Nasdaq gets clobbered, PPI at 40 yr. highs.
The FED prepares to ‘shock investors’.
Lael Brainard sweeps the Senate Panel off their feet.
The Majority of FED Presidents now support aggressive moves.
And earnings…BLK, JPM AND WFC all beat on the bottom line.
Try the Linguine w/Artichokes and Pancetta.
Who let the dogs out??? Boom! Nasdaq gets punched in the face – Tech stocks crumble under the pressure of rising interest rates and the threat of even higher rates in the not-so-distant future……..the XLK falling 2.6%, while the Nasdaq index lost 380 pts or 2.5%.....AAPL – 2%, NVDA -5%, MSFT -4.3%, AMZN – 2.4%, AVGO – 4%, CRM -3.8%......and disruptive tech – the Cathie Wood debacle – ARKK lost another 5.3% on top of the loss of 13% since January 1st. Another part of the story – that isn’t getting a lot of attention – is the wave of coming earnings in the sector. Income growth for the large-cap tech sector is expected to be below the growth rate of the broader S&P – with the S&P growth at better than 20%, yet the tech sector is expected to grow at only 15%. Investors are beginning to look elsewhere for growth…and if you toss in the certainty of higher interest rates the sector was primed for a re-pricing….and why that is catching anyone off guard is confusing…how long have we been having the conversation about interest rates and growth stocks?
Jimmy Bullard – wasted no time in getting his face in front of the cameras as he said he expects 4 rates hikes this year, mimicking what our friends at Goldman told us on Monday. Then Lael Brainard, on capitol hill for her nomination as Vice-Chair at the FED also told the panel that ‘efforts to reduce inflation are the central banks MOST important task’!
“Our monetary policy is focused on getting inflation back down to 2% while sustaining a recovery for everyone.” Well – how’s that? Considering that they are at the center of the storm – having gone on way to long in terms of stimulating by adding trillions of dollars to the economy as well as by keeping interest rates at 0% for way too long as well. How long have we having that conversation as well? How many times did the data suggest that the FED should move – yet Jay and Co. told us we were all acting a bit pre-mature, that we had nothing to worry about…
And now that same group is panicking - Mary Daly, Charlies Evans, Raffi Bostic, Loretta Mester, Neely Khashkari and even Esther George all jumping over the fence to the other side as they tore of the dove’s clothing only to put on the hawks clothing joining Jay, Jimmy and Lael…..Now Richie Clarida, Eric Rosengren and Robert Kaplan didn’t get a chance to opine because they are no longer members of the FED after their recent resignations over some questionable stock trades that they made in 2021 while in those coveted positions….so we don’t know what they think, but at this point does that even matter…..get ready because rates are going up and they are going up faster than the market expected – and you better start to consider a 50 bps move vs. a 25 bps move….., which is why the market is going down faster than so many expected…..but honestly – why is this an issue? Is anyone really surprised and if you are – then you must have been asleep for the past year,
By the end of the day – the Dow – which is full of ‘value’ names only fell by 0.5%, the S&Ps lost 1.4% (more tech names in that index), Nasdaq lost 2.5%, Russell gave back 0.7% while the Transports added 0.2%.
It is time – and we have been discussing this for months now – as the FED prepares to hike rates, investors need to look for higher quality stocks that will offer some protection from the storm…..and again, I will say go BIG & BORING because those names are BEAUTIFUL…..Think Industrials, energy, financials, utilities and consumer staples for new money, you might also want to consider other areas of tech that will offer opportunities ….cybersecurity names, payment names and the EV space.
Now this doesn’t mean that you blow out your tech holding unless of course the thesis has changed – ARKK is a perfect example of the thesis changing…. – While tech is under pressure, I am not selling my APPL, MSFT, or NVDA….but I am putting new money to work in JPM, XOM, PL (space infrastructure), XLP, IBM and a new one that I am warming up to is HON……it has moved up nicely in the past month and is now breaking out….It is worldwide technology and manufacturing company that provides aerospace products, sensing and security technology, safety and productivity solutions, specialty chemicals and advanced materials and processing technology for refining petrochemicals. It pays $4/yr. in dividends yielding 1.8%. My sense is that in a recovering global economy, HON sits in a good position and the chart is confirming that….and it is Big and Boring compared to some of the names that garner all the headlines…. but – boring for me is good in this environment.
