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Things you need to know.

  • Friday’s rally appears to be fading – FOMC mins due out on Wednesday
  • Inflation is becoming even more top of mind, investors are nervous and the Fed says that they are staying the course
  • Lonnie Musk disrupts the crypto world on Sunday sending Bitcoin plunging
  • 10 yr treasury holding tight, Oil up small, Dollar declines
  • Try the Linguine with Artichokes and Pancetta

** Here is my appearance on Friday with Stuart Varney on FoxBusiness

Stocks rallied hard into the bell on Friday – seemingly oblivious of the building pressure on the FED that will be brought about by rapidly rising prices, stretched valuations, rising interest rates and the realization that the taper conversation cannot wait until the summer of 2023 to happen…. the rally on Friday was equivalent to the selloff on Wednesday that saw stocks lose ~2%…. – and the selloff (repricing) that has happened during the past 2 months in ‘some’ names is evidence that investors and traders are increasingly uncomfortable with inflation and uncomfortable with the most recent inflation prints suggesting that valuations are indeed stretched and prices need to adjust –  By the end of the day- the Dow added 360 pts or 1.06%, the S&P up 61 pts or 1.5%, the Nasdaq +305 pts or 2.4% and the Russell up 54 pts or 2.5%…..

[Pick up a copy of this week’s Barron’s – it headlines with the ‘I’ word – and no it is not Iphones, Ipads or Iwatches…. Page 22 – the Inflation Explosion – and while no one is ever 100% correct – it is a particularly good read and will make you consider the possibility that just maybe – the FED and Jay Powell have it wrong…. Just sayin’…

Eco data on Friday – was again mixed…….Advance Retail Sales MISSED all of the estimates…much like some other recent data points…..m/m was 0% vs the +1% estimate, Ex autos and gas of -0.8% vs. the +0.3% expectation, Import prices were up, industrial production at +0.7% vs. the estimate of +0.9% and Capacity Util of 74.9 in line…..and 1 yr. inflation estimates now running at 4.6% up from 3.5% with the 5 – 10 yr. estimate at 3.1% vs. 2.7%….so it was a mixed bag – yet investors chose to believe that the FED isn’t going anywhere and that the FED analysis of inflation expectations are a non-event…that they are transitory and there is nothing to talk about…..

In terms of the earnings season – we now have more than 90% of the S&P out from behind the curtain and more than 86% of those surprised to the upside on almost all metrics…. that percentage is well above the normal range of about 72%…. We will hear from WMT, HD and M on Tuesday…. TGT and LOW on Thursday.

So – as the investors went all in on Friday, we saw the VIX decline – in fact, it declined by 18% …. which also makes sense as stocks rally…. you will never see both the VIX, and stocks rally or decline in unison…. they are opposites – and so – the VIX only confirms what investors are feeling and on Friday they felt pretty good with some saying that they were reluctant to draw any conclusion from one week’s data – and so they remain overly confident that the FED will remain patient.   But here’s the rub – while the FED has remained consistent in their view that inflation will be transitory – many business owners are experiencing something different……..and what we are learning is that some businesses will no longer guarantee prices up front – but are now pricing and billing for products AT DELIVERY…..and that is absolutely true for the lumber industry – as prices are up 300% in the last 12 months and are ‘moving too fast to predict’…..and now you ask why housing prices are skyrocketing????

And then in the continuing saga surrounding Lonnie Musk and the crypto world – it appears that there is (or was) some confusion about what TESLA has done with their Bitcoin stash…….In a tweet on Sunday – Musk – in a response to another tweet indicated that Tesla may have sold its Bitcoin or is thinking of selling it’s Bitcoin – sending that ‘asset’ plunging by 12% to trade at $44k before it found some stability as the speculation ran rampant and the Twittersphere attempted to translate the cryptic message and what it really meant…then at 1:56 am on Monday – he clarified the speculation saying that ‘Tesla has not sold any Bitcoin…..’ (saying nothing about his own investment in the ‘currency’) putting that fear to bed…. or did it?  Because even at 5 am – Bitcoin remains at $45k down $5k from Friday’s close….and so the volatility continues….

Remember what I said weeks ago about Lonnie or Chamath etc.…. none of them have anything to lose in this fight…and everything to gain…. Capisce?  So do your homework and make your own decisions…. If you are buying it (or selling it) on a Musk tweet, then you should not be in it.  If it is true what the research tells you then it should make NO difference what individuals say or do….in the end – Bitcoin will not succeed or fail based on what Lonnie or Chamath say or do.

