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Optimism, Optimistic, Pessimism, Pessimistic, Measure

Things you need to know.

  • Conference board suggests Americans are optimistic.
  • Today marks end of month, quarter, and 1st half of 2021 – expect plenty of window dressing.
  • ADP And NFP will be the drivers this week as we move into the long weekend.
  • OPEC to announce their next move tomorrow – Oil is up and likely to go higher.
  • S&P kisses 4300 and backs off – Be patient – do not rush it…Anticipation is the best part.
  • Try the Grilled Pork Chop

The conference board consumer confidence survey revealed that Americans are optimistic about their own financial prospects and business conditions – sending that data point up to 127.3 vs. the 119 expectation and up from last month’s read of 117.2….and this data point – which is not usually a market mover was just another strong report suggesting that the worst is over and brighter days lie ahead….And this gave the algo’s just another reason to push ahead….and push ahead they did for most of the day.   But as the clocked ticked toward 4 pm – algo’s and investors seemed to be tiring….and stocks backed off as buyers retreated and sellers got just a bit more aggressive….

In addition, it is the end of the month…and the end of the quarter and the end of the 1st half of 2021…. – and like I pointed out 2 days ago – it has been one helluva quarter….and one helluva of 6 months….and so you should expect some weakness in stock prices as the final trading day of the 2nd qtr. ends…. Why?  Because stocks have done well for the quarter and the 1st half….
So, let us look at the 1st half…. the Dow has gained 12% before you add in dividends, the S&P gained 14.5% before dividends, the Nasdaq – which does not have a lot of dividends paying stocks rose 12.5%, the Russell gained 16% while the transports added 18.7%.  As is typical on the final day of the quarter, asset managers must mark to market the performance of their guidance and investments.  So, what you may see is some money coming out of the best performers this quarter and be re-allocated into the underperformers which are expected to do well as the year moves ahead…It is called ‘Window Dressing’ and it happens every quarter.

Now to be sure – it is by no means a statement on what is next – it is just what it is as asset managers tweak accounts and funds to try and capture the best picture for the quarterly report card.  In addition – remember – investors have taken the market up substantially with little to no pullbacks to speak of…and starting Tuesday, July 13th – the quarterly beauty pageant begins…. with JPM being the 1st official Dow stock to report….

Recall that in April – analyst’s estimates expected JPM to report $3.01/sh – but they reported $4.50/sh – a massive beat, right? 50% and what did the stock do in the days after?  Well – first you have to understand that the stock had rallied 21% during the quarter in anticipation of ‘expected’ better earnings and then when the better earnings were announced the stock gave back 6% over the next 7 days….before stabilizing and moving higher again…I am not passing judgement on the stock, I am merely pointing out the response….And we saw that happen over and over during the quarter as other companies ‘beat’ the estimates by significant margins only to see the stocks back off in the day’s following the reports.  So as a trader you should understand the reaction and as a long-term investor it may cause you to be a bit more patient with when you allocate new monies to stocks…. Buying something on ‘sale’ always makes you feel good!

And as you know – we are expecting another blowout earnings season….and the key word here is ‘expecting’ – none of this should be a surprise at all….so when these companies do just that – what will the reaction be?  More buying?  Or more selling?  Now of course there will be both buyers and sellers – there must be for the market to function – the question really is – what will the investment psyche be during the season?  Will we see the initial reaction be one of weakness or not?  (That is really a rhetorical question….no need to answer it here…) Just food for thought….

In any event – today brings us the ADP employment report and expectations call for an additional 600k new jobs to be created…the surprise will be if we beat this number by a significant margin or miss it by a significant margin…. In addition, we will also get Mortgage Apps and Pending Home Sales…which are expected to be down 1% m/m.

But Friday is the real key to the action  this week…because it is the Non-Farm Payroll report and that is expected to show an increase of 700k new jobs….and again the surprise will be if we exceed or fail around that number….Unemployment is expected to drop to 5.6% and underemployment is expected to drop below 10%…..In any event – we are heading into the 4th of July long weekend – so expect the action to slow as we move into Friday – with asset managers placing both buy and sell orders below and above the current market to take advantage of any swings that might happen while they are away from their desks.  And that is called ‘good planning’….

