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Things you need to know.

  • The decline was brought to a halt as Powell confirmed the FED’s commitment.
  • Inflation?  Do not be ridiculous – move on, nothing to see here.
  • Yields?  3% is now what they want us to believe is the tipping point.
  • Weaker dollar is supporting commodity prices – complex up across the board.
  • Bitcoin – gets slammed and then recovers.
  • Try the Linguine Tri-Colore

And stocks extended their decline for most of Tuesday……. with all the indexes getting whacked throughout the morning and not finding any real support until it was clear that Fed Chair Jay Powell is not going anywhere, he is not even thinking of pulling out – No, Nope, Not a chance.  And he confirmed the current road map – easy money, large scale asset purchases and zero interest rates – and will tow that line until ‘substantial further progress has been made’ acknowledging that it will take time…. He also confirmed to us that inflation is under control – there is no need to worry, prices are not going up to the extent that it will derail anything.  (To that I say – have you been to the supermarket lately?)  So, in the end he is making it clear – just in case you were unclear, the FED is in the game until we have a complete recovery, Period the end.  Now, we can ask, and it leaves it open to interpretation…. How do you define a complete recovery?  Yeah, I get it – full employment, price stability and growth.

The Dow at one point losing 360 pts managed to turn it around claw its way back and go positive at 2:59 pm going onto gain 115 pts before giving it all up to end the day +15 pts.   The S&P swung 87 pts from hi to lo – going positive at 3:06 pm ending the day +4 pts, the Nasdaq – which got clobbered hard all morning fell 527 pts – slicing right thru it 50 dma at 13246 to test as low at 13,003 before investors responded to the Powell comments – and while it never quite went positive -it did end the day on down 67 pts – which was a WIN WIN.  And the Russell lost 82 pts before finding support and managed to take back most of the losses by the time the bell rang – closing 19 pts which was also a win. In fact – the whole day was a win – considering it felt like the bottom could have fallen out at least on the Nasdaq….  In the end it was a classic ‘buy the dip’ opportunity.  But were those buyers a bit early? Is the selling over?  Really?  Well, the Nasdaq – at its low yesterday was off 8% from its most recent high…. with some of the highflyers off even more – AAPL -18%, AMZN – 9%, WFH – 11%, ZM – 22%, CRWD – 21%, and the list goes on….so is that it?

The Dow is off 0.5%, the S&P -3.5% and the Russell is down 4.2% since this latest shift in investor psyche took over. So now its time to ask yourself – Was that the shakeout?  I think not.  Because look – the market is expecting exactly what he detailed yesterday and what he is about to detail again today for his encore appearance.  He is sure to be challenged from the right – who suggest that the economy is on the verge of ‘exploding higher’ if the gov’t would just let it open….I mean we’ve already seen that in the states that have eased up, states that have managed to vaccinate a large part of their populations – you can see and feel the rumble – so do we really need all of this stimulus?

Look – Economic growth is up, the vaccine rollout is gaining speed, the dollar is weakening sending commodities and commodity stocks higher, Biden is proposing a $1.9 trillion package and Jay Powell confirmed today that he is keeping the status quo as just that – the status quo.  Ok – so why the angst?
Inflation.  And the expectations are up – and that is what is causing this latest round of angst.  Now – last week’s PPI report was up substantially suggesting that March’s CPI report should reflect that advance in producer prices  – meaning producers are about to pass those higher prices onto the consumer…and when that happens it will raise the angst even more….because Powell just confirmed that he is not taking the Kool Aid away and will allow inflation to run hot for a bit leaving many (myself included) to consider the possibility of the FED being behind the 8 ball rather than in front of it.  A position you would rather not be in….

In any event – The Dems tried to pin Powell down by promoting their agenda – Lizzy Warren jamming the wealth tax down his throat while others goaded him into trying to take a position and support the massive stimulus package, a minimum wage etc.…. – all of which he refused to support as ‘the FED Chair’ – which says nothing about his personal view – but Humphrey Hawkins is NOT about his personal view.

Expect more of the same today….so expect the markets to try and retake their losses from the past couple of days….as there should be no more questions about the FED’s commitment.

Eco data today includes:  Mortgage Apps and New Home Sales – exp of +1.6%.

