Is it done or not? Investors think so as they take stocks higher

• Is it done or not?  Investors think so as they take stocks higher.

• Remember - It Ain’t over til the Fat Lady sings….

• The media changes the tone of the headlines….

• Regional Banks surge on the back of deposit increases at WAL.

• More confusion from the FED.

• Try the Rib-Eye Pizzaiola.

Stocks EXPLODED higher……as if there was a real breakthrough…..Just to be clear – while there WILL be a breakthrough – it hasn’t happened yet….We are still in the same place that we were on Monday – except – now we have the key players telling us that they get it, that they understand and that the US will not default on its debt….which is comical really – because that was never really an honest concern….I don’t know anyone that actually thought the US would default….and like I pointed out yesterday…

“No rational investor is concerned one iota about a default – that is not happening…. Investors are concerned about monetary policy, regulation, interest rates, earnings, profit margins, legislation overreach and inflation…. Etc.…”

Now – what investors should understand is that 3 weeks ago – Jo Jo told us that ‘negotiations were not an option’ that he expected a clean debt ceiling raise – Period.  There will be ‘no strings attached’.  Chucky and Hakeem solidly in that camp – Nothing to see here…move on – The President will not negotiate with the GOP.

And then on Wednesday, when the respective leaders got together at the Oval Office – the tone was clearly different….Jo Jo expressed confidence that ‘there will be NO default’ and that he is willing to negotiate,  while Kevy McCarthy told us that an agreement is ‘doable’….Chucky and Hakeem chiming in saying that ‘the agreement needs to be bi-partisan’ and that all sides are prepared to negotiate’……..All while they collected signatures yesterday to try and force a ‘Discharge Petition’ that would bypass the GOP leadership in the House to force a debt ceiling vote – with No Strings Attached.  

Then the headlines changed from using words like – Catastrophe, Disaster, and Tragedy – that did absolutely nothing to help move the ball forward – to Hopeful, Confident, and Doable – and that set the algo’s on fire…. Remember – it’s all about the ‘smart logic algos’ that scrape the headlines, interpret the language, and then react immediately….  When the words are inflammatory and negative – then that’s what you get from the algo’s -and when the words suddenly turn positive and hopeful – then the reaction is completely different….and that is what we saw yesterday….As the sun rose over the Atlantic – every major outlet was pushing the ‘deal is done’ narrative, they even paraded JPM CEO Jamie Dimon and a bunch of other major bank CEO’s to sing that song……

Stocks surged in the pre-market and then pushed higher as the clocked ticked….by the end of the day – investors were celebrating…. the Dow advanced by 410 pts or 1.25%, the S&P up 50 pts or 1.2%, the Nasdaq gained 158 pts or 1.3%, the Russell surged by 39 pts or 2.2% while the Transports took second place – rising 295 pts or 2.1%. 

And this is exactly why I have been telling you to ‘stay the course’ do not go making investment decisions on something that is not going to happen….and while they (the administration) tried hard to create angst and panic (trying to get the GOP to cave)  – the majority of large asset managers and private investors were not fazed…..the debt ceiling ‘issue’ is a non-event….now the FED issue, the inflation issue, the global economy issue – those are issues that affect investor psyche and decisions– and rightly so, because those are the issues that will drive the stock prices and valuations…

In the end - the deal is not done yet – and by their own admission – ‘they still remain far apart’ – and its only May 18th…. they have made June 1st the deal date (and even that is not true) …so expect them to continue the back and forth until the 11th hour – which, for now, is May 31st at 11 pm.  We’ve seen this play out before – it is very predictable…. it’s called ‘Grandstanding’.  And while it can create short term havoc – which proves to be an opportunity for the savvy investor, it does nothing to price stocks in the long term…

So what did we see…..well, we saw Utilities and Consumer Staples decline….as investors moved some money out of those ‘safety sectors’ only to reallocate those monies into sectors that have more upside potential….Financials – XLF and Consumer Discretionary – XLY took the lead….both up more than 2%.....Industrials, Tech, Energy, Communications and Real Estate – all up more than 1.5% while Healthcare and Basic Materials rose just under 1%.

And the regional banks?  Wow!  The KRE shot up by 7.4%.... after WAL +10% reported an increase in deposits…and that put the whole group into play….KEY + 8.6%, CFG + 5.3%, RF + 6%, PNC + 6.8%, NYCB +10%...How good does Mikey Burry feel now?  Recall – he ‘scooped up’ a bunch of these names a month ago when they were getting clobbered – thinking that this reaction by investors was a clear overreaction….the KRE etf which had sold off by 44% since the March 3rd SVB announcement – has regained 15% in the past week….as investors reconsider the state of the regional bank industry….Again – another example of how chaos creates opportunity- if you have the stomach to withstand what feels like a really ugly situation.  Yes, could it have gone the other way?  Of course – but all you need to do is do your homework…. You need to understand the fundamentals and dynamics….and you need to recognize when hysteria is overtaking sound analysis.

Semi’s and anything AI continue to push forward (and anything AI is now encompassing nearly every sector of the economy)…the SOXX + 2.5%, Cybersecurity names up 1%, Airlines rocketed higher – the JETS + 4.25%  - summer travel expected to be hot even as ticket prices are expected to be hotter….Disruptive Tech up 2.5%, Metals and Miners +1.8%, Aerospace and Defense up 1%, Homebuilders gained 1.6%, Retail up by nearly 3%, the value trader – SPYV +1.3% while the growth trade – SPYG gained 1%. The Mid-cap 400 – IJJ up 2.1% while the Small-cap 600 – IJT advanced by 2.2%.  In the end, it was a good day – as all of the headlines pointed to a debt deal….

