What You Need to Know Today
Mkt have a FOMO rally
BA ‘turbulence' appears to have ‘stabilized' – good for Transports & Aerospace
China macro data weak and strong
UK and EU continue exit talks
Stocks BROKE out to new highs in what felt like more of a FOMO rally (Fear of Missing Out) – S&P pierces 2815 to trade as high as 2821 only to lose steam and close just below 2815 – a level that has proven to be tough to crack (for now). Recent US eco data – as discussed- continues to support the growth story as well as the benign inflation' story here at home.....Retail sales, CPI, Mortgage Apps, PPI, Durable Goods and Cap Goods Order for Non-Defense & Ex Air – all in line or a bit stronger than expected – improving manufacturing, confident consumer, and tepid inflation all suggesting it's all good. Toss in the more patient Federal Reserve and you have everything you need support stock prices. And while the growth story is a bit different overseas – signs of a global slowdown have caused the ECB (European Central Bank), the BoJ (Bank of Japan) and the PBoC (Peoples Bank of China) – to all ease up on tighter monetary policy. And finally – the end of the trade war between the US and China does seem to be coming to a close – as progress continues on finalizing a new trade agreement causing this ‘buy the rumor' action....and you say ‘rumor' because no one has yet confirmed it. Do not be surprised to see a sell the ‘fact' event.
Yesterday's rally – left no one behind.....Industrials (XLI +0.88%), Energy (XLE + 1%), Tech (XLK + +0.66%) and Healthcare (XLV +1%) leading the way.....I mean even Boeing (BA + 0.51%) ended the day in the plus column after facing the nearly worldwide grounding of their Max 8 & 9 aircraft. Look – BA has lost 16% of its value since that Ethiopian airlines crash 2 weeks ago – taking it down thru short term support to find buyers at intermediate support of $362.45 where it bounced. My partner and portfolio manager – Nancy Tengler – had this to say about BA yesterday –
Despite the recent sell-off in BA shares the stock is still up 20.2% since 12/26 and 17.0% ytd vs. 11.8% for the SPX.
As the regulators around the globe and airlines continue to temporarily ground the planes the stock will continue to come under pressure. The WS downgrades have begun and it is usually unwise to get in front of the news flow or the downgrades.
We further believe that the FAA will analyze the data and do the right thing. Based on my research I suspect (and that is all any of can do at this point) that BA will issue a software fix and beef up training. Though BA tweeted out yesterday that they "do not have any basis to issue new guidance to operators."
BA is an incredibly well-managed company with a responsible history and focus on safety. The 737Max is 15% more fuel efficient than previous models hence the popularity with airlines—reflected in the 5100 orders on the books (though there have been a few cancellations). This is a significant driver of growth for the company—the good news and the bad news. At this point we are not adding to holdings and we are waiting to see where the BA story goes.
Either way – this BA story is far from over – further turbulence will cause further instability for the stock and if it is proven that it was pilot error and not BA error the stock will be quick to react- The decision late Wednesday by the FAA and the announcement by President Trump failed to cause investors or algos to further slam BA - or any of the other Airline stocks - as the group looks to have taken the latest bad news in stride as it tries to find a bottom.
And talk of finding a bottom also brings up the Transportation index – which has also gotten really slammed recently over concerns of a slowing global economy (not to mention the pressure that BA has caused). Yesterday – the index was the best performer rising over 1% as it looks to play ‘catch up' with their counterparts. The Dow added 0.58%, the S&P was up 0.69%, the Nasdaq rose by 0.69% while the Russell Small cap/Mid cap rose by 0.39%.
That being the case –
The XTN (Trans ETF rose by 1% yesterday) is down 8% from the February highs (but is still up 10% ytd) – found support at the long term trendline and now looks to be ready to challenge long term resistance at $62.57 a 4% move higher from here.
The XAR (S&P Aerospace ETF) which is off 7% since this news - (but still up 15% ytd) ended the day +0.38% as it teases with long term support at 90.45. Depending on how BA handles this latest crisis and if a US/Sino deal is about to close – watch as this group could rebound challenging the Mid-February highs of $96.25.
