Things you need to know
- Fed keeps rates at zero – hints at a CUT
- Investors confused
- Mkts digesting the impact
Rates unchanged – Stocks and treasuries down, Fears up as Fed Chair Jay Powell warns of further economic sluggishness….Stocks – which traded as low as 2812 yesterday – spiked 30 pts in the seconds after the FED made the announcement on its way to 2843 – as Jay took to the podium and started to give their assessment and take questions. And while a dovish FED has always been good for the stock mkt – the tone yesterday was a bit different….in fact it was a classic ‘Buy the rumor/Sell the news’ event. Investors/traders and algo’s have taken the mkt up 20% from the depths of the 2018 lows – after Jay Powell conceded in late December that maybe the FED was not tied to multiple rate hikes as had been the case – leaving the door open to at least 1 hike – but then yesterday the story appears to have changed again….as he revealed the dot plot it became clear that ALL RATE HIKES WERE OFF THE TABLE and in fact he did dangle a rate CUT as a possible next move – and this clearly changed the tone.
And while the majority of investors did not expect the FED to raise rates – they are not sure that they expected that message either. You see – leaving rates unchanged or even lowering them at this point in the cycle is now causing analysts/strategists to consider the state of the union. The tone of the press conference now reigniting worries about a larger global slowdown – one that now includes the US – and what that will mean for corporate profits……and remember yesterday – I pointed out the we needed to watch what he said about the size of the FED’s portfolio and the speed at which he shrinks it? Well he is also slowing the pace of the ‘runoff’ pushing it out to September citing ‘challenges facing the economy’………which then begs the next question – Why the sudden change of heart? What is it that you see that we don’t? Which then raises concerns that if the FED did a complete 180 – there must be something brewing….and if that is the case – then we can expect more negative news in the days ahead as analysts dissect every new data point ad nauseum.
By the end of the day – while the mkts ended mostly lower – it was not a disaster by any stretch…the Dow gave up 141 pts or 0.5% (think the industrial names), the S&P lost 8 pts or 0.3% (think overall weakness), the Nasdaq ROSE 5 pts or 0.1% (think continued strength in technology) while the Russell small cap/mid cap lost 11 pts or 0.76% (think US centric names that would be less exposed to a slowdown in Europe and Asia – but more exposed to a slowdown in the US). 10 yr Treasuries dropped to 2.537% down from 2.614% and that caused financial stocks to get dragged thru the mud….it was just one of those days….
And as you can imagine – once the negative tone began – then they piled on…..talk of a breakdown in US/Sino trade discussions only added to the angst – and comments by Donny that ‘tariffs on Chinese imports will stay in place for a substantial period of time until China complies with a potential agreement’ only gave the algo’s another reason to hit the sell button. Look – there is NO BREAKDOWN in US/Sino trade talks at all….Donny’s comments do not reflect a changing psychology at all – his comments yesterday are exactly the same as they have been all along – it is just Donny putting pressure on Xi Xi to get it done. In the end – investors will now have to decide if the mkt has gotten ahead of itself given this new outlook…and can this rally continue unabated given what we learned yesterday? It’s ok to be cautious given that so much of the positiveness of a possible trade deal and FED policy has been factored in…..can the mkt continue to advance right now in light of all this?
Again – don’t forget – we are in a seasonal slowdown….the weeks before TAX day typically sees the mkt come under a bit of pressure as investors/traders close their books on 2018 – selling some stocks to pay Uncle Sam – and this year is no different – especially now that Jay Powell has painted this weaker picture.
