Things you need to know.
- Investors reconsider the inflation narrative
- Stocks sold off – Tech once again gets smashed
- European markets under pressure as more lockdowns are announced
- AZN vaccine gets the OK from European regulators
- Drama in Alaska – It’s just noise
- Oil retreats as the hysteria crew creates hysteria over demand
- Try the Garganelli
So, did the meltdown begin or was it just an overreaction? Yesterday – it started with the high growth names; you know the ones…. the usual suspects…. AMZN, AAPL, MSFT, NVDA, NFLX, TLSA, and then that also includes – the Cathie Wood’s ETF – ARKK which fell by 5.8% and her ETF includes Square, Zillow, Shopify, Spotify, Zoom etc.…. are you getting the picture? It was the usual suspects…The Nasdaq coming under pressure in the pre-market as the 10 yr. treasury pierced 1.7%…..up from Wednesday’s close of 1.61% – only to continue to fall as the mins turned to hours and the hours turned into a tough day…..by 4 pm – the Nasdaq gave back 410 pts or 3.02% – leading the pack lower……the Russell which was also under pressure all day – because of its outperformance ytd – followed suit falling 69 pts or 2.9%, the S&P which has a number of these high profile names in its index was also fighting to buck the trend but fell victim ending the day off 59 pts or 1.48% while the Dow – remained positive for most of the day….and that makes sense – because the Dow is full of VALUE names, Cyclical names that are expected to outperform during this period of ‘transition’…..and while it remained positive for most of the day – it succumbed to the selling pressure as speculation built all day about how high the 10 yr. will go on this latest surge – so by the closing bell – even the Dow was lower by 153 pts or 0.46%.
All this as investors/traders and algo’s appeared to revisit the comments made by FED chair Powell on Wednesday….leading them to re-think what all of the ‘good news’ meant for stocks….and the good news included the promise by the FED that they weren’t going away for months and months (years and years) and that they also raised their GDP forecast for 2021……all good but then they included an increase in the rate of inflation caused by the massive $1.9 trillion stimulus package (with more to come) and that is suddenly what caused investors to re-think valuation models.
Now while currently – inflation sits at 1.7% – they projected it to go to 2.4% on the top line eventually backing off to 2% in 2022…. but investors do not believe it and then sent bond yields higher which then sent the high growth lower…….as investors demand a higher risk premium in a rising rate environment……. Remember – higher yields mean higher borrowing costs for businesses and for individuals – think mortgages, auto loans, revolving credit etc.…
In the end – it is all about expectations and the fact that the expectations are now exceeding prior expectations is spooking the bond markets. In addition, yesterday’s eco data was mixed – right…. Initial Jobless Claims and Continuing Claims rose (not good) while the Philly FED Business Outlook blew the roof off the house rising to 51.8 vs. the expected 23.3 or a 122% increase over the expectation – which is good but caused many to suggest that this explosive rate was surely going to further ignite inflation….and so it goes…. Stocks sold off.
Now – when the markets get antsy – they pull out all of the stops, bringing the talking heads out to try and calm the markets…..and last night CNBC’s Jim Cramer was at the top of the list….screaming and yelling on his show about how the selloff is such an over reaction and that the sellers were gonna get run over once all the buyers come back and take all of these names higher…..and you know what the funny thing is about that? The buyers (if they come) will be the sellers from yesterday…. LOL…. it’s ridiculous – it won’t be ‘new buyers’ at all….it will be the sellers who panicked…. that is if the selling does not continue….and then you have all the talking heads reminding us that rates were higher than this before the pandemic hit so what is the concern….
OK – ready – Let us think about this for one minute…. last year prior to the pandemic when rates were hovering right here – the Nasdaq was trading 3683 pts lower or 27% below where it was yesterday morning…. the S&P was trading at 3386 or 14% lower from where it began the day yesterday…..and that is when things were looking bright before the virus shut the world down….stocks then collapsed and then rallied into yearend…all while inflation remained at lower levels with zero indication of rearing its ugly head…….so now – stocks are significantly higher, rates remain at zero and inflation up until Wednesday was a supposed non-event – until it was….So…..what would you expect? Of course, stocks are going to sell off and will sell off even more if inflation rates become even more elevated and the 10 yr. continues to rise…. Recall that Goldy told us that 2% would not be an issue….and they were right because the issue appears to be 1.75%!
This morning the 10 yr. is backing off – and is now below 1.7% trading at 1.68%….and that is causing what kind of reaction in stocks? Yup…. suddenly all the sellers (mostly traders) from yesterday are jumping right back in (see my comments above) – but today they are on the buyside…sending futures up (not huge) but still up…. which I think is just a knee jerk reaction to the 3% selloff yesterday……
Now remember – in my comments from yesterday morning I identified the supporting trendline for the Nasdaq – it was 13,325 -which we broke early one…. My comments then suggested that a breach of this level would put 10,550 in the line of sight – and that is still true…. even as the futures suggest a turnaround today…. We are in a re-pricing environment period, the end. And that is not a reason to panic, but it is a reason to understand the changing dynamics and reboot your portfolio…..that’s all……Don’t’ go jumping out any window, don’t go throwing out all of your high growth names – trim yes, toss no, – but understand that rising rates – especially quickly rising rates will cause a quicker reaction in any re-pricing – which can be a good thing, because it shakes the branches harder causing the weak links to fall out of the tree sooner – yes the VIX will surge and the algo’s will respond with waves of selling and if that happens then prices will adjust sooner and calm will take over….. and that is what will be the opportunity for the savvy, well positioned long term investor. Remember – just because the market sells off on one day – doesn’t mean that its over….and that you have to do something…..you don’t have to do anything….you can be discerning, you can afford to be patient – because you are invested and if the market rallies a bit – guess what – you are participating…and if it continues to sell off – then you get an opportunity to rebalance it with names that go on sale. So – either way – it is a win win.
