• Day 2 on the Hill – Maxine gets it started and JJ holds his own.

  • Stagflation? Should we worry?

  • Russia is pumping and refining MORE oil than prior to the invasion.

  • Treasury yields decline as US treasury’s find plenty of foreign buyers.

  • Watch the housing data today.

  • Try the Mussels.

Stocks ended the day UP – the Dow adding 195 pts or 0.6%, the S&P up 36 pts or 0.9%, the Nasdaq gained 180 pts or 1.6%, the Russell gained 22 pts or 1.3% and the Transports added 118 pts or 0.9%.

Of the 11 S&P sectors – Utilities – XLU and Healthcare – XLV were the winners rising 2.36% and 2.24% respectively. Staples – XLP and Real estate – XLRE came in a close second rising 1.9% each…. all while Energy – XLE, Basic Materials – XLB, Industrials, XLI and Financials – XLF ended the day a bit lower.

Day 2 on the Hill for JJ Powell went off without a hitch - that is good – but lawmakers did press him on the possibility of stagflation……asking how the FED would manage the process if the rate increases failed to halt inflation but succeeded in slowing the economy – think ‘stagflation’? His response was clear – saying that he would be ‘reluctant’ to shift from raising rates to cutting rates until he ‘saw clear evidence that inflation was coming down in a convincing fashion before we declare any kind of victory’.

Now I find that comment comical – because they were also very clear about what they would do when inflation reached 2%.....Recall that he, former Chair Yellen and former Chair Bernanke were ALL very clear on what would happen when that happened…They would change policy to reflect the fact that they reached the goal – mmmmmmm? How would that work out? Because – let’s be honest – he and ‘they’ all missed the signs, they chose to ignore the data points that suggested it was heating up, ready to raise its very ugly head…..instead they chose to continue the stimulus –helping to whip inflation into a ‘frenzy’…..I hold them responsible for at least 70% of the current problem….the other 30% - yes, ok, continued supply shortage out of China 8%, outsized demand for energy coupled with a deliberate attempt to ‘shutdown’ big oil – 20% and maybe Putin put the cherry on top when he launched the Ukraine invasion – contributing the final 2% to the equation.

– Maxine Waters – Chairwoman of the committee - did not disappoint as she ranted on and on in her opening remarks – blaming corporate ‘greed’ and lack of ‘healthy competition’ as the reason for surging inflation…..she made zero mention of the massive spending policies (free money) of the administration and she doesn’t seem to understand the role that the FED played in keeping rates at 0 for way to long along with the bond buying stimulus program that also went on well beyond its lifespan all while inflation spun out of control……She did though – offer up 2 possible solutions…..…..while making sure to let us know that the GOP didn’t support First - she talked about the Democratic $28 million funding program for the baby shortage formula and Second - her Racial Equity, Inclusion and Economic Justice Act as another possible solution to stem inflation – without explaining how either piece of legislation would address surging food, energy and housing prices… But it was a good ‘icebreaker’ for the start of the meeting.

Eco data though told another story…….S&P Services PMI came in at 51.6 vs the expectation of 53.3…and S&P Manufacturing PMI came in at 52.4 – vs. the expectation of 56…..both much weaker than anyone was prepared for and now much closer to the neutral line of 50….Remember – readings above 50 are expansionary, readings below 50 are contractionary….so while both readings were better than 50 they are in a down-trending pattern – which isn’t good. This is just another data point that suggests the building weakness in the economy…. Also remember that the US economy is a 75% services economy….so that reading of 51.6 is concerning.

When you include this newest data that reflects the state of both services and manufacturing with falling US retail sales and falling existing home sales and news that layoffs are coming (NFLX just let go another 300 people while JPM announced a cut to their mortgage staff is only the beginning) you begin to recognize that the economy appears to be slowing all while the labor market remains strong (for now). Chris Williamson – chief business economist at S&P Global said that ‘the results point to a US economy that will grow at an annualized rate of less than 1% in June and contract in the 3rd qtr.’ Recall – that GDP was negative 1.3% in the first qtr. and is currently expected to be 0% in the second qtr. – if not slip into negative territory as well. From a global perspective - the European economy is also slowing …. their latest surveys show that 2nd qtr. growth is expected to be +0.2% - down from +0.6% in the first qtr. -accentuating the downtrend.

10 yr. Treasury is continued to rise in price – sending yields tumbling…. ending the day at 3.08% this down from Wednesday’s close of 3.15% and this suggests two things….1. that traders and investors do not believe that the FED will carry thru with their threat to take rates substantially higher by year end and 2…. the fact that there are massive foreign buyers who are happy to buy our treasuries that offer yields well above what they can get in Europe. And remember – rising treasury prices cause treasury yields to fall…. (Inverse relationship). OK – let the games begin…. the mkt is currently assuming a 3.5% yr. end rate.

