All Eyes on the Economic Recovery

Stocks continued to rally on Tuesday – picking up from where Monday left off… and again Apple stealing the show… as it usually does… up another 2.1% as investors/traders and algos just can’t get enough… Apple is now up 7% since last Friday and is up nearly 25% on the year. The news just keeps getting better and better as the week and the year go on… The WWDC (World Wide Developers Conference) just another smash hit for Timmy Cook and for Apple… and like I said yesterday and have been saying for some time – why ever consider selling your apple position… buy it and forget it… Let the dividend re-invest and be done with it… And while the Dow, S&P and Russell closed off their highs – the Nasdaq managed to make a new high – climbing 74 pts or 0.75% ending the day at 10,131! And in case you have been asleep at the wheel – the Nasdaq index is now up 12.9% on the year while the Dow, S&P and Russell remain in negative territory.

Tech is the name of the game – and while it has been for a number of years now – it is even more so in 2020 – as the world learned that it can function remotely, we can work in places we never dreamed possible, we can email, call, zoom, skype, facetime – whatever to keep in touch with not only our work families but our family families.

Now as I noted – stocks did trade higher during the day but fell into some profit taking as concerns over the surge in newly diagnosed cases are now mounting faster than you can say ‘Corona Virus’. While there are supposed new outbreaks in 4 states, we are learning that there are a growing number of cases in another 20 states… with most of the newest infections being tied to the 20-30 demographic vs. the 70-90 demographic and that is being explained away as ‘summer fun’ – bars, beaches, sports, etc. as the good weather is drawing out the crowds – and in this case the crowds are now the younger set – the set that is tired of being told to stay put and tired of not being able to ‘swipe left or right on tinder’… I mean – which is it? Left is yes and Right is no thanks? I’m showing my age – I mean, can you imagine what this generation would do if they actually had to go out and ‘work for it’?  Oh, boy… that’s a whole other conversation.

The newest outbreaks are happening in what are being called ‘hotspots’ with California now breaking its own record for new cases 4 days in a row… with some of these new cases being credited to more and more tests while others are being credited to the ‘tinder experience’… And while we want to collect the data because we should have the data – let’s be careful how we manipulate the data… Deaths are in decline, that’s good – but the deaths that are still being credited to corona have additional facts surrounding them – facts that conveniently get lost in the narrative. And while corona may have been the final chapter – most had pre-existing conditions that had already weakened their immune systems allowing covid to finish it off – much the same way pneumonia finishes it off. I’m not downplaying this at all, I am merely stating a fact – in the end something always gets you.

Now look – while corona simmers in the background – all eyes are on the economic recovery… and if there are any indications at all that the growth is slowing – everyone knows that the FED will come up with a new and exciting stimulus program to rescue the markets – Jay Powell was very clear in his latest testimony – there should be no confusion at all about this… so essentially – the stimulus puts a floor under stock prices so bad news is good news as long as everyone thinks that the FED will save them.

The latest eco data proved to be wonderful – as I explained in yesterday’s note… Manufacturing PMI – came in at 49.5 – just a whisker below the neutral line but up big from the depths of despair only 2 months ago… Services PMI also doing better than it was 2 months ago, but was a bit weaker than the expectation – but remember what I just said – bad news is good news! And that news is not really bad at all. New Home Sales??? Blew the doors off the bus – coming in at +16.6% vs. the expected +2.7%… Mamma mia… get on board – with rates to stay at zero for 30 more months… it’s time to enjoy the ride… Housing stocks surging… the XHB – homebuilders ETF adding 1.5% onto it latest move – leaving it up 83% off the March lows and now well above all 3 trendlines… No need to chase it – but if it comes back in – maybe you want to dip your toes in the water a little…

Other sectors showing strength yesterday – Tech, Financials, Consumer Discretionary (typically called cyclical stocks because they do better in a strong economy… because as the name details – they are discretionary names and not staples… and that ETF contains names like – AMZN 24%, HD 12%, MCD 6.5%, NKE 5.7% SBUX 4%… all names that would come under a bit of pressure if the economy ran into trouble… because you wouldn’t spend money at most of these places as you tighten your belt… Consumer Staples – XLP on the other hand contains names like – PG 16%, PEP 10%, KO 10%, WMT 9%, CL 3%, COST 4.5% KMB 3%… because no matter what you still need products produced by Proctor and Gamble, Walmart, Colgate, Costco, Kimberly Clark (think diapers) – Capisce? And the market churns higher…

In fact, what the market and by default investors/traders and algos are telling you is that most investors are not that concerned about those infections – they are more focused on what the economic recovery looks like – and by all accounts – it looks pretty good. Now that can all change on a dime – depending on the headline that hits the tape on any given day… and we saw that on Monday night during the FOX news interview when Petey Navarro – aka – The Clown – blurted out that the US/China trade deal was off… and this sent US futures plunging in the overnight session and sent Asian markets into a tailspin – that was until he tried to walk it back saying that it was all taken ‘out of context’… and then Donny – had to act like the adult in the room – assuring us that the US/China trade deal was intact – no worries and futures did an about face and went from negative to positive in a NY minute.

