Things you need to know.
- Stocks attempt to march higher and stall
- FED policy announcement due out tomorrow at 2 pm
- TESLA beats on all measures – traders send it lower apparently unsatisfied
- Apple, Amazon, FB, XOM, MA & F all due out this week
- Oil – trading up – no surprise there
- Morgan Stanley calls for a 10% – 20% correction for the S&P
- Try the Easy Pork Loin
Stocks marched higher and lower on Monday…. the S&P and Nasdaq both posting new closing highs, the Russell ending the day up while the Dow Industrials and Dow transports both ended the day slightly lower. Continued solid earnings driving the story…and the expectation that the FED will hold the line and remain accommodative (think zero rates) when they release the FOMC (Federal Open Mkt Committee) minutes on Wednesday only adding to the excitement. Macro data on Monday continues to show strength, but supply chain issues that continue to ‘constrain production and delay shipments’ along with some bearish calls tempered the push higher. By the end of the day the Dow lost 61 pts, the Dow Transports gave back 38 pts, the S&P gained 7 pts, the Nasdaq gained 121 pts, and the Russell added 26 pts.
It is a big week for earnings – TSLA, AAPL, FB, AMZN, XOM, F & MA all due out this week….…. As of Monday morning – about 175 S&P names have reported and 84% of those have surprised to the upside – by significant margins…. yet – stocks reactions have been relatively muted considering the significant improvements – and that makes some sense. These improvements were expected – investors have priced these surprises into the markets so while the beats are impressive – the resulting action has been less so. And this week – will only be that much more important as investors decide if the earnings do in fact support the rich valuations assigned to the tech sector.
And who better to lead it off than Tesla. The excitement during the day was all about Lonnie Musk and TESLA earnings which were due out after the closing bell. The expectations were high, and the stock closed up 1.2% or $8/sh in the regular session. Estimates called for 80 cts/sh – actual earnings out after the bell came in at 93 cts/share. Revenues rose to $10.39 billion – surging 74%, 1Q Free Cash Flow of +$239 mil vs. the estimate of -$82.8 mil – German production to start shortly, and the new Model S is due to come off the production line shortly as well…..Record deliveries, improving margins, record profits, AND they made $101 million selling some of their Bitcoins – what I’m saying is that the news couldn’t have been better….they ticked all the boxes – yet the stock was down 2.3% or $17/sh in the afterhours session….because the traders types still want MORE……or maybe they decided that even all of that good news was just not enough to justify price….
Note – the stock had been up as much as 32% ytd – before the skittishness started 4 weeks ago….as investors took profits in a variety of the high growth names and took about 20% out of TESLA leaving it still up 12% ytd in what looks like some think it is still overvalued…. the chart shows that $694 should be support – just in case the trader types continue to put pressure. Cannot wait to hear what Cathie Woods thinks….
Speaking of Cathie Woods – recall last week when her ARKK ETF was teasing at $127? And I said if it pushes up and thru then $160 was in the line of sight…..well – it backed off when the markets got skittish as well (all her holdings tend to be more volatile) – many of her names getting hit – but is now teasing that level again….and if the feel good mood continues, my sense is that this time investors will take it up and thru….the long term investors will not be deterred by short term trading mentality – especially if Jay Powell comes out on Wednesday and reiterates his very accommodative stance….Which he will….ARKK added $4 or 3.2% yesterday to close at $127.73 leaving the $130 trendline as the final frontier.
7 of the 11 S&P sectors ended the day higher while 4 ended lower – but neither side really outperformed at all…. Energy (XLE) up 0.67% was the star followed by Tech (XLK) + 0.51%, Basic Materials (XLB) + 0.59% and Consumer Discretionary (XLY) + 0.44%. Consumer Staples (XLP) lost 1.12%, followed by Utilities (XLU) – 0.57%, Healthcare (XLV) – 0.34%.
This morning – US futures are up – Dow futures +35 pts, S&P’s +5 pts, the Nasdaq +15 pts, and the Russell is +5 pts. Jitters over rising corona cases in India and Japan doing little to slow the markets and the concerns over Joey’s capital gains tax increase announced last week appears to be less of a concern. The FED’s two-day policy meeting begins today, and the announcement comes tomorrow at 2 pm and again – while there is no change expected – investors will be listening intently to see if there is any change in tone or language. Clearly, the risk here is if investors lose confidence in how the FED is handling inflation – inflation that they keep telling us does not exist. I have said this over and over – if the markets feel like the FED has lost control and is behind the 8 ball, then the reaction will be swift and painful…and while we all know that they are going to let inflation run ‘hot’ – if it gets too hot and appears not to be ‘temporary’ then do not expect rates to remain low thru 2023. And when that happens – is when valuations will come under attack. And we are not talking just stocks – Capisce?
