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Things you need to know.
- Broader market making new highs while tech continues to roll over
- Yardeni calls for 3% yield on the 10 yr with little to no disruption
- Disruptive tech in a bear market – what happened to buy the dip?
- Biden to announce a second ‘social infrastructure program’ costing $2 trillion on top of the $3 trillion road and bridges infrastructure program.
- Archegos Capital forced into a ‘fire sale’
- Try the Grouper
The Dow and S&P rally into the end of the week making NEW highs….even as the week was as volatile as it was….investors and traders pushing the broader market higher – seemingly without a care in the world…..as they weighed the prospect of an improving economy against the possibility of rising yields and rising inflation…….many of the usual talking heads being paraded across the cable news channels opining on the state of all of this – telling investors (in the end) that it’s all good….Nothing to worry about….the market can handle all of it, because essentially higher yields mean better days ahead while inflation is expected to be a ‘one off’ event…..yeah, we’ll see a ‘temporary surge’ in prices that will soon correct – so no need to get all worked up! The message in the end qualified by so many strategists is that – while the outlook is a bit uncertain – generally its ok! I mean that’s kind of laughable isn’t it???? That is like saying – the sun is going to rise, but it might rain – and if not, maybe it is cloudy – but either way – the sun WILL rise! I mean – How can you lose? You covered ALL the bases….so no matter which way it goes – you can point to your statement and say – Yeah, that is what I said!
By the end of the day – the Dow added 453 pts or 1.4% leaving it a closing high of 33,072! And while this is below the intra-day high of 33,227 achieved on March 18th – it is a new closing high! The S&P rallied 65 pts or 1.67% leaving it at a new high of 3974! The Nasdaq – though, continues to struggle – rising 1.24% (which is good) but leaving it below the KEY level I identified two weeks ago….13,325…. a level that once broken has been a bit of a struggle to try and take back…. The Russell up 38 pts or 1.76% -this after getting kicked in the butt last week giving up 11% before some investors began scooping up some newly minted opportunities! And the Transports? By far the best performing index – rising 327 pts or 2.3% – taking it to a new high – and if you look at it on a chart – investors left this group alone during last weeks volatility…..which does confirm the idea that many investors do believe that the outlook remains upbeat – and with both the Dow industrials and Dow transports making new high together – for all of you Dow believers – that is bullish signal…..and so here we go!!!
In the end – a booming US economy will certainly push stocks higher – especially in this low rates (zero rate) environment – even as the 10 yr. and 30 yr. bonds lurch higher putting pressure many of the ‘momo’ stocks (momentum) – otherwise known as the ‘high growth’ names – think tech – and as noted last week – the ARKK ETF – managed by the newest face of ‘disruptive’ technology Cathie Woods is in ‘bear market’ territory….defined by a move lower of > 20% off the highs….as of Friday that ETF is off 29% – with individual names off even more! TSLA -33%, SQ – 30%, ZM – 47%, TDOC – 43%, ROKU -39%…. – Get the picture???? Yet the broader market – defined as the S&P 500 is making new highs…which speaks to the ‘rotation trade’ that many, myself included have been talking about and that is no better defined than by looking at the Value vs. Growth trade…. Value – SPYV is up 11% ytd while Growth – SPYG – is up 1.25% ytd…. Capisce?? and while disruptive tech – would never be considered value – at some point it does become part of the ‘value’ sector…. the question is when?
So far – the best performing sectors for the year include – Industrials +11%, Energy up 33%, Financial up 16%, Basic Materials up 10%, and Retail – up a whopping 37%! And not one of those groups would be considered high growth by any definition…. Now – the ongoing discussion is at what point will the market stop going higher – and correct for what is expected to be higher yields in the 10 yr.? This is the ongoing question….and we know that our friends at Goldy think a 2% rate is not only coming but should not disrupt the market that much….
Ed Yardeni – a famed analyst from Yardeni Research (and one that I have huge respect for) – announces that he believes the market can handle 3% yields on the 10 yr. without an issue….to that I say – Really? Without an issue? The market would not correct at all. No pressure on anything? Define the time frame…. Now the question is – not if the market can handle it, of course it can, but the question is – after what kind of a pullback? And again this will be driven by the pace at which we get there….3% by May or June – would cause a swift and decisive pullback across the board – resulting in longer term opportunities all over the place…..but a 3% rate by next year….next spring…..not the same issue…..yes the market will correct along the way – each sector repricing on their own at their own pace – and this is clearly evident by what we see going on right now….the broader market is making new highs while disruptive tech is in bear market territory and 10 yr. yields are only at 1.6% up from 0.9% last fall…. So, sit tight…. It is all extremely exciting…
This morning – we wake up to a market under a bit of pressure…news that a US hedge fund got caught with their pants down – failing to manage their exposure (risk) properly – is causing a big negative headline for Credit Suisse and Nomura – leaving us to wonder how many other banks will announce some form of exposure? The headline being a ‘Once in a lifetime Margin Call’ – sounds ominous and this is causing unrest around the world…. The issue is that the HF – rumored to be Archegos Capital – A Tiger cub – run by Billy Hwang was forced to liquidate some of their positions in US media, and internet stocks as well as exposure in Chinese media stocks…..this after potential new US regulations will negatively impact these stocks…..and they failed to properly manage their risk – leaving the banks on the hook for the money lent to the HF in the form of ‘margin’…and we all know by now – that margin cuts both ways…but it always cuts deeper and more severely when it moves against you and your are not properly prepared….And this is sure to play right into Lizzy Warren’s hand….as it details what appears to be complete disregard and lack of understanding of how swiftly the markets can turn causing global disruption……..so get ready.
