CPI only hours away – FOMC Minutes too, will we learn anything new?

• The CPI is coming.

• FOMC mins are too – will we learn anything new? 

• Is INTC suddenly challenging NVDA? Not so fast.

• Industrial Metals – quietly surging…. or maybe not so quiet!

• Mohammed now suggesting 3% (not 2%) is the real target – Oh boy!

• Try the One pan Sweet Sausage Orzo.

Was it a head fake?  Stocks under pressure for most of the day ended up advancing into the final mins of trading as traders position themselves for today’s KEY inflation datapoint – a datapoint that many thinks will define the FED’s next move.  While there is a wide range of opinions about what the data will suggest – there is evidence that inflation remains ‘sticky’ – stubborn in fact – and if that is the case again today (which is expected) then it should reinforce the idea that the FED will sit tight and continue to do nothing – no multiple rate cuts coming…remember the CPI y/y is expected to rise to 3.4% up from 3.2% last month….and also recall – both the January and February reports for both the CPI and PPI were hotter than expected. And you can hear the clock ‘tick’.

As noted – stocks began the day on what felt like a dead cat bounce – but by 10:30ish, all of the indexes were negative – not dramatically – but still negative – only adding to the weak performances we have seen over the past couple of weeks -  before making an attempt to push higher back into positive territory by the end of the day.  At 4 pm – the Dow was down 9 pts, the S&P up 8, the Nasdaq gained 53 pts, the Russell added 7, the Transports up 35 while the Equal Weighted S&P gained 27 pts. 

TSLA – one of this year’s biggest losers – led the gains in mega cap tech yesterday – rising 2.3% - even as Lonnie braces for the potential to see back-to-back sales declines – this after analysts at both Jeffries and Sandler predict a weak 2024. NVDA – 2023 and 2024’s tech/AI star came under pressure falling 2% (leaving it down 14% off the recent high) after INTC +1% (down 24% ytd) introduced their newest AI chip that some think will give Jensen Huang (NVDA CEO) a run for his money. Let’s not get crazy!   From a chart perspective – NVDA is just 45 pts away from the short term trendline at $808 – a level that should offer support – but if it fails to hold – then $760 ish (a 20% decline) would be next in line. A 20% decline would still leave the stock up 52% ytd – just fyi. And for those people who top ticked it at $966 – you might want to consider ‘averaging down’ as you build your position in a name that isn’t going away.

From a sector perspective – Real Estate was way out in the lead – XLRE rose 1.3% - a dramatic move for a ‘not so sexy’ sector and the 6th straight day of investor interest…taking it from an ytd loss of nearly 6% to a loss of 2%....  Names in the sector include PLD, AMT, EQIX, CCI, WELL, SPG, PSA, DLR…. The moves lower this year in these names can be credited to the idea that the FED may have HAD to raise rates before cutting them, is now no longer the story…..and while the FED may not CUT rates anytime soon, the idea that rates are not going higher is presenting an opportunity for some bargain hunting.  Behind Real Estate – we had Utilities – XLU, Tech – XLK, Consumer Discretionary – XLY and Consumer Staples – XLP all up 0.5%... Healthcare – XLV and Basic Materials – XLB up 0.3%, Communications – XLC up 0.1%, Energy – XLE flat, while Industrials – XLI and Financials – XLF ended the day lower – down 0.2% and 0.6% respectively.

Bonds which have been under pressure this year – gained in price – the TLT + 0.9% and the TLH + 0.8%.  The 2 yr. yield is now 4.73%, the 10 yr. is yielding 4.35%.  The shorter-term treasuries continue to offer yields greater than 5%...the 3-month yielding 5.25% while the 6 month is yielding 5.10% on an annualized basis.  12-month CDs continue to pay you about 5.25%.  If the CPI comes in ‘cooler’ than expected – then watch for that pop in the bond market – a pop which I think will be temporary – because in the end, I don’t really think interest rates are going significantly lower…in fact – I’m in the Jamie Dimon camp thinking that we could see rates go up as Janet brings more treasury supply to the public markets. Again, it’s just a simple Supply/Demand story. More supply = lower bond prices = higher yields.

Now a sector that we don’t talk a lot about is the Industrial Metals complex…think zinc, copper, nickel, silver, platinum, aluminum and gold (yes gold). These metals are all used for industrial purposes (think steel making, construction, chemical manufacturing, EV’s etc.) and are highly durable and are excellent at providing electrical and thermal conductivity. The Bloomberg Industrial Metals Index – BCOMIN is up 9% since April 1st….and that speaks to the strength of a rebounding global economy and the need for ‘industrial metals’ A closer look – finds Copper +9%, Zinc + 12%, Silver +15%, Gold +9%, Platinum 10%, Nickel +10%. And these price increases are not going to help the PPI index – which is the prices paid by manufacturers for raw materials that eventually make their way into the CPI.

A look at the Metals & Miners ETF – XME finds that it was up 1% yesterday leaving it up 5% ytd. Names in this sector include – FCX – which got an upgrade yesterday by BofA analyst Law Winder gaining 2% - he has a $59 target on it, AA, NEM, STLD, UEC, NUE etc.

