Tech surges, bank earnings impress, inflation and interest rates on edge

• PPI is mixed – but the pressure is still on.

• Tech – led the way yesterday – up 2+% the other sectors waffled.

• Oil down yesterday but UP today.  IEA cuts forecast – contra to the industry.

• ECB leaves rates unchanged – but teases something may change.

• Bank earnings hit the tape!  JPM wows them!

• Try the Veal Scallopine.

PPI came in – in line (sort of)…..m/m numbers on target, it was once again the core y/y number that ‘surprised’ to the upside….showing that prices are up 2.4% vs. the 2% last month….It’s the same story – inflation remains sticky….rising transportation costs and rising raw material costs are keeping inflation entrenched in the US economy….   Initially – stocks followed Wednesday’s path lower, but as morning turned to afternoon – the mood changed a bit and we witnessed a rally led by some of the Magnificent 7….AMZN + 1.7% - trading at all time highs, NVDA +4.1%, AAPL + 4.3%, MSFT + 1.1%, GOOG +2%, even TSLA joined in the fun rising 1.6%.

For the indexes – the Dow – which was up got pushed into negative territory in the final moments of trade – falling 2 pts, the S&P gained 39 pts or 0.75%, the Nasdaq +272 pts or 1.7%, Russell + 14 pts or 0.7%, Transports +150 pts or 0.9% while the Equal Weight S&P lost 7 pts or 0.1%.

From a sector perspective – TECH was the clear winner – XLK +2%, Semi’s – SOXX +2.2%, Robots & AI – BOTZ +1.1%, Expanded Tech – IGM + 1.7%, Disruptive Tech – ARKK +1.5% - Yesterday -  Cathie Wood (Ark Invest CEO) revealed that her tech fund has taken ‘an interest’ in Chatgpt parent – OpenAI…..Now – what makes this interesting is that OpenAI is not a public company yet – so she established position via her Ark Venture Fund – which also includes stakes in SOAR, SpaceX, Dall-E – along with a host of others.  

The balance of the sectors – were mixed – Industrials, Consumer Discretionary, Communications and Real Estate all ended a bit higher…. while Utilities, Financials, Consumer Staples, Energy, Health Care, and Basic Materials all ended a bit lower.  In the end – like I said – they just are not going to let the market correct – when we approach a 3% draw down – (like we did on both Wednesday and Thursday) – the algo’s go into ‘buy the dip’ mode and boom, up we go….I would like to see an 8% - 10% correction in the broad market – which means some individual names would have corrected even more – and that really provides the ‘buy the dip’ opportunity for the long term investor. In any event – it is what it is.

So there are a couple of new games in town…..One is that the latest macro data is forcing street analysts to revise their call on the path of interest rate policy – June now off the table, July off the table – (there is no August meeting – but there is the Jackson Hole Boondoggle) so the ‘smart money’ is now putting an 80% chance of a cut in September – just weeks ahead of the election……(isn’t that convenient…), I am still in the ‘Not Happening Camp’ …. if only because the DATA does not support it – but I guess they can manipulate the data over the summer to make that happen.

And two – the whole inflation target story…. for years now, it was all about 2%, - but recently – there have been hints that ‘maybe 2% doesn’t make sense’ any longer…. that maybe we need to consider revising it to something else – think 3%.... If you’ve been following along – I raised this ‘idea’ months ago…suggesting that 2% was going to be tough to get to without inflicting lots of pain on the economy and the country – especially during a Presidential election year – something the Dems do not want to see….and so, we are starting to hear more ‘key’ figures float this balloon.

Today begins the beauty pageant – Earnings - led by the big banks…. will be the focus…. Like I said yesterday – pay attention to what they say about NII (Net Interest Income) Sales & Trading, Investment Banking, and the ever-important Loan Loss Reserve accounts.  You see – this account offers insight into what the big banks are hearing from borrowers…. Rising Loan Loss Reserve Accts – suggest that the big banks see trouble ahead….and just a note – the big banks have been building a ‘war chest’ over the past year – so don’t be that surprised.

