• Dow pierces 40,000! – but where was all the hoopla?

  • Market still discounting multiple rate cuts in 2024 (Illogical).

  • No Eco data today – Focus will be on NVDA’s earnings next week.

  • Bonds steady, Oil up, Gold steady.

  • Execute on the plan, eliminate the noise.

  • Try the Chicken Cutlet Milanese.

So, the MoMo guys focused on the Dow yesterday – this after taking the S&P into a new century on Wednesday, they turned their sights to the Dow 30 on Thursday…sending that index up and thru 40,000!  I mean – who would have thought?  I remember being on the floor of the NYSE when we celebrated the Dow 1,000. 

Now – what is really fascinating for me is that I began my career on the NYSE in the summer of 1980 – when the Dow was trading at 890- by August of 1982 – the Dow had fallen to 790.  Recall what was happening at the time…. We had just come out of the Carter years – the economy was a disaster, we elected Ronald Reagan to lead the country.  Interest rates were pushing 20%, Unemployment was near 11% and inflation was running at 6.5% down from 13.5% at the end of the Carter years.  

It was on Tuesday August 17, 1982 that the world changed…..the Reagan Tax Cut package got passed, then Fed Chair Paul Volker made a surprise announcement at 8:30 am – telling the country that the FED was slashing interest rates by 10% - that’s equal to 2 full percentage points – taking interest rates to 19%! -  But he laid out the plan…. interest rates were coming down, money moved out of the banks and into the market – and THAT was the birth of the greatest bull market the world has ever seen.  By the end of 1982 – the Dow was trading at 1,046 – up 19.6% on the year. By the summer of 1987 – the Dow peaked out at 2,722 - only to close out that year at 1,938, up 2.3%. (recall the Crash of 1987).  We pierced Dow 5,000 in 1995, 10,000 on my birthday, March 29, 1999, 20,000 in 2017, 30,000 in 2020, and yesterday – we kissed and pierced Dow 40,000!  Just amazing!

In any event – the excitement continued at least in the morning – stocks pushed higher as investors/traders and algo’s considered the FED’s next move and stocks marched on.  Now – by now you realize that all of this excitement is being built upon the idea that rate cuts are coming – JJ has essentially convinced the markets that a hike is not on the table and while we are currently holding the line at 5.25% - the most likely next move will be lower.  Great – You don’t have to be a brain surgeon to recognize that, so, what the markets do is ‘discount; that move…they react now to what they think is coming…..some think it’s coming in July, others in November and guys like me – don’t think we will see a rate cut until early 2025.

Yesterday – Goldman refined their position – telling us to expect a cut in July and another one in November…. taking their rate cut scenario down from 3 cuts this year to 2. It was only on Monday – when Goldy was out there saying that they expected 3 cuts in 2024 – so you can see how fast the mood changes.    Others continue to believe that we can expect as many as three cuts while there are those in the camp that say we won’t see ANY rate cuts – I, as you know sit in that camp – because I just don’t see the data weakening so much that it demands the FED make a move.  Remember – 5.25% fed funds are historically normal – there is nothing ‘usurious’ about it. But for a whole generation of asset managers that grew up in this business when the GFC began (2007) – they only know zero rates (think 16 yrs. of zero rates)…they only know FED stimulus, they only know that the FED will react if they stamp their feet hard enough…..Do you really want to know what I think about that?  

The economy remains robust, the job market is healthy, CPI (inflation) is still running at +3.7% y/y, the latest PPI (producer inflation) turned UP on Tuesday and that suggests that next month’s CPI has a better shot of increasing than decreasing. The economic data points are NOT circling the drain…Yesterday’s housing starts rose a stunning 5.6% - that is a 21% turnaround from last month’s negative 16.8%.  The building permits, while weak – were NOT as weak as last month.  Manufacturing and Services PMI” s are all in expansionary territory, Capacity Utilization remains high at 78.4%.  Now that data point is on a 100 pt scale….which means that currently we are producing at 78.4% of our capacity….which again is historically normal….if we push that percentage up and thru 80 – then we start to put upward pressure on prices – think inflation….and if that number drops to the 60’s then we would be in a severe slowdown – think 1982 at 70.9% and 2009 at 66.7%! So, a current capacity utilization rate of 78.4% is far from being at dangerous levels and is a far cry from demanding rate cuts.  But hey, what do I know? 

As noted, – while the day started out strong, it ended in a downbeat.  At the closing bell- the Dow was down 39 pts, the S&P down 11 pts, The Nasdaq lower by 45 pts, the Russell lost 14 pts, the Transports gave up 21 pts, while the Equal Weighted S&P lost 13 pts.

Eco data was mixed…. Initial Jobless Claims and Continuing claims ticked up ever so slightly, Housing Starts surged, building permits were down but up over last month, NY Fed Services Business Activity were up, Philly Fed Business Outlook remains positive, Industrial Production flat, while the Capacity Utilization remains a robust 78.4%.

Understand that breaking a big round number (40,000 for the Dow, 5300 for the S&P, 17,000 for the Nasdaq – when it happens) is exciting, but it is more psychological than anything.   What I take away from this is that the DOW & S&P are short term over bought….The Relative Strength Index (RSI) for the Dow is hugging the 70 line – actually at 68.68 (suggesting near overbought), the S&P is doing the same, the Nasdaq is at 65.70 (not overbought yet), the Russell has an RSI of 61.48 (not overbought), Transports has an RSI of 53.90 (sweet spot), while the Equal Weight S&P has an RSI of 65.27.   Now, this does NOT mean that stocks can’t go higher – they can, it’s just a technical indicator that gives asset managers and traders some insight into the health of continued strength in the markets.  So, what it tells me is that the next move is most likely lower, so being patient is being prudent.  Remember – you are invested…. if we go higher – YOU are participating…and if we go lower, you can take some of that cash and use it to dollar cost average allowing you to be more discerning when allocating new money to stocks.