Oil- remains elevated – this morning WTI is up 20 cts at $85.40. We know the story…. an improving global economy, growing demand, OPEC+ production cuts and lots of geo-political unrest. Of these – it is the growing demand story that I think is driving the latest move higher…. Global electricity demand is expected to grow faster over the next 3 years (and beyond). Demand from new tech (think AI chips), a growing population, improved manufacturing and higher living standards all key contributors to driving prices higher and while the world embraces ‘clean energy’ – demand for fossil fuels is not going away anytime soon.

Gold is trading at $2,365 this morning…. Global unrest, central bank buying, a hedge against inflation and demands from industrial metal usage are all part of this exciting story.  While I think it goes higher still, I would not be surprised to see it retreat and churn a bit around the $2300 level.

Eco data today includes the all-important CPI, Real Avg Hourly and Weekly earnings y/y and the March FOMC minutes…. will they reveal anything new? Not so much.  JJ has made it quite clear what the narrative is and that is what is important…..the others that come out and make comments – make them at the behest of the FED chair so that he can take the temperature….Some of them continue to suggest multiple cuts coming, others suggest a more muted response (think Raffi Bostic again yesterday) while the latest suggest that we should expect NO cut at all (Ferguson – Former Member and Kashkari – Minneapolis President). I’m in the NO cut camp – just fyi…. but would not be surprised to see a rate cut right BEFORE the election – in a vain attempt to give Jo Jo one last boost before election day.   I will note that any move by the FED within the 6-month window of a Presidential election has always been discouraged so as not to look partisan…. but – that was then…. this is now!

And not to be outdone – Mohammed El-Erian had this to say yesterday -

“Inflation will be sticky, but that shouldn’t stop the FED, because the 2% target is too tight for a global economy going thru a major rewiring.”

And boom – there it is…. the FED reached out to Mohammed to float the idea that the 2% target is unrealistic – so prepare yourself for a 3% target and if that’s the case – then yes, the FED can claim ‘victory’ and suggest that rates can go lower!  See how they did that?

At 6 am – futures are suggesting a small rally…. Dow futures are +50, the S&P’s +3, Nasdaq +3 and the Russell is +2. This does not suggest bullishness but nor does it suggest bearishness…. It suggests – “we’re not sure!”  Look – some are not  expecting the CPI report to be much of a factor, they think the market has already reacted and is accepting the idea that the FED does nothing.….so do not be surprised to see some bargain hunting after the pullback in stocks driven by the concern about inflation and what the CPI will say.  Look – the S&P is only down 1% off the high – which is really nothing…but like we’ve discussed – some bigger – core portfolio S&P names have gotten repriced…..NVDA, AAPL, JNJ, KO, PG, LLY, WMT, COST….and a  host of others that have all declined by much more than 1%- some down 10% - 20%........and so, these names do offer longer term opportunities for investors looking to add to core positions. 

Many continue to suggest that the market is too expensive – to which I would say – is it the market or is it tech? Look around – Financials, Energy, Healthcare, Industrials, Basic Materials, Aerospace & Defense, Metals and Miners, Utilities all appear to be fairly valued or even cheap. Remember – I keep telling you NOT to chase tech…. There are other places to put some money.  But in the end – it depends on who you are, where you are on the risk scale and the life cycle scale.  If you are 30 – 50 you should be buying tech – carefully – but you should. If you’re 60 + then you want to own some (if you don’t already have it) but be a bit more cautious about how you buy it – Capisce?

European stocks are all higher up about 0.5% across the region….….…. Investors awaiting today’s CPI report while also awaiting tomorrow’s ECB rate decision.  

The S&P closed at 5209 – up 8 pts.  We are in the 5170/5270 trading range – a CPI that does NOT raise the temperature will see the algo’s go into buy mode, while one that leaves it questionable will see more churn – a bit lower. After today’s CPI, will be tomorrow’s PPI….so the fun isn’t’ over yet.

Stick to your plan, talk to your advisor…..this is not the time to bail, but nor is it the time to chase stocks, but that does not mean you can’t put money to work in other sectors that are expected to outperform. In the end - know who you are, what your risk profile is and make sure your goals are aligned.  Talk to your advisor or call me to discuss.

One pot – Sweet sausage orzo

For this you need:  Sweet Italina sausage, garlic clove, shallots, chicken broth, sun dried tomatoes, shredded zucchini, spinach, lite cream, s&p, Olive oil, Italian herb seasoning, fresh basil, fresh grated parmegiana and Orzo.

Start by adding some olive oil to a large sauté pan.  Add in the chopped garlic and sliced shallots.  Sauté for 3 mins. Now add in the sweet sausage and brown. Season with s&p and the herbs.

Next add the broth – enough to cover the sausage, bring to a boil and add the orzo and the shredded zucchini.  Stir to mix.

Next – add in fresh spinach and the sliced sun-dried tomatoes, and cream.  Simmer until cooked.  Top with fresh grated cheese and fresh basil.  Now serve.  If it sucks up all the broth – feel free to add more to keep it moist.