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Things you need to know:

  • JP tells it like it is and promises unending support – market liked it and now it hates it.
  • Stocks sold off on Wednesday – sending global markets into a tailspin
  • All the negativity re-accelerates the whole virus resurgence story – of course it does
  • Oil and all those highflyers – airlines, cruise ships, and bankrupt stocks collapse again
  • Try the Linguine Puttanesca! Tangy and spicy – so appropriate for today!

“We are not thinking about raising rates.  We are not even thinking about thinking about raising rates and we are strongly committed to using our tools to do whatever we can and for as long as it takes to provide some relief and stability.  What we’re thinking about is providing support for the economy and we think this is going to take some time.”  Fed Chair J. Powell 6/10/2020

Sounds pretty clear to me, How ‘bout you? And it is – but it is the implication of what that means that sent the algos into a tizzy – besides the fact that the market had gotten a bit ahead of itself as the algos had once again caused the pendulum to swing too far to the right after having swung too far to the left… the arc of the swing clearly exaggerated which is why it needs to  come back to center…

And so it was what it was – the market began the day lower – reacting to the weak OECD headline for one and then anxious over what the FED was going to do… would they surprise the markets or not? So as the clocked ticked closer to 2 p.m. you could feel the excitement building as all the talking heads opined on what we were going to hear… and then BANG… it hit the tape – the FED was set leave rates unchanged… stocks began to celebrate but fell short of a real party as they waited patiently for the press conference… And then Powell took to the stage and stood in front of a large ZOOM screen that had a roomful of journalists lying in wait… And then it began… he started by saying that the FED voted unanimously to keep rates at zero for a long time – at least through 2022. Wow – talk about forward guidance! Bravo! And stocks went positive…

He also explained that he has plenty of wood in the woodshed if need be… he went onto say that ‘the pandemic could inflict permanent damage on the economy’ no matter what he did (that’s kind of a negative comment) – all while he is maintaining the current rate of bond purchases – and stocks went negative, then positive again, and then negative and remained there for the balance of the day as the questions kept coming… journalists attempting to try and back him into a corner – wanting more specificity – they kept hammering him on what tools he had, what the guidance means – was the guidance realistic, what kind of permanent damage did he mean, is 2022 realistic. Remember, it took 5 years for employment to come back to pre-crisis levels during the GFC (Great Financial Crisis) and it only got as high as 10%. We are now at 13% and likely to go higher before it goes lower – with some estimates in the 20’s – a level not seen since the Great Depression when unemployment hit 24.9% in 1933! Do you see where this is going?

So, while he continued to take the questions – the algos were not satisfied with the answers – recall that the smart algos read headlines and interpret the words – they do not listen and interpret the tone or use of the words – and that makes a difference – it’s like I said yesterday – What would the people in the room HEAR? I mean, we all heard the same thing when he was talking, but some people heard one thing while others heard another thing. I, for one, heard just what we expected – and I believe he delivered. I mean, how else could he say that they will ‘do whatever it takes for as long as it takes’? Well, guess what – that is clear, what is also clear is that the implication suggests that they are sticking around for a long time which must mean it’s pretty bad out there… and BOOM that’s the negative in the story and that is how it is going to be played… and so the algos cranked it up and by the end of the day the Dow gave back 282 pts or 1%, the S&P coughed up 17 pts or 0.5%, the Nasdaq managed to push higher (think Tech changing the world) adding 66 pts or 0.67%, and the Russell small/mid cap index plunged 39 pts or 2.6%!  Oh boy… here we go again… But do not panic – this does not mean a return to the lows of March!

All sectors (except tech) that have been leading came under pressure… Banks/financials down 3%, Basic materials down 1.1%, Real Estate down 1.9%, Industrials down 2.4%, Energy down 4.9%. And those high flying airlines and cruise stocks – down even more at 7.5% – watch what happens today… and the bankruptcies that all the brain trusts at Robinhood have been touting – expect them to crash as well – leaving those investors beaten up and bloodied – surely there is about to be a ‘class action lawsuit’ against someone…

I mean Hertz (HTZ) which declared bankruptcy last week and is about to be delisted on the NYSE – traded down to 0.80 cts per share by June 4th and then on June 8th it became one of the ‘star’ investments on Robinhood as retail traders took the stock up 681% in 1 day, trading as high as $6.25… Remember I said they filed for bankruptcy – equity essentially worthless if that happens – closed yesterday at $2.52 and is likely to go back to 80 cts today… yet – many on the street were talking about how the smart money is all on the Robinhood platform… I mean you can’t make this stuff up… who would ever believe you?

So after the bell, the talking heads continued to pull the report apart, they continued to dissect his speech and found out that there are different colors of blue! Recall my comparison yesterday – he comes out and says the ‘Sky is blue’ – that’s pretty clear – but then your interpretation of ‘blue’ is different than mine or any of the other 30 people in the room – in fact there could be 30 shades of blue – each one just a bit different – giving you a different result and so it is…

The perception of negativity (which I still don’t agree with) continued to infect the global markets… Asia was the first to react – and the algos there were not impressed either… I mean it’s like they are all sisters! The fact that the FED has said – in no uncertain terms – that they are keeping the foot on the gas until they no longer have to is apparently the issue… and the idea that so many had been calling for a swift recovery now realize that the FED is apparently not in the same camp – and is preparing for a long slog… and I ask – is that really a surprise? Look what they did to the US and global economies! Unprecedented! Either way, by the end of the day Japan gave up 2.8%, Hong Kong lost 2.27%, China lost 1.08% and the ASX gave back 3%.

