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Things you need to know.

  • It was month end – Stocks declined; Now it is May – Stocks Advance
  • Household income surges to 21.1% – US spending up too – but what caused the surge?  Was it real?
  • Global Semi-conductor shortages affecting more than just cars.
  • Expect further supply chain disruptions and higher prices.
  • Oil declines, dollar advances and the 10 yr. – holds steady at 1.62%
  • Try the Grilled Shrimp on a bed of Orzo.

Find my weekend ‘Host of the Party’ commentary here:

https://www.instagram.com/p/COXyu9kgXsZ/

It was Friday April 30th – it was the end of month and after the month we had, it made perfect sense for the markets to back off just a bit ….and while it was not a quarter end – the fact is that on balance all the indexes performed beautifully last month – so ringing the cash register on some of the highflyers and re-allocating some of that money – always makes some sense.

While Friday saw the Dow, Industrials end down 185 pts, the Dow Transports lower by 72 pts, the S&P give back 30 pts, the Nasdaq sell off 120 pts and the Russell give up 30 pts – on balance the month told a very different story.

For the month – the Dow industrials gained 2.7%, the Transports gained 5.7%, the S&P advanced by 5.2%, the Nasdaq tacked on 5.4% and the Russell added 3%.

And you know the drill – better earnings, better macro data, more vaccinations, less masks, more sunshine etc.….and a massive spending plan combined with a massive tax plan proposed by the Bidens – a plan which he presented to a noticeably smaller congress than exists – but one that was being respectful of the CDC mandates.

And while the macro economic data was strong – you really must ask yourself – Was it strong?  Yes, 21.1% appears to be strong for personal income…. but remember Uncle Sam sent $3.948 trillion in stimulus payments last month and that was 93% of the $4.213 trillion dollar rise in March’s Personal Income.  So just think for a moment – what the personal income report would have been without all that stimulus….and personal spending was also higher by 4.2% – again thanks to the stimulus checks that helped fuel that surge.  Had we gotten zero stimulus checks or less than what we got, income and spending would not have been so impressive either…. – so, you need to take all of this with a grain of salt…. Just sayin’

And then more news about the global shortage of semi-conductors sent investors running for the doors as well…. Because – once you think about it – you realize that semi-conductors are used in more than just computers…. think cars, appliances, planes, trains, watches, and toys…both for children and for adults…and that apparently is becoming more of an issue for some.  Demand for everything electronic is hot and now chip makers cannot keep up and that is driving the price of semi’s higher……Hmmm…. IHS Markit tells us that ‘the index measuring the price of inputs for electronic companies in March soared to the highest level recorded in more than two decades’ (20 yrs).   A look at the SOX index – is an index of leading companies involved in the design, manufacturing, sale, and distribution of semiconductors is up 11% ytd and up 93% in the last 12 months.  Names in this index include – INTC, MU, AMD, TSM, AMAT, QCOM and CREE…. but there are many more.  And that plays right into the ongoing inflation story….

You see – as we have been discussing and the FED has been ignoring – there are a lot of companies that are reporting pricing pressures – look at the PPI – and that is keeping the inflation story alive and well.  Just this month KO, KMB, GIS, PG are just a handful of companies that revealed price increases and now all of the semiconductor companies are reporting the same………and don’t even go to the homebuilders – they are increasing prices on a monthly basis – up 10% at a time as the cost of everything that goes into a house is increasing with regularity as demand outstrips supply…..I mean the cost of building a 200 sq foot deck in April 2020 was $936 – today that same deck would run you $3,695!  A $2700 increase in 12 months…. what is that 300++%…. but I do not see any inflation – do you?

The real issue now is – Is the FED correct in saying that this spike in inflation is just temporary?  Do we need the FED to tell us what inflation is or can we all just figure it out for ourselves?  And so, it is this persistent inflation worry that is the biggest risk to the markets right now – because if inflation runs too hot then the FED will have no choice but to taper and hike sooner than January 2024! But Jay Powell is sticking to his story…. that the talk of inflation is overdone and oversimplified.

