Is the bottom in? Probably not

• Stocks rose, JJ confirms what we all knew.

• A relief rally could go on for a couple of weeks…. Sit tight.

• Weakest sectors led advance - why is that a surprise?

• Try the Puttanesca – not PUTIN – esca! 

My apearance on Fox Business with Maria Bartiromo's 'Wall Street' over the weekend.

Volatility continues to make your hair stand up on the back of your neck  as the algo’s pushed the S&P to within a chin hair of a 20% drop (3800) on Thursday – (signaling a true bear market) – which would have put Wall Street on the cover of every major newspaper around the country never mind the field day the cable news channels and the social media sites would have. 

S&P 3800 was clearly in the bull’s eye on Thursday - 3858 the low – leaving just 58 pts between correction territory and bear market territory.  The concern was - How would the algo’s and investors react IF we got there?  Would buyers defend that position or will the algo’s go into a frenzied sell mode – as another technical breach ignited a wave of sell orders, allowing buyers to step aside leaving a void in bids sending sellers into panic mode which pushed prices even lower sending the index further into the abyss.  Well, boyz and girlz…we don’t need to worry about THAT at his moment…. because stocks ‘bounced’ on Friday – in what many are describing as a ‘relief rally’ from a very short-term oversold position. 

By the closing bell – the Dow added 466 pts or 1.5%, the S&P up 94 pts or 2.4%, the Nasdaq raced ahead (it is the most oversold) by 435 pts or 3.8%, the Russell gained 54 pts or 3% and the Transports added 137 pts or 1%. 

10 yr. treasury’s ended Friday yielding 2.9% up 7 bps…. this morning they are trading right there again.  Now 3% seems to be the level to watch – last week we tested 3.2% and then failed as the talk of a looming recession is now dominating the conversation….I mean even JJ so much as admitted that last week and now  Lloyd Blankfein (former GS CEO) is tossing his 2 cts into the conversation saying that he thinks we are on the path towards recession and the ability to avoid one is quite low.

The VIX fell 9% to end the day at $28.91…. well below the 40 level that many analysts think is the level that will ignite more of a capitulation.  With US futures a bit weaker at 5:30 am – the VIX is up 50 cts at $29.40……. leaving us smack in the middle of the $25/$35 trading range. 

Oil rose 4% on Friday to end the day at $110.40…. Hello? What have I been telling you…? I think right now the range is $100/$113…. a breakout at $113 will take oil back to test the March highs of $120.  This morning though, traders are locking in profits after the surge on Friday – sending oil down 50 cts at $109.90…. This means nothing…. because global supply is about to be challenged as the European Union begins to phase in their ban on Russian supply. 

Now everyone trying to pinpoint the ‘reason’ why markets rallied hard on Friday….…. I would argue that it was the admission by Jay Powell (JJ) that he now see’s a difficult (but not impossible) path forward.  That the suddenly realizes that he will not be able to engineer the soft landing that he kept telling us was possible, that while he expects 2 – 50 bps hikes in the near future – he is no longer committing to that narrative….he has opened the door and admitted that it might be different and it will come with some additional pain  and

“Oh, by the way – We should have begun raising rates much earlier…”   I mean – really?  You can’t make this up…who would even believe it?

In any event – the admission that this is the case did what?  It offered clarity, it revealed what we all knew…. that the old narrative was ‘fake’ news and the recognition that it’s gonna get tough is what investors needed to hear to confirm their suspicions.  Remember - when the news is unclear and left to interpretation – the obvious move is to ‘overreact’ – so buyers take control and step back – forcing sellers to push prices lower and then lower again…..it becomes a ‘self-fulfilling prophecy’….markets are expected to weaken, so they do because of the lack of clarity…..….But on Thursday evening – after JJ was reconfirmed for another 4 years – he suddenly got the courage to call it what it is – a serious situation……and one that even he is unsure of…..which means you can imagine what the others think!

To be clear – that wasn’t bullish news nor was the eco data that saw consumer sentiment plunge to the lowest level in years…. falling to 59.1 – well below the expected level of 64.   One year inflation expectations remained at 5.4% - which appears completely unrealistic considering that currently it is running at an ‘official 8.5%’ and an ‘unofficial 10%’. But his announcement was HONEST, and investors and markets can handle honest (good or bad) news so that investors can reassess and reprice the risk.  It’s not rocket science…. it’s just a math problem… And on Friday – everyone recalculated the math problem which allowed for the relief rally to take place – putting sellers in control – leaving a void in supply – causing buyers to ‘reach’ for stock…and that sent price surging.

The weakest sectors that we have been discussing all year were the best performers…. which should be NO surprise.

Tech – XLK rose 3.3%, Communications – XLC rising 2.5%, Consumer Discretionary – XLY rising 4%, Retail – XRT rising 3.3%,  Financials – XLF + 1.5%, Industrials – XLI +1.3%, Real Estate – XLRE + 2.5%ARKK (Disruptive Tech) rising 11%, Semiconductors – SOXX and SMH both rising 5%, Cybersecurity names – CIBR rising 4.5%, Artificial Intelligence – BOTZ rising 5.5% and the list goes on….all of these sectors are down double digits with some off more than 40%. 

And names that have been outperforming all year continued to outperform….Energy –XLE up 3.7% on top of the 42% gain ytd, Consumer Staples – XLP up 1.5%, Coal stocks like BTU – gained 6% (on top of the 106% gain ytd), Basic resources/mining – names like XME and AMR gained 3% and 4.5% respectively on top of the 9% and 150% gains.
And as you would expect – the contra names (going short the markets) got slammed – with the SH, PSQ and DOG down 2.3%, 3.6% and 1.5% respectively.

But this isn’t over yet…. Now the question is going to be.

“Ok JJ – we get it! Now just how deep could the recession get?”  

