Mea culpa's? Oh boy maybe Waller is right

• Waller comments cause angst and multiple mea culpa’s.

• Joey has lunch with JJ and commits to ‘leaving him alone’.

• OPEC considers throwing Russia out of OPEC +, Oil marches higher.

• It is a new month with new eco data and a June FED meeting.

• Try the Pasta Fresca.

So stocks couldn’t keep it up…..the Waller comments – suggesting more aggressive rate hikes at every meeting until inflation is 2% casting a pale over the mood, ….I mean inflation is running at nearly 9% and he wants to hike by 50 bps at every meeting until we get it to 2%...good luck with that – because he’ll be hiking into 2024 – it would take 16 meetings to get interest rates above the current inflation rate – a move that needs to happen if they are serious about halting its rise (reminiscent of the 1970’s/’80’s)….. – they would be better off if they just raised rates in 1% increments to see what happens then.  It would shock the system and create a more dramatic effect and I am not sure that it ISN’T being considered…….…. In addition, the FED is getting ready to begin reducing their $9 trillion balance sheet today and that is sure to add a new dynamic to the mood as they roll off $95 billion/month.  No matter what they tell you- no one knows the impact that this is going to take on investor psyche, valuations, and interest rates.

Then there was the rumor that the Saudi’s are considering kicking Russia out of the OPEC + alliance…. the + is Russia, so it would go back to being just OPEC (again reminiscent of the 1970’s/80’s).  The 15 member countries include:  Algeria, Angola, Congo, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.   Financial sanctions on Moscow (due to his invasion of Ukraine) are hampering its ability to pump oil and that, along with momentum, sent oil surging as it would force the Saudi’s to pump even more oil and considering that they have struggled replacing the oil they cut due to the pandemic - excluding Russia in the alliance would only add more pressure to the Saudi engine and more pressure to energy prices. 

And then we had two mea culpas and a lunch date out of DC…. First Snow White (Janet Yellen) admitted (on CNN) that she was wrong on her view of inflation last year saying that she made an ‘incorrect call’ when she predicted the elevated inflation would not pose an ongoing problem. She also admitted that she did not fully understand the pressure that the supply chain issues posted on the economy and now inflation is ‘just too high.’  Then Atlanta Fed President- Raffi Bostic chimed in saying that his comments 2 weeks ago on ‘pausing’ in September should NOT be taken as a ‘FED PUT – September pause’ by investors…. which causes me to ask – if that is the case – why did it take you so long to clarify it?  Investors interpreted those comments exactly as a FED PUT – September pause - which is what caused stocks to rally last week – it was all the business channels discussed….so why Raffi appeared surprised is a bit confusing. Interesting that his mea culpa came after Waller’s comments on what he thinks should be done to tamp it down as well as the speeches that begin today from St Louis’s Jimmy Bullard, NY’s Johnny Williams, and Cleveland’s Loretta Mester – all members that support a more aggressive stance.  (Just fyi – Waller is NOT a voting member – but that is why you should pay attention because they replaced Bullard with him to be the mouthpiece that leaks the ideas – think ‘deep throat’).

And then the lunch date at the WH…. that gave Joey and JJ a chance to break bread.  Remember – the FED is supposed to be non-partisan – so Joey made sure to tell us that he was not going to interfere with their ‘critically important work’ and that he was prepared to give the FED the space they needed to do their job. This as Joey’s ratings on his handling of the economy plunge as the cost of living represented by the CPI surges to 40 yr. highs with NO signs of abating…. In his WSJ op-ed piece yesterday – the spoke of lowering drug prices, and the cost of childcare and he talked about building more affordable housing to help ease inflation…. Are you kidding me?  How does that help the rising cost of energy, rising cost of food and the rising cost of housing now?  It is all smoke and mirrors.

So, in the end – investors took some of the recent gains off the table – by the end of the day – the Dow gave up 225 pts, the S&P lost 27 pts, the Nasdaq gave back 50 pts, the Russell lost 24 pts and the Transports lost 145 pts. 

On a side note, yesterday’s action left the S&P exactly where it started the month…. On Friday April 29th – the S&P ended the day at 4131. Yesterday the S&P ended the day at 4132.  And if you did not know better, you would think – what is the big deal – the market did not do anything all months!  But you would be wrong….In fact the market gave you unending days of agita during the course of the month – so much so that there was talk of a complete and total meltdown – a capitulation – but that never happened…in fact- as you know – the Nasdaq was down more than 30% mid-month while the S&P tested lower dropping a full 20% from the November high – putting it in bear mkt territory if only for a moment.  And then it was over - after the narrative turned more dovish – when Raffi Bostic made his ‘FED PUT’ September Pause comments! 
Investors started to examine the daily FED commentary, trying to decipher what the next move would be, they listened intently as JJ told us not to worry, that his commitment to fight inflation was his top priority and that the economy was strong enough to handle the changing monetary policy.  Now, in the end – it is comical because JJ and his band of merrymen are the ones that lit the fuse on inflation and then walked away as it burned – putting us in the position we are in now.

