Things you need to know.
- Eco data suggests inflation may start to run ‘hot’
- Yields surge and shake investor commitment until Powell assures us not to worry
- The Clowns are coming to town
- Oil continues to go up as the storm ravages 75% of the country
- Bitcoin holds $51,000
- Try the Baked/Broiled Salmon w/Champagne Cream
My TD Ameritrade interview with Nicole Pettalides – click on the link below.
Economic data surprises – to the upside…..once again turning up the heat on rising inflation pressures…..PPI (Producer Price Index) which defines and calculates the average movement in selling prices from domestic production over time. – Key word : Production – because unlike the CPI (Consumer Price Index) – the PPI measures the cost (to the manufacturer) to make the products every step of the way and is the tool used for ‘adjusting prices’ in the long term. The CPI as you know, measure the prices that consumers pay…..and this affected by the prices that manufacturers need to pay….Capisce? Think inflation……because if the producer pays more to manufacture the product – then the consumer pays more in the end. It is not rocket science.
And yesterday what we learned is that producers are apparently paying more to manufacture their products – in fact, a lot more…. PPI which was expected to show an increase of +0.3% came in at +1.3%! Ex food and energy – came in at +1.2% when the street was expecting an increase of +0.2% and that was just month over month. The year over year numbers reveal even more……PPI – y/y came in at +1.7% and Ex food and energy came in at +2%! Well above the +0.9% and +1.1% that we expected. And while CPI appeared to remain subdued last week when the gov’t reported those figures – you must believe that there is a disconnect somewhere – or that the increase in producer prices has not trickled down yet to the consumer – but it is coming! I mean it has to….you don’t think manufacturers are going to ‘eat the rising costs’ do you?
And then on the other hand – Retail Sales also surprised the analysts that are paid to ‘analyze’ these numbers. Month over month sales came in at a roaring 5.3% – decidedly higher than the +1.1% that was forecast and Ex autos and gas – the number was even stronger…..coming in at +6.1% when the expectation was for +0.8%. Not sure about you, but what that tells me is that someone is sound asleep at the wheel. If the information is readily available and analysts get paid to do the analysis – how could both of those reports be that way off? Does not matter now, they were and so the markets and investors must deal with it….
And so – the first reaction was to watch the 10 yr. treasury spike higher once again and that put immediate pressure on the indexes – as the opening bell rang…..within mins – the Dow was down triple digits and the S&P, Nasdaq and Russell followed suit as talk of ‘surging’ inflation and surging yields on the 10 yr. caused investors/traders to hit the SELL button. But then they turned it around – because the retail sales number – is suggesting that the consumer is alive and well and SPENDING money even as the pandemic halts life as we knew it….So the market remains confused….which is it? Good news or bad news?
In the end – the anxiety in the morning was replaced with calm and by the end of the day, the Dow added 90 pts while the S&P lost 1 pt., the Nasdaq gave up 82 pts and the Russell lost 16 pts….Which in the end was a win.
But – what is does show is that the ‘high flyers’ the ‘growth names’ (think parts of the tech sector) are vulnerable. Why? Because if inflation rises and yields rise, then the focus turns more to cyclicals and value plays and FAANG names are not considered either….But that doesn’t mean you discard them – it does mean though, that you must be aware of the implications in a rising rate, rising inflationary environment. It seems that all the focus was on those two issues vs. the continued talk of more stimulus, low rates, declining virus infections and increasing vaccination rates.
And then – at 2 pm we heard from the FED….when they released their FOMC (Federal Open Market Committee) mins from the January 27th meeting. Did we learn anything new? No, In fact – they revealed nothing more than what we know…..that the FED is not even ‘thinking about withdrawing policy support’ and that they will hold rates at zero and continue their monthly purchases of T-bonds and Mortgage backed securities – even as they expect inflation to ‘run hot’. And so, the mornings anxiety subsided…..leaving markets and investors wondering – What WILL cause the markets to back off? Or, Will there never be another down day on Wall St?
And now to Capitol Hill –
T-5 hours until the next show…..and that show will feature ‘The Clowns’ – and oh boy, there will be lots of clowns on Capitol Hill today…On one side we have Rep Maxie Waters….who will lead the bevy of ‘elected clowns’ while on the other side – we will all finally get to meet the ‘trading clowns’ led by Robin Hood – who apparently is a man from Bulgaria whose real name if Vlad Tenev….,Ken Griffin – the clown from Citadel that has a lot ‘splainin’ to do, Stevey Huffman – the clown that nobody knew before today – CEO at Reddit, the online chat room that was home to all of the ‘reddit rebels’ and Gabe Plotkin -CEO at Melville – posing as ‘the brain surgeon clown’ that was short some ridiculous amount of GME that got caught with his pants down…..and as we now know – it was not a ‘happy ending’. The other participant is in fact NOT a clown at all….he was the only one that used his head, did the work and made a real bet…and that is ‘the Roaring Kitty’….who we all now know is Keith Gill – a 34 yr. old that lives outside of Boston in a two bedroom apt with his wife and child – that was so convinced that the Melville guy had it wrong that he was willing to bet the ranch – and boy what a bet he made….in fact he was the one who had ‘the happy ending’ raking in $7.6 million on a $53k investment. And Boom! That’s how its done…..
