• Markets got a bit anxious last week – and remain a bit anxious this morning.

  • Earnings are in full swing – this week will give a clue across a range of industries – so pay attention.

  • OPEC+ comes to an agreement – is adding 400k bpd, oil lower, traders not happy. But this too will be short-term.  Demand is too strong.

  • Bitcoin down another 1% - teasing $30,000 again, Ethereum trading at $1,800.

  • Try the Broccoli and Fava Bean Risotto – great summer dish. 

Stocks ended Friday and the week lower….as worries over inflation continue to cause unease…Friday’s consumer sentiment index fell to 80.8 vs. the expectation of 86.5 and last month’s read of 85.5 – suggesting that American’s may not be feeling so good about the near future…. …. all while Retail Sales advanced strongly – rising +0.6% vs. the expectation of a decline of 0.3%.  Ex autos and gas – they rose even faster at 1.1% - which suggests that consumers are rushing out to buy items in advance of what is expected to be higher prices (think inflation) in the months ahead….so sales are being pulled forward…. while sentiment declines. 

Comments by a number of Fed officials including Jay Powell being cited as reasons for the building angst….in his testimony last week, Powell did admit that while inflation feels ‘uncomfortable and feels like it is a bit stickier than some would like’ it is still just transitory…….’  - Now what is interesting here is that it feels a bit like Jay is pivoting (ever so slightly) – recall he was towing the line that there wasn’t any inflation at all and in his most recent comments – he acknowledges that there is some and it is uncomfortable but that it is still nothing to worry about…..To which I’d say -  of course he’d say that, did you expect him to say suddenly that they had it all wrong?  My guess is that they need to find a way to begin to change the narrative without creating panic….and that my friends is going to be the challenge…. especially if the data continues to tell a different story than the one, he is telling….

And then we have the Delta variant that is once again causing some concerns around the world…..Airliners, Cruise operators, and Hotels all taking it on the chin making this group the worst performer for the day…..JETS – which is a global ETF that tracks airlines, airline manufacturers, airports, and terminal services – fell by 2.73% on Friday – Taking it below its long term 200 day moving average suggesting further weakness ahead.….while CRUZ – a hotel, air, and cruise line ETF fell by 2.4% and is now down 11% since its debut in June. 

By the end of the day the Dow fell by 300 pts or 0.9%, the S&P off by 33 pts or 0.7%, the Nasdaq gave back 116 pts or 0,8%, the Russell fell by 27 pts or 1.25% and the Transports took it the hardest- falling 204 pts or 1.4%.  The 10 yr. treasury surged in prices as investors chose to move into ‘the safety trade’ sending yields plunging to end the day at 1.25%.  The VIX – (fear trade) rose by 14% to end the day at 18.63 while Oil fell 30 cts to $71.45. 

S&P found ‘strength’ in Utilities – XLU +1%, Healthcare – XLV +0.3%, Consumer Staples – XLP +0.16% and Real Estate – XLRE +0.11% - and that makes sense (think safety) while all the other sectors got slammed…. with Energy leading the way – XLE – 2.7%, Basic materials – XLB – 1.5%, Financials – 1.4%, Consumer Discretionary – XLY – 1.2%, Technology – XLK -1%, Industrials – XLI – 0.8%.  The Value and Growth trade both got hit with the SPYV falling 0.9% and the SPYG falling 0.7%.    ETF’s that make you ‘short’ the market (hedge your portfolio) rose substantially…the SH (Proshares S&P 500 short ETF) rose by 0.8% while the VIXY - (Proshares VIX short term futures ETF) surged by 3.8%.  

Over the weekend we learned that OPEC+ has come to a deal and that the Gulf allies have agreed to ‘inject more oil into the recovering global economy’ – this after the Saudi’s agreed to meet the UAE (United Arab Emirates) right in the middle of their demand for higher output limits…the UAE wanted 3.8 mb/pd (million barrels/per day) up from 3.1 mb/pd….what they got was 3.5 mb/pd…..and that was enough to get to sign on the dotted line…what this all means in the end though is that OPEC+ has agreed to bring an additional 400k bpd to the market – this is below what some expected to be 500k barrels while some other analysts had predicted 1 mb/pd more…in the end it is a disappointment for consumers while it is a boom for the Arab producers, because it’s enough to tease but not enough to cause any real price disruption in the longer term.  This morning oil is down by $1.80 at $70.02 per barrel as global oil traders unwind positions that bet on an even bigger supply move all while the media continues to play up the Delta variant (causing renewed angst) ….Over the weekend – it was learned that UK PM Boris Johnson is once again confining himself to ‘house arrest’ after being re-exposed to the virus…(recall that Johnson was hospitalized last year during the initial outbreak) – this as the lockdown in the UK officially ended over the weekend and Delta variant cases surged…. And here at home - non vaccinated people appear to be getting hit the hardest so, expect to hear the CDC change their narrative once again….

