• Energy and Banks steal the show as investors take both groups higher.

  • Bonds churn as investors place bets on what’s next.

  • Oil surges on the China demand story (exhausting)

  • Eco data today – a nonevent – It’s all about Friday’s PCE report.

  • Try the Pork Chops in Dijon Marinade.

The Dow ended the day up 195 pts or 0.6%, the S&P higher by 7 pts or 0.16%, the Russell added 19 pts or 1.08% and the Transports added 180 pts or 1.3%....The Nasdaq which was the outperformer last week – started this week in the red – losing 55 pts or 0.5%.  Investors going for the banking names – while shedding the tech names -  News that First Citizen’s was buying the assets of SVB – they got $72 billion of assets from SVB for $56 billion….and they got the FDIC to split any losses resulting from  commercial loans while also providing a credit line to First Citizen’s….. Investors loved it taking the stock up 57% ……and they took many of the beaten up regionals and money center banks with it as well.  The KRE rose 0.8%, the BKX rose 2.5% the XLF added 1.4%.  FRC +12%, WAL +3%, RF +2%, KEY + 5.3%, FITB + 3%.....BAC + 5%, C +3.8%, JPM +2.3%, WFC +3.5%,  HBAN + 3.1%...and the list goes on….

But expect that the excitement is about to change…..word is (Goldman putting out the latest piece)  that may regional banks hold a lot of commercial real estate loans…..and with credit conditions tightening as rates rise – what will these banks do when the owners can’t refinance the real estate at low rates next year and the year after that?    What happens when a commercial building that appraised at $20 million 3 yrs. ago now only appraises for $16 million? What happens when the cost of capital increases so much (think rising rates)  that the owner of the building can’t carry it any longer?  While I’m not screaming fire – Goldman is… expect this to be the latest narrative – especially as we move into the next FED meeting. 

Now, before we light the place on fire – remember there are alternatives in financing….corporate bond market, private investors, insurance companies that need to match long term income needs to their client base…etc.…..the banks are not the only method by which much of the commercial sector finances their needs. But, rates are rates and the cost of capital is going up….so get ready….the impact of higher rates is just starting to kick in….and again – I am just waiting for many of these commercial borrowers to say that ‘the FED raised rates too fast’  as if the FED did this in a vacuum… if they haven’t been transparent about it, just like we heard from the clowns at SVB…….It was all the FED’s fault – never mind that they apparently had zero clue on how to manage risk….and Yes, it was also the FED’s fault – but not because of rising rates, but because their regulatory obligation failed…..San Fran’s Mary Daly should get tossed out for her failure to enforce regulations – listen the buck has to STOP somewhere – and she is the President…

Tech which had a nice week last week on the idea that the FED would not hike rates any more and in fact was prepared to cut them sent tech names higher at the end of the week – (Nasdaq rallied by 3% last week)….but let’s be clear – the FED has not indicated that they are planning on cutting rates and in fact the talk yesterday was all about what happens in May….the bets continue to suggest we could get another 25 bp hike in May (in fact it is almost 50/50 – hike or pause) – much will depend on what we get this week from the PCE and then in 2 weeks when we get the March CPI and March PPI (reported in April) and if you’ve been to the grocery story lately you know what I’m talking about…..inflation is NOT coming down at all….in fact – I would argue that it’s getting worse…..

Yesterday I went to the grocery store (Publix – not Wholefoods) and bought ½ gal of milk ($4.29), 4 peach yogurts ($4), 1 box of cheerios ($6.99) and 2 (organic apples) – ($4.29 EACH - $9 for 2 apples) which I didn’t know when I picked them up – they are apples….and when I got to the register and they rang up at $4.29 each – I said to the woman – that has to be a mistake – they are apples!  She said – ‘Oh, no, they are ORGANIC apples’ and I said ‘those ORGANIC apples can kiss my a…’  I mean – Is it me?  $4.29 per apple?  I drew the line…. Not happening – just because it’s stupid….

