• PPI suggests that inflation is persistent vs. peaking – mimicking the CPI.

  • JJ confesses that he can’t ‘guarantee’ a soft landing…. (Is anyone surprised?).

  • Stocks continued to come under pressure as investors prices in the worst-case scenario.

  • Try the Bran Muffins to help regulate the markets.

Savagely violent, punishingly hard, uncomfortable…..These are all words that describe BRUTAL…..and if you’ve been watching – BRUTAL is exactly what is going on in the markets……stocks continue to get slammed (in both directions) as the big oversold names trade up violently and then they trade right back down just as violently….

By the end of the day – the Dow lost 104 pts, the S&P gave up 5 pts,  The Nasdaq turned positive late in the day and gained 6 pts,  the Russell added 22 pts and the Transports added 30 pts.   

Investors continue to get hit upside the head and the algo’s just go into sell mode…..buyers (of which there are plenty) taking a step back – choosing not to pay ‘in line prices’ for shares that they can buy cheaper as the algo’s arbitrarily hit bids in what is a time weighted concert of selling…….…..Otherwise known as a TWAP (Time Weighted Average Price) which is different from a VWAP (Volume Weighted Average Price).

A TWAP allows a seller (or buyer) to take an order – divide it by the number of minutes (and sometimes seconds) you want to execute it during the day and then just execute it…. You can put the guardrails up and put a floor on the order just in case someone has a fat finger that causes the stock to plunge in error – You would not want to go along at erroneous prices – so yes, you can protect yourself….But in any case – you need to understand how it all works.

So, for example – you are an asset manager that needs to sell 5 million shares of Apple ($725 million worth) over the 6 ½ hours of the trading day…. Apple will normally trade upwards of 130 million shares a day – so 5 million represents 3.8% of that volume.  Now there are 6 ½ hrs. in the regular trading session – so that’s 390 mins or 23,400 seconds.  Which means if you want to sell 5 million shares over the day – then you need to sell 12,820 shares every minute or 3.5 shares every second.  You enter the order and hit the ‘send’ button and bang – the algorithm takes control….no humans, no talking, no reflection – just execution – and with every sale – your order gets updated – so you know exactly how much you sold at what average price and you know exactly what you have left to sell. 

So, if you are a portfolio manager that has a busy day, meetings etc.…you can’t be bothered with ‘the execution’ (I mean it’s apple – it has a $2 trillion market cap) you enter it as TWAP, and you’re done. Simple…no worries…It’s Apple – how bad can it be?  in the end – when Apple trades 130 million shares/day – your 5 million shares is a pimple in the big scheme of things.  Now imagine all of the asset managers out there, imagine all of the traders out there, imagine everyone using technology to represent their interests and executions….it all happens so fast – and with prices in sub-decimals and more than 50 trading venues – volatility increases, dramatic moves increase, and markets react haphazardly.   Algo’s fighting with algo’s.

Toss in weakening macro data, rising inflation, wages that aren’t keeping up, changing and unclear FED policy, an ongoing war in Ukraine that is only exacerbating global inflation while resulting in the complete destruction of a country, add in the lockdowns in China that only further disrupt the supply chain and you have a trading environment that becomes BRUTAL and then prices in the worst case scenario in that classic – ‘shoot first, ask questions later’.

S&P 3800 is clearly in sight – yesterday – we tested as low as 3858 – leaving the S&P on the cusp of a ‘bear market’……the concern now is – How will the algo’s and investors react if we go there?  Will buyers defend that position or will the algo’s go into a frenzied sell mode – as another technical breach ignites a wave of sell orders pushing prices even lower and sending the index further into the abyss?  What will the FED do then?  Will they suddenly become dovish again, will they CUT rates to protect markets from collapsing…? or will they continue down this path to combat inflation.  Will GDP come in negative for the 2nd qtr. of 2022 – because if it does – then say hello to the Recession. A recession that wasn’t supposed to come (if at all) until spring of 2023.  How’s that working?

And speaking of a recession – JJ has finally come to terms with what it is….apparently his confirmation by the senate yesterday is now allowing him to  stop the lie – just tell the truth….and that is what he did yesterday telling – telling us that he ‘can’t guarantee a soft landing and that we should get ready for some ‘economic pain’.   Now – to be clear – his idea of a soft landing would be getting inflation back down to 2%.... (It is currently at 8.5% if you look at the CPI and 11% if you look at the PPI) while keeping the labor market strong.  If the FED remains as aggressive as they suggest (pushing rates up)– ‘avoiding a recession will be a challenge’ and BINGO!  There it is…. don’t we all feel better now?  In addition, he also admitted that they should have begun raising rates sooner – (Are you kidding me???)  So now, we can all prepare for the coming recession – it’s just how bad will it be? And what that will do – today anyway – is allow the markets to breathe…because he has pulled back the curtain and offered up some clarity about what we can expect.  