And so, it goes…. we are now in the final month of the 2nd quarter…. halfway thru yet another year… and the action has been nervous and anxious – just as I thought it would be, and I do not think it is over just yet….so do not fall asleep.

Economic data today is all about the ISM manufacturing PMI report - exp to be 54.5 (down from 55.4), the S&P US Manufacturing PMI report which is expected to be 57.5 and the JOLTS job openings report – exp of 11.3 million jobs available. We will also get the FED’s Beige book which details economic activity across the 12 Federal Reserve’s regions across the country.  (Again – not a huge market mover – unless of course it catches everyone by surprise – which it does not ever really do). 

US futures are trying to move up this morning as the trader types who took money off the table yesterday suddenly hit the reset button (it is a new month) ……  At 7 am – Dow futures were up 154 pts, the S&P’s up 10 pts, the Nasdaq flat and the Russell up 5 pts.  News that Timmy Cook is moving some iPad production out of China and into Vietnam is causing Xi Xi to get mad…but it is a good move for Apple, and it might be the story that starts to be told by other tech companies as well as the ton of manufacturing companies that are there.  Reliance on China has proven to be an issue for the global supply chain (and it took a pandemic for everyone to see that) – so it is time to write a new chapter and become more ‘inclusive.’ 

Morgan Stanley’s Mike Wilson warns us that there is more downside to come while Jimmy Cramer is taking the contra side of that saying that the ‘charts’ suggest it is going to be a profitable summer.  I am going with Wilson on this one…. the data is still too negative, and my sense is that inflation has not peaked, but I do not think it is the end of the world either.  3800 appears to be a level that buyers defend and like I said yesterday – I would expect us to test it again in the month ahead.  And, by the way – that does not mean I do not think there are no opportunities out there – there are – you just have to look for them. Continue to look at value, energy, financial and tech specific sectors…. semi’s, AI, and Cybersecurity.

Oil which had spiked as high as $119.42 yesterday – ended the day at $114.50…. this morning trader types are refocusing on those same data points…The EU ban, the end of China lockdowns and the talk of kicking Russia out of OPEC are taking oil up again and this morning it is up 2% at $116.70. JPM analysts are still predicting that we could see oil prices rise to $185/barrel

European markets are mixed…. Yesterday we learned that the German inflation rate came in at +8.7%, French inflation jumped to 5.8% - another all-time high and EU inflation hit 8.1%.  The ball is now in the ECB’s court (European Central Bank).  What do we think they will say?     

The S&P closed at 4132 as noted above.  We tested 4100 yesterday – a level I thought would provide some support and it did…this morning’s action feels like they want to take them higher, but the jury is out…. lots of commentary to digest and lots of macro data to consider.  The June FOMC meeting is on the 14th- 15th. so, after Tuesday next week – do not expect to hear much from the voting members…. but I am sure we will hear plenty from the non-voting members – think Waller and Khashkari.  Trendline resistance is now at 4276 – so it appears that 4100/4276 is now the range.  But with so much eco data due out this week – remain vigilant.  Anything that suggests that the FED needs to move faster could see us test the May lows of 3800 again.  A level that I think holds but needs to be tested for a 3rd time. 

Pasta fresca

This is a great summertime dish and easy to make. It can be a main course or a side dish to a summer BBQ.  You can eat it hot, cold or room temperature - it is very versatile and looks great when presented on a striking white dish.

You will need fresh garden tomatoes, basil, garlic, red onion, fresh Mozzarella, grated Parmegiana or Locatelli Romano cheese....and a pasta of your choice.... Penne Rigate, Farfalle, Mostaccioli Rigate...Take your pick.

Essentially - you are making a summer tomato salad and then putting it over pasta....so dice the tomatoes, slice the red onion, slice the garlic, add chopped basil, chunks of fresh Mozz, s&p, "splash" of water, and a couple turns of olive oil.   (You can also add a bit of Oregano - but not too much) try it first without.

Prepare and let it sit out and marinate.  It will create its own juice the longer it sits. You want it to be room temperature when you mix it with the pasta. If you make it the day before then remove from fridge and let warm up for about 30 mins.

Now bring a pot of salted water to a rolling boil - add pasta and cook for 8 / 10 mins.... or until aldente.  Strain - always reserving a mugful of water.... return the pasta to the pot - add back 1/4 mug of water to re-moisten.

Toss - wait a min or two so that the pasta absorbs the water...you do not want a puddle of water in the bottom of the pan.  Now add the tomato salad, 2 or 3 handfuls of grated cheese and toss well. Serve immediately in warmed bowls.  Again - set the table outside, turn on some relaxing music to set the mood, light the candles and enjoy the setting sun on a great summer eve. Never rush - enjoy the moment.