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Things you should know
- Oil remains in the range
- Mkts re-pricing the 50 bps cut and assuming 25 bps
- Powell to take a ‘less dovish stance’
- Earnings, Earnings Earnings….
So stocks continued to trend lower – as the we move closer to the FED’s testimony this week (Wednesday/Thursday) in front of Congress – where, in his usual “Mr. Rogers” style – FED Chair Powell will address both houses of congress to bring them up to date on the state of the union – and you can see – investors/traders and the algo’s are worried about exactly what that state is………..The ongoing catfight between Donny and the FED is not helping the situation – and many now think that the FED will cave and cut rates (disguised as pre-emptive) while others will say that he was bullied into the move – either way is not good. Do we really need to cut rates? I mean – they are only at 2.5% – well below the long term average and still quite accommodative – is it going to make a huge difference if they go to 2.25%? Is that what this is all about? I mean if rates were at 6% and they went to 5% – I’d say ok – that makes a difference – but a 25 bps cut in already low rates? It’s not going to change the rate on revolving credit – think store cards (which is a whole nother conversation on USURY….the illegal practice of lending money at unreasonably high rates of interest), and its not going to change the rates on HELOC (home Equity Lines of Credit) or auto loans and the tiny changes it will make on 30 yr mortgages is debatable….so long term rates go from 4% to 3.9% (maybe) which translates into a $7 change on every $100k. So if you have a $500k mortgage you payment on interest and principal goes from $2387 to $2358….hardly a deal breaker…..(imo). So what is the fascination about 25bps? And you can make the same argument on the way up – at this point – its moot…..So what will Jay say? The data – while mixed is not collapsing at all…..and while politics do not price stocks in the long run – it is creating a lot of noise in the short run – so will Jay stand his ground or will he break….And while the mkt WANTS a cut – is it really necessary at this point?
Stocks began the day weak and trended weaker all day – by end of day the Dow had given up 115 pts or 0.43%, the S&P lost over 14 pts or 0.48%, the Nasdaq shed 63 pts or 0.78% and the Russell was by far the day’s biggest loser – dropping 68 pts or 0.9%. Tech names getting slammed a bit as we prepare to enter the 2nd qtr beauty pageant – also known as earnings…..talk of depressed tech earnings has been the theme for a while now and with the US and China still engaged in a ‘trade spat’ the talk of what those earnings will look like and what the implications of this ongoing ‘spat’ mean for that sector as well as the other sectors…..
Earnings are expected to decline by about 2.6% according to FACTSET and if that is true it will be the largest y/y decline in earnings since 2Q 2016.It is a mixed bag for sure – of the 11 broad S&P sectors – 5 are expected to report earnings growth while 6 are expected to report earnings declines – and here is where the TECH takes a beating. Look – valuations and prices in that sector have soared – the S&P Tech ETF – XLK is up some 35% since January – now yes some of that was making up for the beating the mkt and the sector took in 4Q of 2018 – when we saw TECH fall by 24%…..but that being said – investors and traders still took the sector and the mkt – higher and higher – even in the face of the ongoing trade war with China. The Nasdaq is up over 22% – while the broader mkt is up nearly 15% as investors once again play the TINA card (There Is No Alternative) since rates remain so low…… and so you can feel the angst that is building ahead of his testimony and the start of the season.
A small number of stocks with exposure to all of the indices, were all lower ahead of the testimony and bang you have a loss of 100+ pts in the Dow. The realization that any ‘aggressive’ rate – 50 bps – is no longer really a front runner is causing this small re-pricing of US stocks….Look – why the carrying on? The S&P is off 25 pts from the most recent highs….25 pts…that is not even 1% – and even if It falls back to the trendline at 2886 – that is only a 3% move off the highs – so put it in perspective. Now if the earnings come in worse than expected – then expect a more painful re-pricing…but the street has already prepared us for a weak qtr – so as long as you are comfortable with your portfolio – then take advantage of any sale that takes place to add to the names you like. If you are a day trader – then go for it….trade the noise, (because that is what you do….you have to trade the noise).
Look – the mkt had priced in a 50 bps rate cut….and I think it has already realized that IF he cuts – its only gonna be 25 bps – so it does need to re-price – and no matter what he says this week – we have 3 weeks of real earnings to get thru before the next FOMC meeting – so again a lot can change – and a lot of that change will come from what we hear from CEO’s and CFO’s about the state of their businesses and the state of the ongoing trade spat.
