Fed say's no hikes, but leaves door ajar amid inflationary storm

• JJ says no to Rate Hikes – (rather unconvincingly for me).

• Algo’s now focus on that comment and go into hyper buy mode.

• Lots of Key Words to focus on.

• Bonds rally, causing yields to retreat.

• Oil falls on the ongoing ceasefire talks, and supply builds.

• Gold holding the line at $2300.

• Try the Greek Style Shrimp

Fox Business runs with ‘Fed Announces Decision on Interest Rates Amid Stubborn Inflation’ (key word here is stubborn).

CNBC says, ‘Dow Closes Higher as Powell Says Fed’s Next Move is Unlikely to be a Hike’. (Key word here is ‘unlikely’ – remember that) – it went onto say that ‘JJ ‘largely ruled it out (hikes)…easing investor worries that it was losing control of sticky inflation….’. (Key word – Largely – because largely does not mean – completely).

Bloomberg tries this - ‘Treasuries Rally with FED Not as Hawkish as Feared’ (key word feared).

And the WSJ went with this.

‘Fed Cites Inflation Setback, Holds Rates Firm’ (key word – Setback).

 And so – here we go again…..JJ had every opportunity to tell it like it is, he had the opportunity to ‘grab ‘em by the horns’ and tell everyone in that room to stop whining….He could have said – ‘ It’s not good, inflation is not going away, the economy remains more robust than not, and Jo Jo’s ‘inflation reduction act’ is only going to make it worse, while the expiration of the tax cuts will only make it more expensive– so NO, rates are not going down and there is a REAL possibility that the next move is UP….’.

But he didn’t – he sugar coated it, when asked if the committee discussed possible rate hikes ‘internally’ - he refused to answer and when he was asked if rate hikes are a real possibility he said.

“I think it is unlikely that the next policy rate move will be a hike.”

At the same time, he said the bar has gone up for them to consider a rate cut and it is even higher now for them to consider a rate hike…Which doesn’t make sense to me…Why would you raise the bar for a hike if the data demands you do something?  Are we back into the ‘transitory’ mentality…..because that is exactly what they did when it was clear that inflation was spinning out of control…..They ‘raised the bar’, they told us not to worry, they said it was transitory…so raising the bar before you consider raising rates – doesn’t sound like a good, solid idea to me – What say you?   

The key words in that response are ‘think & unlikely’. To think – means to have a belief and unlikely means maybe yes or maybe no – So, sports fans – he did not definitively say NO, but neither did he say YES – so what did he do – he left it WIDE OPEN, he left it undefined, he continues to sit on the fence – which allows him to go in either direction and not commit either way –In fact he repeated his long held belief - “The data will answer that question!”  Period…which btw – is exactly what he has been saying all along – So again, what did he really say that was new?  Nothing! 

Now what he did say was – that in order to see the FED consider rate hikes – we would have to see inflation continue to move higher (check), we would have to see wages reaccelerating (check) – think the surging employment cost index on Tuesday and the surging Prices Paid data point yesterday, we’d have to see a supply shock (think China to take Taiwan – think of that supply chain disruption!), (open),  we’d have to see oil push higher (check). 

Nicky said (in his article on Tuesday) that he doesn’t see a lot of appetite right now from ‘most FED officials’ for an interest rate increase – which then means he sees ‘some’……capisce?  So, the idea that the FED has not discussed this ‘internally’ seems a bit – how do you say? – Insincere?

Additionally what we learned – is that the FED is planning on slowing the QT program….(Quantitative Tightening) – and this is supposed to take the pressure off of the Treasury to bring supply to the market – less supply should equal more stable bond prices and more stable (read lower) yields – the jury is still out on that. 

Ok – in any event - They had the usual bandits in the room, asking the usual questions…Now let’s see what narrative will be born out of that presser today!

While he was speaking – the markets which had been lower - rallied hard – the Dow swinging by 536 pts from low to high, the S&P swung 67 pts, the Nasdaq swung 370 pts, the Russel 49 pts, the Transports 284 pts while the Equal Weight S&P swung 105 pts….all this because he refused to say hikes were a possibility….but as the clock ticked towards 4 pm – the excitement faded…and the reality that hikes are possible sent stocks lower – closing off of the intraday highs…the Dow gained 87 pts, the S&P lost 17 pts, the Nasdaq gave up 54 pts, the Russell gained 6, the Transports lost 45 while the Equal Weight S&P ended -23 pts.

Bonds ended the day higher – the TLT + 0.4% while the TLH gained 0.3%, the AGG ended the day flat.  The 2 yr. yield which had spiked as high as 5.033% ended the day at 4.93%, the 10 yr. traded as high as 4.68% ended the day yielding 4.61%.  And this suggests that investors are leaning more dovish…and expect yields to come down…. Ok…. let’s see. 

Oil – which has been under some pressure as hopes of a ceasefire take hold, US crude supplies rise and worries over what JJ was going to say sent oil down and thru $80/barrel – trading as low as $78.85…..this morning though, oil is up 50 cts at $79.40 after the Saudi’s remind us that OPEC+ remains committed to extend supply/production cuts into the second half of the year.  Trendline support is $77.80 while resistance is now $81.10. Oil is down 8% since April 1st but remains up 9% yd.

Gold continues to hold the line at $2300 – a level I defined last week – as a level we were going to test and hold…..The fact that JJ said rate hikes are not happening is helping gold find its footing….after its recent decline from $2400…..and while gold is down 5% in one month – It too is up 9% ytd…I continue to believe we remain in the $2300/$2400 range.

