Things you need to know
- There is a Theme playing out – Why should I stand in the way?
- Global markets under pressure again, 10 yr Treasuries kiss 1.85%
- Bank earnings beat on the bottom line, investors/traders and algos hit the SELL button – Buyers are not ‘standing the way’
- Oil up again….as the demand story is alive and well
- Try the Grilled Veal Chop w/Cherry Tomatoes
And the potholes in the road get bigger and bigger –
Stocks had another volatile session on Friday – The two Dow indexes got banged up a bit – the Industrials down 200 pts and the Transports fell 100 pts… while the S&P rose 4 pts, the Nasdaq jumped by 87 pts and the Russell added 3 pts… The VIX (fear index) is raising its head as investors digested the start of earnings season and the very weak retail sales report which came in at -1.9% well below the expected -0.1%….as the winter snowstorm continues…. leaving all 5 indexes well in negative territory as we move into the 3rd full trading week of the new year.
And while the banks that reported (JPM, WFC & C) all beat on the bottom line – investors/traders and algo’s sold JPM – 6.5% and C down 1.25%. Revenues remained in line, but expenses rose and that sent shivers down the spines of so many. Jamie Dimon – ended up speaking out of both ends – on one end he offered up a sobering outlook for 2022 and 2023 saying that the ‘shifting environment and higher costs would mean it wouldn’t hit its longer-term profitability targets for those years’. But on the other end he went to completely contradict himself saying that “with all respect to the fact that people are suffering in covid and all that, the fact is, in spite of Omicron, in spite of supply chains, 2021 was one of the best growth years ever and 2022 looks like it will actually be pretty good.” – So, I’m confused……which is it? They miss the targets, or it will be pretty good? I mean – it’s one or the other or can it be pretty good and still miss the targets? In that case – just adjust your targets and then guess what? It’s another banner year! Then recognizing that the forces that pushed bank profits higher during the pandemic are starting to weaken the Chief Finance Officer – Jerry Barnum (like the circus) told analysts on the call that ‘we are in for a couple of years or sub-target returns. Mamma mia – which is it? My head is spinning already…
Remember when I told you: Don’t be surprised to see a ‘Buy the rumor/Sell the news’ type of response as both of those names had been up substantially in the past month or so? Well, that is exactly what you got.
WFC on the other hand – rallied by about 3.7% after notching a 13% increase in revenues vs. last year when they got hit with the massive restructuring charges that made y/y comparisons look bright. BLK – also came out with great news on all fronts but came under pressure as well – falling 2.3% as the negative tone took over much of the space. The XLF was the worst performing sector out of the 11 broad sectors – falling 1% on the day.
I’ll say it again – In the end- it is time to strap in and buckle up – something I told you to do last month…. the FED is taking away the punch bowl to try to tame the out-of-control inflation numbers (remember – the numbers that they assured us was nothing to worry about?) Inflation that is directly tied to policies that they implemented for way too long.
This weekend – Barron’s featured the 2022 Roundtable and the consensus among the 10 featured guests is for inflation to ‘rage and stocks to stumble’ at least for the first 6 months….this as the FED prepares to raise interest rates not 1, 2 or 3 times but now at least 4 times….while the increment of the raises is still unknown…..think 25 bps to 50 bps…and while the increases will continue into the second half of the year – by then – the thinking is that the market will find stability after it assesses the risk and reprices stocks. What is also interesting are the range of year end returns that these talking heads are putting forward. From double digit losses to ‘normal’ gains of 10% including divy’s. It’s all very exciting but be prepared for ‘white knuckle’ moves….
And 2022 has already found its place in the history books – with stocks off to a rocky start……A WSJ article reveals that 220 LARGE cap listed companies – companies with a market capitalization of $10 billion + are down more than 20% off their highs. The S&P is off 2% ytd and off 4.5% off its November highs. The Nasdaq composite – with over 2500 names in it – has seen about 1000 of those names get cut in half…. with that index down 5% ytd but more than 9% off its November highs. Just for reference – the last time that happened was in 1999/2000 – need I remind you what was happening then and what happened in the months that followed? (Think .com).
And this selloff is directly tied to what is happening at the FED….and how quickly the chatter went from ‘it’s ok’ to ‘watch out below!’. The recent volatility is all about the speed of the taper and how fast and far rates will rise…. toss in the need to reduce the size of the $9 trillion balance sheet well ahead of what the markets were prepared for, and you have a recipe for weakness and volatility. 10 yr. Treasury yields – which remained in the 1.3% – 1.5% range for the bulk of 2021 have now surged and ended Friday yielding 1.77% and this morning bonds are down again sending yields up to 1.84%…remember the inverse relationship – prices go down, yields go up and vis versa.
And what do you think is going to happen when the FED is no longer the buyer of last resort? Who is going to stand in and ‘pick up’ all these bonds at yields of 1.5%? Absolutely no one….and that is what you see happening now, with buyers saying – ‘why should I stand here and get run over?’ So, they bid lower – testing the will of the sellers sending yields higher and don’t expect this to stop anytime soon. And that my friends are what will prove to be a strong headwind for stocks – No matter what the talking heads tell you about the ‘strength of the economy and how strong the consumer feels’ – because as inflation continues to rip higher and rates rip higher – suddenly the economy runs into trouble and the consumer doesn’t feel so strong.