Now in the end – there was plenty of drama for 2 weeks, a lot of people got hurt while others profited handsomely on the hysteria created by the rebels on Reddit…but either way- No one did anything illegal, to be clear, there was nothing illegal about what happened, but there are lots of questions that need to be answered about How what happened, happened. It will be must see TV…..But in the end – it will not be a directional driver for the markets at all.
US futures are lower this morning…..European markets are lower as well……and the Asian markets that were open also traded lower while Australia ended the day flat. On the Eco data front we will get the usual suspects….Initial Jobless Claims, Continuing Claims and those will be joined by Housing Starts – exp minus 0.5%, Building Permit of minus 1.4%, Philly Fed Survey of 20, down from 26.5 and finally the Bloomberg Consumer Comfort Survey.
All eyes will be on the 10 yr yield and talk of how ‘hot’ inflation will be allowed to run before someone stands up and says ‘Ok – that’s hot enough’. Currently – Dow futures off 83 pts, the S&P’s down 18 pts, the Nasdaq giving up 112 pts and the Russell lower by 10 pts. 10 yr. treasuries trading just below 1.3% continue to cause investors to consider what to do – should they start to rotate out of some of the highflyers or not? Look – low rates and more stimulus will certainly help to keep a floor under stocks -and there are sectors that will benefit. Higher rates will hurt some of the growth names (think parts of the Tech sector).
Now the VIX raised its head just a bit….and is now kissing resistance at 23.50… a push up and thru that will ingnite a bit of angst in the mkts unless someone (Powell) comes out tells everyone to calm down….Keep your eyes on the data point.
European markets are lower – the FTSE -0.89%, CAC 40 -0.48%, DAX -0.12%, EUROSTOXX -0.38%, SPAIN -0.43% and ITALY -0.79. A bunch of earnings were out today….no major eco data….so it is more churn.
Oil is up again – WTI (West Tx Intermediate) has now pierced $61……as the storm covering most of the US takes its toll.
Bitcoin -$1000 at $51,300…
The S&P closed at 3931 – down just 1 pt…….after recovering from the pressure in the morning. You can feel how unsure the market is – are we heading lower or will we be able to ignore the negatives that are bubbling beneath the surface and keep telling ourselves that its all OK? We remain in the channel of 3771/4040. You know how I feel – the market feels tired – and the attempts to advance feel less robust…. which only means that any re-pricing will offer new opportunities. Now if the mkts just churn and wait for the economy to catch up to today’s valuations then we will not get the re-pricing, but I am betting that valuations will adjust a bit to take some of the froth out of the recent action.
In any event – stick to the plan, trim where necessary and put money to work in some of the underperformers…. Stay awake…. this is not the time to doze off.
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.
Take Good Care
Chief Market Strategist, Consultant
Baked/Broiled Salmon w/Champagne Cream
For this you need: Butter, shallots, flour, champagne, heavy cream (why go lite?) and s&p.
Begin by melting ½ stick of butter in a saucepan. Add in the diced/chopped shallot and sauté over med low heat. You do not want to burn the shallots – so no more than 5 mins or so. Now add in 3 tblspn of flour and whisk until blended. Next – slowly introduce 1 cup of champagne and then ¾ cup of heavy cream. Let it all come together nicely – keeping heat on simmer. The sauce will start to thicken – remove and season with s&p. (At this point you can let it cool and put it in the fridge for use later).
Preheat oven to 375.
Next – take you pieces of Salmon – rinse and place in a baking dish. Season with s&p. Next place in the oven and bake for 10/15 mins depending on thickness. Now turn on the broiler and broil the top of the salmon just until it is a bit toasted on top. Check for doneness by flaking with a fork.
Now remove and set aside. To serve – Re-heat the champagne cream sauce and then spoon the sauce onto the plate. Place one piece of salmon on top and serve. Always have extra sauce on the table for your guests. Serve this with steamed French cut green beans – seasoned with fresh lemon juice, a splash of olive oil and s&p. Enjoy with a chilled glass of Pinot Grigio – Santa Margherita.