BLK just reported – and like DAL yesterday – they killed it….EPS of $9.81/sh vs. the expected $9.33/sh – Sales of $4.73 billion handily beats the estimate of $4.68 billion and AUM?  Yes, that hits a record too…now $10.5 trillion thanks to a massive surge in bond inflows…the stock is quoted up $10 or 1.3%.  But BLK is an asset manager – not a big bank – so no NII, Sales & Trading and Investment banking….and no Loan Loss Reserves.

JPM, WFC, STT and C – all due out prior to the opening bell…so sit tight…remember – I do not think that JPM will disappoint at all…. the others?  Well, let’s see.  Now what’s interesting is that whole CRE dynamic that we have been discussing – that’s more of an issue for the Super Regionals rather than these names….so think names like – RF, PNC, FCNCA, OZK, NYCB, SBNY.

Yesterday – bad news out of MS (-5.5%)- caused that stock to get slammed after it was learned that regulators (think the FEDS and there are a whole long list – the Federal Reserve, the SEC, Office of the Comptroller/Currency and the Treasury) are probing their wealth management arm….wondering what the heck is going on at MS….in terms of money laundering or if they are doing enough to prevent it – questioning their KYC (know your customer) rule along with a bevy of other controls).  MS is down 7% ytd – while its competitors are all up…JPM + 15%, BAC + 8%, C + 18%.

JPM Hits the tape. – came in at $4.63 vs. estimate of $4.11 – Rev of $42.55 billion, vs. $41.85 billion – Investment bank revenue of $1.99 billion, Sales and Trading of $2.69 billion, $3.6 trillion of AUM – and the stock is trading DOWN 4.2% or $8 as the trader types of lock in ytd gains…. And don’t say your surprised – I told you that this was going to happen yesterday…I said -

“I am a big Jamie Dimon fan, (JPM) I do not expect him to disappoint – but the stock is up 15% ytd….so I would not be surprised to see some investors hit the sell button to lock in those profits…. Great – go for it.  Unless the fundamental story changes – it’s all noise…So, I guess you know what I’ll be doing!”

And guess who NOT disappointed! And I guess you know which side of the fence I’m on.

Treasuries – continued to get hammered – the TLT and TLH down again sending bond yields up. There was a 30 yr. auction yesterday and demand was ‘tepid’ – meaning that the buyers of our debt are willing to buy it, but just at lower prices…. (Econ 101 – supply and demand) – and lower prices = higher yields.

The 2 yr. is now yielding 4.92%, the 10 yr. is 4.54% and the 30 yr. is 4.64% up 18% since January 1st.

Oil – is trading at $86.15 up $1.10 or 1.3%....yesterday – oil took a bit of a hit – after the IEA now says that they see demand waning thru 2025…because of – get this – ‘lackluster economic outlook’ and the rise of electric vehicles….Well, does anyone at the IEA understand where electricity comes from? Demand for fossil fuels!  Oil, coal and nat gas…. wind & solar are good, but nowhere near being able to provide the electricity that we are demanding…. So, I for one am not buying the waning demand story at all…. That too – is NOT happening.  Just to clarify – the IEA outlook runs counter to OPEC, EIA, the World Bank and a host of oil analysts.

Gold has now entered another new century mark – up $45 this morning trading at $2418/oz….in what has been nothing but a spectacular move…. up 20% off the February low of $2225.  Again – it’s the whole global unrest, simmering inflation, central bank buying, ultimate ‘safety play’ asset for investors. Gold is gold – period and while I have liked it for months now – I am not chasing it right now…. If it goes higher – I own it – so no worries and if it comes in, I’ll consider adding to the position.

Eco data today includes Import and Export prices along with the U of Mich surveys…. Sentiment expected to be 79, - down from 79.4 and the 1 yr. and 5 – 10 yr. inflation expectations…. of 2.9% and 2.8% respectively…. something I think is wrong.