Overnight – global mkts all lower…..buyers are being patient – no reason to be aggressive – forcing the sellers to drive the bus – settling for lower prices if they NEED to raise cash or if they just need to trade out of a position. The sense is that while Powell may indicate that the FED is still on a path of easing – he may suggest a slightly less ‘dovish’ tone…..and that will cause the black boxes (algo’s) to throw a fit…..and for the long term investor – “It’s all good!” Love buying stuff on sale…..
European stocks are all a bit lower….with FTSE flat, CAC 40 – 0.30%, DAX – 0.92%, EUROSTOXX -0.39%, SPAIN -0.24% and ITALY OFF BY 0.07%. German chemical giant BASF waring of a profit shortfall WELL below any of the forecasts – and that stock is down over 6% – but that makes sense -because the news is worse than the expectation……their warning is about both the autos and chemical sectors so that news is permeating other stocks that are tied to both of those sectors causing a ripple effect in names where there is NO new news – but now the expectation is that if BASF is warning then – where there is smoke there might be fire…..and so it goes…..
US futs are all lower as the mkts struggle to figure it out…….but that won’t really happen until we hear from Jay…..so pay attn tomorrow – because that is when you’ll hear it….Thursday’s performance will be a repeat – the only difference will be the questions that members of congress ask – and recall – many of them have no clue -so while he will try to be informative – he can only do so much……
OIL – is on the rise – US inventories are expected to decline by 3.6 mil barrels – would be the 4th consecutive week of declines – and we are in the summer driving season – so we could see a bigger drop….in addition rising tensions with Iraq and production cuts by OPEC are causing oil to find support and attempt to move higher…This morning oil is trading up 38 cts at $58.04/barrel….and remains in the $55/$65 range – right where we have been saying….so while there are competing forces here – supply cuts, inventory drawdown supporting the mkts, there is also that lingering concern over trade – which is weighing on the mkts….In the end – it is what it is and this range feels about right for now.
Take good care.
Kp
Rigatoni – Calabrese Style
Soppresata (pronounced: so – pre – satt- a) – otherwise known in Southern Italy as “Salsiccia Calabrese” – is the key to this dish. Now let’s visit Calabria. So where is it? It is in Southern Italy – in the “toe” of the boot….in antiquity it was known as Bruttium. Calabria is connected to the Monte Pollino massif to the north and the Ionian & Tyrrhenian seas on the east, south and west coasts. So what is the Monte Pollino massif? Monte – means mountain – so they are the Pollino mountains in the southern Apennines mountain range. A massif is a section of the Earth that is marked by faults and flexures and represents the mass of the mountain. (very interesting – no?) The capital of Calabria is Cantanzaro but the most populated city is Reggio. The region is a long and narrow peninsula and goes from north to south for 154 miles while being 68 miles wide. 42% of the region is mountainous, 49% is hilly while the remaining 9% is flat plain like land. The climate is influenced by the land….colder in the Monte Pollino region, temperate in the middle, humid on the Tyrrhenian coast and much drier on the Ionian coast. Now onto the dish –
For this dish you need only a couple of things….and the best part of this is that you can substitute gluten free (GF) pasta so that the whole family can enjoy it. Delish.
You should use a short pasta with this dish….like a rigatoni, penne, mostaccioli or rotini. One soppresatta, garlic, olive oil, 1 cup of crushed tomatoes and chopped Italian parsley.
Bring a pot of salted water to a rolling boil
Remove the skin from the soppresatta and then slice thin. Set aside.
Now – in a large deep sauté pan – add the olive oil and heat on med low. Now add in the sliced garlic and sauté until it becomes golden brown…now remove.
Now add the pasta to the water and cover
Next – turn heat to low and add in the sliced soppresatta. Cook for like 5 mins or so….Now add the tomato – stir to mix. Once ready….toss in the chopped parsley – stir and remove from the heat.
Taste and strain the pasta after like 8 mins or so….always reserving a mugful of water. Now – turn the heat back on low – pour the pasta directly into the pan with the soppresatta and tomato and mix well. If you need to add a little moisture – then pour in a bit of the pasta water. IF not – then don’t. Serve immediately in warmed bowls – Always have fresh grated cheese on the side….now for this you can grate some provolone – it is a bit moist and soft and will melt nicely into the dish.