Things you need to know.
- New Home Sales Plunge –
- Stocks under pressure even as yields retreat.
- Janet and Jay provide fodder for the coming SNL Episode.
- Oil – which got slammed yesterday on demand concerns if finding bargain hunter buyers today.
- Try the Chicken Cutlet Milanese
*** I am hosting my Blitzr Live Event today with my good friend Ron Insana – 4:30 pm est, We will discuss the seismic shift in both monetary and fiscal policy – join us, won’t you. Register here for this FREE live event.
NEW HOME SALES PLUNGE – falling 18.2% vs. the expected -5.7%…..and last month’s was revised lower as it becomes a bit clearer that rising mortgage rates may be cooling off the housing market….or maybe not, but it is a legitimate observation…because as the ‘cost of money’ rises, then the cost of owning a home rises unless of course the price of that home decreases to offset the increase in the carrying cost….and this process begins when buyers pullback, when they are unwilling to pay constantly increasing prices….leaving sellers wondering what’s next……now you can try to sell this is a decrease in inventory – there is plenty of inventory….….
I am not buying it – in fact, I was out with a guy yesterday who told me that he was putting his house on the market at a ‘stupid price’ and if someone wanted to pay that ‘stupid price’ he would be happy to sell it – and I am sure that there are plenty of sellers hoping for ‘stupid’ buyers…. …. So maybe – buyers are deciding that they aren’t willing to keep paying ‘stupid prices. Maybe the banks will stop loaning on increasingly higher prices……or require larger down payments to further protect them from a downturn…. (remember what happened to housing prices during the housing crisis and the exponential rise in foreclosures leaving banks holding the bag while borrowers saw their lives ruined.…)
STOCK INDEXES PLUNGE – the Russell getting hit broadside – falling 81 pts or 3.6%, the Transports tumbled by 262 pts or 1.85%, while the Nasdaq fell 150 pts or 1.1%, (once again below the 13,325 level I identified as a key trendline), the Dow lost 308 pts or 0.94% and the S&P gave back 30 pts or 0.76%.
And this process begins when buyer’s pullback, when they too are unwilling to pay constantly rising (stupid) prices. When the expectation of rising interest rates and rising inflation rates cause the buyers to re-assess the outlook……and very much like a home that comes under pricing pressure – so do stocks….and so it is….
All this while Treasury Secretary Janet Yellen and Fed Chair Jay Powell presented their latest views to legislators on Capitol Hill…. telling them what? That they do not expect the $1.9 Trillion relief bill, the $1400 checks, the coming $3 trillion infrastructure bill will do anything to cause inflation or rates to spike beyond their control. I mean look – the $3 trillion that we spent last year during the crisis did little to spark inflation -so their thinking is – why would this next round suddenly change the narrative…. Powell telling congress.
“We might see some upward pressure on prices. Our best view is that the effect on inflation will be neither particularly large nor persistent.”
And if this sounds like a broken record, it is…. because Jay Powell has been singing this song for a long time now…. He also added that the ‘FED remains strongly committed to keeping the public’s expectations for future inflation under control….and that he didn’t believe that a onetime spending surge that leads to temporary price increases would change those expectations.
All this while Janet chimed in – telling those same legislators – something we all know……that Joey (Biden) is ‘exploring changes to tax structure in order to offset the cost of Democrat’s next big ticket economic spending package’ – and that the infrastructure bill must be paid for by reforms to the tax code….and she left nothing off the table – everything is being considered for a revision…..EVERYTHING – Now, while we may not see a change in personal income taxes across all income levels, I have to believe it IS on the table….just fyi. And this testimony only added to yesterday’s angst in the markets…. causing buyers to retreat and sellers to wonder ‘what happened?’ – Where have all the cowboys gone? (Name the song, the group, and the year.)
Ok – so – stocks ended lower…. there was not any panic, but there were waves of constant selling – causing the buyers to take control of prices – willing only to pay lower prices as the day wore on…. I mean – if you see the train coming down the tracks are you really going to stand in front of it? Of course, not…. So, while it was the Jay and Janet comedy hour on Capitol Hill – investors were once again re-assessing the pace of the recovery, the possibility of rising 10 and 30 yr. yields and the increasing likelihood of runaway inflation…. the extent of herd immunity especially considering new variants that are showing up all over the world….
Now the 10 yr. did in fact back off a bit…ending the day at 1.63% down from 1.68% – so you ask -shouldn’t stocks have rallied? Yields are coming down and stocks are selling off???? Makes no sense or maybe it does…. because maybe investors assume this pullback is a head fake and that in fact – a surge in rates is coming….and a surge in inflation is coming and if this is true – what will the FED do then? Yes, Jay tells us not to worry, but he does not lay out the plan…. he is just jawboning…. asking us to trust him…. Whatever….