This morning US futures are suggesting a bit of a pullback…. following yesterday’s weak performance into the bell.  Dow futures down 45 pts, S&P’s -4, Nasdaq down 10 and the Russell off 6 pts.

Now again, I am not suggesting broad weakness, I am just detailing the quarter end reaction and highlighting what I see over the next month as we move through earnings.  Remember – there is not a FED meeting in July so the chatter will be about what to expect at the August meeting and much of that will depend upon what we hear from companies over the next month as well as what the macro datapoints reveal…will they suggest more ‘transitory inflation’, or will we begin to see more permanent inflation?  The most recent data points for me are the rising wages and then the rising prices to compensate employers for paying  those higher wages and those are NOT transitory at all…..Employers don’t offer to pay $25/hr. today to get you in the door and then cut your pay to $15/hr. once you’re in…..and so – it is those higher wages (which are good) that will keep higher prices coming and higher prices translate into higher rates of inflation which in my view remain permanent until of course the next big recession comes forcing all kinds of layoff and pullbacks as interest rates rise when the FED tries to control the pace of inflation….…but that’s not close so let’s not worry about that just yet….Powell says it isn’t until Mid-2023 while Jimmy B and Raffi Bostic suggest its more like mid- 2022…..and so it goes….What do you think will happen?

10 yr. treasury yields are 1.45%, the VIX is at 16.86, Gold is down $5 at $1757/oz and oil continues to move up… at $73.80/barrel ahead of the official OPEC + announcement tomorrow…..– expectations are for the cartel to slowly increase supply by 500k/barrels/day beginning in August….but do not expect this to put pressure on prices at all….demand is robust, the economy is strong and the world is still waking up…new lockdowns across Asia and parts of Europe due to the Delta variant of Covid 19 doing little to hurt demand.  The API (American Petroleum Institute) reporting that crude inventories were down by 8.2 million barrels while OPEC expects demand to rise by 5 million barrels/day in the next 6 months…. So, if you think gas prices are going down – think again….

European markets are all down about 0.8% across the board as the quarter ends….  Lots of data points across the region….UK 1st Qtr. GDP coming in at -1.6% while business investment fell by nearly 11% – which is not a surprise considering they were locked down for much of the quarter. EZ inflation came in at 1.9% but is expected to spike to 2.5% by year end.  Away from that – it is relatively quiet going into the closing bell.

Bitcoin is down 3.3% at $34,800, Ethereum is trading at $2.100 and doggey coin is trading at .23 cts…  I have a great podcast – sponsored by Weiss Ratings – coming out this Thursday – in it I speak to Juan Villaverde  – an expert at Weiss ratings in the crypto/blockchain world.  I will be sure to post the link here for you to listen to when it comes out…you can also find it on Apple podcasts, Stitcher, Spotify and  It is a not to be missed episode.

The S&P closed at 4,291 – another kissing 4300 yesterday…but failing to push up and through…. Futures action suggests that we will most likely churn again with a downward bias as the quarter ends…. Today’s ADP employment data will set the broader tone. Normal backing and filling should be expected….

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.

You can follow me on Twitter – @kennypolcari

Take Good Care

Chief Market Strategist, Consultant

Grilled Pork Chops in Dijon Marinade

Grilled Pork Chops in a Dijon Sauce – Summer time – grill time….so try this one on for size. This is easy to marinate and grill and presents beautifully –

For this you will need:  Dijon mustard, brown sugar, apple juice, Worcestershire sauce, and bone in pork chops….

Marinade – Mix  1/2 cup each of apple juice and Worcestershire sauce with 1 cup each  of Dijon mustard and brown sugar…. Mix well and add chops… the whole thing in a zip lock bag and refrigerate overnight.

Next day – remove from fridge and let come up to room temp…..light the grill and heat to high.  Now add the chops and sear – turn heat to med and allow to cook for 5 – 6 mins (depends on thickness) and then flip over and repeat…..(you can dip the chop back in the marinade when you flip it).

When cooked – remove and cover in tin foil and let rest for 3 mins or so…..Present this meal on a plate with garlic mashed potatoes and  corn on the cob (which you have boiled in a pot of water enhanced with  butter and whole milk).  Have a large mixed summer salad with red onions, tomatoes, cucumbers, ceci beans, and even blanched French cut green beans.  Dress with a red wine vinaigrette and you are done.

Buon Appetito.