Market pullback: Overreaction or opportunity – Don't blame WMT

Oh boy….finally…..stocks took a breather….and pulled back…..and the best part about all of this is that they want you to believe that it is because of the weaker guidance out of WMT yesterday morning……I mean, it’s comical really. WMT warned that their profit will fall short of estimates and so the algo’s went into frenzy…taking WMT down 6.5% with some people gasping in disbelief as if this is really a disaster….It is not….WMT is up 80% in the past 52 weeks….- are you telling me that a 6.5% drawdown is sending shivers thru the broader mkt? Come on! (more below).

And then you say – but what about PLTR? That was down 10% on Wednesday and was down another 5% yesterday on talk of Pentagon budget cuts and the news that CEO Alex Karp had filed a 10b5-1 Trading Plan that indicates he can sell up to 9.9 million shares of his PLTR holdings……which the market took as a negative….because in another illogical move – the algo’s assumed that if the CEO is selling shares then ‘he must know something’ thus he is ‘getting out’….As my friend and fellow Fox Business commentator – Mike Lee points out – the markets interpretation of the that news does not align with reality.

So, here’s the skinny – a 10b5-1 Trading Plan is a ‘pre-determined, pre-announced stock sale schedule’ that allows the insider (in this case the CEO) to sell a set amount of stock over a pre-determined period of time. It forces the executives to ‘signal their plans publicly ahead of time so that the market is not surprised and so that no one can suggest (or accuse) them of trading on material non-public information…. It’s called tax planning and risk management….he (Alex) has over $11 billion of exposure in PLTR – you could say he’s a bit ‘top heavy’ and as Mike points out – he is due to receive more equity awards – making him more TOP HEAVY….so all this is about is planning….It is a NON-EVENT for the company, but it does create AN EVENT for investors that want to buy stock at what is now a 24% discount! Now, I’d still like to see it fill the gap ($83.75) it created 3 weeks ago and if it does that’s a 47% discount…. But let’s not get greedy! This morning it is quoted up $1.50 at $107.70.

And then the banks…. oh no! The XLF lost nearly 2% - with even deeper losses in the individual names…. JPM – 4%, GS – 4%, C – 3%, & BAC – 1%. Why? Well, the logic suggests that if WMT is warning of tougher times ahead that MUST mean that the consumer is struggling and if the consumer is now struggling the credit card balances and loans will come under pressure – think credit defaults….(remember that Loan Loss Reserve Acct I kept telling you about? Yeah, this is where the rubber meets the road….).

Now you can say that the WMT news is about more than just WMT…. You could argue that it speaks to the health of the consumer…. or some consumers. You could argue that we are seeing weakness in many of the ‘consumer datapoints’ – think the most recent retail sales report…… and that is what caused the algo’s to suddenly say ‘Oh boy…. what did we miss?’ So, now all this does is force the rest of them (the other algo’s) to do what they always do…. shoot first and ask questions later.

And then that’s when you get to toss ALL THE OTHER ISSUES – think tariffs, inflation, geo-politics and stock prices that are stretched, stretched, stretched…something many of us have been saying for months now….but as usual – we just needed ‘something’ some catalyst to light the fuse…..and that’s why WMT is being blamed….because the weaker guidance was NOT expected……it caught them ‘off guard’…..Which btw – I would argue is not true….WMT always starts the year off with ‘conservative guidance’ this way it allows them to ‘surprise to the upside’ as the year progresses…It’s not rocket science…..This too is called ‘Risk/Investor Management’….which creates another opportunistic event for the long term investor….Capisce? WMT is quoted up 0.3% this morning.

And so, stocks came under pressure…..the Dow lost 450 pts or 1%, the S&P down 27 pts or 0.4%, the Nasdaq gave up 93 pts or 0.5%, the Russell down 20 pts or 0.9%, the Transports gave back 82 pts or 0.5%, the Equal Weighted S&P lost 21 pts or 0.3% while the Mag 7 index gave back 155 pts or 0.5%. HARDLY a disaster at all…. But like I have been saying – we need to test lower; we need to shake the branches, we need to see who IN is and who is OUT the min it gets ‘warm’ (not even HOT) in the kitchen. Can you imagine if it got HOT – what it would look like?