This morning - US futures are down again….as global markets come under pressure – Japan lost 1.25%, Hong Kong was off by 1.8%, Australian down by 0.8% while China ended the day up by 0.3%.... European markets are getting hit…with all market centers off by nearly 2%.... Dow futures off by 304 pts, S&P’s down by 28, the Nasdaq is off by 38 and the Russell is lower by 32.   

The story is once again inflation fears….but my sense is that it is also exhaustion…..the markets have had a tremendous move higher with little to no pullback and the first week of earnings – while did provide stellar results did not provide further big upside moves…in fact – to the contrary…what we saw in the financials was a bit of a pullback in what was viewed as a relief trade….traders who bought into those stocks ahead of earnings, quickly exited post the reports.  And the recent macro data, FED testimony, move in treasuries, and consumer sentiment all point towards a bit of concern…. thus, the pullback…. I can only hope though, that this time, the market pulls back rather than back off 1% before everyone comes running back in – in what is that typical FOMO reaction… (fear of missing out). 

The market needs to shake out a bit, we need to see who falls out of the trees and to what extent they fall.  Are they falling from the low branches or are they falling from the higher branches…? (Low branches would suggest more trader types, while the higher branches would suggest the longer-term asset manager) and the story that tells is very different…. because it reflects a change in mindset if the longer-term asset manager begins to fall out of the trees. 

Eco data today includes nothing that will be a directional driver at all…but later in the week we will get housing starts, building permits, Chicago Fed Survey, Existing home sales, Kansas City Fed survey, and Manufacturing and Services PMI’s….so there will be plenty to chew on….

We are now all in on earnings and it will be a big week…. IBM, KO, CMG, AXP, NFLX, UNP, UAL, T, VZ & HON are all names that will provide guidance across a range of industries, so pay attention…. remember – the earnings are history; it is the guidance that matters.  And expect to hear more about the Delta variant as that is sure to cause some more volatility in the days ahead.  In any event – the rotation between growth and value continues.  So, there is no reason to change your whole portfolio at all…. stick to the plan and focus on the goal and not on the short-term noise.

Bitcoin continues to weaken and is down another 1% at $31,300.  Ethereum is trading at $1,850 and doggey coin is at 0.16 cts.     

The S&P closed at 4,327 down 0.75%.... This morning suggests more weakness and the action out of Europe is not helping.  Today will be all about earnings and more discussion over the state of the economy, inflation concerns, virus concerns, treasury concerns and what the recent decline in yields means for the markets.  Remember – when the tone is negative all the stories tend to support that mood and then once it turns positive – the stories suddenly turn as well…

In any event - I remain cautious in the weeks ahead (as I have been saying all along) …. due to earnings surprises and rising inflationary pressures…. August will typically be a quiet month and then we have the usual seasonal weakness in September/October.  Breadth in the markets continues to weaken as we approach new highs and that should be concerning from a broader perspective.  Now all this just means to expect volatility in the weeks ahead, it does not mean blow out of your portfolio at all…. I am making my list; I continue to put new money to work, and I continue to tweak the money that is already invested if I go out of balance.

Brocolli & Fava Bean Risotto 

When you are making a vegetable risotto – you can really choose any vegetable you prefer – this way it is always different and always exciting.  Sometimes you can make the risotto to reflect the time of year.  In the summer it might be today’s dish, Fall – could be butternut squash or corn, Winter might be a winter beet and spring may bring a spring pea risotto.  Either way – you get to create as you go.

For this you need: broccoli florets (cut into small pieces) stems separate and cut in small pieces. Fava beans, s&p, olive oil, chopped scallions, chopped shallot, Arborio rice, dry white wine, vegetable stock (about 7 cups), butter, fresh grated Parmegiana or Grana Padano Cheese.

Steam the florets for 1 minute – remove, Steam the stems until very tender, about 4 minutes. Keep the water.do not toss. Put the stems (only) in the food processor, and process until smooth. You may have to add some of the water to make a smooth mixture. Scrape out the puree into a small bowl and set the florets and puree aside.

Heat the olive oil in a heavy pot over med heat, add the scallions and shallots and sauté until translucent – maybe 5 mins.

Nest add the rice and stir to coat with the oil. Continue to cook so that rice begins to become translucent.  Maybe 2 or 3 min).  Pour in the wine – do not overdo…. maybe like ½ cup and stir until evaporated. Add a ladle of the hot stock – stir.  Stirring constantly, until all the stock has been absorbed.

 Continue to add hot stock one ladle at a time - just enough to completely moisten the rice—and cook until each successive batch has been absorbed. After the risotto has cooked for 15 minutes, add the broccoli purée and the fava beans.  Stir to mix well.   About 5 minutes after that, stir in the broccoli florets. Stir constantly and adjust the level of heat to medium/med low so the rice is just simmering while adding the stock, continue until the rice mixture is creamy but al dente. This should be no longer than 30 mins from the first ladle.

Remove the pot from the heat.  Add the butter, until melted, then the grated cheese. Adjust the seasoning with salt, if necessary, and pepper. Serve immediately, ladled into warm bowls.

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.

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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.


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