In Europe stocks are getting slammed as the ‘sister algos’ go nuts across that continent – it’s the same issue, the same concerns, it’s the same story… the algos are not happy and those same algos  that had taken the market higher are now in sell mode… with many of them trying to lock in some of the profits that have been created by the most recent move up. Buyers recognize this so they position themselves lower leaving a void in prices causing the markets to pull back… It is not any more complicated than that… In early morning trading we see the FTSE -2.16%, CAC 40 -2.25%, DAX -2.06%, EUROSTOXX -2.0%, SPAIN -2.74% and ITALY -2.71%.

US futures are playing “follow the leader” and as of 7 a.m., Dow futures are off 675 pts or 2.3%, S&P’s are down 60 pts or 2%, the Nasdaq lower by 163 pts or 1.6% and the Russell is down by 43 pts or 3%! Now on top of the latest FED report – the paparazzi are re-focused on the second wave of infections – a conversation that was pushed to the back burner is now on the front burner and they turned the heat up to get it to boil. Talk of rising infection rates in the south now fueling that argument… because as spring turns to summer and temps rise to 100+ degrees – people are staying inside and no longer eating outside – thus giving the virus a better chance to transmit among the crowd. Talk of ‘flare ups’ are now the headlines… and the phrase ‘flare up’ is NOT being perceived as a positive… and here we go again…

But look – let’s just settle down stocks are up 44% since the March lows (10 weeks) and up 15% in 4 weeks –as stocks shot higher and higher every day – leaving the talking heads numb as they all tried to figure it out…why were stocks advancing at such a rapid rate? What was the market pricing in? What were investors thinking? Blah, blah, blah… so now the market gives back maybe 4% between yesterday and today and everyone is blasting the alarm bells? It’s crazy… That is not to say that we can’t go lower still – but the market did get ahead of itself vis a vis the economy – Period the end! It’s part of the healing process – so settle down, stay focused and stick to your plan…

Oil – is lower this morning – of course it is – the latest second wave conversation is causing the whole ‘slowing’ demand growth conversation to accelerate. Again, after the recent run up – what would you expect?  I am of the opinion that it’s all BS… They just spent the last 6 weeks telling us how demand is set to recover – sending oil up 120% since the April lows and now suddenly it’s not? I mean even Goldman went positive on the oil story – what will they say now??  It’s ridiculous… As of 6:30 am – oil is down $1.12 or 2.8% – still trading at $38.46 still above the support trendline at $36.69.

S&P closed at 3190 down another 17 pts from the Tuesday close… Yesterday morning I did say that Wednesday would be a “pivotal day” — What will Jay say?  Will his words be misinterpreted and cause a sell off or will they be misinterpreted and cause the rally to continue? His words are causing some of the selloff as investors try to lock in some profits – but the negativity that some are assigning to his comments are being exacerbated now by the revival of the covid19 virus… so strap in – recognize that any retracement can be explained by the explosive move up in the last 10 weeks… I do not think that this is the beginning of the end at all… In the chaos there is always opportunity… just sayin’

We remain in the broader range of 3000/3386 (long term trendline support and all-time high resistance). But I would expect to find some near-term support at 3150. If we should plunge through that level then the algos will light up as they run to test support at the trendline and buyers know this – so what do you think they will do?  Stand there and get run over or just move lower until the anxiety cools off.

Take good care,

Kenneth Polcari
Chief Market Strategist, Consultant

Linguine Puttanesca

The word – Puttanesca literally translates into “in the style of the prostitute” (where the Italian word puttana means “lady of the evening”) .

As many of you may know this dish originated in Naples and is today a staple of the Neapolitan household.  It is made from tomatoes, black olives (or Kalamata Olives), capers, anchovies, onions, garlic, oregano and parsley.  It is easy to make and has an interesting history.

So how did it become so popular?   As you might imagine – legend has a number of explanations…

  1. The intense aroma would lure men from the street into the local brothel where the prostitutes would be cooking the sauce to lure the patrons.
  2. The prostitutes made it for themselves to keep the interruption of their business to a minimum.
  3. And in a twist – it was a favorite of married women who wished to limit their time in the kitchen so that they may visit their lovers.

Whatever its origin, it is a great dish that is easy to prepare – is spicy, tangy, and vibrant – an appropriate description of the mkt today…

Start with 3 crushed garlic cloves sautéed in olive oil about 3 / 4 mins…do not let it burn… next add a diced white onion and diced/minced anchovy filets and sauté for another 5 / 8 mins.  – as they cook, they melt away.  Add one can – 28 oz – of kitchen ready crushed tomatoes… not puree – Crushed. Add about 1/4 of a can of water – Let simmer for 10 mins or so. Next add capers, oregano, pepper, chopped Italian parsley, and rough chopped pitted Kalamata olives or pitted black olives – whichever you prefer – but do not mix… It is one or the other. No need to add salt as the anchovies are salty enough. If you like more bite, you can add red pepper flakes at this point… cover and let simmer.

In the meantime – bring a pot of salted water to a rolling boil and add the Linguine or spaghetti.  Do not use Capellini as it is to thin and it clumps up etc… Let boil for 8 mins or until aldente. Remove and drain – keeping a mugful of the pasta water. Add the pasta to the sauté pan with the Puttanesca sauce and heat and stir until well coated and fragrant. Serve immediately onto warmed plates offering up grated Parmegiana cheese on the side.

Buon Appetito.