US futures – have been all over the place – down triple digits overnight – are now all in positive territory as the reflation trade is alive and well…..and for those of you wondering what ‘reflation’ means – it is thought of as the upswing in the economy….where both growth and inflation are accelerating….It is also used to describe the 1st phase of an improving economic cycle after a recession…..Sectors that will do well – Industrials, financials, energy, airlines, transportation names, Retailers, Basic Materials etc.

10 yr. yields are up small this morning, yielding 1.367% and many now trying to downplay its most recent move – as they explain it away as a good sign – that the economy is very strong and will only continue to get stronger…Ok – so if we all agree that the economy is strong and likely to get stronger in the months ahead – Why do we need the FED to continue to support the economy in the way that they are?  Why are they buying assets?  Why are they keeping rates at zero? Those are rhetorical questions – no need to answer them.   In the end – the talking heads are attempting to convince us that the market will not care about 10 yr. yields until they hit 3%.  To that I say – Challenge!

At 6:15 am – Dow futures are up 23 pts, S&P’s are up 6 pts, the Nasdaq is ahead by 25 pts and the Russell is up 18 pts.

European markets are trying to advance…. after investors there focused on the most recent FED commentary……. Eco data reveals that the German economy grew by 0.3% in the 4th qtr. of 2020.  Additionally – a half dozen high profile earnings reports will steal the thunder.  At 6:30 – the FTSE -0.21%, CAC 40 +0.09%, DAX +0.78%, EUROSTOXX +0.35%, SPAIN +0.32% and ITALY +0.29%.

Oil – ended the day up 18 cuts at $61.87 and is up another 38 cts this morning trading at $62.05/barrel – holding tightly to the most recent highs as COVID-19 restrictions begin to ease and the FED promises to stay the course…and as the FED stays the course, we can expect the dollar to weaken -and that alone will continue to support the commodity complex.

The DXY (dollar index) – down 12.5% during the last year is now bouncing around below the trendline at 90.14 – and could most likely test the January lows of 89.20 – and if Jay promises to stay put, there is no reason for the dollar to rally (right now) – so get ready for commodity price inflation….and commodity price inflation will lead to consumer price inflation…. Have you been to the supermarket lately?

In the last 12 months…. we have seen Lumber up 125%, Corn +42%, Soybeans +60%, Wheat +11%, Hogs +22%, Oil +26% (but is up 76% in the last 4 months after collapsing during the summer), Gold is up 8.2% and the list goes on.

Bitcoin – got slammed yesterday – down more than $9k at $45,500 at one point – and ended the day down $6600 at $48,300.  This morning it is up $2800 at $50,800.    Now look – a look at the chart is almost GME like….and so the collapse we are seeing is not so surprising…. Yes, Janet made some comments about its inefficiency etc.…but after its late December surge – taking that asset up 200% – there must be some room for consolidation – no matter what Mikey Novogratz or Anthony Scaramucci say. The trendline is $40,200 (right now) and after the early January surge it pulled back and kissed the trendline before surging higher again – I would expect to see that again….….  Now news that other companies are adding to or buying Bitcoin is almost an everyday experience…yesterday Square announced that they bought an additional $170 million worth of bitcoin in their ongoing commitment to the asset and we are all waiting for that announcement from Apple, Amazon, and Shopify….

The S&P closed at 3881 after testing as low as 3805 – only 10 pts away from trendline support that I have been talking about for weeks now.  Luckily, the FED brought a halt to the selling after committing to staying the course.   This morning the action suggests a bit of stability as investors once again await the second part of the Powell testimony.

We remain in the channel of 3790/4040.  My gut feel was correct – the market felt tired – and the attempts to advance felt less robust and a move lower was expected before it could advance.  There are some newly created opportunities – so get to work…. but do not chase anything.

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

Linguine Tri-Colore

For this you need:  Small cherry tomatoes, capers, sliced olives, parmigiana reggiano cheese, breadcrumbs, extra virgin olive oil.

Slice cherry tomatoes in half. Put them in a roasting pan – season with s&p, olive oil, capers some olives and cover with parmigiana and breadcrumbs.  Put in the oven at 400 degrees for 15-20 minutes.

While this is happening bring a pot of salted water to a rolling boil.  Add the linguine and cook until aldente.
Strain – saving a mugful of the water.  Remove the tomatoes from the oven and mix with the linguine.  You can add a bit of the pasta water to moisten.  Have extra cheese on the table for your guests.

Buon Appetito.