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Things you need to know.

  • Inflation concerns taking its tolls on stocks around the world as the ‘tech wreck’ goes global.
  • No eco data today – so the conversation is all about Wednesday and Thursday.
  • Colonial Pipeline expects to be back by the weekend.
  • Key S&P levels identified, and circuit breakers are on alert.
  • Try the Risotto.

Look – it is anyone’s game right now…. I expected to see some exhaustion but then the gov’t comes out with non-sensical numbers so that throws the theory into a tailspin….

And if this morning’s action is any indication – we will see the S&P churn…. And with tech weaker again this morning – expect to see the S&P under a little pressure. 

This is how I ended my note yesterday…clearly exhausted with the push higher and higher even as the data becomes a bit more challenging…and as I said, it appeared a bit tired to me….and tired it was….Yesterday saw the whole shebang come under pressure….the rally that took the indexes higher on Friday – proved to be a bit premature….Nasdaq and tech names were weaker in the pre-mkt yesterday – collapsed under the weight of their own members during the day………the Nasdaq couldn’t get out of its own way ending the day lower by 350 pts or 2.5%!  And that dragged the S&P lower as well, considering so many of the sexy tech names are also a member of the S&P – so pressure on tech, also puts pressure on the S&P by the end of the day investors/traders and algo’s took 1% out of the that index leaving it down 44 pts.  The Dow – which had bucked the trend all day succumbed to the pressure beginning about 2 pm and then got slammed in the final half hour leaving that index down 35 pts – a 340 pt. swing from high to low while the Russell gave back 59 pts or 2.6%….And what is interesting to note here is that all 4 of the indexes- not only ended lower, but they ended on their lows…and that means there’s more to come……so sit back, strap in and get ready….Maybe now it will get interesting….as we see who the weak links are.

And the ‘tech wreck’ goes global…. overnight we saw Asian markets get slammed – Japan -3%, Hong Kong – 2%, Australia – 1%, Taiwan – 4%, Kospi – 1.2%.  Chinese CPI rose 0.9% and their PPI rose by 6.8%…. and this morning the Europeans are collapsing under the pressure – all currently down more than 2% as the debate rages on over whether the ‘expected’ rise in prices in the coming months for both the CPI and PPI will force the FED to act sooner vs. later.

Yesterday the bond markets expectations for inflation in the next 5 yrs. climbed by 3.4 bps to 2.73% and  while I think it is difficult to make any investment decision based on this one metric – investors are assuming that the rise in this data point portends a larger than expected rise in tomorrow’s CPI and that sent the US markets into sell off mode….In my opinion it was just the excuse that the markets needed – BUT we are getting the inflation data tomorrow and Thursday and there are some nervous algo’s playing in the playground….and so all they needed was an excuse to hit the sell button and run for the door. And when the algo’s go into sell mode (just like when they go into buy mode) the ‘alert’ gets sent out, buyers (in this case) back off, cancel inline bids and move lower leaving a void in demand causing prices to retreat….

Again, think of it like this…. why would you pay $70 for a stock when there were sellers willing to sell it to you at $65 or $60?  The FOMO (fear of missing out) mentality that has pushed prices to extremes is going to bite us all on the backside…. (and when rates rise then expect the lunacy in the housing market to come unglued as well…. but that is another story)

Look – we have been talking about this for a while….valuations got stretched and in this case – valuations for some tech stocks got stretched even more….currently trading at 26 x ‘projected 12 month profits’ – well ahead of the norm….and that seemed to be fine when there was no suggestion or concern that inflation would rear its ugly head and rates would remain low until January 2024…..…Well, guess what?  It appears that the markets think Inflation IS about to rear its ugly head and that the FED will be forced to change its tune….and if that is the case 26 x is a bit pricey….so investors will re-think it and then re- price accordingly….

The most recent surge in commodities is only exacerbating the story….Copper notched a new record high while iron ore rose more than 10%, lumber, oil, gasoline, corn, wheat, soybeans etc. all pushing higher….the Bloomberg Commodity Index – BCOM is up 54% in 12 months and is us 15% since January and the PDBC – Invesco Optimum Yield Commodity Strategy ETF is up 72% in 12 months and up 29% since January….….……..and it just doesn’t stop….until it does…and that just might be on Wednesday and Thursday….When we get the April CPI report and the April PPI report….….(See my note from yesterday).  Because once again, if the numbers are more than is expected – it raises the issue over whether the FED is in control or has lost control….and if it is the latter – then you will hear –

“Houston!  We have a problem.”

Now while the whole place got smacked money coming out of tech is being redeployed defensively…. moving out of Growth and into value and that was even more evident yesterday…as the SPYG (growth ETF) lost 2% while the SPYV (value ETF) gained 0.02% and while you say +0.02% is nothing…. compare that slight gain to the bigger loss and then tell me who won that fight….