Eco data today includes Empire State Manufacturing report……exp of 24….just a bit below last month…..Later in the week – we will get Housing Starts expected to be -2% and on Wednesday we will get the all-important FOMC March minutes….and as you might expect – it will detail how the FED continues to suggest that some of us are overreacting and that they remain committed to keep rates low and bond purchases steady….for the foreseeable future…..and we’re off!

US futures were up on Sunday evening but have now turned lower….and at 5 am Dow futures were off 90, S&P’s down 9, Nasdaq down 37 and the Russell off 11.  Tech and energy under a bit of pressure and that is taking the futures lower.  The 10 yr. treasury is holding steady at 1.61% and the Dollar Index is down 4 cts at 90.28…. seemingly about to test the May lows of 90.15.

Those ongoing concerns about what the FED might have to do to stop inflation from spinning out of control continues to weigh on investors minds and the markets – which is why Wednesday’s FOMC mins will be KEY this week as everyone will tear apart the minutes looking for any clue that may be hidden between the lines concerning rising pricing pressures or any hint that they are thinking about thinking about the taper conversation.

Over the weekend – Cleveland Fed President Loretta Mester said that the Fed’s policy is in a ‘good place’ and that the data will be volatile as the economy reopens…. (more jawboning…).  Fed Vice Chair Richie Clarida and Atlanta’s Raffi Bostic are also due to speak this week – and both are in the same camp as Loretta – so do not expect them to upset the apple cart.

Asian markets were mixed overnight…. Japan -0.92%, Hong Kong +0.59%, China +1.4% and Australia -0.12%……..European markets are mixed as well….…. rising inflation and a small uptick in virus cases is causing today’s caution…. In the UK – the country is opening – air travel is restarting yet Boris did warn that the spread of the latest Indian variant could threaten the continued unlocking of the country.    At 5:30 the FTSE -0.36%, CAC 40 -0.13%, DAX -0.12%, EUROSTOXX -0.16%, SPAIN +0.15% and ITALY +0.23%.

Oil is trading back above $65/barrel as the Colonial Pipeline drama is all but over…. Gas shortages that hit parts of the east coast last week have all eased so that issue is no longer an issue.  The latest outbreak in the Mid-East between Israel and Hamas may cause prices to rise as well as the fighting there continues….and oil supplies remain at risk.  Overall – global demand is strong and will continue to be strong as we move into the summer and Americans return to the air, rail, and roads…My sense is that we are now in the $65/$70 range.

Bitcoin is trading at $45,500, Ethereum is at $3,500 and Doggy Coin is trading at 0.50 cts….

The S&P closed at 4173….and while I thought we would run into resistance at  4150 ish…I did say that they might push it to 4180 and it did…..This morning while futures are weak, they are not convincingly weak….so it feels like a churn…..4150/4200….As long as investors assume that nothing has changed they will be able to reconcile a push higher…..Again – I continue to think the moves will remain erratic as we move thru the 2ndqtr…….so remain prepared….

The Colonial Pipeline issue about ‘critical infrastructure’ being prone to sophisticated cyber-attacks is alive and well and just really beginning……and that ‘critical infrastructure’ is more than the nation’s biggest pipeline, it is about the electric grid, water supply, financial services, exchanges, banks and more….…Which is why the Cybersecurity sector will continue to benefit from investor dollars.  You can look at HACK (ETF) to play in that space for broad exposure.

Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss the markets or a plan.  You can now get a video version of this note on my YouTube Channel.  KennyPolcari.

Take Good Care

Chief Market Strategist, Consultant

Linguine w/Artichokes and Pancetta

For this you need: 8 Small Artichokes (use frozen but thaw first) cut Into Pieces, Olive Oil, 1 diced yellow Onion, 2 Cloves Garlic – minced, Pancetta Diced, Dry White Wine, s&p, Chopped Fresh Parsley, 1 Pound of Linguine, splash of lemon juice and fresh grated Parmegiana.

Bring a pot of salted water to a rolling boil.

In a sauté pan, heat the oil and add the onion and pancetta.   Cook over medium heat until the onion is soft, and the pancetta is cooked maybe 10 minutes. Now add the garlic and cook another minute or two.

Next add the artichokes, some white wine, and a squeeze of fresh lemon juice – bring to a boil.

Reduce the heat to low and cook until the artichokes are tender – maybe 10 minutes. Season with s&p.  Toss in the chopped parsley and mix.

Now cook the linguine until al dente – like 8 mins or so…. drain – always reserving a mugful of the pasta water.  Toss the linguine into the lg sauté pan and mix well.  Keeping the heat on low.  If the pasta absorbs all the liquid – add in some of the reserved water to remoisten.  Toss – add in a handful of cheese – toss again and serve immediately in warmed bowls.  Have extra cheese on the table for your guests.  Serve with your favorite chilled white wine.

Buon Appetito.