Oil pushed lower as well…. falling $2.15/barrel or 2% to end the day at $104.04. It is the ongoing concern that aggressive FED hikes will kill demand for energy…. which is laughable…. because the world RUNS on energy……unless the FED action is going to force renewed ‘lockdowns’ reminiscent of Covid 19 – rising interest rates are not going to destroy demand. Rising rates will change consumer behavior in other areas for sure, but you still need to heat you home, you still need to cool your home, you still need to drive to work, you still need to transport goods around the country and the world and apparently you still need to go on vacation.

Today we (US) are burning through 20 million barrels/day…. while the global usage is better than 100 million barrels/day…. During the covid crisis when the world was SHUT down, when you could not go outside, when you could not travel etc.…. – global demand declined by 1/3rd - (7 million barrels in the US and 30 million barrels globally) …. are you suggesting that higher rates will cause energy demand to decline by the same amount as it did during covid when the world fell asleep? Come on, Man! Do not be ridiculous.

This morning we found out that Russian oil production is now GREATER than it was prior to the invasion (Vlad is making even more MONEY on oil sales) and this increased supply is being sold at a ‘discount’ in the market - but the US, Europe and other westernized nations are supposedly NOT buying any of it, but India has ramped up their purchases buy 60% (as demand is strong) and China – naturally – is a bigger buyer (demand there is also strong)…. oil is trading up 45 cts to $104.75 and remains in the $99.50/$106 trading range.

US futures are UP! Dow futures up 215 pts, the S&P up 30, the Nasdaq up 106 and the Russel up 14 pts. Expect the banks to be ‘hot’ today.

After the bell last night we learned that all of the big banks passed the latest FED stress tests – that 33 of the biggest banks have enough capital to withstand a severe economic downturn (let’s hope that’s true…) and this now allows the big banks to pay out about $80 billion to investors in the form of ‘dividends’ – so expect to hear more about rising divy’s or even ‘special divy’s next week….as they prepare to reward investors. I cannot wait to hear what Lizzy (Warren), Bernie (Sanders) and Maxy (Waters) has to say about that!

Eco data today includes U of Michigan Sentiment Survey – expectations are for it to be 50.2 – in line with the last report and down sharply from earlier this year. We are also getting New Home Sales – and they are expected to be down by 0.2% - watch this data point…. with the spike in mortgage rates, it would not be surprising to see housing even weaker.

European markets are up as well – with all markets up better than 1%. The concerns about inflation from earlier this week – is not a concern at all today…. the sense is that investors ‘remain hopeful that inflation can be brought under control’ which is in complete contrast to what they thought on Monday.

UK retail sales fell by 0.5% in May beating the expectation of a fall of 0.7% - so that is good, but at the same time –they revised April sales lower…taking it from +1.4% to +0.4%.

The S&P closed at 3795 after testing as high as 3802……I identified 3800 as being near term resistance – and if futures remain strong this morning….then expect us to pierce 3800 decisively…..making it once again – a short term level of support – you see what was once resistance becomes support as the market begins to repair the damage. So, is the bottom in? Maybe, but that doesn’t mean we won’t test it again……I think it’s around 3600…..As a long term investor – stick to the plan – do not try to pick a bottom if you have money to put to work….take a percentage of the balance and add to or buy names that are on SALE and on your shopping list….leave some money in cash to put to work in the months ahead.

Steamed mussels with white wine broth

Yum…. for this you need: 2 lbs. of cleaned mussels, butter, 2 shallots – thinly sliced, garlic cloves, 1 c of heated chicken stock, –1/2 c of white wine (Pinot Grigio Santa Margherita), just a splash of heavy cream, chopped parsley, s&p….and a fresh loaf of a French baguette.

Now – begin by melting ¼ stick of butter in a large pot over medium heat – when the butter begins to bubble – add the shallots and garlic. Sauté for about 5 mins.

Next Add the mussels, the chicken stock, and the wine – toss to make sure the mussels are bathing in this mix. Cover and let cook for about 10 mins…. remove the cover and discard any mussels that have not opened. Remove from heat – add the ‘splash of cream’ and some parsley. Taste the broth – season with just a bit of s&p. Always feel free to add more cream if you prefer.

Serve in bowls along with the fresh baguette cut into slices for dipping. Now this should cost you about $25 for the mussels so all in maybe it is $35.

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.

UNLESS OTHERWISE NOTED, INDEX RETURNS REFLECT THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS, IF ANY, BUT DO NOT REFLECT FEES, BROKERAGE COMMISSIONS OR OTHER EXPENSES OF INVESTING. INVESTORS CAN NOT MAKE DIRECT INVESTMENTS INTO ANY INDEX.

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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