Recall that he has maintained that a recession CAN be avoided – but many investors (the sellers) weren’t buying that narrative – and stocks hit the skids……and now, I think – after his  senate confirmation and a guarantee that he has 4 more years on the job – suddenly he admits what the markets have been telling him (and us) all along….

US futures are higher – think relief rally – as the S&P kissed the bear yesterday…… looking for a bottom –  and while it feels good right now there has been a lot of internal damage done to the markets – there has to be a capitulation day…a day when it looks like the world is about to end, a day when they start throwing everything out the window…in order to really flush this out….so stay awake….because he just told us that he can’t engineer a soft landing…which means we have to consider a some type of crash landing…

Dow futures are up 240 pts, the S&P’s up 45, the Nasdaq up 210 and the Russell up 17 pts.  Now in his statement yesterday – he also assured us that 50 bps moves are the move…. pushing back hard on those that suggest we need a 75 bps – and that is helping the tone this morning……my guess is that today’s euphoria will be ‘transitory’ as we move into June.

And the recent meltdown in the crypto markets has not been helping the broader tone….the complete collapse in ‘stable coin’ LUNA causing all kinds of panic in those markets….Bitcoin, Ethereum and other cryptos taking it on the chin as investors bail…..Coinbase’s admission that investor accounts would not be protected if  Coinbase filed for bankruptcy didn’t help as well.  You can be sure that investors will be closing accounts – I mean why wouldn’t you?  Why would you wait for them to go belly up and then lose your investment now that you know that is the narrative?

And TWTR!  Lonnie does it again – taking to the social platform to say that the deal is on ‘hold’ until they can confirm details that spam/fake accounts represent less than 5% of users….and the stocks sells off 17% or $8 and is trading at $37/share in the pre-mkt…. The media (CNBC) suggesting that the deal is ‘dead’ – Andy Sorkin becoming ‘hysterical’ on camera – makes you want to burst out laughing…does anyone really think that Lonnie is out?  Maybe it is a renegotiating point – but out?  Not!  He has come too far down this road to just walk away……but there is always the risk – which is why they call it ‘risk arbitrage.’

European markets are all higher…. on an oversold bounce and the fact that JJ has admitted that managing the economy is going to be harder than he let on.   On the geo-political front – all eyes remain on Putin and what his response might be after Finland suggest that they must apply for NATO membership without delay.  Putin suggesting that there will be hell to pay if that happens…. On the economic side - French inflation running at 5.4% in April.  At 7 am – all markets across the region are up about 1.5%.   

10 yr. treasuries – are yielding 2.90% this morning…. up from yesterday close…. If the tone remains upbeat today – I would expect treasury prices to come down and yields to go back up if even a little.

The VIX (fear index) is down 1.05 at 30.72.  Now well below the 40 level that many analysts think will ignite more of a capitulation.  With US futures pointing to a higher open look for the VIX to back off and capitulation to be pushed to another day. 

The S&P ended the day at 3930 after testing as low as 3858….taking it down 19.92% from the January high……3800 has been a level that many strategists are targeting…Now -  3800 is not really a level of much support so if we get there and fail to hold – then expect the algo’s to go into a frenzied sell mode again –and that could see the S&P trade to 3550 ish…. I would also expect at that point that the FED will try and calm markets by becoming dovish once again.   Hold cash and be patient……while you may feel that you have to ‘do something’ …. doing nothing (and holding cash) IS 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.  The fact that he now admits that we should prepare for a ‘hard landing’ will offer some clarity but will continue to cause investors to price in the ‘risk’ of the depth of the recession.  And while stocks are starting to look attractive for longer term buyers - the risk to the downside is still very real……Do not kid yourself.

Bran muffins (to help markets regulate)

Maybe that is what the market needs – fiber to help regulate!

This is the classic "Kellogg's" recipe that you can find on the side of Bran Cereal box (if you can find the Bran Cereal).....it is also a muffin that my Aunt Margaret used to make for us (kids) every Saturday morning during the summers at the beach...It is such a great memory for me.....and since the market feels like it has an upset stomach – let’s try to regulate it.

For this you need:

1 1/2 c of flour, 2 tsp of baking powder, 1/4 cup of sugar, 1/4 tsp salt, 2 cups of Kellogg's All Bran, 1 1/4 cup of whole milk, 1 beaten egg, 1/4 cup of veg oil, raisins (you can also mix it up with banana's & walnuts) ....

Preheat oven to 400 degrees.

Combine all of the dry ingredients and set aside.

Add milk to the bran cereal and let it sit for a couple of mins... then add egg and oil.

Now slowly add the dry ingredients - mixing well. 

Now using a tablespoon - fill the muffin pan (that you have greased). Bang on the counter to remove any air pockets and then place in oven and bake for 15/20 mins or so. Serve these immediately with butter on the table. Include a large glass of cold milk......

General Disclosures

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.


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.

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