US futures are now quoting lower….Dow futures off 160 pts, S&P’s off 21 pts, the Nasdaq down 62 pts and the Russell off 21 pts – nothing really dramatic, but the day is still young….the sun is till crossing the Atlantic and it is still dark across all of America…….Remember this is a holiday shortened week – Friday – the markets are closed – and Wednesday represents the end of the 1st qtr. – so we can expect continued volatility as asset managers ‘dress up’ their portfolio’s.
Eco data this week is chock full of reports…. Today is the Dallas Fed Survey – exp of 14.5, tomorrow – we have housing price data and then on Wednesday we will get the monthly ADP employment report – and that is expected to show an increase of 550k new jobs! Chicago PMI report expected to be 60.0 and Pending New Home Sales down 3%…. but the other KEY data piece will be Thursday’s NFP (Non-Farm Payroll) report…. usually reported on the first Friday of the month – but this Friday we are closed so it is coming out on Thursday. And the expectation here is for the gov’t to report an increase of 635k new jobs! A drop in the unemployment rate to 6% down from 6.2%, and Avg hourly wages…. Will we see upward pressure on wages? And if so, how much??? (Upward pressure on wages would suggest underlying inflationary pressures)
Press Secretary – Jen Psaki (pronounced as one word – ‘Jen-saki’) tells us over the weekend – that President Biden is set to announce, not one, but two stimulus packages now…..the first one is the $3 trillion infrastructure package while the second (new) one is another $2+ trillion ‘social infrastructure’ defined as family and health care package – sounds very Bernie Sanders-ish – leaving us to wonder who is really running the country?
And this morning’s action – suggests that the markets weren’t pricing in this latest bit of stimulus information….and while some think he won’t get everything he is asking for – recall that unless some of their own – democrats in congress – jump ship – the odds remain very high that they will pass 2 substantial relief bills before the fall…..Remember – they can do without any Republican support at all….so in the end – they are disregarding 50% of the country – so sit back…let’s see how this works out.
This morning the 10 yr. yield is quoted higher at 1.65% – down a bit from Fridays close….and with no bond auctions or other significant macro data – yields may not do much…. but expect the talk of Wednesday stimulus packages announcement to cause lots of speculation about who, what and when.
The Ever-Given container ship is still stuck in the Suez Canal, but progress is being made – yet the 350 ships waiting to go through the canal remain anchored off the ends of both sides….and even when they free this one ship – the move through the canal for the rest of them will not happen quickly….so continue to expect global disruption in trade….
Remember – the end of the quarter is coming….so we will get some volatility in the next 3 days as asset managers ‘window dress’ their portfolio’s…. launching some of the high growth names and scooping up some of the newest value names…. signs of a surging economy, rising interest rates and rising inflation have caused a massive shift into the value sector while taking money out of the growth sector.
Talk of this new stimulus package now rising to the top of the agenda as investors consider what it all means considering the ongoing tax increase proposal….
European stocks are mixed…. Credit Suisse – getting slammed – down 10%. Otherwise, the markets are churning…. not panicking…. Investors there are trying to focus the recovery and on the launch of a broad vaccination program. There is no major eco data to consider. At 6 am the FTSE -0.13%, CAC 40 +0.33%, DAX +0.33%, EUROSTOXX +0.36%, SPAIN -0.37% and ITALY +0.06%.
Oil – is holding its own – hovering around the $60 mark….
Bitcoin – is trading at $58,000. Ethereum is trading at $1768.
The S&P closed at 3974 – a new high…. after trading as low as 3917 and as high as 3978. Futures looking to send the indexes lower this morning….as we hear all about the Archegos fire sale, more on global trade disruption and the latest dual infrastructure plans……
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
kpolcari@slatestone.com
Grouper w/Mushrooms, Leeks and Clams
Ingredients: Halibut, mushrooms (preferable oyster mushrooms), butter, 3 lg leeks, s&p, chicken broth, 2 doz littleneck clams and chopped Italian parsley.
Season the Grouper with s&p. Set aside.
Start by melting the butter in a sauté pan over med heat – do not burn the butter – add sliced mushrooms – like 2 cups and the sliced leeks. Trim the leeks and use only the white and light green part of the stalk – discard the rest. Season with s&p and reduce heat to med low and cook for about 10 mins or until the leeks are soft. Now add about 3 cups of the chicken broth and raise the heat to med hi – let it come to a boil.
Now add the fish and clams to the sauté pan – wait for it to re-boil and then reduce heat to low and cover. Cook for about 6 or 7 mins…make sure all the clams have opened. Remove any of the unopened clams.
Serve this dish in a full-size bowl (shallow is best) bathing in the clams and broth topped with the mushroom and leeks. Sprinkle with the chopped Italian parsley at the end. Enjoy this with a crisp, chilled white wine.