Over the weekend – we heard from Dallas Fed President Bobby Kaplan – who is not a voting member of the rate setting committee tell us that ‘there are signs of excessive risk taking which then suggests its time to ‘consider’ fewer bond purchases’(think taper)  – something that runs completely opposite to what Powell has been saying….but you see, this is how it gets done….recall last week when I pointed out that everyone floats a balloon to test the waters – whether it’s the administration or the FED (or anyone else for that matter) to gauge the reaction.  So far, Bobby’s comments are being ignored by the markets as Treasury Secretary Janet Yellen came to the rescue – trying to confuse us – telling investors that there is no need to be concerned that Joey’s massive, proposed infrastructure plans will fuel any inflation because the plans are due to be phased in over 10 yrs!  Laughable – who is even asking about infrastructure fueled inflation? We are talking about FED accommodative policy and zero interest rate fueled inflation…. which btw is already here.  But let us keep pretending that it is not….

Overnight – US futures a bit higher – in what appears to be a bounce back after Friday’s retreat.  At 5 am – Dow futures are up 173 pts, S&P’s up 18 pts, the Nasdaq up 35 pts and the Russell up 18 pts.  It is the final week for earnings…and investors are anxiously awaiting the results to see if the trend holds true.  In addition, it is a big week for macro-economic data, the biggest event – Non-Farm Payrolls happening on Friday…. expectations are calling for 1 mil new jobs to be created, this on top of the 925 million created last month…. over the weekend – someone on Twitter suggested we stop saying created and replace it with restored – I am ok with that, but it does change the narrative a bit, no?  Created sounds so much more dramatic!

Today though, we will get Markit US manufacturing PMI – expectations of 60.7, ISM manufacturing of 65 both strong numbers, we will also get Construction Spending of +1.7%.

We are due to get a handful of earnings pre-open and then a slew after the bell.

European markets are all higher on the first trading day of May….UK markets are closed for the May day holiday.  German retail sales are up and investors across the region are also monitoring the end of the beauty pageant – otherwise known as earnings season.  At 5 am the CAC 40 + 0.41%, DAX +0.54%, EUROSTOXX +0.51%, SPAIN +0.32% and ITALY +0.72%.

DXY – on Friday – it managed to claw its way back – rising 0.7% piercing right through trendline resistance at 91.04 to end the day at 91.28.  This morning – the dollar is down 8 cts at 91.16 – still holding above trendline support.

Oil also came under pressure falling 2% as the strengthening dollar put pressure on the commodity complex….and as traders took some money off the table after oil’s 10% surge during the month.  By end of the day on Friday – oil lost $1.43/barrel to end the day at $63.58…again – nothing to write home about – as oil remains in the $60/$65 range.  This morning it is holding steady at $63.70/barrel.

Bitcoin is trading at $58,700, Ethereum is at $3,200 and Doggy Coin is at 39 cts.

The S&P closed at 4181 – down 30 pts or 0.7% in that end of month re-pricing.  Again, I am not gonna lie, it feels a bit toppy to me, it feels a bit stretched to me… but it is a new month – and US futures are pointing higher……and while we certainly could go higher – I would like to see it come in and shake the branches to see who falls out.  Any pullback will find support at 4140 ish…. or just 1% lower….

Remember – the broad channel remains 3960/4400 – 4200 could still prove to be resistance.
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

Grilled Shrimp on a Bed of Orzo and Lemon Infused Feta Cheese

For this you will need:  about 2 doz large, clean & deveined shrimp, 10/12 skewers, olive oil, oregano, fresh lemon juice, minced garlic, s&p, feta cheese and some Orzo (Orzo is a rice shaped pasta – used in many types of pasta salads or soups or in this case as a bed for the shrimps).

**if you are using wooden skewers – you must soak them in water for at least 20 mins. **

Now – pierce the shrimps onto the skewers – maybe 4 at most per.  Set aside in a deep Pyrex dish.
Next mix the olive oil, garlic, oregano, some lemon juice, s&p – shake well and then pour 1/2 over the shrimps.  Place in fridge and let marinate.

Heat the grill – using a grill brush –clean the grill rack.

Bring a pot of salted water to a rolling boil and add the orzo…cook for about 8 mins or so…do not let it get mushy…. keep it a bit aldente.  Strain and mix with the feta.  Now pour the remaining mix into the pasta with the feta and stir well to coat.  Place the orzo in a large family style platter and make a bed.
Next – remove the shrimps from fridge and place on hot grill….be sure to not burn…. should take no more than 5 to 7 mins max.  Now place the skewers on top of the orzo and feta.  Take a picture to remind yourself of this great and simple dish.

Buon Appetito.