Crash? What Crash? Accentuate the Positives

The S&P closed at 2662.94 – So today’s circuit breakers are: (Although – we apparently shouldn’t be concerned)
Level 1.  188.90 pts (7%) or 2509.73
Level 2.  350.82 pts (13% total) or 2347.81
Level 3.  539.72 pts (20% total) or 2158.91


Rewind for one minute – yesterday - February 14th - the mkts were keenly focused on both CPI and Retail Sales……. Stay with me…. futures were trading up 10 pts in the early morning hours.... European mkts were all higher - German and EU inflation numbers were in line - nothing to worry about.... it’s all good....
So, the EXPECTATION was for it to show +0.3% growth - EX food and energy of +0.2% - bringing the y/y reading to 1.7% - still below that magical 2% target....  – which would most likely suggest that the FED will remain in a gradual tightening mode.  Futures were higher in the pre-mkt trading – that was until the news hit the tape at 8:30 am.  CPI had surged by 0.5%, Ex food and energy by +0.3% taking the y/y number to +2.1%.  Futures did an about face and collapsed – falling 35 pts on the S&P, while the Dow fell over 300 pts before the opening bell as talk of a more aggressive/hawkish FED took to the airwaves.  (Remember – the FED is now led by Jay Powell and the markets are not yet sure of how he will react).  
At the same time – the gov’t reported Retail Sales – and they were much weaker than the expectation – coming in at -0.3% vs. the expected this quickly balanced out the concern over what the FED might do.  Essentially the weaker Retail Sales report cancelled out the stronger CPI report.
The early selling took us right to intermediate support - 2640 – a KEY level to hold after the disaster last week.  Buyers stood there and defended the position......and while the 9:30 bell was ringing - you could already feel the excitement building.... Stocks wobbled a bit - but
immediately found their ‘chi’... The early losses turned to spectacular gains….by early afternoon – the S&P had swung 55 pts as it surged higher pushing and testing 2700 on that index – yearning to test resistance at 2720. These reports essentially cancelled each other out.... rendering both useless......concerns about 3% 10 yields or what the FED would do soon faded - the sellers who ‘over reacted’ had egg on their faces as the buyers turned up the 10:09 am the weakness turned to strength - mkts went from red to green and never looked back.... The Dow ended the day up 253 pts, the S&P + 35 pts and Nasdaq +130 pts……
Analysts were already coming out to allay any ‘worst case scenario’ fears.... the CPI number was more about gasoline, rents and clothing - apparently NOTHING to worry about.... these are not factors (apparently) that signal any underlying concerns - None - zero. So, what if you must pay more to fill up the car, or pay more to put a roof over your head, or pay more for a pair of underwear – don’t worry…it means nothing.  (I mean you can always go commando and eliminate that expense!).
Suddenly - no one appears to be concerned about whether it is 3 rate hikes or 4 rate hikes this year or whether its 25 bps or 50 bps -  No one appears to be concerned about 3% yields and now the bar has been raised.... Gina Martin Adams of Bloomberg Intelligence had this to say:
“Stocks remain cheap relative to bonds and won’t be affected by higher long-term rates as long as the 10 yr treasury yields stays below 4%”. 
4%! Where did that come from???? Haven’t all the talking heads been screaming about 3%.... Did I misunderstand that? So now it is game on! 10 yr treasuries closed at 2.913% last we’ve got plenty of room to run.......(we’ve got 1.087 basis pts to move before we hit the wall now!)
Isn’t it amazing how the thinking goes from one day to the next? I mean last week - it was all about rising inflation and rising interest rates that set the ‘short vol’ trade on fire and sent the mkt down 10% in 3 days - analysts and strategists who - prior to that move - had all been bullish - suddenly turned bearish and wondered aloud about how anyone could be surprised? Stocks had gone on a tear in January - so the swift sharp move lower should not be a surprise....and then yesterday - all those guys who became bears last week - suddenly shaved, grew a pair of horns and are now bulls once again.... The sky is the limit!
Correction? Crash? Bear Mkt? What is everyone talking about? Apparently - the move lower last week was just a dream - it was a gift, right???? Gave some people the opportunity to take advantage of the sale going on...........infrastructure spending plans, tax reform, improving macro data points are trumping higher deficits, a weaker dollar, rising inflation and rising rates....
Here is the key to the wild swings in the markets – last week saw a fair amount of internal technical damage to the market -so as a result – it will thrash around as it finds its way. Yesterday action put us just beneath resistance at 2721 on the S&P…. This is now the level to watch…will the mkt take a breather here and back off or will we see the momentum trade once again kick into high gear as we kiss it….and if that happens then yes – contrary to what I believe the mkt will go on to test the January highs of 2850 ish….(I am still of the mindset that the selloff was to swift, the rally back is equally as swift and so a test lower must happen…but occasionally – I have been wrong).
Global mkts have also forgotten the angst from last week as they all surge overnight.  Asian mkts close decidedly higher almost up 2% across the board while the Europeans are just getting started….and they also do not seem to care about any of the macro data here in the states…. Individual corp earnings taking center stage as well as a general excitement about the improving global economies…… FTSE + 0.58%, CAC 40 +1.47%, DAX +0.70%, EUROSTOXX +1.03%, SPAIN +0.98% and ITALY +0.83%. 
The talk is all about how Jay Powell will have to raise rates more than expected this year and the buyers can’t get enough of stocks…. I mean you can’t make this up….
The days ahead will start to focus more on the March Fed Meeting and what we may expect from Jay Powell – both in his words and in his actions – Until then – the speculation will continue to provide both angst and euphoria – creating some interesting times for listed companies. 
US futs are screaming higher…. currently up another 15 pts as the recovery continues……
OIL which rallied yesterday as the dollar weakened, the Saudi’s confirmed their commitment to cutting production in the face of rising supplies and increased US production.    Currently down 0.20 at $60.40/barrel…. We remain in the $57.74/$61.11 range.
 Gold rocketed higher yesterday…. up over $20 yesterday is off by $5 this morning at $1,352 – exactly where I told you it was attempting to go yesterday morning.  Remember we bounced off the 50 dma at $1310 last Thursday and the momentum guys took it straight to the January highs.    
US Futs are up 12 - Resistance is at 2721…. Lots of eco data today…. Empire State Manf exp of 18, Init Jobless Claims of 228k, Cont Claims of 1.92 mil, PPI (Producer Price Index) of +0.4%....keep your eyes on this…..Ex food and Energy of +0.2%, Philly Fed Survey exp of 21.8, Ind Production of +0.2%, Capacity Util of 78% - Keep your eyes on this as well – as we approach 80% then you will start to see more pressure build on prices, wages, inflation…Just sayin…..Beware:  Economic data has to remain strong – to support valuations and rising rates….
We are in the 2645/2721 trading range…. a push up and thru 2721 – will ignite the algo’s… a failure will only cause some consolidation (for now).