Now keep your eyes on the VIX – yes, right now it is at near historic lows – at 12.30 - suggesting NO FEAR – which is exactly why you need to pay attention…because it is too complacent, it suggests that there is nothing to be concerned about and that is not where you want to be when investing….you always want to have a ‘what if’ scenario, so that you are not surprised. When the VIX surged by 70% from March to April – the S&P fell by 6% and when the VIX fell 42% off the April high to today, the S&P gained 8%.  In my opinion – the next move for the VIX is up (unlike interest rates), so I am expecting some pressure on stocks.

Bonds, having rallied nicely over the past week or so, did back off a bit yesterday and that pushed yields slightly higher.  Nothing dramatic, just more rebalancing.

Oil continues to trade tight…. News that China is ‘restocking’ oil supply drove the markets a bit higher yesterday…. up 0.9% to end the day at $79.40 – this morning oil is trading at $79.10.

Gold which kissed $2400 on Wednesday – after the CPI report continues to churn at the higher end of the trading range that I identified one month ago – this morning we see gold trading at $2385 and we remain in the $2300/$2400 trading range.

US futures are churning…Dow futures – 12, S&P’s up 1, Nasdaq +6 while the Russell is flat. Now after all of the excitement about rate cuts, this morning – trader types are now dialing back on when those cuts are now expected to be coming.  Yesterday’s commentary by 3 FED members being cited as the reason…and you know what they said?  Come on, you do…. they said – Higher for longer…. they did not suggest that rates will go up but nor did they suggest that the FED is in any hurry to cut rates either…. which is also why we saw yesterday’s rally fizzle out.   

We are in the middle of an intersection…. the global central banks are in data dependence mode – let’s see what Fed Governor Chrissy Waller, Minneapolis’s Neely Kashkari or San Fran’s Mary Daly have to say today…will they mimic what we heard yesterday and all of last week?   In Europe – ECB Executive Board Member Isabel Schnabel is trying to reign in the idea that the ECB will cut both in June and July – all while swaps traders continue to push the idea of 3 cuts before the new year.

There is no eco data today to consider – so expect more churn.  We haven’t heard a lot out of the middle- east so the market does not appear to be concerned going into the weekend – but remember – it is when you least expect something to hit you that it hits you. I’m just sayin’ do not discount anything that is happening or not happening in the middle east.

European markets are all a bit lower by about 0.2%.... this after all surging higher for the past 9 days…. Eurozone headline CPI came out at +2.4% in line with expectations…. Core inflation came in at +2.7% down from +2.9%, while services inflation dropped to 3.7% down from 4%.  – This is now what they will use as a guide to push the ECB to cut in June.  Markets are not really reacting…because remember what I said – the market is a discounting mechanism…it has already priced in a June if not July rate cut, so now it is moving onto the next thing. 

The S&P closed at 5297 – down 11 pts.  …. And it appears that maybe we’ll take a breather after yesterday’s rally that took us to all-time highs.  With no economic data due out – expect the conversation to be focused on NVDA’s earnings next week….I mean this stock is up 90% ytd….and up 213% over the past 12 months….And as you can imagine – this is a very crowded trade – there is a lot riding on what Jensen Huang will say about the future……In addition we will hear from LOW, M and ZM.

My sense is that we need to digest the latest data and the latest move up in stocks. Again – this is why I keep saying – talk to your advisor – create the long-term plan, execute it, and stick to it…do not try to pick tops and bottoms, your long-term account is not a ‘day trading’ account…

Chicken cutlet milanese

Ok – this is a staple in an Italian household…I mean my mother always had chicken cutlets in the fridge – because you never knew if someone was coming over for dinner.

For this you need

Thin sliced chicken cutlets.  Seasoned Italian breadcrumbs*, eggs, flour, Olive Oil.

*Seasoned Breadcrumbs.  Start with hamburger rolls – put them in the food processor and make breadcrumbs.  Place in a large bowl.  Now season with s&p, onion powder, garlic powder, chopped parsley and 3 handfuls of fresh grated parmegiana cheese.  (I actually mix – and use both parmegiana and pecorino romano cheese – Yum!).  Mix well.  – Good to go.

Put the oven on Broil.

Ok – now rinse the cutlets and pat them dry.  In a bowl – crack 4 or 5 eggs (depending on how many cutlets you are making) and scramble.  In a large plate add some flour.

Now set up an assembly line.   Flour, then the eggs and then the breadcrumbs.

Dredge the cutlet in flour, then dip in the egg wash and then place on the breadcrumbs to coat.  Use the back of the fork to press the cutlets into the breadcrumbs on both sides.  Place on a clean plate.  Repeat until you have coated all the cutlets.

Use an aluminum pan – add the olive oil – enough to cover the bottom of the pan.  Place the rack on the second level from the top…. then put the pan in the oven so that the oil gets hot…. Watch this….it heats up FAST…. Do NOT WALK AWAY.

When the oil is hot – add the cutlets one at a time…put them in the oil and then flip them over. Now broil them until they become golden brown. Remove the pan and flip them over again and broil the other side.

When done remove and place on a clean plate…Once they cool- you just eat them!  And if you don’t finish them, put them in the fridge and eat them tomorrow.

Eat them plain, eat them with fried sweet peppers and onions, eat them with a mixed green salad, I mean you can’t really screw this up…. They are very versatile!

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.

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