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Financing, Business, Dollar, Hand, Present

Things you need to know

  • Markets churn awaiting eco data tomorrow
  • Treasury yields up, Dollar up (again), and commodities finding stability
  • Bitcoin and Ethereum holding their own.
  • Are we getting ready for that pullback?
  • Try the Steak Florentine

Stocks ended Monday somewhat lower, commodities got smacked (think gold, silver, and oil), the dollar index rose, the VIX traded slightly higher, and the 10 yr. treasury rallied to 1.323%… all while the delta variant continues to spread like wildfire – or at least that is what the MSM would have you believe.   I mean Chucky Todd – host of Meet the Press couldn’t help himself on Sunday…. tripping over his own words as he featured the South Dakota Sturgis Motorcycle Rally as a ‘super spreader’ event ……. Oh boy…. are we going to go there? Are we going to start that narrative all over again?

As the day began, stocks were treading water and then as it progressed it only got a bit weaker as the focus turned to the DC infrastructure plan, the FED, better macro data and more of the Delta variant conversation and what that means for the supply chain….….At 4 pm – the bell rang and the scoreboard showed  losses for the broader market while Nasdaq (Tech) managed to end the day a bit higher.

The only economic data point was the JOLTS report – Job Openings Labor Turnover Survey – and what that told us is that there are a record number of jobs available…we now have more than 10 million jobs available for anyone who wants to work (recall there are some 9 million people out of work) ….Yet economists tell us that the recent disparity between available jobs and the unemployed is due to a skills mismatch or a geographic mismatch between the workers and the jobs.  To hire workers, employers are raising wages, offering bonuses, and reducing requirements for new hires all to fill those positions….  The other interesting data point is that the report also showed us that the ‘quit rate’ rose to a near record high as workers no longer fear quitting one job and getting another one relatively easily….

Every sector in the red except for Financials – XLF +0.26% and Healthcare – XLV +0.38%.  Energy took it the hardest – the XLE falling 1.4% as the variant story is convincing investors that it will crush demand the same way that it did last year…. All because why?  Because yesterday’s data showed that China is importing 20% less oil now than it did last year?  And that suggests that the end of the energy trade is upon us?  You know how I feel about that?  Now while oil is down 9% in the last week (over the hysteria being created by the paparazzi) – gas prices at the pump have not moved lower at all…. Yesterday’s trading took oil right down to the intermediate support trendline where it held ($66.52) and today it is up $1 or 1.5% at $67.46.

The Energy ETF – XLE remains in a tight range – trading in between the long term trendline support at $46 and intermediate trendline resistance is at $51 – YTD – the XLE is up 29%.  My sense is that the demand destruction story is overdone but you need to have a strong stomach in the near term.

This morning – US futures are flat………. Dow futures – 22 pts, S&P’s -1 pts, Nasdaq +23 pts and the Russell is -1 pts.  Stocks remain closer to the highs than not and while the Delta variant is causing some angst the sense is that it will not derail the recovery…. consumer spending remains robust, wages are rising, jobs are available and enhanced unemployment benefits are soon to expire so the word is that we will see another surge in ‘employment’ and that should be another good sign….

The data continues to tell us that covid 19 sectors that got slammed (leisure/travel/airlines and fitness) continue to show improvement and are now at or near the pre-pandemic levels, but some analysts are saying that the end of summer and beginning of fall could change that narrative – I am not in that camp at all…. have you been to an airport lately?  Have you tried to book a hotel room? People are making longer term plans to travel and live….as we all get used to living with a virus that may never go away but will be in control.

The 10 yr. treasury is yielding 1.323% and the Dollar index is up (small) again this morning……(on bets that the FED will announce a tapering in August)  – and to THAT point Boston FED President Eric Rosengren has once again raised his hand and his voice telling us that the FED ‘should’ begin to taper sooner rather than later – suggesting that Jackson Hole would be the perfect time to make that announcement…..with the tapering to begin in the fall vs. the winter…His comments are now the most aggressive – the others that support the taper have all pointed to Dec 2021/Jan 2022.  This will now put Jay Powell between a rock and a hard place – because he has been so vocal in saying that ‘we are not near that point yet’….in fact – he only said that again two weeks ago, so it will be interesting to see how he frames it in late August.

