Bonds down, Oil down while Gold surges up and through $2,100

• Are the magnificent 7 coming ‘unglued’?

• Money is moving into other sectors.

• Bonds down, Oil down while Gold surges up and through $2100.

• JJ to present to congress, What will he say about rate cuts?

• Lots of eco data this week to watch.

• Try the Cannelloni Bean Appetizer.

Recall what we discussed a month ago….’Trees don’t grow to the sky’….and apparently neither do the ‘magnificent 7’…. Investors, it appears, appear to be tiring a bit of the rally in tech stocks…. and by the end of the day – stocks, for the most part, ended in the red….

You see, the Dow lost 100 pts or 0.25%, the S&P down 6 or 0.1%, the Nasdaq lost 68 pts or 0.4%, the Russell gave up 2 pts or 0.1%, the Transports lost 45 pts or 0.3%, while the Equal Weight S&P bucked the trend and added 16 pts or 0.25%. 

What we saw was pressure on the best tech performers……. TSLA lost 7%, AMZN -0.4%, AAPL – 2.5%, MSFT -0.15%, & META -0.8%.  And we saw some pressure on Disruptive Tech – ARKK – 0.9% and we saw the Growth Trade – SPYG lose 0.4% (Understand that MSFT, AAPL, AMZN, META, make up 35% of that etf)

But it wasn’t a TECH disaster at all.  Semi’s rose by 1%, and you can thank NVDA + 3.6%, AMD + 1.3%, AVGO + 0.25%, QCOM +2.1%, & INTC +4% (think chips to power AI).  Cybersecurity ended flat while Expanded Tech – IGM rose 0.13% - understand that NVDA, AVGO & AMD make up 21% of the ETF. (starting to see some overlap, no?)

What is starting to concern some investors is whether or not some of these tech companies (Magnificent 7 come to mind) that have gotten stretched, a concept we have discussed, can in fact live up to the ‘lofty valuations’ that investors have placed on them.  Have investors, traders and algo’s taken these names too far too fast? Are we beginning to see them ‘fray around the edges’ – which reiterated my original argument – ‘Trees don’t grow to the sky.’

Now, if you look outside of tech – what you will see is some of that money that is moving out of the ‘sexy’ names is moving into other areas of the economy.  Industrials – XLI + 0.4% names like HON, GE, UNP, RTX, & CAT all ended the day up, Utilities – XLU (the most boring sector) gained 1.4% with names like DUK, CEG, D & PCG all up nicely, Real Estate  XLRE gained 1.15% - AMT, WELL, EQIX, DLR helping to send that group higher.  Basic Materials – XLB + 0.75%, LIN, SHW, FCX & APD supporting that sector.  Even Financials – XLF ended the day higher + 0.25% and that was even with all the concerns surrounding NYCB suffering another 24% loss – after 2 credit downgrades - taking it down 75% ytd…. 

In any event – it wasn’t a memorable day; it was just another day.

Bonds moved lower – the TLT and TLH were both down 0.3% while the AGG was down 0.25% and that sent yields up.  Recall that the TLT and TLH are the 20 yr. and the 10 – 20 yr. bond etf’s while the AGG is all that plus corporates securities – so it is a broader view of the bond market so in the end yields went slightly higher only adding to the pressure on those ‘sexy’ tech names.  FYI – there are about $30 billion worth of corporates coming to the markets this week and that is causing bond investors to play it close to the vest….

There was NO eco data yesterday, but today brings S&P US Services PMI – expected to be 51.4, ISM Services PMI of 53 – both in expansionary territory and remember the US economy is a 75% services economy, so these are key indicators.  Factory orders of -3%, Durable Goods orders of -6.1% and those suggest underlying weakness in the manufacturing side of the economy and then later in the week, we will get data on the labor market, which some think will show weakness…..so there is the contradiction…..services remain strong, yet manufacturing is under pressure and the labor market is cooling….but let’s see how those reports come out.

Tomorrow brings us the ADP report and Friday brings us the monthly NFP report.

And then we have JJ speaking in front of congress on Wednesday and Thursday in his bi-annual Humphrey Hawkins Testimony – where he is expected to double down on the newest narrative – the FED is in NO rush to cut rates…and that continues to suggest to me that it ain’t happening.  It certainly is not happening in March or May, but the ‘smart’ money suggests that June will see a rate cut, but I am still in the camp that says they will not cut rates because the data does NOT support a rate cut. Remember if they don’t do it by May, they will have a difficult time convincing us that they need to do it in June – as we will be within the 6-month window of the election…. without appearing ‘political.’  But hey, it appears that no one is following the rules these days…it’s a free for all – which is not good, but it is what it is.

