The S&P 500 enters a new bull market – Recession remains elusive

• S&P enters a new BULL mkt!

• Tech continues to push higher.

• The Eurozone enters recession.

• Countdown to the FED decision.

• Try the Arugula Pesto.

Stocks now move into a new phase....as markets surge – Eco data suggests that the job market is softening just a bit as Initial Jobless Claims rose more than expected…....the Dow added 169 pts or 0.5%, the S&P advanced by 27 pts or 0.6%.....making a new 2023 closing HIGH and officially entering a new BULL market! (It is up more than 20% off the October low).  The Nasdaq rose by 133 pts or 1% - getting helped from the likes of AMZN which rose by 2.5% after some bullish commentary made by street analysts.  In addition, both the Nasdaq and S&P got help from TESLA which surged by 4.6%, Apple +1.5%, NVDA +2.8%, AMD + 2.7%, Cybersecurity names – BOTZ + 0.75% etc.….  The good news sent the algo's into a frenzy - tripping over each other as they tried to 'get in'.... The Russell - gave back a bit of the recent gains - falling 8 pts or 0.4% while the Transports were also a bit weaker after 4 days of strength, losing just 5 pts.  

It feels like the energizer bunny - it just keeps going......as traders/investors and algo's await the FED decision next week.  As noted - the FED is now in the blackout period....so don't expect to hear anything from the talking heads until Wednesday afternoon and like I told you yesterday, IF they need to 'let the market know" anything - we can always depend on them 'leaking' it (very innocently to the WSJ or to Goldman Sachs) via one of the NON-voting members of the FED.......It's all very orchestrated so that they don't really surprise anyone.

Next week is all about the FED and the forward guidance…..and investors seem to be convinced that they have done a stellar job of preparing the markets for a 'skip' at the June meeting - so if they change their minds between now and next Wednesday - YOU better believe that the journal and/or Goldman will get the call - forcing them to write a story or put out weekend note about why the narrative has changed....and why a rate hike might be warranted..... My sense is that that is not happening.....if it was - they would have done it today.....to let investors react before the weekend......this way - they can discuss it on Saturday, it can be featured on the Sunday talk shows and by Monday - investors will be more prepared....but like I said - I don't think that will happen at all....I think it is what it is and we can all expect a rate pause....which will hold rates at 5 - 5.25% - which should then be equal to or slightly above what the expected CPI/PPI report reveals.   

And they are expected to be lower...The CPI m/m of +0.2% - down from +0.4%, Ex food and energy of +0.4% - the same as last month….Y/y – they project +4.1% - down from 4.9% and Ex food and energy of 5.3% down from 5.5%.....which is good – but even then inflation would still be above the terminal rate of 5- 5.25%, which might be considered an issue by some because economists tell us that interest rates have to be higher than inflation in order for them to succeed...- So, we still aren’t there yet, but that is why the FED is willing to give it another month to see allow the data time to catch up to the rate increases….and here is the KEY….if they don’t’ – then we could expect to see rates resume going higher in July.

Now, the recent excitement to me suggests that the FED might just have succeeded in navigating a ‘softer landing’ than many anticipated – me included.  The run up in stocks confirms that so many asset managers and investors are now buying into that narrative…So, let’s see.

In any event – it was an interesting day…. Industrials, Tech, Utilities, Consumer Discretionary, Consumer Staples, Communications and Healthcare – all ended the day higher…. We saw small losses in Financials, Energy, Basic Materials and Real Estate.

The Regional banks – which have been rallying nicely also found some trader types taking profits after the surge higher this week, but the losses were small – and in my opinion – nothing to worry about.

If the eco data is what they expect it to be then I believe the sector’s performance will balance out and the ones that have been trading like the recession was coming will find plenty of buyers looking to put money to work.  Look – treasury yields have been inverted for more than 16 months….if the recession was going to come, history suggests that it would have been here already……yet it isn’t…..and if the FED succeeds in bringing down inflation without sending unemployment surging and the economy into the doldrums then JJ Powell will have changed the course of history forever…..Those inverted yields that caused so much angst for investors over a year ago, do not seem to be an issue any longer…but remember – the economy has never NOT entered a recession when that happens – so the question now is when is it coming?   