Morgan Stanley is out there warning of a coming 10 – 20% correction in the broader market by mid-summer – making the point that we have seen a ‘rolling correction’ – Nasdaq and some of the highflyers and some Russell names have already corrected – so he is looking for the broader market (S&P) to join in the fun. What is also interesting is he thinks that the FED is going to start discussing ‘tightening’ in June or in August at Jackson Hole…. which is a complete turnaround from what the FED is telling us….
In addition – we are starting to hear more and more high-profile analysts suggest that inflation is ALIVE and well…and that is in complete contrast to what the talking heads at the FED are telling us…. Hello? Is anyone home? What have we been saying for the past 6 months…? whether the data supports it, the fact is that you and I know that inflation is brewing – I do not need the CPI to tell me that. And so – this is the pothole directly ahead for investors to navigate.
European markets are churning ahead of the FED’s policy announcement tomorrow. UBS announces that they too took a hit from the Archegos Capital disaster and while net income was up 14% investors are selling the stock down 2.2%. BP beat expectations reporting net profits of $2.6 billion due to higher oil prices and stronger refining margins. There is not eco data to report – so it is all about earnings and the FED. At 5 am the FTSE +0.42%, CAC 40 + 0.09%, DAX – 0.18%, EUROSTOXX -0.15%, SPAIN -0.34% and ITALY -0.40%.
DXY – holding trendline at $91.04 as it awaits the FED announcement as well. Remember– a failure there could take the dollar down to the 89.90/90 level.
Oil is up – 44 cts at $62.35/barrel. OPEC + is set to discuss production quotas this week and they believe that oil demand will grow this year. Oil remains in the $60/$65 range and if the dollar weakens then expect more upward pressure on the price of oil and other commodities.
The S&P closed at 4187 – after testing as high as 4194 – inching closer to 4200 but failing each time…. While the news is good, the market and investors feel just a bit tired…. unable or unwilling to push it up and through 4200 with any conviction just yet. Talk of stretched valuations once again causing some to pause as investors remain unsure of what is next. The Morgan Stanley call is getting some press time – and that is causing others to consider a coming ‘adjustment’ in prices.
The Biden address on Wednesday evening also seems to be holding some investors in place as speculation builds around what he is about to say to a congress as Nancy is only allowing 50% attendance in what feels a bit odd right? I mean they have all been vaccinated, and the vaccine is 95% effective while survival rates are about 99%. Yet, she is still not convinced it is ok…. which then sends another message…. If you are not ok with this – then why the push to make sure everyone gets vaccinated? I mean – it is one or the other, no?
Remember – the broad channel remains 3960/4400 – but my sense is that 4200 will prove to be a bit more difficult to pierce while a move into the 4050/4070 range is more likely….and would only be a 3% move lower from here. If Morgan is correct and we see a 10% – 20% correction – then the target on the S&P is somewhere between 3350 and 3770…. but to see that – we would have to see a change in FED policy for sure…. which is why Wednesday is so important.
Remember – investing is dynamic not static…- pay attention to the price action and do not allow yourself to get way out of balance. Trim where necessary and re-allocate or just add more money to the underrepresented sectors! Adding more money is always the preferred method…. this way it keeps growing and growing.
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Take Good Care
Chief Market Strategist, Consultant
Easy Pork Tenderloin
This is so simple and is one of those quick meals that is always a winner.
For this you need: Pork Loin, s&p, beef broth, whole kernel corn.
Preheat oven to 375.
Season the loin with s&p. Place in a Pyrex baking dish – add the beef broth – enough so that the loin is bathing, but not so much that it is swimming. Cover and cook for 15 mins…. – then remove tin foil – add one can of whole kernel corn and continue to cook for another 30 mins.
(Keep you eyes on it, as you may need to add a bit more broth if it starts to steam away)
While this is cooking you can make a side of brown rice.
Accompany this with some steamed veggies of your choice – French cut green beans always works well.
When done – remove from oven and slice – it done properly – you can even shred it with two forks. Serve over the white rice with the corn. Veggies on the side.
Simple to make and always a family favorite.