If  JJ hints that while he is no rush to cut, but he fully expects to cut (at some point), then I suspect we will see the markets remain elevated….as traders once again try to handicap the number of cuts we might see….In any event – it is a tangled web we weave.

Oil remains in the $75/$80 range – this after piercing $80 to trade as high as $80.40 on Monday on the idea that China would succeed in turning around their economy and if they do, then we can all expect demand to grow and that would send prices up…but this morning it is down 20 cts at $78.60 as the narrative has now become ‘not happening’ – The market is betting China will not be able to ‘transform’ their economy and so they take oil down….I say – ignore the daily narrative….demand is strong and will remain strong.

Gold – which had been trading in the $2030/$2050 range has woken up…rising $50 on Friday, $ 30 yesterday and is up another $5 today…. now trading well above the $2100 level.  The 4% move in gold is being credited to subdued manufacturing and construction spending that we saw at the end of the week – suggesting a weakening economy, which then suggests that JJ will hint at lower rates over the next two days…..and if he does then we can expect gold to continue to rally….This is not a surprise for you, we have discussed this ad nauseum….  Now, let’s be clear, IF JJ does not hint at a rate cut then I would expect Gold to retreat….so sit back and grab some popcorn….

Just to keep you up on what’s happening in the Crypto market – Bitcoin is trading at $66k up 57% ytd and Ethereum is trading at $$3700 up 62% ytd. 

This morning US futures are down - Dow futures down 70 pts, S&P’s down 17, The Nasdaq down 135 pts while the Russell is off 8 pts.  Futures are suggesting that JJ will sound more hawkish than dovish….as he reminds us that he is no rush to cut.

European stocks are lower – all down about 0.3% across the board with the exception of Italy – that market is flat on the day.  Investors are concerned about a couple of things…..One -  that China will not succeed in turning their economy around (I am not in that camp, although I also do not invest in China directly – so I don’t focus on anything China does) yet the global economies are connected, so I guess you have to have a view…My view is – I don’t let the China news drive every decision, in fact, I don’t let it drive any decision. But that’s me…. I think there are plenty of opportunities outside of China, Period.  

And two- What will the ECB do and say this week? They are expected to do nothing, and investors know that, but what they want to hear is what they will do next month and the month after that?  Will they remain on hold – like the FED or will they take the lead and cut rates ahead of the FED?  But until investors hear what is said, they are prepared to be more cautious.   

The S&P closed at 5130 – down 6 pts…. We have seen risk levels rise across a range of sectors and assets leading some to warn of ‘frothiness’ and all that means is that risks are rising, and this is NOT the time to become complacent. And that frothiness argument only risks getting worse with a premature rate cut as it will fuel this extended rally.  And look – the market is performing fine with 5.25% rates, the economy is strong and that alone could push prices higher….so again, why the rush to cut rates? 

So, you ask– What will cause the markets to decline?  Well, a definitive announcement of NO rate cuts anytime soon would start it, and then slowing economic activity and falling estimates will exacerbate it.  But until we get that, I suspect the markets will continue to churn at these levels.

Today is Super Tuesday – where 15 states are holding GOP contests, and 2 states are holding caucuses. 14 states will hold the DNC contests.  It is expected that this will tie it all up.   Trump vs. Biden in November of 2024 – unless of course one or both drop out for some unknown reason at or before the conventions… In any event – it is what it is (for now) which leaves me to ask one basic question.  Is this the best we’ve got?  And that says it all, nothing more to add.

Cannelloni bean appetizer

This is a great dish to serve at a dinner party when your guest arrives.  Simple to make and delicious to eat.

For this you need: Fresh Kale, remove the leaves off the stem and rough chop, leeks (just the white to light green part), garlic, cherry tomatoes, 1 tsp tomato paste, 1 can of cannelloni beans, mascarpone cheese, s&p and toasted Italian bread.

Start by placing the rough chopped kale in boiling water and blanche for 5 mins.  Strain and set aside.

Now in a large sauté pan, add the olive oil, the sliced leeks and 2 cloves of garlic.  Sauté for 10 mins or so.  Now add the cherry tomatoes and the tomato paste. Sauté for another 5 mins or so…. Now add in a can of cannelloni beans – juice and all and a 2 tlbspn of mascarpone cheese.  Mix and let it all come together.  Season with s&p. Add the blanched kale, mix, and present this (in the pan) with some toasted Italian bread.  Enjoy.