US futures are down – Dow – 115 pts, S&P’s down 25, Nasdaq -100 and the Russell down 15.  Like I said – the focus is on bank earnings….and what the shifting view on interest rates will be for funding costs and CRE loans. In addition – it will be on what the C- suite thinks about the next 4 – 6 months….it will be interesting to see if any of them are as cautious as Jamie Dimon was in his annual letter to shareholders. Recall that he thinks we could see 8% rates.

European markets are up all more than 1%....the UK which went into a ‘technical recession’ in January is now showing signs of a rebound and since it was a ‘technical recession’ and never really called an official recession (2 qtrs. of negative growth) – then it wasn’t really a recession – so nothing to see here, move on.  In fact, this morning at 7 am – the BoE announced a ‘once in a generation’ major overhaul of their inflation forecasting model – this is in response to some significant criticisms of the Banks policy in recent months.  The ECB as expected held rates steady for the 5th consecutive month but did appear to leave the door wide open to a potential rate cut sometime in the future – the mkts are assuming June – even as the FED does nothing.   

The S&P closed at 5199 – up 39 pts…. Only after retesting the Wednesday low of 5138.  This morning – futures suggest another potential test of the recent lows – as futures move lower as the bank earnings are announced.  I have been saying that we need to churn lower rather than churn higher and I remain in that camp.

I would love to see us shake the branches a bit more…. think 8% - 10% - which would take us back to 4800/4900 range…. But while I would like to see that, I do NOT think we will…. the buy the dippers are too anxious….5100 is the short term trendline – a level that I do think we will test and will hold.   

I remain invested but cautious – which does NOT mean I am a seller; it just means I remain cautious and will put money to work strategically. Remember if you’re nervous - leaving money in a gov’t mm fund (that is completely liquid) is a decision….…. As a long-term investor, you want take advantage of price dislocations caused by anxiety, not caused by a negative fundamental change in the story.  Keep your eyes on the long game…. remain focused, stick to the plan, call me to discuss. Always happy to help you create a long-term wealth plan that will provide for you and generations to come.

Sautéed veal scallopine in white wine and porcinis

You will need: 3 oz. of dried porcini, 1/b of fresh mushrooms, 1/2 stick butter, dried sage leaves (finely chopped), 6 veal scaloppines, 3/4 cup white wine, chopped Italian parsley, s&p, 1/2 cup heavy cream.

Soak the dried porcini in 1 cup of warm water for about 1/2 hr. Once soaked - remove with a slotted spoon - next line a strainer with paper towel and strain the soaking water into a bowl and set aside.  Rinse the porcini in cold water to remove any grit then large chop - set aside.

Next rinse the fresh mushrooms then cut into thin slices - set aside.

Add the butter and the sage into a sauté pan and turn heat to med high. add a touch of olive oil to prevent the butter from burning. Next add the veal scaloppine so as not to crowd the pan. Brown well on one side - then flip and brown the other side. you should probably cook for about 4/6 mins total. they should be pink on the inside...

Add the wine and let it boil - after 30 secs or so...remove the veal and place on a plate. continue to steam the wine - scraping the bottom of the pan until all the wine is evaporated. Now add back the mushroom water. and the porcinis to the pan. stirring - allowing all the liquid to evaporate. Now add the fresh mushrooms and the chopped parsley. Season with s&p - turn heat to low and cover pan. the fresh mushrooms will make their own juice - keep cooking - stirring every once and a while - remove cover until the juice evaporates. Now add back a splash of white wine and the heavy cream and stir until it becomes a little thicker - 3 or 4 mins. Now - season the veal with s&p and add back to the pan - leaving long enough just to reheat. Turn them once or twice to assure even heating.

Present on a warmed plate and serve this dish with steamed asparagus - seasoned with s&p and a dab of butter. Prepare a salad of arugula, Boston bib and maybe some fresh spinach. Add red onions, cucumbers and sliced tomatoes. Season with s&p, oregano, a squirt of fresh lemon juice, red wine vinegar and Olive oil. I like a nice Merlot with this meal as it is a medium bodied red.