Yesterday we also got the PPI report and what did it show? Prices are continuing to rise at a very rapid pace…. y/y saw Producer Prices increase by 9.7% while Producer Prices ex food and energy rose 8.3% - again a 40 yr. high….and that supports the CPI story that detailed rising prices at the checkout counter. Today’s eco data is all about the consumer and retail sales. Advance Retail Sales are expected to be down 0.1%, ex autos and gas of -0.2%....and if so, what does this say about the health of the consumer?
And it is earnings day….and BANG – BLK just reported earnings – they missed slightly on the top line but beat the estimates on the bottom line…… $10.46/sh vs the expected $10.16/sh – 3% better than expected….and assets under management now exceed $10 trillion dollars…. they are raising their quarterly dividend by 18% to $4.88 share or nearly $20/sh annually which gives them a nearly 2% yield. Next up JPM….expectations are for them to announce 2.99/sh…..so sit tight….Watch top line revenues, watch sales and trading, watch net interest margins….and BOOM – they reported $3.33/share up 11% over the expectation….and once again Jamie Dimon did not disappoint….the stock is quoted up by $2 in pre-market trading….WFC also just announces – eps are $1.38/sh vs. the expected $1.13/sh – 22% beat on the bottom line….and that stock is quoted up 2% in the pre-market….but remember what I said earlier in the week, do not be surprised if you see this early excitement turn into a ‘sell the news event’…..since many of these names were bought up in the prior 3 months and you might get the trader types hit the sell button to ring the cash register.
Now while the FED and interest rates will always be simmering, we have now moved that to the back burner as earnings are now front and center….and by all accounts, the season is getting off to a good start…. but it is early in the game….so hold on. US futures are down…. Dow futures -50 pts, S&P’s down 4, the Nasdaq down 27 and the Russell is down 6 pts.
The 10 yr. treasury is yielding 1.73% that is up 3 bps over last nights close…. Oil is up another 70 cts at $82.80/barrel. Crypto’s under a bit of pressure again this morning…. with Bitcoin down 2% at $42,000 and Ethereum off 2.2% at $3,200.
European stocks are a bit lower this morning…. As investors digest the latest PPI report and hawkish fed comments, earnings and now the ongoing geopolitical drama surrounding Russia, Ukraine and the United States. At 7 am – markets across the region are down about 0.6%....and looking to go lower ahead of the weekend.
The S&P closed at 4659……. After testing as low as 4650…. It is now below its 50 DMA and appears to want to test 4573… its intermediate trendline. If we follow Europe lower, then we might just get there sooner rather than later. The trading range is now 4570/4680….as the tone appears weaker.
Linguine w/artichokes and pancetta
Here is a dish that incorporates the great tastes of Artichokes and Pancetta....this is a classic Italian dish that I first had years ago at the home of very dear friends... This is easy to make and always, always a great first dish to serve at a dinner party......
For this you need: 8 Small Artichokes (use frozen but thaw first) Cut Into Pieces, Olive Oil, 1 diced yellow Onion, 2 Cloves Garlic - minced, Pancetta Diced, Dry White Wine, s&p, Chopped Fresh Parsley, 1 Pound of Linguine, splash of lemon juice and fresh grated Parmigiana.
Bring a pot of salted water to a rolling boil.
In a sauté pan, heat the oil and add the onion and pancetta. Cook over medium heat until the onion is soft, and the pancetta is cooked maybe 10 minutes. Now add the garlic and cook another minute or two.
Next add the artichokes, some white wine, and a squeeze of fresh lemon juice - bring to a boil.
Reduce the heat to low and cook until the artichokes are tender - maybe 10 minutes. Season with s&p. Toss in the chopped parsley and mix.
Now cook the linguine until al dente - like 8 mins or so.... drain - always reserving a mugful of the pasta water. Toss the linguine into the lg sauté pan and mix well. Keeping the heat on low. If the pasta absorbs all the liquid - add in some of the reserved water to remoisten. Toss - add in a handful of cheese - toss again and serve immediately in warmed bowls. Have extra cheese on the table for your guests. Serve with your favorite chilled white wine.
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.
UNLESS OTHERWISE NOTED, INDEX RETURNS REFLECT THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS, IF ANY, BUT DO NOT REFLECT FEES, BROKERAGE COMMISSIONS OR OTHER EXPENSES OF INVESTING. INVESTORS CAN NOT MAKE DIRECT INVESTMENTS INTO ANY INDEX.
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.