Now of the 11 S&P sectors – in the face of all this angst…Energy gained 0.9%, Healthcare up 0.5% while Real Estate added 0.7%.

Of the losers – Financials got hit the worst – 1.5%, Consumer Discretionary down 0.8%, Industrials – 0.7%, Communications – 0.5%, Consumer Staples down 0.4% with Utilities ending the day flat.

As you would imagine – the contra trades had a good day – the DOG + 1%, SH + 0.4%, PSQ + 0.4%, VIXY + 0.6% while the SPXS gained 1.3%.

Bonds rose…. TLT +0.4% while the TLH gained 0.3%. The 2-yr treasury is yielding 4.25% while the 10 yr is at 4.48%.

Gold continues to trade in a tight range…. $2,925/$2,975…. I still think it feel a bit tired up here and would not be surprised to see it back and fill.

Oil –breached trendline support at $72 – down 70 cts at $71.75…..the news remains confused…..one day OPEC+ is delaying production increases, the next day they are moving forward…causing oil to decline and then surge….well, this morning word is that OPEC+ is once again considering a delay….which I am not sure anyone really believes anymore – especially since the Saudi’s told us yesterday that Chinese demand is UP….…..In the end – there is plenty of supply coming from the NON-OPEC producers and that supply is expected to increase in the months ahead…… For now – oil remains in the $70/$74 trading range.

This morning US futures are up…... Dow up 60, the S&P’s up 2, the Nasdaq up 30. while the Russell is up 8. Eco data today includes manufacturing and services PMI’s…both expected to remain in the ‘expansion zone’. We will also get Existing Home Sales – and they are expected to be weaker…Let’s see if rates are crushing demand.

Atlanta’s Raffi Bostic taking the stage telling us that he expects the FED to make 2 rate cuts this year – I’m curious – do these guys get paid for saying that? What is he smoking? Did he not read the FOMC mins? Was he not in the room? Did he not see the latest CPI & PPI? Is he out of touch? I remain in the ‘we are not getting any rate cuts this year’ camp….and in fact – my gut still says the risk is to the upside…. but I am also not an FOMC member – so I do not have a vote!

European markets are up……on the back of strong profits and excitement that maybe the Ukraine/Russia war may be coming to an end…… PMI activity in the Eurozone was disappointing suggesting that the zone is mired in stagflation. German elections are this weekend, and the sense is that traders are pulling for the conservative front runner to bring a coalition together to push thru economic reforms and new (looser) regs…. Mkts across the zone are up between 0.1% - 0.6%.

The S&P closed at 6117 – down 26 pts…and while I would like to see us churn lower, futures, My guts says that we need to at least test trendline support at 6010 but I don’t think that happens today….with futures pointing higher and no real negative headlines on the tape….my sense is that stocks will drift up….Which only confirms my view….talk to your advisor, create a plan and then stick to it.

Gateau di patate – ‘Potato cake’

This is a classic Neapolitan dish that will soon become a family favorite….and you will wonder why it took you so long to try it…. It will soon become a ‘Top 10’.

For this you need: Mashed potatoes that you made (you know how to do that?), sweet sausage, ham, shredded mozz, fresh grated Parmegiana, butter, eggs, lite cream, breadcrumbs.

So, boil the potatoes.

While the potatoes are boiling – sauté the sweet sausage in a sauté pan. Season with s&p. Set aside.

Slice the ham – set aside.

When the potatoes are done, put them in the ricer to make them mashed. Now add 2 eggs (scrambled), stick of butter, ½ c of cream, s&p, fresh grated parmegiana, Mix well. Now add the sausage, ham and shredded mozz. Mix well again.

Now – butter a baking dish and then dust with breadcrumbs. Place the potato mixture into the pan and spread it out. Top with more breadcrumbs and 4 or 5 pats of butter.

Place it in the oven at 375 degrees and cook for about 1 hr.

I’m telling you – you won’t be disappointed. You can make this dinner or make it a side dish.