Take Good Care


Grilled Lamb Chops with Orange Butter 

This is a favorite….
Orange/ Cilantro Butter - easy to make and very versatile on many meats. Now like any herb butter - this is simple to make.... You will need - 1 stick of butter, fresh minced cilantro, ground coriander, orange zest, s&p.
You can make the butter ahead of time and put in the freezer so that it is ready to use and always have some for a later time.  It never hurts to make them and have them available to you in a flash.... Remember - herbed butters are your creation - make what you like. Try different combinations of herbs to arrive at a new favorite.
Let the butter rest on the counter for about 1 hr. so that it softens. Do not melt the butter in the microwave or on the stove - you do not want to cook the butter - capisce?   
In a bowl - add the butter, minced cilantro (like 3 tblsp), a dash of coriander and about 1 tsp of orange zest - mix well - now season with s&p... cover and refrigerate for about 20 mins.  Now remove the mixture from the fridge and place in wax paper - now ever so gently - form into a log - wrap in saran wrap and put in the freezer so that it hardens up. 
Preheat the grill -
Brush your chops with a bit of olive oil and then season with s&p.  - a nice thick cut chop on the grill works well with this. 
Now place the chops on the grill - careful not burn.  Should be about 5 / 8 mins on each side depending on thickness - you want a nice pink center.  Remove from the grill, cover and let rest for 3 mins or so.  Now place on a warmed plate and top with a slice of the Orange/Cilantro butter.  Serve this with a wild grain rice and a green veggie.   Enjoy with a nice Pinot Noir.

Buon Appetito.

General Disclosures

Information and commentary provided by ButcherJoseph Asset Management, LLC (“BJAM”), are opinions and should not be construed as facts. The market commentary is for informational purposes only and should not be deemed as a solicitation to invest or increase investments in BJAM products or the products of BJAM affiliates. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. There can be no guarantee that any of the described objectives can be achieved. BJAM does not undertake to advise you of any change in its opinions or the information contained in this report. Past performance is not a guarantee of future results. Information provided from third parties was obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness.

Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable. The price of any investment may rise or fall due to changes in the broad markets or changes in a company’s financial condition and may do so unpredictably. BJAM does not make any representation that any strategy will or is likely to achieve returns similar to those shown in any performance results that may be illustrated in this presentation. There is no assurance that a portfolio will achieve its investment objective.

Definitions and Indices

The S&P 500 Index is a stock market index based on the market capitalization of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poor’s.


BJAM is an investment advisor registered in North Carolina and Arizona. Such registration does not imply a certain level of skill or training. BJAM’s advisory fee and risks are fully detailed in Part 2 of its Form ADV, available upon request.