Now you ask – who is calling for lower rates?  It is the likes of Lonnie Musk, Jeffrey Gundlach and Billy Ackman that are all whining about how the FED is making a mistake – and that they should cut rates by 50 bps immediately…..Yeah – this coming from 3 guys that don’t understand what inflation is and how much it is hurting the average American….This is coming from 3 guys that don’t go to the supermarket on a daily basis, they don’t whip out their debit cards to pay the grocery bill, they don’t pay an electric bill, they don’t pay a gas bill, they don’t get it…because they don’t live it…..They live in a bubble….and while they all maybe very successful – they do not feel what the majority of the country is feeling……so you really have to take anything they say with a grain of salt – lower rates would be good for them….but is it good for you?

Over the weekend – we heard from Minneapolis Fed President Neely Kashkari and he warned us that the recent banking crisis put the US on the ‘brink of a recession’ – which I noted yesterday was very funny – Why because we went over the ‘brink’ – he must have been sleeping…..The issue is that the recent bank turmoil is set to push up into a deeper recession than what he says he expects…..or does he expect a deep recession but just isn’t saying it?

Now – the markets have been brushing off the idea of a recession…Why?  Not really sure – I mean the yield curve has been inverted for MORE than one year now….and that always suggest that a recession usually follows 12 – 16 month after it inverts….OK – sports fans – it inverted 12 months ago……Nearly every street analyst is calling for a recession ‘at some point’ which is their way of saying they called it – the issue is that’s like saying the sun will come up tomorrow….We know it will,  I think it’s already here, it’s rolling and will continue to roll through the economy in the months ahead.

JPM”s Chief Strategist – Marko Kolanovic thinks this quarter will mark the high point for the year….suggesting that investors build a defensive portfolio…. What have I been saying for months now….buy the ‘Stuff that People Need’, stick to the biggest names in each industry, go for boring, good divy payers, mega cap names….think consumer staples (JNJ, PG, CL, K, KO, KMB etc…). Think healthcare/Pharma – (CI, AET, MRK, LLY, BMY), Think Energy (XOM, CVX, SLB, HAL, BKR, BTU, CRK, ARCH).  Think Utilities – yes, they are boring but they are good divy payers typically around 4%), Tech (AAPL, AMZN, MSFT, IBM), Think Cyber Security (CRWD, PANW, FTNT). Build a stream of income with good dividend paying stocks and then re-invest that income back into those names to continue to build that portfolio.

Morgan’s Mikey Wilson – taking to the stage and warning us again that this isn’t over yet by any stretch – remember – he is looking for S&P 3000 or a 22% decline from here….….his latest note saying.

“We think guidance is looking more and more unrealistic…this is typically how bear markets end.  I.e.  P/E multiples fall precipitously and unexpectedly, catching investors off guard”.

Well folks, earnings season is only 3 weeks away, so let the beauty pageant begin and if he is correct – forward guidance should start to deteriorate when companies report…keep your eyes on the ‘pre-announcements’ that are sure to come in the next couple of weeks IF he is correct.  Companies that know they will miss estimates – usually pre-announce poor results and then tell us how they plan to fix it  - they take the hit before they announce, they let investors throw a temper tantrum and that allows for estimates to be revised lower – so when they do announce they beat the lowered estimates and the stocks RALLY….but they still have to ‘guide’ investors forward…so as usual – that is the KEY to how stocks will perform during the next quarter and beyond. So, expect more volatility in the months ahead (if Mikey is correct).

The best performing sector yesterday was Energy….+2.1%....Oil surging higher on guess what?  Yup - that demand will surge in China story!  It also got some help from the ongoing speculation surrounding the Saudi’s next move…. will OPEC announce more cuts at their next meeting on April 5th?  And comments out of Russia’s Gazprom are suggesting that 2023 will continue to be a difficult year….as sanctions grow stronger….and Russian oil gets squeezed.   In any event – WTI surged by 5.25% or $3.60 to end the day at $72.90…..and this morning oil is up again and is trading at $73.20….leaving us below the trendline at $76.40 but well off the lows seen 2 weeks ago at $64.40….Remember – street analysts see oil averaging $100 barrel this year.