There is no eco data today….so again – expect the markets to churn as the speculation builds….and if the story remains that we will see a June skip and then a hold on rates as inflation subsides – then I suspect the downside is protected while the upside remains wide open….But – before we break out the champagne let’s remain patient until we get the data, the decision AND the guidance.

Energy came under pressure when a rumor surfaced that the US and Iran have signed a nuclear deal allowing Iran to overcome the oil sanctions…and that put pressure on oil prices – sending WTI plunging – trading as low as $69/barrel…..until the WH came out and denied such rumors – sending oil up off the low – only to end the day at $71.30. This morning – oil is up 35 cts at $71.65. 

This morning – US futures are mixed…. The Dow is -40 pts, the S&P -1, the Nasdaq is up 6, while the Russell is -3.  There is NO Eco data today at all…. Expect more churn as we move into the end of the week.   

European markets are also mixed…. The UK, France and Germany are all a bit lower, while Spain and Italy advance – none of these markets is up or down more than 0.3%.  This morning’s WSJ runs with a story that the Eurozone has now entered a recession…Officially – the stats tell us that GDP fell by 0.4% in the 1st qtr. on top of the negative growth in the final qtr. of 2022….We see weakness in Germany, Ireland and Finland and that trumped gains in France, Italy and Spain.  The sense is that the zone will continue to see a drag on these economies as the ECB has made it clear that there are higher rates on the horizon even as the data confirms the recession. 

European investors are also waiting patiently for what the US eco data will be next week and what the new message might be from the FED.  Will it be Skip and Hold (60%) or Skip and Hike (35%) or Skip and Cut (5%)?  

The S&P closed at 4293 – up 26 pts…. Yesterday I said that 4290 was in the crosshairs…. well, we kissed it, tested it and pierced it.  In the end – remember – the fight against inflation is NOT over yet and it won’t be over until it is….The market is acting like the CPI will not push higher in the months ahead….which is where I will caution you…..There is still pressure on parts of the economy that could cause inflation to do a 180…..until we get that under control – I remain cautious, which doesn’t mean I am out of the market….in fact – quite the opposite….I’m just being a bit more cautious on where I allocate to.  Keep your eyes on the VIX – right now it is at near historic lows…and that is also a problem – because it suggests too much complacency….at at time when the geo-political tension remains hot.

Stick to the plan, DCA (dollar cost average) into it.  If you are nervous about a decline – position yourself with some of the contra trades that offer that exact protection…. the SH, PSQ, DOG even the VIXY. 

We are now in a new range…..4290 which was resistance is now key…..I suspect that we will churn and trade a bit lower – just to see where the buyers are sitting….I suspect they aren’t too far away and with no eco data and the sense that the FED will pause there is a good chance we just churn in line….…..and if we manage to remain above it today – it only strengthens the resolve of the bulls.  The new trading range – if we remain above 4290 -  has upside target of 4600 which is the August 2022 high. That represents a 7% move UP from here and that would take the S&P to +18% on the year. The downside is the 50 dma trendline at 4150 which is a 3% move lower. Again, the only threat I see that might cause the market to sell off – would be some type of Black Swan event that comes out of left field.

Arugula pesto

Linguine with Arugula Pesto - Yes - Arugula... a twist on an old classic... try it... gives you a bit of a peppery taste – but in fact is delicious.  

Start the same way you make Basil Pesto - Rinse the arugula, and pat dry... let sit. Heat up a sauté pan and toast the pignoli nuts - maybe 4 mins or so... set aside. Now in a food processor - add the Arugula, nuts, 3 cloves of garlic, a bit of salt - no pepper, and olive oil... now puree...  Once pureed - add a couple of handfuls of grated Parmegiana Cheese and blend some more. That's it... you're done. Now set aside in a bowl and cover with saran wrap.

Bring a pot of salted water to a rolling boil and add the linguine. You can use any type of pasta you like – but linguine makes a more traditional dish. Cook the pasta for 8 mins or so – until aldente. Now strain the pasta – reserving a mugful of the pasta water. Return the pasta to the pot and add back about 1/4 cup of the water to re-moisten... stir. (Make sure there is not a puddle of water in the bottom of the pan...) Now add 1/2 of the Arugula pesto and stir... coating the linguine well.   Now serve in warmed bowls and top with another dollop of pesto. Keep fresh grated cheese on the table for your guests.