And the VIX is sure to decline after what the market is assuming to be an honest assessment by JJ…No hikes takes the FEAR out of the mkt and while yesterday we saw it all over the place – this morning with futures pointing higher – we can expect the VIX to tumble and with that go the contra trades…think SPXS, VIXY, DOG, SH & PSQ.  So if you played the recent volatility using the SPXS (Direxion Short triple levered) then you might want to consider the SPXL (Direxion Long triple levered) today….Because like the short – the long will triple up if the mood is bullish….But again – this is NOT a long term holding – it would be a strategic play….Let’s check in tomorrow to see how this played out.  

This morning – US futures are UP – they are gaining as ‘rate relief’ takes hold…. with traders taking comfort in the fact that JJ said there are ‘no plans’ to raise rates – while also prepping themselves for AAPL earnings today after the bell. At 6 am – Dow futures are +136 pts, S&P’s + 30, Nasdaq + 148 and the Russell is up 21 pts. The pre-mkt action suggesting that JJ was a DOVE yesterday rather than a HAWK….and talk on the street this morning is already suggesting that JJ is giving you all clear signal to go out and BUY stocks (while not saying it out loud…and here we go….).

Yesterday’s eco data revealed that ADP employment was stronger than expected (not what JJ wanted), Construction Spending was -0.2% vs. the expected + 0.3%, ISM Prices Paid up 60.9 vs. the expected 55.2 – substantially ahead and that suggests that inflation is NOT going away….recall the Employment Cost Index – also shot higher on Tuesday (not good), all while Manufacturing PMI hugged the neutral line….Today’s data includes Unit Labor Costs – the expectation of +4% - this is up from +0.4% last month…..that is not a typo….Unit labor costs are estimated to SURGE – guess what that tells you?  Factory Orders of +1.6%, Durable Goods of +2.6%.

Earnings today – prepare yourself for 30 more reports….from names: LIN and SWK already reported and they BEAT – WCC missed……other names before the bell include: PTON, BDX, FRBK, CMI, OWL, HWM, BAX, VMC, ICE, ARES, W, BTU, MCO, REGN, and SO (beat). 

But it is what happens after the bell that is driving the action…. AAPL is due at 4:05 pm…. along with DKNG, AMGN, EOG, DLR, ILMN, FND…but it will be AAPL that everyone talks about…. what will they say?  What role will China play, blah, blah, blah, -

My friend Stephanie Link – Chief Investment Officer at Hightower reminds us that AAPL has the ‘strongest installed base of any company in the world with 2.2 billion users’…. they would have to report nothing short of a disaster for me to change my outlook on my APPL…. Not happening…. they earn $90 billion + every 3 months.  In the end – it will be about their AI strategy and how they are dealing with any slowdown…..the balance will be about the usual data points – Iphone, Mac, Ipad, Wearable and Service revenues….Knock yourself out…The stock is down 12% ytd – below all 3 trendlines as it hugs the line at $169. This morning the stock is quoted UP $2 at $171.20…. trendline resistance is $172.59 – a push up and thru will see it challenge the next trendline resistance at $181 fairly swiftly.  I guess you know what I think….

European markets are mixed.  Novo Nordisk down 2.5%, Maersk down 4% both on disappointing results while Shell advanced on better-than-expected numbers and a $3.5 billion share buyback.   

The S&P closed at 5018 – down 18 pts…. After testing as low as 5013.  With futures pointing up this morning and with all the commentary expressing ‘relief’ you should expect stocks to surge as the algo’ go into hyper buy mode…..In any event we are back in the 4975/5130 trading range….While I continue to think that we will test trendline support at 4975 – that is not happening today….and if AAPL does not disappoint – I suspect it’s not happening tomorrow either….But if they do disappoint – then all bets are off…. Tomorrow’s NFP report is what’s next….and like I said yesterday, I fully expect it to show strength - a strong labor market, strong Avg hourly earnings m/m and y/y.  I also expect unemployment to come in as expected at 3.8% - still historically low which will ignite a new conversation about what JJ said vs. what the data is saying…. Sit down and strap in. 

Greek style shrimp

This is another simple summer dish – works well for a back yard cookout and considering that the summer is about to kick off – make plans for this dish.

You need:  1 ½ lbs. of cleaned and deveined Jumbo shrimp, olive oil, ouzo (Greek Liquor), smashed garlic cloves, lemon zest, s&p, 1 med yellow onion, 1 med red bell pepper, 1 med green bell pepper, ½ tsp red pepper flakes, 1 -28 oz can of diced tomatoes – drain the juice but keep it in a bowl, white wine, chopped parsley leaves, feta cheese and fresh dill.

In a large bowl – mix – olive oil, 1 tbsp of ouzo, 2 smashed garlic cloves, the lemon zest, s&p, - add the shrimp, toss to coat and set aside.

In large skillet – add some more olive oil and add in the chopped onion, and the diced red and green peppers – season with s&p – cover and cook until soft.  Maybe 5 mins….and then remove the cover and cook for another 5 mins… Add the other smashed/chopped garlic, and the red pepper flakes.  Add the diced tomatoes and about 1/3 c of the juice, 2 tbsp. of ouzo – raise the heat to high and then turn down to simmer for about 5 mins….it should thicken a bit, but do not let it dry out.

Now add the shrimp with any of the juice that might be in the bowl directly to the skillet. Stir to coat keeping the heat on simmer.  Cook until all the shrimp turn pink on both sides…maybe 7 mins or so…. Remove the pan from the heat and top with the crumbled feta – add the dill and bang – it’s done.  Serve immediately…