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Computer, Stock, Market, Chart, Dow

Things you need to know.

  • Jay Powell takes to the Hill and says, ‘nothing to see here’ and he is set to do that again today.
  • PPI supports CPI – prices are rising and rising fast – Used Car anyone?
  • Growth takes the lead over value – but for how long?
  • 10 Yr. Treasuries push lower again.
  • OPEC reaches a deal and oil falls; it is like the bank trade.
  • Try the Mud Pie

Good morning….and Jay does it again…. telling House members that
“Inflation has been higher than we’ve expected and a little bit more persistent, but we expect pressures to ease later this year.” (And just to be clear – Christmas is coming to….)
He also went onto say that he ‘wouldn’t hesitate to raise interest rates to keep inflation under control’ if he needed to, but again, he does not need to….

At 8:30 am yesterday – the gov’t released the latest PPI (Producer Price Index) report and what did it show?   Oh yes, yes, yes…. prices are going UP and in fact, like the CPI report on Tuesday, prices are advancing at an alarming rate.  Yesterday’s report showed that prices rose 100% faster than the already elevated estimate (1% vs. the expected 0.5%) on the top line and they rose 80% faster than the ‘core number’ which eliminates food and energy…. – or that is what the headline number tells us, yet Jay tells us ‘Not to worry’ – its all about ‘special factors’ – factors that are expected to fade…. It was – as he tells us ‘A perfect storm of high demand and low supply…’  Yeah…. that is what it was….
Pandemic related bottlenecks and a shortage of semi-conductors are causing a problem with a range of things…. anything that uses semi-conductors, and you know what those are?  Just about everything…. cars, appliances, computers, ring doorbells, Pelotons, cell phones, iPads, Airpods, gas pumps, anything that connects to the Internet of Things – otherwise known as IoT and do you know what that definition is?

“The interconnection via the internet of computing devices embedded in everyday objects, enabling them to send and receive data.”

Got it?  That’s just about everything you come into contact with on a daily basis…and if you are really interested – then you should take a look at SNSR ETF – it is the Global Internet of Things ETF – that seeks to track the performance of that Thematic Index and includes names like – SWKS, STM, GRMN, ST, ADT, SLAB etc.….this fund is up 45% during the past 12 months and is poised to go higher still…current trading channel is $34.90/$38 – closed last night smack in the middle at $36.13.
And if you want to play the semi’s then you can always find that in the SOXX ETF that includes names like – TSM, NVDA, AVGO, INTC, QCOM, TXN, MRVL….

And then we had more bank earnings and guess who disappointed us?  Not a single one…..BLK, BAC, PNC, WFC and C – all beat the estimates on both top and bottom lines…so to be clear 100% of the banks that have reported have beaten….but that does not mean that investors rewarded them – oh no….in fact many of them have done what we expected -they backed off, they sold off as investors booked some profits into the move up ahead of the reports…..and that makes sense….in that buy the rumor/sell the news mentality.

In any event – stocks churned…. unsure of which way to go as all the indexes are kissing all-time highs and investors are trying to make sense of the outlook for inflation and what the Fed is expected to do…….….by the end of the day the Dow added 44 pts, the S&P up 5 while the Nasdaq lost 32 and the Russell gave back 36 pts.  The growth trade overtakes the value trade – and is now ahead by 2.5%!

And today – we will get more of Jay Powell and his testimony on the hill, this time in front of the Senate Finance Committee…. in addition, today – we will get more reports….and they include: BK, USB, UNH, COIN, TFC, DTAS, PGR, and after the bell – we will hear from AA.

Eco data today includes Empire manufacturing report – exp of 18, Philly Fed Survey – exp of 28, Initial Jobless Claims of 350K, Cont. Claims of 3.3 mil, Industrial Production of +0.6%, Capacity Utilization of 75.6% – now this number must be north of 80 before the inflation alarm bells go off – so this report at < 80 supports Jay’s premise.

And Treasuries yields declined again…. the 10 yr. fell to 1.32% suggesting that the Bond mkt is telling us that there is nothing to worry about…. Challenge….