And bonds – they continue to get tossed around….one day yields go up the next day they go down depending on the conversation…this morning 2 yr. yields are up 3 bps at 3.90%, the 10 yr. is up 3 bps at 3.56%....while the shorter duration 3 month and 6 month bills are yielding an annualized 4.8%....all offering shelter in the storm.  Even bank CD’s are competing now for your money…..offering 12 month CD’s at 5%.

Gold coming under a bit of pressure as investors try to decipher what’s next for rates….  If rates go up then the dollar strengthens and gold goes lower….If rates pause here then the dollar stabilizes then gold moves up….We are in the $1950/$2030 trading range – trendline support though is at $1915.

Eco data today includes Wholesale Inventories – not a market mover, FHFA House Prices – expected to be down 0.3% and the Richmond and Dallas FED surveys…..and while they are expected to be weaker…again – do not expect them to be the focus for investors…. The focus is squarely on Friday’s PCE report…

US futures are mixed - Dow futures + 39 pts, the S&P flat, the Nasdaq down 20 and the Russell up 1.  Yesterday 8 of the 11 broad S&P sectors ended higher….much of it just a bounce off of a short term oversold condition…..Energy and banks were up nicely while we saw profit taking in TECH – which is one of this year’s best performers…XLK +16%, SOXX + 21%, Disruptive TECH + 21%, AI +21%, Cyber +7%,

European markets are all up by about 0.3% across the continent…there is not specific economic data to report so the action is more about digesting the most recent volatility and hoping for some relief.  Banks are up across the board.

Don’t forget – we are about to hear from a range of FED heads and other banking officials. Boston’s Suzy Collins and Richmond’s Tommy Barkin on Thursday.  On Friday we will hear from NY’s Johnny Williams.  Other speakers this week include Treasury Secretary Janet Yellen and ECB President Chrissy Lagarde.

The S&P closed at 3977 up 6 pts…..holding its own vs. the trendline at 3950 ish.  Resistance at 4050.  Look – there is no reason to panic and blow out your positions – as long as you have good names that can and will weather the storm. Remember that when the mood is anxious – the path of least resistance is lower but when the mood changes – then the path of least resistance is HIGHER.  Which is why you need to build that portfolio and go along for the ride – adding to names that get arbitrarily dislocated for no reason other than anxiety.  Stay the course – steady as she goes…...Stop trying to time the market and pick highs and lows IF you are a long term investor….Do not chase anything….patience is a virtue.  Don’t get drawn into the frenzy – if you are invested you are participating…..nothing to worry about.

Grilled pork chops in a dijon sauce

This is easy to marinate and grill and presents beautifully.

For this you will need:  Dijon mustard, brown sugar, apple juice, Worcestershire sauce, and bone in pork chops....

Marinade - Mix 1/2 cup each of apple juice and Worcestershire sauce with 1 cup each of Dijon mustard and brown sugar.... Mix well and add the whole thing in a zip lock bag and refrigerate overnight.

Next day - remove from fridge and let come up to room temp.....light the grill and heat to high.  Now add the chops and sear - turn heat to med and allow to cook for 5 - 6 mins (depends on thickness) and then flip over and repeat.....(you can dip the chop back in the marinade when you flip it).

When cooked - remove and cover in tin foil and let rest for 3 mins or so.....Present this meal on a plate with cheesy garlic mashed potatoes and French cut green beans.  Have a large mixed salad with red onions, tomatoes, cucumbers, ceci beans,  Dress with olive oil and fresh lemon juice – seasoned with s&p and some oregano.

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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.

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