And in another turn - this event for BA opens the door to a lesser known CHINESE aircraft manufacturer – state owned COMAC – (Commercial Aircraft Corp of China) – a company that designs and manufactures passenger aircraft and other industry equipment. Their C919 is a direct competitor to the Max 8 and the Airbus 320 neo and has more than 800 orders on their books – as Xi Xi (China's President) vows to build China's aerospace industry from ‘scratch' – from scratch? Is that how they built their tech industry? Either way –when it comes to airplanes – we may begin to see the "Made in China" sticker on the side door.
Now after the rally we've seen over the past couple of days – it is once again tough to just sell stocks – breadth remains strong taking both the S&P and the Nasdaq to new March intraday highs and it just doesn't feel exhausted. Yesterday's S&P move up and thru what has been resistance at 2815 and Nasdaq's move up and thru 7666 is a positive for the broader mkt and if we continue to see tech perform well – then I suspect that we could see the Nasdaq outperform – (think XLK) - until we get closer to Tax Day – which I still believe will cause short term pressure on stocks.
This morning US futs are up small - the Dow +12, the S&P +1, the Nasdaq +9 and the Russell is flat. Yesterday's move up and thru what has been a brick wall (at 2815) now puts us in the 2800/2900 trading range. Remember – there is nothing holding us back above 2815 until we get to the new century mark (2900) while there appears to be support at the 2800 century mark.
Eco data today includes: Import Prices m/m +0.3% while y/y is expected to be -1.5%. Init Jobless claims of 225k, Cont Claims of 1.76 mil, and New Home Sales of +0.2%.
Overnight – China reported both weak and strong macro data points. Industrial output only grew at 5.3% for Jan/Feb of this year – or the slowest pace in 17 yrs......but on the other hand retail sales rose 8.2% and fixed asset investment rose by 6.1% - both better than expected as Xi Xi pledged hundreds of billions of dollars in tax CUTS and infrastructure spending. Trade talks will continue but will begin to weigh heavy on the mkts if we don't get more clarity – as the Donald told us yesterday that he is in ‘no rush to form an agreement'. Japan -0.02%, Hong Kong +0.15%, China -0.69% and ASX +0.30%.
Over in Europe – The UK remains in turmoil – the parliament ruled out a NO-Deal exit from the EU so today they will vote on extending the March 29th exit date and even if they do – the EU remains wary and weary over exactly what the UK wants. FTSE +0.43%, CAC 40 +0.53%, DAX -0.05% , EUROSTOXX +0.30%, SPAIN +0.49%, and ITALY +0.57%
Oil is trading a bit lower this morning after surging yesterday as production cuts by OPEC, sanctions on Venezuela and Iran and a fall in US inventory and a slowing of US production all weighed in to support prices. The weekly EIA (Energy Info Admin) reported a fall in oil inventories as we (the US) only produced 12 mil bpd vs the 12.1 mil bpd. Either way – we remain in the $55/$60 range for now.
Grilled Swordfish w/Lemon Basil Butter
Swordfish Steaks are great and as spring approaches and you clean off the grill - remind yourself of this simple yet great dish.
For this you need: Swordfish, Shallots, Butter, Fresh Lemon Juice, Fresh Basil, s&p.
Start with fresh swordfish steaks. Marinate in: Olive oil, S&P, fresh lemon juice - cover with saran wrap and let sit at least 1 hour on the counter. You want it to be room temp when you put it on the grill.
In a food processor add the shallots – chop. Next add the softened stick of butter, fresh basil, s&p and the juice from one lemon. Pulse until you have it all mixed. Using a spatula – remove from the food processor and put in the fridge to harden
Preheat the grill on high for 10 mins....when ready - place the swordfish steaks on the grill and sear. Leave for 4 mins or so (depending on thickness) then flip.
Arrange the swordfish steaks on a warmed plate add a dollop of butter and complement with a mixed green salad. Your favorite chilled white wine is the perfect complement -
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