Utilities were the clear winner amongst the players yesterday – with the XLU rising 1% following a close second were Consumer Staples up 0.7% – again think VALUE and DEFENSIVE…..Utilities & consumer staples are like the kid in gym class that no one wanted on their team….until of course they realized that that kid had talent…..and then they were all fighting over him….much like you see investors fighting over value today…..and so – Here’s to that kid!  In the end – you won….!

This morning the global tape is RED…. As noted above- trading in Asia was a mess and European markets are under pressure and US futures are suggesting another difficult day – BUT remember the rising rate story is not new – it is just that suddenly everyone is paying attention and are now realizing that haphazard buying and stretched valuations cannot go on forever.  (Hello housing???)

Dow futures are down 105 pts, the S&P’s off by 25 pts, the Nasdaq lower by 160 pts and the Russell giving back 20 pts as we brace for another wave of selling pressure as investors attempt to re-price the risk.  The favorites getting hit hard – AAPL, MSFT, NFLX, AMZN, FB, GOOG (FANG) along with the tech ‘disruptor’ names…. TSLA, ZM, TDOC, CRWD, SHOP etc., getting hit even more…with the ARKK ETF falling 5% bringing its loss to 35% since the February highs when concern started to build, and this rolling tech ‘re-pricing’ began.  FYI – this stock now looks like its headed for the $83/$90 range after yesterday breakdown….
There is no eco data to speak of….so like I said yesterday…. brace yourself for Wednesday and Thursday…. or actually brace yourself for today….

European stocks are all lower…following in the Asian footsteps which followed in the US action on Monday……. the Queen’s speech takes place today…this is where she lays out what laws the gov’t intends to pass.  German ZEW (economic survey) is also due out later today.   At 6:00 the FTSE – 2%, CAC 40 -2%, DAX -2%, EUROSTOXX -2%, SPAIN -1.4% and ITALY -1.55%.

DXY – continues to get whacked – falling again to trade at 90.125 after trading as low as 90.09 where it SHOULD find support at the 89-90 level.

Oil is trading a bit lower at $64.56.  Colonial indicated that they may be able to get parts if not all its transportation pipeline up and running by the weekend…. The closure of the pipeline has led refiners in Texas to cut refining output and that means demand for crude oil is off a bit…. but once they reopen the spigot gets turned on again and BAM – up we go……

Bitcoin is trading at $56,500, Ethereum is at $4,000 and Doggy Coin is trading at .46 cts – down from yesterday and this after Lonnie Musk announced that FinanceSpaceX will now accept doggycoin as payment to launch the lunar mission next year.  The rocket to be named “DOGGEY 1 Mission to the Moon” – Now it is getting really stupid….

The S&P closed at 4188 – right on the day’s low but still much closer to its all-time high than not…. …..…… At this point – a 3% move lower from here would put us on the 50 dma at 4041…..and a 6% move lower would land us on its 100 dma at 3924…It would take a 12% move to land us on its 200 dma – and at this point – that is very possible – as it will all depend on how the algo’s react to the headlines and the datapoints beginning on Wednesday….….…But it wouldn’t get there in one fell swoop – remember the circuit breakers would kick in when the S&P falls 239 pts or 7%  and that 7% number changes every day based on where the S&P closes….so today its 239 pts –  tomorrow it will be something different….

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 YouTube Channel.  KennyPolcari or my Instagram – @kennyp1961.

Take Good Care

Chief Market Strategist, Consultant

Risotto w/Cauliflower & Truffle Butter

This is another great risotto dish that is easy to make and easy to present.  For this you need:

Diced Spanish onion, olive oil, butter,  2 Cups Arborio rice,  1/2 Cup dry white wine, Cauliflower Florets Cut Into bite size pieces, warm chicken broth, s & p, truffle oil or truffle butter and shaved Parmegiana cheese.
Heat the olive oil and butter in a heavy saucepan over medium heat.

Add the onions and cook until tender – maybe 10 mins…then add the risotto and stir until well coated with the oil mixture.  Add the wine and continue to cook until it is almost completely absorbed.

Next – begin by adding one ladle of the hot chicken broth, stirring frequently until it has been almost completely absorbed before adding more.  Continue to cook the risotto in this manner adding the broth one ladle at a time until the rice cooks.

While the risotto is cooking, heat some more olive oil in a frying pan and add the cauliflower.  Cook over medium low heat adding a tablespoon or two of  broth until the cauliflower is tender and just beginning to turn a golden brown.   Remove from the heat.
After cooking the risotto for about 25 mins, should be tender to the bite, stir in the cauliflower and butter. Season with s &p to taste.
Once it is well mixed – serve the risotto into individual bowls, drizzling the top with the truffle oil or a spoonful of truffle butter.  Garnish with shaved cheese and serve immediately.

Buon Appetito.