Ok – but get back to what matters and that is inflation, FED policy, global central bank policy, the global economy, etc....and that is still up in the air.  Will the FED continue to push rates up or not?  Will the FED cut rates in the fall or not?  What will the ECB, BoE, BoJ, RBA, and other central banks do?  Is inflation subsiding or will it rear its ugly head again?  Those are the concerns that will ultimately price stocks….

This week- we have heard from a range of FED heads and the narrative is not consistent…..as it appears as if there are cracks in the foundation…..More members suggesting that it is time to pause while others are suggesting we need to push higher (at least one more time), but NONE of them are advocating for rate CUTS – and JJ has made that very clear….…and that is important -because traders are pricing in multiple cuts before the snow falls….and that my friends is the risk to the markets….because the recent strength is all about how the FED is about to pivot – something I think is a bit pre-mature…..the pivot isn’t’ coming until mid-2024….and that’s just a guesstimate.  

Look – the S&P has been stuck in a range….4050/4160…..as investors and asset managers remain torn between the economic fundamentals and the official start of the recession….and whether or not the FED can navigate a soft landing…..so there is more work to do….and while the debt debate is important, it will not be a defining moment in pricing stocks.

This morning US futures are flat to slightly higher…. – Dow up 37, the S&P up 7, the Nasdaq +23 and the Russell up 6 as market adjusts to the latest narrative…  My sense is that the macro data will win out….. NY Fed President Johnny Williams will speak at a conference in DC while Jay Powell and Benny Bernanke are expected to speak tomorrow.

Eco data today includes the Philly FED business outlook – expected to be -20 while Existing Home Sales are expected to be down 3.2% - yesterday we saw Mortgage Apps down by 5.7% as mortgage rates tick higher….

Look for WMT to report earnings this morning…. expectations are for them to report $1.31/sh…. But the real part of the story will be what they say about the consumer and about what the next 6 months look like.  Will it be a HD story or a TGT story? WMT is up 5.6% ytd – ended the day at $149.50….and has been falling since the HD report on Monday…. Trendline support is at $147.20 while resistance can be found at $155…. Stay tuned.

European markets are up…. ECB President Christine Lagarde is expected to speak at a banking conference in Brazil. There is no eco data to speak of.  Markets in Europe reacting to the strong move higher in US stocks yesterday.

Oil shot higher yesterday (after bouncing off $70) …. a plunge in gasoline inventories (suggesting strong demand) along with all of the fun surrounding the debt ceiling are reasons being cited for the move up of $2….to end the day at $72.84/barrel.  This morning oil is churning at $72.45/barrel.

Gold – Which breached support at $2019 on Tuesday - traded down to $1993 before finding support…This morning – Gold is trading at $2000/oz as it too awaits the debt outcome.

The S&P closed at 4158 up 48 pts…...after kissing the most recent high at 4164 before backing off.  My sense is that the move yesterday was a bit aggressive and that 4164 represents resistance ….until we get more clarity on monetary policy….and the state of inflation….Yes, it appears as if its moving lower, but it is still 5.5% y/y – which is stickier than what the FED wants….My sense is that we remain in the 4065/4165 trading range…  The odds are even…. between a pause and hike…. I still think they hike by 25 bps and then pause…but you can make an argument for pausing as well…. It’s just gonna come down to how the FED interprets the data and whether or not they feel confident that they are winning.

You know the deal - As a long-term investor - stick to the plan.  Eliminate the noise….

Rib-eye pizzaiola

You will need a couple of things:  A nice rib eye, Olive oil, Oregano, garlic, onions, red and green bell peppers, can have crushed tomatoes (not puree), some red wine, salt, and pepper.... **crushed red pepper flakes (optional).

In a saucepan - heat olive oil and add crushed/sliced garlic and move it around for a couple of mins until it is nice and golden.... add a sliced white onion and julienned bell peppers - turn heat to medium and cover.  When the onions and peppers are soft (about 5 mins) add the crushed tomatoes, oregano and *red pepper flakes.  Turn heats up and bring to a quick boil then reduce heat to medium.  Add red wine (about 1/2 cup) salt and pepper and let simmer and thicken up.... about 10 / 12 mins.

Next - rub steaks with olive oil, salt, and pepper - do not drown the steak in oil - just enough to massage the steaks and prepare them for the grill.  Sear the steaks on the grill and cook for about 4 mins per side - now remove and add the steaks to the Peppers/Onions and Tomato sauce.  Cover and turn heat to simmer and cook for another 5 mins.

 This should give you a nice medium steak (depending on thickness) - If you prefer you can let simmer longer for more well done. 

When done - remove steaks from the pan - slice into thick strips and arrange on plate.  This should be enough to feed 4 adults.  Next - stir the sauce in the skillet pan to deglaze - making sure to scrap the pan for any bits left behind.   Spoon sauce over the steak and serve immediately.  Present this meal with a large mixed salad of Arugula, Boston Bib & Romaine topped with tomatoes, red onions, cucumbers - dressed in a red wine vinaigrette.  For wine - You can keep it simple and go with a Chianti.