And that is going to become the next driving force for the markets…because some people will think it’s going to be a deep recession (causing further downside) while others are calling for a mild recession (less further downside) so depending on where you stand in that argument will drive what you expect future valuations to be and that is what creates a vibrant and healthy market – both buyers and sellers with differing opinions.

Eco data today includes Empire Manufacturing – exp of 15 – which would be down from 24.6…. Tuesday gives us Advanced Retail Sales of 1%, Ex autos and gas of +0.7%, Industrial Prod of 0.5%, Capacity Util of 78.5%.  Wednesday will give us Housing Starts  exp of -1.8%, Building Permits of -3.1%, Thursday will give us Existing Home Sales exp of -2.5%  - Note – the housing numbers are now going negative…..think about mortgage rates which have surged by 80% in 5 months – going from 3% in January to 5.4% in May which just means the cost to carry has also increased and that should begin to weigh on housing prices.

Over the weekend – we heard that Vlad may be suffering from a form of deadly cancer – we can only hope that’s the case…. but in any event – his invasion of Ukraine continues, and this will continue to weigh on investor minds but will be a subplot as it disrupts global commerce, energy supplies and food supplies.  What is new to this conversation is that both Finland and now Sweden are now pushing for NATO Membership – sooner vs. later.  Many now wondering what Vlad will do now….as he has already warned Finland that there will be hell to pay if they proceed with their NATO membership.  Can you imagine what he might say if Sweden pushes to join as well? 

Covid – is no longer the enemy it was and other than in China and North Korea – the world is learning to adapt and do what is necessary – but supply chain problems continue to exist because so much of what we import comes from China – I’m hoping that now – we smarten up and find other sources to manufacture – which include manufacturing -right here at home.

HD, LOW, WMT, TGT etc and they should provide good insight into consumer attitudes in the face of rising inflation…I would expect the consumer staple names to perform well, while the consumer discretionary names to be under a bit more pressure.

Cryptos have gotten completely hammered.  Stable coins - LUNA and TerraUST have now gone belly up.  What is Mikey Novogratz gonna do with the huge LUNA tattoo that he had seared into his bicep?  Anyway - naysayers are calling for the demise of the whole asset class – Bitcoin and Ethereum continue to struggle and remain under pressure.  This morning Bitcoin is trading at $29500 and Ethereum is at $2000 down 57% and 47% from their highs, respectively.  And no, I am not in the camp that cryptos are anywhere near dead, but I am in the camp that they are still very much in their infancy and that they are long term plays…period.

Now while the S&P and its brethren had a good day on Friday  - many are asking if that means the lows are in….I would say – probably not……but the rally could go on for a couple of weeks….and see us retest somewhere in the 4200 – 4220 range (that is the down trending trend line) ….I would also expect to see any advance led by the very oversold names – like we saw on Friday and I would expect to see the trader types sell into it. I would then expect to see the coming selloff to be led by the same names…. the action will be driven by the macro/inflation data…. Could we see S&P 3600?  Sure, and you should prepare for that and then be pleasantly surprised if it doesn’t happen.

In the end – for the long-term investor – it means you remain focused, look for the opportunities created in the chaos and stick to the plan.
Investing doesn’t mean you have to day trade…. that’s day trading…. building a cash position and being patient is a strategy, it’s allowing you to sit back, analyze and then make methodical, appropriate actions…sometimes doing nothing is actually doing something. 

In the end investors need to prepare for more turbulence ahead…because stocks will continue to thrash around until valuations get even more attractive.  And while stocks are starting to look attractive for longer term buyers - the risk to the downside is still very real. 

Linguine puttanesca - Not PUTIN - esca

This is by NO means a nod to Vladimir PUTIN…. that would have to be a VERY different recipe with very different ingredients. 

This is a nod to a delicious Neapolitan dish…. that is hard to find in your local Italian eatery.

The word – Pu-ta-nesca translates into “in the style of the prostitute” (where the Italian word puttana means “lady of the evening”).

It is made from tomatoes, black olives (or Kalamata Olives), capers, anchovies, onions, garlic, oregano, and parsley.  It is easy to make and has an interesting history. 

So how did it become so popular?   As you might imagine - legend has a number of explanations.

1. The intense aroma would lure men from the street into the local brothel where the prostitutes would be cooking the sauce to lure the patrons.

2. The prostitutes made it for themselves to keep the interruption of their business to a minimum because it is an easy dish to create.

3. And in a twist – it was a favorite of married women who wished to limit their time in the kitchen so that they may visit their lovers while their husbands were hard at work.

Whatever its origin, it is a great dish it is spicy, tangy, and vibrant – an appropriate description of the mkt today.

Start with 3 crushed garlic cloves sautéed in olive oil about 3 / 4 mins...do not let it burn... next add a diced white onion and diced/minced anchovy filets and sauté for another 5 / 8 mins.  - as they cook, they melt away.  Add one can - 28 oz - of kitchen ready crushed tomatoes... not puree – Crushed.

Add about 1/4 of a can of water - Let simmer for 10 mins or so. Next add capers, oregano, pepper, chopped Italian parsley, and rough chopped pitted Kalamata olives or pitted black olives - whichever you prefer - but do not mix... It is one or the other. No need to add salt as the anchovies are salty enough. If you like more bite, you can add red pepper flakes at this point... cover and let simmer.

In the meantime - bring a pot of salted water to a rolling boil and add the Linguine or spaghetti.  Do not use Capellini as it is too thin, and it clumps up etc... Let boil for 8 mins or until aldente. Remove and drain - keeping a mugful of the pasta water. Add the pasta to the sauté pan with the Puttanesca sauce and heat and stir until well coated and fragrant. Serve immediately onto warmed plates offering up grated Parmegiana cheese on the side.