Now – this has been a strategic combination of the FED starting to withdraw the bond buying program and the use of ‘jawboning’ tactics…. remember – to jawbone means that you ‘attempt to persuade or pressure by force of one’s position of authority’ and who might those people be? You guessed it – the talking heads at the FED along with their friends at Goldman. Remember when Goldman hit us with the need for the FED to raise rates ‘at least’ 4 times in 2022, cut the taper and start reducing the balance sheet all in tandem on the 3rd of January?
Then remember how the members of the FED found cover in that report and EVERYONE of them suddenly had a mind shift and supported the Goldman thesis? The media made sure to get them all on record saying that they supported the idea of that Goldman report by all agreeing that the time had come. And while they haven’t done anything yet – other than follow the taper schedule they put out in November – it is the talk of what could happen that is causing all of the recent angst….so while the FED has not raised rates yet or started to trim the balance sheet – investors and algo’s are re-pricing ahead of any move because they are being ‘jawboned’ into it….Look, if investors sell off bonds and reprice stocks before the FED does anything, then most of the dirty work will be done so when they actually do start to raise rates the reaction ‘should be’ more muted……but remember – just like ‘The Enterprise’ we are going where ‘no man has ever gone before’.
This morning – we see global markets under pressure as the fall out continues. European stocks now past mid-day are all off better than 1%. Asian stocks also fell, except for China – which CUT rates after a report showed that their economy slowed in the 4th qtr.
Investors in the US and around the world gearing up for the next 3 weeks of big earnings…. We are due to get bigger bank and regional bank earnings in the week ahead…with GS, BK, TFC, SBNY & PNC all out this morning…. SBNY already out – easily beating the estimate of $3.95/sh coming in at $4.35/sh.
Eco data today includes empire manufacturing – but don’t expect that to move markets….it won’t, it’s all about earnings.
US futures are down at 5:30 am….and down big…. the Dow off by 254 pts, the S&P’s down 50, the Nasdaq is off by 270 pts and the Russell is getting hammered down 28 pts. Treasury yields are kissing 1.85% and the cryptos are under a bit of pressure as well, with Bitcoin trading at $41,900 and Ethereum at $3,100.
Oil is UP $1.35 or 1.6% at $85.17/barrel – this continues to be about the strong demand story while the media is trying to tell us that the surge in prices is about how the UAE – 7th largest producer of oil – has vowed to retaliate against the Houthi militants that attacked Abu Dhabi on Monday killing 3 people. Now while I agree that the militants need to be punished, I am hardly buying the fact that oil is up because of that headline…I am just not buying that – but everyone must make their own decisions…In any event – the trajectory for oil is up and calls for $100/barrel are well known and that was before the Houthi’s attacked Abu Dhabi – Capisce? In fact –Wasn’t it Goldy that put out the $100 a barrel report back in November? I mean – you can’t make this up…who would believe you?
The S&P closed at 4662……. After testing as low as 4614 and if futures remain weak – then we are going to breach that level on the opening…. intermediate support is at 4575 – which is only 87 pts from here…or just 1.8% – a level we could easily pierce before the day is out. The trendline is KEY at this point…. a failure there will open the floodgates to test lower…. expect the algo’s to ‘kick in’ and for the buyers to retreat – again asking – ‘Why should I stand in the way and get run over?’. Seems to be a theme……
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Take Good Care
Chief Market Strategist, Consultant
Pan Seared Veal Chop w/Cherry Tomatoes
You can grill or pan fry the chops – either way keep them golden brown on the outside and pink on the inside.
For you this you need: 4 Veal chops on the bone – 1 ½ in thick, Canned cherry tomatoes, sliced garlic cloves, fresh basil chopped, red pepper flakes (optional), s&p and olive oil.
Now this is so simple to make and should take no longer than 30 mins max.
With a meat mallet – pound the veal chop, now rub with a bit of olive oil and season with s&p. Set aside.
In a sauté pan – heat up some olive oil and sauté the garlic. Do not burn – Add the cherry tomatoes, s&p, and red pepper flakes (if using). Mix…. turn heat to med low. Now add the chopped basil – mix well, turn off heat and set aside.
Now heat up the grill pan on the stove with a splash of olive oil. Place the chops in a grill pan and sear on both sides. Depending on how thick they are will depend on how long you keep them on the stove. It shouldn’t be much more than 5 mins per side….but be careful not to burn….. When you have about 3 mins left – add in the garlic and tomatoes and let the flavors blend.
When done – you can present it two ways. Either make a bed of cherry tomatoes and place the chop on top or place the chop on the plate and top with the cherry tomatoes. Serve with an arugula salad dressed in traditional oil/vinegar seasoned with s&p & fresh lemon juice. Keep it simple.