Bonds flat, Oil up, Gold churns – It’s a big week for economic data and political drama

• S&P rebalance, and Triple Witch go off without a hitch.

• It’s a big week for eco data and political drama.

• Thursday is the debate while Friday brings us the PCE deflator.

• Bonds flat, oil up, gold churns.

• Is the VIX suggesting building caution?

• Try the Mostaccioli w/Arugula, Cannelloni Beans and Sweet Sausage.

So, we made it through both the S&P rebalance and the triple witching hour –   without disturbance.  Like I told you on Friday – if you were expecting all kinds of drama – you would have been wrong – the street has been preparing for this event for weeks now…. I mean, it’s not like we didn’t know it was coming…. We did….  ….and while it was a massive day in terms of volumes and dollars (most of that in the final moments of trade) – there was not any drama at all – think dislocations, or price spikes etc.   $5.5 trillion worth of options – equity, index and futures all expiring at the same ‘moment’ while we also got the S&P rebalance – only adding to the excitement. But like I said – no worries…it’s all good. 

The focus was on the S&P XLK etf….As a result of the movement in NVDA over the past year – it’s weight in that index rose by more than 14% to its current 21% weighting up from 5%....All this happened at Apple’s expense – where we saw its weighting drop to 5% down from 21%.  The change in this ETF driven by a range of factors including – GICS Classification, Market Cap, Liquidity, Public Float and Committee Review - this ensures that the XLK includes the most significant companies and remains the most relevant ETF in the tech sector. 

Stocks -in the end – did very little…. the Dow gained 15 pts, the S&P lost 9 pts, the Nasdaq down 32 pts, the Russell gained 5 pts, the Transports +37 while the Equal Weight S&P gained 8 pts.

Eco data remains mixed – with housing continuing to suffer – Existing Home Sales fell by 0.7%, which while weak – was not as weak as the expectation of -1% (so I guess that’s a positive) all while Manufacturing and Services PMI’s rose strongly…. suggesting ongoing strength.  Both PMI’s solidly in expansion mode at 51.7 and 54.6 respectively (recall 50 is the dividing line).  Stronger than the expectations…which only causes confusion amongst the paparazzi…. which is it?  Is the economy weakening or not?  Does the FED NEED to cut rates or not?  SHOULD they cut rates or not? Have stocks gotten ahead of themselves on the narrative that not only will the FED cut, but they will cut multiple times before the ball drops in Times Square?  All good questions and ones that remain at the top of mind.    

There isn’t any eco data today -but tomorrow we will get the Dallas Fed Manufacturing Survey, Wednesday brings us the Philly, Richmond, Dallas and Chicago Fed Activity (services) indexes, Consumer Confidence, Thursday brings us Mortgage Apps and New Home Sales – expected to be up 1.7%. Final revision to 1st  GDP at +1.4%.  Thursday will feature Personal Income +0.4% and Personal Spending +0.3% and all important (in fact – the KEY metric this week) PCE Deflator – (FED’s favored inflation gauge) and it is expected to decline (which would be a positive).  Top line m/m coming in at 0% (the whisper number is -0.1%), while y/y is expected to be +2.6% down from 2.7%.  Core deflator (ex-food and energy) m/m is expected to be +0.1% while y/y is expected to be 2.6% down from 2.8%.  Now remember – IF the PCE Deflator does indeed decline – then expect the trader types to stamp their feet about the need to cut rates…in order to navigate a soft landing.  Whatever…. Again, at this point – the issue is not IF they cut, but when and by how many times.

Bonds came under a tiny bit of pressure - sending yields a bit higher…the 2 yr. ended the week yielding 4.71% while the 10 yr. is yielding 4.256%.

Oil is trading at $80.90 - remaining in the $79.40/$85.50 trading range. – WTI is up 10% so far this month (12% ytd) ……this after OPEC+ remains steadfast in holding production cuts at current levels while global demand is ‘running ahead of global supply’ - what have I been saying all along?  This is NOT a demand issue at all…. the weakness we witnessed between April ($85) to early June at ($73) was more about oversupply coming from the non-OPEC producers (think US, Canada, Brazil, Norway, Mexico etc.).  Supply can overwhelm demand – which does not mean that demand is waning at all, it just means there is much more supply.   And now that story is being told…. summer demand in the northern hemisphere is strong and overall global demand growth for energy remains strong. Analysts on the street are now calling for oil to pierce the late April high of $82.50 and then challenge the early April high at $85. 