Overnight – investors in Asia do not appear to be so concerned…..stocks in China, Australia, Thailand and South Korea all rising while stocks in Hong Kong took a beating (Japan closed for a holiday). News that the allies are all defying Donny’s call to ban Huawei from participating in the latest 5G auction helping to send China shares higher – (Germany’s auction process started on Tuesday as the world prepares for the next generation of mobile networking technologies)……Randy Stephenson – ATT CEO – points out that Huawei has made it nearly impossible to exclude them from the process because they are such a large part of the existing 4G network and if Huawei is your 4G then you essentially have no choice but to use them for 5G…he goes onto say that
“the US gov’t should better explain its issue with Huawei. The biggest risk is not that the Chinese gov’t might listen to conversations and mine data, it’s that 5G will be such a critical infrastructure and gov’ts should be cautious about who the vendors are. If that much of infrastructure will be attached to this kind of technology, do we want to be cautious about who is underlying company behind that technology? We damn well better be!” (Now to be fair – he is talking his own book….but he does make a salient point).
Look – this is not a story that is going away anytime soon….what you all must realize is that what is at stake here….as we move into the “Jetson” era…..”Meet George Jetson, His boy Elroy, Daughter Judy, Jane his wife.…..” Can you just hear the lyrics as you imagine flying around the world in your own ‘saucer’? So the question is – Who do YOU want to be in control of the technology that will not only make the internet faster but that will control driverless vehicles, smarter homes and smarter cities, and new technologies that we can’t even imagine yet…..with the US alleging that Huawei is just a puppet company for the Chinese gov’t compelling them to comply with all gov’t requests for information as they listen to conversations and mine data on everyone…. – think James Bond type of espionage….
European mkts are beginning the day in with a mixed response……. apparently unfazed by the FED’s latest move…..Continued concerns over the Deutsche Bank/Commerzbank merger causing angst in the banking sector while ongoing BREXIT issues pit PM Theresa May against her Parliament – laying the blame for the latest chaos on their shoulders. UK retail sales are due for February this morning and a BoE (Bank of England) policy announcement is due by noon. (No change expected).
S&P futures are off by 3 pts and Dow futures are off by 100 pts as we continue to digest the FED’s latest move……and while some mkt participants are excited about the FED’s dovish outlook – many others are now raising the flag of concern. Look it would require a significant change (deterioration) of the data or some ‘ball out of left field’ to cause the FED to CUT rates….none of which we see at the moment – and compared to the rest of the world – the US remains the prettiest girl on the block! There is no significant eco data today that will drive the mkts so expect more chatter about the latest FED policy as many try to ‘read between the lines.’
Take good care.
Garganelli w/Red, Green & Yellow Peppers (in a cream sauce)
This is a great dish – hails from Northern Italy – pleasing to the eye and tantalizing to the taste buds…the herbal green pepper complements the sweeter red and the mellow yellow….Read on –
You will need: butter, olive oil, onion, red, green & yellow bell peppers, s&p, heavy cream, pasta shells, chopped Italian parsley and fresh grated Parmegiana-Reggiano cheese….
This is a simple dish that you will not easily forget –
In a large sauté pan on med heat – add ½ stick of butter a bit of olive oil (so butter does not burn) and chopped onion – cook until the onion becomes soft and translucent. Next add diced peppers – should be about 3 cups total (so figure it out….1 cup of each) – turn heat to med high and sauté these until tender – stirring occasionally. Season with s&p. Slowly add the cream….should be about ¾ cup/1 cup….cook until you have reduced by half…..You need to stand there and stir it…do not leave it unattended. When done turn off.
In a separate pot of salted boiling water -add the Orrechiette and cook for about 7 / 8 mins or until aldente. Reserve one mugful of pasta water then drain and return to pot….add back enough pasta water to moisten only…..- do not soak. Toss the pasta (you will see the water gets absorbed). Now add the cream and pepper sauce, a bit of parsley for a rich green accent and fresh grated Parmegiana-Reggiano cheese. Toss and serve immediately in a warmed bowl. Always have extra cheese on the table for your guests. Choose your favorite white wine to complement.
**here is an added benefit….if you make more sauce than you need – refrigerate and use the following day on chicken, veal or even pork cutlets. Season the cutlet with s&p – then sauté the meat in a pan with butter and olive oil – right before it is done – add back the cream & pepper sauce from the previous night and let cook for a couple more mins….Serve with a large mixed green salad and dressing of your choice.
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