – but hey…. I am not Tom Lee!  At 4040 – we are 4% above the 50 dma trendline…. …. a level that often sees the index retreat a bit and retest trendline support…. Will that happen this time or will we keep going?

Remember – if you are invested you are participating – you are not missing out…and if you are new to this – then look for value – and there is value in industrials, financials and even in parts of tech…. rebalance your portfolio so that you are not overexposed – this will protect you – put new money in underrepresented sectors.

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

Risotto All’Amarone

This recipe comes to me from Lucera, Italy – in the Puglia region of Italy.  This is the region that represents the heel of the boot to halfway up the calf.  It is on the Eastern coast of Italy on the Adriatic Sea.  Lucera – is an ancient city outside of Foggia – one that is full of wonder and historical significance.

Today I serve up this incredible Risotto dish.   For this you will need:  Vialone Nano Rice – like Carnaroli but produces a creamier delicious risotto, Fresh Monte Veronese cheese – this cheese is made from cow’s milk and is produced in Northern part of Verona.  It is thought to be one of the great cheeses of the Lessini mountains.

You will also need: finely chopped onion, butter, beef bone marrow, extra virgin olive oil, beef stock and a 1/2 bottle of Amarone della Valpolicella.

Begin by heating up the Amarone. – do not boil – just slowly heat it.
Bring the beef stock to a boil and then turn to simmer.

In a separate saucepan, heat the butter, bone marrow and a bit of olive oil, sauté the onion. When the onion gets golden brown, add rice, stir, and toast over the heat for several minutes.  Season with s&p.  Slowly add the Amarone – stirring all the time as you add allowing it to absorb in the rice.

To complete – add the hot beef stock one ladle at a time.  As it is absorbed add another ladle always stirring with a wooden spoon. Taste and adjust seasoning.  Cook until the rice has absorbed all the broth and the grain retains it texture – do not cook so much that you make it mushy.  Turn off the heat; add a dollop of butter and the grated Monte Veronese cheese.

Serve immediately in warmed bowls.  It does not get any better than this!

Buon Appetito.