As I said – US futures currently at 5:45 am are up…. Dow futures up 58 pts, S&Ps are up 13 pts, the Nasdaq is up 85 pts and the Russell is up 17 pts. What has changed? Nothing…. other than the 10 yr. backing off a bit…. but is the outlook different today? No. Are rates still gonna rise? Yes. Is inflation coming or god forbid is it already here? Yes. Is stock valuation stretched across some parts of the market? Absolutely. Is there still opportunity across the sectors? Of course. Should you panic? Absolutely not. Keep your eyes on the ball…. stick to the plan, this is not the time to panic at all…. but it is a time to stay awake – no sleeping…. Call your advisor if you need to chat…. he/she is like having a therapist for your investments!
The VIX – fear index – did exactly what you would expect yesterday – it shot higher by 12% but remains substantially below ‘alarm bell levels’ – which only means that investors remain relatively calm….and this speaks to my overall thesis – there is no reason to panic, but there is reason to rebalance….and that is what is going on… Value is way outperforming growth as investors reconsider what the future looks like….and do not think that value just means financials, energy, cyclicals, consumer staples….at some point even the high growth tech names move into the value category after they get beaten up enough…. the question is – have they gotten beaten up enough yet? I do not think so, you might but I do not – and that is what makes a market – buyers and sellers.
Eco data today includes nothing….
Oil tumbled 7% yesterday…. because someone ignited the ‘hysteria’ story again yesterday…with Europe locking down ahead of the Easter holiday – the story goes that demand will fall…. ok…. great…. does it matter that oil has surged by 82% since November – when a barrel of oil was trading at $35 and yesterday even after its decline was still trading at $58 – which btw is trendline support which it held. Which still represents a 58% increase since November? Come on, stop the histrionics…. Demand is strong and will only get stronger after the holiday when Europe ends the latest lockdown and more and more people in Europe get vaccinated…. Just look at what is happening in the US – vaccinations are UP, and people are on the move! We remain in the $60/$65 range….
European markets are in retreat……following the selloff in Asia. Bond yields spooking both……while the tensions between the Chinese and the American overheats in Alaska…not sure what happened, but it is all over the news….and it sounds like noise to me…so I am discounting it…. because it means nothing for stocks. France the latest European country to impose a 4 week lock down is only adding to the negative mood. But France is now joining Germany and other countries in re-rolling out the AstraZeneca covid 19 vaccine…. Which should begin to resettle markets. The BoE (Bank of England) kept interest rates unchanged – as expected at 6 am the FTSE -0.56%, CAC 40 -0.62%, DAX -0.34%, EUROSTOXX -0.47%, SPAIN -1.02% and ITALY -0.38%.
Bitcoin – is trading at $58,000 and Ethereum is at $1820.
The S&P closed at 3915 after testing 3910…. recall I noted that we should find short term support at 3900 and we did (for now) …. Today may see a bounce – but that is just a knee jerk reaction – in my opinion…. Expect stocks to re-price in the weeks ahead – especially if we see another spike in yields…. like yesterday…. The administration and the FED will do whatever it takes to divert the conversation as they try to take the focus off rising inflation and rising yields – thus all the focus on the ridiculous drama in Alaska between the US and China. This morning – expect to see some bargain hunting….and see many of the sellers from yesterday turn buyer today…. (they are not you… they are not the long-term investor – because the long-term investor does not make short term emotional trades, Period. Expect more talk about the coming massive tax increase and how they just widened the net by including households making more than $400k vs. individuals that Joey ran on…. Remember – he did say that ‘anyone making under $400k will not pay one penny more in taxes when I’m president…’ Well – we all must have misunderstood this noticeably clear message……because now it is a combined income (between you and your partner) and not an individual income that will get whacked – so that just opens a whole new set of eligibility….
We remain in the broader 3770/4040 channel – We found support at 3900 as noted yesterday and today may see a push up in what a bit of a snapback rally is. The broader sell off is not what happened yesterday……that was just a precursor…. sit tight….
Stick to the plan, do not chase, trim where necessary and put money to work when its right….and that may not be today……and that is ok.
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. You can now get a video version of this note on my IG (Instagram) feed – my handle is Kennyp1961 (https://www.instagram.com/kennyp1961/)
Take Good Care
Chief Market Strategist, Consultant
Garganelli w/Spinach, Sun Dried Tomates & Mascarpone Cheese
This is a simple 20 min recipe. It uses mascarpone cheese…. a soft creamy cheese used in many Italian deserts. But I must tell you – it is very versatile and can be used in several ways in pasta dishes….and here is one for you…
You will need: Garganelli pasta, Mascarpone cheese (room temp), zest & juice of a Lemon, s&p, olive oil, minced garlic, diced onion, chopped sun-dried tomatoes, 1 bag baby spinach, toasted breadcrumbs, and of course fresh grated Parmegiana Cheese.
Begin by combining the zest, lemon juice, mascarpone, and s&p in a bowl, whisk to combine.
Bring a pot of salted water to boil – add pasta.
While this is happening (you have like 8 mins) heat the oil in a lg skillet, add the garlic and diced onion and cook until softened. Turn off heat and set aside.
Cook the pasta until al dente, like 8 mins….do not let it get soft and mushy. Strain reserving a mugful of the pasta water.
Return the pasta to the skillet with the garlic and onion – and set over medium heat. Now add the mascarpone and lemon mixture, sun-dried tomatoes, and spinach. Add back about ¼ c of the pasta water and toss together until the spinach has wilted and everything is piping hot, adding a little additional pasta water if needed.
Serve immediately in warmed bowls topping each bowl with grated cheese and some toasted breadcrumbs.