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Things you need to know:

  • Biden comes out swinging – takes aim at investors
  • Supreme Court allows a peak at Trump Taxes… oh boy….
  • Italy surprises European analysts and surges back to life
  • US markets churn ahead of earnings season – S&P struggles with 3200
  • Nasdaq keeps going – but this is an overcrowded trade… “Caution Ahead”
  • Try the Cavatappi

And so it goes… It takes away again… More of the same headlines and then we got hit with not one but two new headlines… that sent the Dow careening… falling more than 540 pts from Wednesday’s evenings close.

The first one:

“Biden Offers ‘Build Back Better’ Plan to Revive the Economy” – it was the Biden/Sanders economic agenda package delivered from a metalworks factory in Dunmore, PA – just a mile or two down the road from Joey’s childhood town… Scranton, PA… It was a ‘Buy America’ rah, rah speech intended to ‘foster manufacturing and encourage innovation’. It is a $700 billion plan to ‘revive the US economy with an America-centric approach’… What? Revive? America first?  Really? I guess it is the DNC’s version of ‘Make America Great Again’. In the end he made it clear that Trump is laser focused on the Dow and the Nasdaq and not focused on middle America and the working class… either way – it is what it is… and we will hear so much more about this in the weeks ahead… Remember – the election is going to start to take center stage in the weeks ahead… as both sides gear up for what is sure to be an ugly race… investors and the markets will respond depending on what the headlines imply… Biden and the DNC has already drawn a line in the sand – expect higher taxes, more regulation and an attack on capitalism as we know it… Get ready… The markets will respond swiftly and decisively… and if yesterday’s speech revealed anything at all – expect volatility to surge as summer turns to fall.

And then without a moment’s hesitation – we got hit with the second headline

“The Supreme Court Backs NY Access to Trump Taxes, Blocks House”

Essentially giving the NY Grand Jury the right to see the Trump financial records (think his 1040 return and then some assorted bank account statements, maybe a few credit card statements)  – but blocking the house subpoenas that would have made them public right ahead of the election – and you can be sure that there will be an uproar about this as well… In the end – the decision affirms the very principle that defines the nation – the rule of law applies to everyone… Period.

By the end of the day the Dow lost 362 pts, the S&P ended the day down 18 pts and the Russell lost 28 pts. In what has become an almost daily ritual of late – the Nasdaq managed to rise, fighting off every negative headline it can find… ending the day up 56 pts as anything ‘TECH’ continues to pave the streets in gold… The Nasdaq has now made 26 new highs this year alone and by the feel of it – appears to want to keep going.

And speaking of gold – the shiny yellow metal decided to take a breather yesterday, falling $13 to $1807 after the spectacular run it has seen since March… Remember – all of the FED stimulus and all of the endless printing of money has caused that commodity to surge as well as some investor prepare for inflation to rear its ugly head. This morning – we see gold take back 60% of those losses as it surges by $9 to trade at $1813/oz… Look – in the longer term – the technical action suggests that the upward momentum will slow – as the current price is well above all 3 three trendlines and there is always a reversion to the mean… and that like TECH – it is an overcrowded trade – meaning that if the tone changes we could see a swift re-pricing and that could take us to trendline support at $1750/oz…

In the end – what the recent whiplash suggests is that while investors want to stay invested – they do remain concerned about the resurgence in covid19 cases and the possible repeat of widespread lockdowns is causing short term angst in the market. Clearly – investors have all crowded into the ‘tech trade’ – the FAANG stocks – because it has worked for so long… but that in itself presents a possible problem… it is an overcrowded trade – capisce? I’m not ringing the bell on it just yet – but what everyone needs to understand is that when the tide turns – and investors look to raise cash – EXPECT that this sector will be used as the ATM machine – and while sellers will want out – remember – buyers are not going to stand idly by and get run over… they will pull inline bids – leaving a void in prices and we could see a swift and painful correction… remember March? Remember December 2018? Just keeping it real…

Overnight – Asian markets were weaker – it is Friday and the weekend can bring more negative news… so investors continue to grow more cautious as the virus continues to hammer the world. In a show of ‘I’m not sure what this means’ – the WHO (World Health Org) came out and said that while the virus has infected more than 12 million people around the world and can be brought under control – the fact is ‘it is getting worse in most of the world’. Hmmm… that doesn’t sound so good… by the end of the day – Japan -1.06%, Hong Kong -1.84%, ASX -0.61%, Taiwan -0.98% and the Kospi (South Korea) -0.81%.

And the Europeans – well they are bucking the trend… Italy reports that Industrial Production soared 42.1% in May – this as that country emerges from their lockdown… this report was well ahead of the expected 22.8%… and that is sending investors scrambling… The UK also moving into phase 2 of their re-opening beginning this weekend and that is creating some bullish sentiment. As of 6:30 am – the FTSE +0.40%, CAC 40 + 0.31%, DAX + 0.32%, EUROSTOXX + 0.35%, SPAIN +0.10% and ITALY +0.68%.

US futures are under pressure… paying zero attention to the latest Italian macro data news and focusing instead on the latest virus stats and news. The Dow is -130 pts, the S&P -14 pts, the Nasdaq -25 pts and the Russell is down 7 pts.

In the end – the S&P is struggling with 3200 as we await the beginning of earnings season… which starts on Tuesday… and while everyone expects another disastrous season… most analysts have already written it off – and instead are turning the conversation to 2021… With little to no guidance from companies for the 2nd quarter and the same for the 3rd and 4th quarters – so much is being left to interpretation… One thing for sure though – earnings in 2021 will surely look so much better when compared y/y…

Eco data today includes: PPI (Producer Price Index) exp of +0.4%, ex food and energy of +0.1%. This is an important number – it speaks to building inflation… a stronger number suggests that there is upward pressure on prices – which will cause that whole FED conversation as investors try to guess the next move… while a weaker number suggests the opposite… Remember – Jay Powell has already told us that rates will remain at zero thru 2021 – or at least another 19 months…

The S&P closed at 3152 as it continues to churn in the very tight range of 3120/3200… Like I said –  it feels like it wants to test the May highs of 3230 but I’m not sure that will happen before the start of earnings season which is next Tuesday… in the event of a real pullback look for trendline support at 3025 (that’s a 5% move lower from here) – certainly not out of the question by any stretch.

Take good care

Kenneth Polcari
Chief Market Strategist, Consultant
kpolcari@slatestone.com

Cavatappi w/Arugula and Canneloni Beans

Cavatappi is a kind of macaroni that looks like a spiral tube.  You may know it as tortiglione or spirali. The word Cavatappi is a combination of Cava & Tappi – whose literal translation means “tap extractor” or corkscrew. Capisce?

This is a vegetarian dish that is easy and quick to make.

Bring a large pot of salted water to a boil. Add the Cavatappi and cook until aldente – 8 / 10 mins.

In a sauté pan – heat up some olive oil, crushed garlic and a sliced/chopped “red” onion. Sauté until the onion is soft and translucent.  Now add a can of cannelloni beans – juice and all and stir to heat up…about 4 mins or so. Now add the arugula and stir. Arugula will wilt – no worries.  Drain the pasta – saving a mugful of the pasta water… return pasta to pot and add back 1/4 cup of the water to re-moisten. Next add beans and arugula – handful of Parmegiana cheese and toss. Serve immediately in warmed bowls with freshly toasted garlic bread.