The interest in treasuries is coming from the usual suspects – right?  Sovereign funds, insurance companies, pension funds, and the sense that there is volatility just ahead caused by seasonal factors along with the rising delta variant that is causing some new concerns not only here in the states, but around the world – which I am not buying.  And with Jay telling us that he is not starting to talk taper never mind raise interest rates, treasury yields will churn right in here.   But, when Jay announces at Jackson Hole that not only has the conversation started, but the expectation is for tapering to begin late 2021- we will see a change in psyche and bond yields…. like we did back in February when rates spiked to as high as 1.75%…  Remember – San Fran’s Fed President Mary Daly all but told us on Tuesday that she expects tapering to begin late this year in line with Bullard, Bostic and even hints from Boston’s Eric Rosengren….  So, someone is playing ‘I’ve got a secret….’

This morning – US futures are confused…. The Dow is off 100 pts while the S&P is down 6 pts, the Nasdaq up 45 and the Russell is down 14.  And in a nod to furthering the ‘welfare state’- The gov’t is set to send out ‘enhanced earned child tax credits payments today’ and some 40 million families can expect anywhere between $350 to $550/month for at least the next 6 months….and that is expected to add another boost of spending to the economy – creating more demand, pushing prices higher…. but that too will be temporary….

The 10 yr. treasury is holding steady at 1.32%, the Dollar index is off 6 cts at 92.34, the VIX is trading slightly higher…at 16.99, Gold is up at $1,828/oz and Oil is under pressure trading down 75 cts at $72.38/barrel on news that OPEC has finally reached a deal…..bringing new supply  to the global market…..and this is causing the trader types to lock in profits after oil’s spectacular run over the last 6 months.  The idea that OPEC is about to bring 500k more barrels a day to the market while welcomed is not going to stop the surge higher as demand is expected to continue to surge….and while prices are reacting to the headline this morning…. reality suggests that we are firmly in the $70/$80 range.

European markets are all lower as they too expect more earnings reports and some eco data….UK unemployment is due out as is Italian inflation data.  As of 6:30 am – European markets across the region are down about 0.75%.

Bitcoin is flat at $32,000, Ethereum is trading at $1,930 and doggey coin is at 0.18 cts.

The S&P closed at 4,374 as it continues to tease with 4400…. This morning suggests more tease as futures are a bit lower and the tone out of Europe is weak.  Powell is not expected to say anything new at all, but rather continue to reiterate his position that this is all temporary…. (And should be over by late 2022 – that is what I heard…what did you hear?)

In any event – I remain cautious in the weeks ahead…. due to earnings surprises and rising inflationary pressures…. August will typically be a quiet month and then we have the usual seasonal weakness in September/October.  Breadth in the markets continues to weaken as we approach new highs and that should be concerning from a broader perspective.  Now all this just means to expect volatility in the weeks ahead, it does not mean blow out of your portfolio at all…. I am making my list; I continue to put new money to work, and I continue to tweak the money that is already invested if I go out of balance.

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

Mud Pie

This is easy to make and just requires a freezer…. you will need:

For the pies:  1/2 package of Oreo cookies, crushed, 3/4 stick of butter, melted and ½ gal of Haagen Daz Coffee ice cream, softened.

For the Topping: a package of semi-sweet chocolate, 2 tblspns butter, and 1 tblspn brewed coffee.

So, to start – you need to make the pie crust – Mix the crushed Oreos and melted butter in a large bowl.  Using a tablespoon – press the mixture into a 9-inch pie plate.

Next spread the softened coffee ice cream into the pie so that you have at least 1 1/2 inches of ice cream. Put it in the freezer allowing the ice cream to get hard again – at least 2 hrs.

Now you will need to make the topping after the ice cream is hardened.    In a double boiler – melt the semi-sweet chocolate bits and then add in the melted butter and coffee.   Stir until completely melted and combined. Remove from the heat.

Pour the fudge topping over the pie. Wrap with plastic wrap and freeze again until the topping is solid.   Remove about 10 mins prior to serving.

Buon Appetito.