Gold which shot higher ($2390) during the week last week – ended Friday down $30 pts to $2331/oz as the recent data continues to show US resilience leaving little likelihood of multiple rates cuts this year.  This morning – gold traders are taking it back up $11 to $2342/oz as they continue to dissect and digest the latest news…. We remain in the $2300/$2400 trading range.

This morning US futures are mixed as investors await a week full of political risk and economic data points. Dow futures are + 75. S&P’s + 4, Nasdaq -10 while the Russell is up 5.

Thursday – brings us the first US Presidential debate – and while Donny has been out stumping on the campaign trail – visiting key swing states and key voter blocks, JoJo has been holed up at Camp David preparing for the event.  All eyes will be upon JoJo – to see how he performs cognitively – will he suddenly appear to be wide awake and in control or not?  And what about Donny – how will he present?  Remember – both men are in their 80’s…and that in itself is an issue, but according to the polls – this is the BEST we’ve got (sad commentary on us) – so expect Thursday’s debate to be widely watched and then expect the main street media to tell us how vibrant, aware, awake and in control JoJo is….and how ‘out of control’ Donny is (reminding us that he is a ‘convicted felon’)….That will not change, but we will be told what they want us to hear no matter what we see.  Do not expect the debate to drive market performance, because it will not…but it will provide a level of entertainment unable to be recreated in the movies.

European stocks are up this morning…. Germany up +0.5% while Italy is up 1.1%.  Look for monetary policy decisions from Sweden and Turkey while we get GDPs from Spain on Tuesday and Italy on Friday.

Keep your eyes on the VIX – it is up 13% since last Wednesday…. now kissing trendline resistance at 13.73.  All this suggests building caution – not real fear, but just more caution. Look – a rising VIX is about 4 key points.  Increased uncertainty about the future path of stocks, Risk Aversion – triggered by economic concerns, a Potential Downturn, and some clear Hedging Activity – where investors buy PUT options to hedge against potential declines while maintaining their long positions.  The VIX is at a key level…. a push up and thru resistance will see stocks back off for sure – something I have been looking (almost hoping) for as a long-term opportunity.  

The other places you might look at to get a sense of sentiment are - the Contra Trade ETF’s – the SH (-10% ytd) gets you short the S&P, the PSQ (-13% ytd) gets you short the Nasdaq while the DOG (-1.5% ytd) gets you short the Dow. The SPXS (-31% ytd) – is the triple levered S&P short and while exciting – can cut like a very sharp knife if you are on the wrong side of that trade. Conversely the SPXL is the triple levered LONG S&P -which is up 41% ytd….

On the RSI scale – the SPX and Nasdaq are still a bit in overbought territory at 71.2986 and 70.61 respectively.

The S&P ended at 5,464 – down 8 pts – but remains up 14.5% ytd…. This is the last week of the 2nd qtr. – expect lots of ‘window dressing’ and reallocations going into the second half of the year. Remember – portfolio managers want to shine the brightest light on themselves…and June is a marking period.  Just like January, September and December.

Mostaccioli rigate W/cannelloni beans, sweet sausage and arugula

This is a great dish, and you can make vegetarian by just eliminating the sausage. 

Bring a large pot of salted water to a boil. Add the Mostaccioli and cook until aldente – 8 / 10 mins.

In a sauté pan – heat up some olive oil, crushed garlic and a sliced/chopped "red" onion. Sauté until the onion is soft and translucent. Now add the crumbled sweet sausage and sauté until browned. 

Next – add a can of cannelloni beans - juice and all and stir to heat up... about 4 mins or so. Now add the arugula and stir. Arugula will wilt – no worries. Drain the pasta – saving a mugful of the pasta water... add the pasta directly to the sausage and beans and mix well. Add a handful of Parmegiana cheese and toss. If you need to add back some of the pasta water, now is the time to do it. The dish should not be soupy, but it needs to be moist. 

Serve immediately in warmed bowls with freshly toasted garlic bread.