Watch for other FED talking heads to take to center stage…. Chicago’s Chucky Evans and Kansas City’s Esther George both expected to take to the stage and expect that everyone will be listening to what they have to say…Recall that Chuck is solidly in the ‘taper and hike’ camp – while Esther remains on the fence.  So, investors will listen closely to what she says to see where her head is at…and remember – She is the host of the Jackson Hole boondoggle.

Eco data today includes nothing important but tomorrow and Thursday are set to ignite the flame…. Tomorrow we get the monthly CPI (Consumer Price Index) report, and the expectation is calling for and increase of 0.5% m/m and 5.3% Y/Y.  Ex food and energy of +0.4% and 4.3% respectively.  Recall that last month -we got a surprise to the upside – significantly more than even the most aggressive estimate…and while Jay came right out and said – ‘Nothing to see here, price increases are transitory’ – investors may not be convinced….so tomorrow is a key data day.  Then on Thursday it will be the PPI (Producer Price Index) report and that is the price of raw materials that manufacturers must pay to manufacture the products that they make, and this also saw a spike higher than the estimates last month…and remember – if manufacturers pay more – guess who else pays more?  And so, the cycle continues….

European markets are also flat…. German ZEW economic survey missed expectations by a significant margin – falling 23 pts from 63.3 to 40.4 – yet no one seems to be concerned.  At 6:15 am – markets across the region are flat.

Bitcoin is trading at $45k, while Ethereum is trading at $3,100.

The S&P closed at 4,432 – down 4 pts.  Today the markets will churn as we wait for tomorrow’s data.  Expect lots of speculation and if you are listening, you are now starting to hear more and more street analysts get more comfortable with rising rates. Many now saying that they expect the 10 yr. to yields to be anywhere between 1.8% – 2% by year end…which is also a level that I have been saying since the initial spike in yields back in February/March.  Remember – I am ‘hoping’ for a consolidation (pullback) and if tomorrow’s data surprises again on the upside it will be more and more difficult for Jay to ignore it….and if he does, investors certainly will not.

I am thinking a 7% – 10% move is not out of the question…and that would take us to the 4000/4100 range….there are others that suggest we are in for a 15% + correction and if that is true it would take us to 3770 ish – down thru LONG term support 3966 – something I don’t see, unless of course Jay announces something that no one expects – which is not happening…..

In any event – none of this suggests that you panic at all – stick to the plan…remember – investing is dynamic…keep some cash ready to deploy, but don’t be so quick on the trigger just yet…

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.
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Take Good Care

Chief Market Strategist, Consultant

Steak Florentine

Start with a nice cut T-Bone or Rib Eye – always on the bone as the bone provides so much more flavor and makes a nicer presentation for your dinner guests.
You will need:  The steaks, Garlic cloves, Pork fatback, dried rosemary, coarse salt (kosher salt works nicely) and pepper. Remove steaks from fridge – rinse under cold water and pat dry with a paper towel.  Leave on a platter for about 20 mins so that they get to room temp.

In a food processor blend the pork fatback, garlic, rosemary to a paste like consistency.  Next – wash your hands and massage this mixture into the steaks – taking time to make sure that you have worked the meat and the mixture well. Now season with S&P.  Set aside.

Light the grill and turn the heat to high and allow the grill time heat up – it must be nice and hot.   Place the steaks on the grill and cook for about 5 min/side – depending on thickness – This will result in a med rare steak…so if you add a couple more mins on each side you will get a more cooked center.

Remember though – when you remove the steaks from the grill – you will cover and let them rest for 4 mins allowing them time to continue cooking and allowing for the juice to flow.    Once ready serve immediately on warmed plates.   Mashed potatoes and peas always work well with this dish along with a mixed green salad with red wine vinaigrette dressing.

This meal deserves a robust red wine – my favorite is Brunello di Montalcino – it’s like velvet.

Buon Appetito.