So as expected yesterday saw strength in the Utilities – XLU +1.5% and Consumer Staples +0.45%. Retail, housing, basic materials, energy, industrials, healthcare, consumer discretionary all taking it in the gut… the Value trade also getting slammed as seen by the beating that the Russell took – yet the Russell remains up 10.8% on the year while the Value trade (SPYV) is still up a solid 7.8% ytd. Now just for clarity – ytd performance has the retail sector (XRT) + 35%, Energy (XLE) is up 26%, Basic Materials (XHB) is up 15%, while financials (XLF) are ahead by 12%…. Consumer Staples, Tech, Utilities, and healthcare are basically all flat (up small) on the year. Which just goes to show that the great rotation is alive and well. Tech – which has been a leader for a long time – is now way down in 10th position (out of 11). Which means that at some point – we might consider Tech – a VALUE play…. Imagine that…it goes from Growth to Value!
This morning – US futures are ticking a bit higher…. not taking it all back, but bouncing after yesterday’s sell off and why today? The 10 Yr. is being quoted higher yet again….causing yields to move lower….at 6 am…the 10 yr. is yielding 1.619% – a massive move from last weeks 1.75%…..yet the mkt has not gone anywhere…..It will be the Jay and Janet show again today…so expect to hear more of the same…nothing to see here, nothing to worry about….etc.….oh and yes…Your taxes are going up. The US Treasury is set to auction off 2, 5 and 7 yr. debt today…. let us see how that goes and what happens to rates.
Eco data today includes Mortgage Apps, Durable Goods – exp of +0.5%, Ex Transports of +0.5%, Cap Goods Orders of +0.5%, Cap Goods Shipped of -1% and the two key figures? Marking Manufacturing PMI of 59.5 and Markit Services PMI of 60.1- both extraordinarily strong numbers. And if they beat that expectation that only suggests even more strength.
European markets are under pressure…. the spread of new covid variants causing new lockdowns across the region…. There is no eco data to drive the conversation – so it is about lockdowns, global bond yields, inflation, and the recovery…. At 6 am the FTSE -0.21%, CAC 40 -0.28%, DAX -0.47%, EUROSTOXX -0.34%, SPAIN -0.56% and ITALY -0.10%.
Oil which had a tough day yesterday – fell 5% – pierced trendline support at $58.60 to close lower at $57.76 is finding bargain hunting buyers today…. WTI (West Tx Intermediate) is up $1.72 or 3%. Now look – oil is off 14% from the highs of two weeks ago, as the naysayers push the renewed lockdowns as reason to be bearish, but it remains up 55% since early November and while the lockdowns are real, demand is not drying up at all. We do want to see it hold tight right here…. but if it fails then we could see it test intermediate trendline support at $52. Something I do not think will happen……
Bitcoin – is up $1800 at $56,500. Ethereum is up $40 at $1711.
The S&P closed at 3910 – after trading up to 3949 and then testing 3900 – a level I have been talking about… This morning’s rally could gain steam if today’s 2, 5 & 7 yr. bond auctions go well, or it could fail if the bond auction is underwhelming sending yields higher. Recall that next Wednesday is the end of quarter rebalance….so expect some more volatility in the days ahead.
We remain in the broader 3770/4040 channel – which continues to define a broader trading range that is well within what would be considered normal. So, no reason to panic right now.
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
Chicken Cutlet Milanese Dressed in an Arugula Salad and Grana Padano
This is a ‘simple dish’, easy to make and takes no time at all…….you can also use with veal or pork cutlets – as you prefer.
For this you need:
Chicken cutlets – pounded thin, homemade Italian breadcrumbs, Arugula, Red Onion and Shaved Grana Padano Cheese, Eggs, flour.
You begin with pounded chicken cutlets.
rinse under cold water and pat dry with paper towel. dredge the cutlet in flour, then dip in egg wash (scrambled eggs before you cook them) …. then cover in the homemade Italian style breadcrumbs* and set aside.
When completed – heat up olive oil in a baking dish under the broiler… (. being careful to watch as the oil will ignite if it gets too hot before you begin cooking.) Dip one side of the breaded cutlet in the hot oil and flip to the other side and broil – 3 to 4 mins. While broiling prepare the Arugula for the finishing touch.
Mix the arugula with the chopped tomatoes and red onion – season with s&p and dress with fresh lemon juice and toss.
Flip the cutlet and broil the other side. When done remove from oven and place on center of warmed plate. Now using salad tongs place the Arugula salad on top of the cutlet top with the shaved Grana Padano and drizzle with olive oil.