Have we reached the tipping point?

WAKE UP!!!  US futures under pressure - currently down 12 pts - Global mkts also feeling the pain.   Japan -0.5%, Hong Kong - 0.15%, China - 0.54% and ASX -1.1% and across the pond in Europe - mkts there are under pressure over US political uncertainty......Yes, you can add in some fresh worries over earnings - but it appears that the drama in the White House is now taking center stage.......and this includes not only all the allegations of impropriety and obstruction of justice/abuse of power conversations - but it is also about Donny's inability to 'get along' and implement all of those policy initiatives he ran on.....think - Tax Cuts, Fiscal Stimulus and Health Care Reform.......
 
Yesterday morning I said:
 
"Look - while the mkt does not price itself on 'politics' it does react - if only for a day or two to events that may be perceived as challenging - and yesterday's lack of a reaction should cause a bit of concern for everyone......(Just sayin.....)"
 
Drum roll please..........And while the mkt had NOT reacted to any of the drama of late - a fact that was reflected in the VIX and a range of other assets - apparently overnight it has had a change of heart.    All of the drama appears to weighing on investors this morning......and so you ask - Why this morning?  What changed?  Well - the latest headline suggesting that Trump 'ask Comey to back off of Mike Flynn and the Russia thing' appears to be the straw that broke the camel's back......
 
Calls for investigations, special prosecutors and now impeachment are now all the rage.....and in the end - while these issues may not affect individual companies - what it will do is stall anything from happening in DC - it will stall his agenda........so forget dollar repatriation, forget tax reform, forget fiscal stimulus, forget healthcare reform.....forget anything that Trump ran on until 'they' straighten it all out.....so as a result - as I have said before - this will cause investors to re-assess mkt valuations (think caution).......and since the election rally was all built on draining the swamp and reforming taxes and spending - investors will now have to decide what they are willing to pay for 'mkt' in light of building Tsunami...... If we do not get any reforms this year - and that appears to be the case, as it is already Memorial Day weekend and come the summer - the halls of Congress empty out as these overworked, stressed elected officials take some well deserved time off to get their thoughts together......,  then investors will have to ask - "Why are we paying these prices?"  It is not a difficult concept to grasp - in November it was one story and investors cheered, but now in May - the story line has taken a complete turn and now investors must decide what to do next.....
 
The dollar - which has been under pressure continues to fall - currently down 0.14 at 97.97-  this brings the dollar index to a 5.5% loss since the highs of January when the concern began to build...and right back to where the dollar was trading on election night.  What is also very interesting is that the FED has raised rates twice in 2017 with a 3rd one coming in June and yet the dollar index is moving lower....This is a complete disconnect from what should be happening....increasing rates should send the dollar higher NOT lower....so what gives?  Investors are beginning to doubt 'Donny' and the FED's next move.......  Gold - a traditional safety play in times of stress - is up $10 this morning at $1,246/oz , and is now up $30 since last week....just another warning bell.....because if investors were not concerned about the drama - then they wouldn't be buying gold.....(wink wink..).
 
It is getting harder for asset managers and traders to justify prices considering the broader lingering issues.  And while the mkt is trading at the highs,  I keep saying that there is no real commitment, no excitement, you can feel the exhaustion, lack of enthusiasm, lower volumes, and massive complacency as the days turned to weeks.... - yet no one wanted to be the first one out the door - until they do......Now you can also point to a range of mixed macro data that is also piling up - while industrial production yesterday was stronger than expected, the latest readings on inflation,  job creation, housing starts, building permits, weak commodity prices and regional manufacturing reports  continue to contradict a robust, 'out of control' economy...... 
 
Next,  toss in FED uncertainty and BANG!  What are investors to do?  Investors, while trying to ignore the drama,  are turning their attention to the 2nd qtr and this is where it gets antsy.  What happens to all those assumptions that have been built into the model?  Despite making recent records on both the S&P and Nasdaq - the broader mkt appears to be stalling. 

Remember - the 5 big tech companies (AMZN, FB, GOOG, AAPL, MSFT) are responsible for almost 50% of the move in the Nasdaq and their valuations are so stretched right now - you have to wonder - Who is paying these prices and why would you -  considering the changing landscape?    And given that just a handful of big cap companies are causing the S&P to trade higher - you have to consider what will happen when investors tire of that game as well.  In the meantime - breadth - as defined by the McClennan summation index continues to erode.  Nearly 30% of S&P 500 companies are trading BELOW their 200 dma since March when the FED last raised rates.....Just pointing that out.....
 
Oil is up  0.14 cts this morning at $48.85 - as it continues to tease resistance at $49.82 .
 
Today there are no economic reports other than mortgage apps and those fell by 4% from last month......there are no Fed speakers so the focus remains on the 'Drama in the WH'. 

Earnings today include TGT - which just reported a beat....$1.21 vs. exp of 0.91 cts.   Same store sales fell by 1.3% but that was less than the expected fall of 3.6% (so that is good).  The turnaround by CEO Brian Cornell appears to be on track and while they still face some headwinds - he is making progress. The stock is trading UP 4 pts or 7% in pre-mkt trading.   CSCO reports after the bell and exp are for 0.58 cts/sh.  From a macro standpoint, continue to watch the 10 year treasury yield.  If it continue to fall further towards 2.30% that will act as just another headwind for  stocks.

Take Good Care
KP

Summer Orzo Salad

With Memorial Day just around the corner - get ready for the BBQ.....Always make room for this perfect summer salad. It is a fan favorite.....

This is a great dish to serve at your next BBQ or even better to just have in the fridge.  It is simple to make – no longer than 12 mins max.  For this you need:
1 lb of Orzo pasta, garlic, olive oil, fresh spinach, Ricotta Salata Cheese and s&p. (now you can substitiute spinach with Arugula if you prefer)

Bring a pot of salted water to a boil and add in the Orzo.  Let it cook until aldente – maybe 8 mins.

While this is cooking – heat some olive oil in a pan and sauté garlic….just allowing the oil to take on the garlic flavor – do not burn the garlic….now remove from heat and set aside.  Cut the Ricotta Salata into small bite size cubes – set aside.

When the Orzo is cooked – strain – always keeping a mug of pasta water – just to remoisten a bit.  Now return the Orzo to the pot and add back about ¼ cup of the water – mix to re-moisten – do not let it puddle….now toss in the fresh spinach leaves (or Arugula), the oil and garlic – mix well to coat.  (You want just enough oil to coat the pasta – you do not want the pasta bathing in the oil) Now add in the Ricotta Salata and mix again.  Put it in a bowl and refrigerate.  Done.  It is a perfect side dish to any summer BBQ meal or is even good to just eat right from the bowl….

 
Buon Appetito.