Eco data today includes: nothing that is going to make a difference at all. Tomorrow will bring us Retail Sales Inventories exp of -2.8%, Durable Goods now that is expected to be +10% which is in contrast to last months -17.7% – so keep your eyes on this data point. Durables EX transports of +2.2% vs. -7.7% last month. GDP for the 1Q final revision is expected to be -5 (no change from prior estimate). Initial Jobless Claims of another 1.33 million people with Continuing Claims of 20 million people still on the payroll.

Today they are emphasizing the negative headlines… Fauci and the IMF being cited for the weakness.

US futures this morning are DOWN! Can you believe that? The reason being cited overnight are the comments that Dr. Fauci made yesterday to House Energy and Commerce Committee – Now here is the rub – he made these comments yesterday during the day – yet the market marched higher… ignoring his guidance… but then someone had to create headlines for today so they revisited his testimony, took the negative parts, and are now emphasizing them in the media around the world – giving global markets a chance to re-group. Remember what I said about how the tone can change depending on the headline that they choose to run with… and today – the headline is about how he emphasized the fact that as parts of the US are seeing ‘a disturbing surge of Covid19 cases’ he is very concerned and thinks the rise is due to ‘community spread’ (think Tinder again) vs. an increase in testing and that some of these states will have to reconsider an ‘absolute shutdown’ and suddenly the algos are paying attention – because this is a negative headline… absolute shutdown is an absolute shutdown!  At 5 am, Dow futures are lower by 280 pts, S&P’s are off by 32, the Nasdaq is down by 63 pts and the Russell is off by 15 pts. Now expect to hear more about rising rates, surging cases and possible closures of bars and restaurants in those ‘hot spots’. Which will also then include weaker oil prices – because demand would be expected to fall… blah, blah, blah…

Asian markets were mixed – Japan -0.07%, Hong Kong -0.5%,  China +0.4% and Australia +0.19%.   Investors there were also hit with the Fauci comments and they are still wondering if what Petey Navarro said has any truth to it… I mean is Navarro right, but just a bit early? Will Xi Xi – honor phase 1 of the agreement? It’s all a very tangled web we weave…

In Europe – it’s the same story… Fauci, surge in cases, hot spots etc.  In addition are the coming comments from the IMF (Int’l Monetary Fund) which are most likely going to be a bit more negative about the pace of the global recovery and the impact it is having and had on countries around the world. European markets are getting whacked – at 5:30 am – the FTSE -2.3%, CAC 40 -2.3%, DAX -2.33%, EUROSTOXX -2.14%, SPAIN -2.11% AND ITALY -1.6%.

And Oil is trading below $40/barrel – down 1.6% at $39.72 as the news continues to hammer oil… In addition this week’s API (American Petroleum Institute) report showed that crude inventories did rise by 1.7 mil barrels last week vs. the expected rise of just 300,000 barrels and that is causing some profit taking after the recent surge, which makes sense, but does not change the longer range picture. Tighter supplies and increasing demand will drive the action… We remain in the $36/$45.50 trading range.

S&P closed at 3131 – but if the futures are any guide and European trading is any guide – expect the S&P to test last week’s lows of 3070 (that is only a 2% move from here). If we do and it doesn’t hold then a further test of trendline support is in order and that is down at 3020 – or 3% from here. Look, expect it to remain volatile until we have more clarity on a treatment or vaccine… The recent uptick in cases is causing some angst, but again, this is not new news…

Take good care –

Kp


chicken thighs

Jack Daniels Chicken Thighs

You will need:  Chicken Thighs (I prefer on the bone) but you can use boneless.  brushed lightly with peanut oil and seasoned with s&p.

For the Sauce – mix:  1/2 c of soy sauce, 4 tablespoons vinegar, 1/2 c of Jack (Daniels), 1/2 c of brown sugar, 3 scallions, grated ginger – like a tblspn, 4 garlic cloves – smashed and chopped. Chop the scallions and mix all of the sauce ingredients together and set aside. Taste – make any small adjustments.

If you do this on the grill then – heat the grill to high… add chicken – careful not to burn – cook about 4 mins on each side – or until lightly browned – not burned… remove and place in a metal roasting pan.

Turn heat down to low.   Add the sauce to the pan and return to the grill (leaving the chicken in the pan on the grill – capisce?) – stirring to coat the chicken pieces well. Continue to cook until the sauce is reduced to all but a glaze on the chicken. Remove and serve.

If you are doing this in the house – then heat a sauté pan to high with a bit of the peanut oil and add chicken pieces cook until lightly browned.  Reduce heat and add the sauce. Cook uncovered until only a glaze is left… serve immediately.
Enjoy.

Buon Appetito.

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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