Economic resilience and market rebound amid mixed signals

• GDP informs us that the economy remains robust.

• Core PCE Price Index Q/Q reflects higher prices…. What will today’s PCE y/y show? 

• The VIX is lower this morning, futures are HIGHER.

• Oil and Gold churn in place. Bonds prices advance.

• Try the Short Rib Burger.

GDP comes in at +2.8% well above the 2.1% estimate and well, well above the 1st Qtr. read of +1.4%.....and what this means is that consumers ramped up their spending as incomes supposedly continue to rise, businesses ramped up their CAPEX (capital expenditures) spending - investing more in equipment, plants, buildings and technology all while the Core PCE Price Index Q/Q rose by 2.9%, above the expected 2.7% even as they tell us that inflation continues to cool.   

Just to be clear – the Core PCE Price index measures the ‘prices paid’ for good and services WITHOUT volatile food and energy prices. It is considered a KEY indicator by the FED as they gauge inflation and set monetary policy.  It is supposed to measure the underlying inflation trends more accurately than the PCE Price Index.

In any event do not expect a change in outlook by the FED next week…. they have made it very clear that they will hold rates steady in July but could cut in September if the inflation continues to cool. In the end this data point suggests that the economy remains robust, robust enough to cut rates. 

Now stocks rallied on this news, until they didn’t. At the closing bell – the Dow added 81 pts, the S&P lost 28 pts, the Nasdaq fell by 160 pts, the Russell gained 28 pts, the Transports added 195 pts while the Equal Weight S&P gained 8 pts. 

You see the difference between the 2 S&P’s?  The S&P is a market cap weighted index – meaning companies with larger mkt caps have a greater impact on the performance.  Thus the S&P was down 28 pts while the Equal Weight S&P was up 8 pts.  The Equal Weight S&P gives every company an ‘equal weight’ thus removing the advantage of size…and there you see that it rose - Suggesting that the small number of ‘mega cap’ tech companies dragged it down while most of the remaining companies advanced – leaving that index positive.  

And this continues to suggest a broadening our of investor investments. So far this year - sectors that were underperforming are now up double digits – led by Utilities and Financials up 11% and 13% respectively.  SMIDS (small and mid-caps) are also up double digits -with the IWM +11%.  Then we have Industrials, Consumer Staples, Healthcare and Basic Materials all up 8% – 9%.  And this suggests that broadening out that everyone is talking about.

Yesterday - economically sensitive stocks advanced.  Financials – XLF + 0.4%, Energy – XLE + 1.7%, Industrials – XLI + 0.8% and Basic Materials – XLB + 0.3%. SMIDS advanced as well – rising 1.3%.   All of the other sectors declined, led by Tech -XLK and Communications – XLC both down 1.1%.  Utilities – XLU fell by 0.8%, Healthcare – XLV – 0.5%, Consumer Discretionary – XLY – 0.4%, Consumer Staples – XLP – 0.1%, & Real Estate – XLRE fell by 0.5%.

The VIX advance by 2.3% and continued to put some pressure on the big boys.  This morning the VIX is down 5% as the tone feels a bit relaxed. 

Now eco data today includes Personal Income – expected to be +0.4%, Personal Spending – expected to be +0.3%, and the all important PCE Price Index and that is expected to show an increase of 0.1% m/m and +2.4% y/y.  Now the CORE Price Index is expected to be +0.2% m/m and +2.5% y/y… (Note that yesterday’s Core PCE Price Index was Q/Q – all these different time frames only meant to confuse you. – This way they can point to the data point that ‘tells their story’ while ignoring the rest.)  We will also get the U of Mich sentiment surveys.

Earnings will continue with results from BMY, CNC, NWL, TROW, CL & MMM.

US futures are UP…. Dow futures +200, S&P’s +40, Nasdaq +185 and the Russell is +35.  This as calm appears to be restored for now as traders and investors claw back some of the losses after the ‘panic’ created by the algo’s earlier this week. But here again is my point – having a plan is key and taking advantage of the chaos created in ‘good names’ – as long as the ‘thesis’ remains the same is ‘key’ as well. 

Oil remains in a tight range…. $76/$80. Gold is trading at $2420 after testing $2400 yesterday.  That too remains in a range - $2400/2500.

Bonds advanced yesterday the TLT + 0.8%, the TLH + 0.5% and the AGG +0.3%.  2 yr. yields are now 4.42% while the 10 yr. is at 4.24%.

European markets are mostly higher…. Spain is down 0.2% while France is leading the pack up 0.9%. The sense of calm across the zone is causing long term buyers to be a bit more aggressive – trying to scoop up stock at a discount, stocks who got punished for no real reason other than the panic caused by the algo’s.

The S&P closed at 5399 – down 28 pts.  the trendline is at 5428 failed to hold….and while futures are pointing up today do not be surprised if we test lower in the weeks ahead… A test and fail of the trendline again will cause markets to test the 5250/5300 range.  I said we needed to test trendline support and we did…. Now let’s see what happens next.  Remember – we are entering the seasonally week time of year….so prepare yourself for more volatility ahead…. If you have more cash to put to work – sit tight….no need to rush…. Leave it in the mm fund earning 5%....

Don’t forget – we are now in the blackout period for the FED, the FOMC meeting is next week – the announcement due out on Wednesday at 2 pm.  While no rate change is expected – investors will be listening to what JJ says about the future. Currently the market is pricing in at least 2 cuts (if not 3).

And in politics – Barack and Michelle joined Bill and Hillary in throwing their support behind Kammy…. This is heating up…grab the popcorn, this is going to be ‘interesting to watch’….

Short rib burgers 

These are crazy good.... they are a bit of work - but if you have the time and you really want to impress - go for it.

Refer back to the Short Rib recipe below.   Make 1/2 dozen ribs - the night before......cool and then shred the meat off of the bone.... Now when ready.... bring the shredded meat to room temp and then mix the cooked short rib meat with the ground chuck (now use real ground chuck - not lean hamburger meat...you want it to have the fat for flavor) season with s&p and form the burgers.  Light the grill and let it get nice and hot and cook.  Top with sautéed onions and Monterey jack to complete this burger.

 While this is cooking - butter the Brioche buns and toast either on the grill or in a frying pan......Then place the cooked burger on your bun - with fresh lettuce and the sautéed onions.  Mayo and Ketchup on the side.  Outstanding.  

Braised short ribs

Begin with 6 / 8 beef short ribs.  season with s&p and then brown in a frying pan with a bit of Olive oil.  Make sure to brown all sides being careful not to burn the meat.  After you have browned them - place them in a large/deep baking pan.  Lining them up on their sides.

Next - large Chop - 2 lg White Spanish Onions, 1 bunch of celery stalk, 1 bag of carrots.  Smash 4 /5 cloves of garlic and add to the meat - making sure you disperse the garlic all around.  Next add the chopped veggies right on top.

In the frying pan that you used to brown the meat - add:  1 can beef broth, 1 can tomato paste, and 1/4 to 1/2 bottle of red wine.  mix well and let the broth come to a boil for a couple of mins as you steam away some of the alcohol in the wine.   Bathe the short ribs in this mixture and cover tightly.   Place the baking dish in the oven - preheated to 350 degrees. Let cook for 4 hours - tightly covered.

Remove and let them rest for15 mins or so.