Stocks rally after pullback, but v-shaped recovery doubts linger even as Retail Sales rebound

• Stocks rallied for two days! Futures point a bit lower this morning.

• While indexes are lower – some sectors remain strong.

• Bonds Up, Oil up and Gold marches into a new century.

• FED’s FOMC Meeting starts today, announcement tomorrow at 2 pm.

• Try the Veal Osso Bucco

Good morning….so, I take a couple of days off and look what happens!

Stocks rallied for TWO days – pushing higher from ‘technically oversold levels’ causing some to suggest that the nasty, swift 10% pullback in the S&P, the 19% pullback in the Russell, the 14% pullback in the Nasdaq, the 19% pullback in Transports & the 22% pullback in the Mag 7 is all over…..some even suggesting that we are going to get that famous V shape recovery….. A camp I am not in…..let’s not misunderstand…. while I think we will get ‘a’ recovery – I do not think that it will be a swift V shape recovery…..

At the end of the day Monday- the Dow was up 353 pts or 0.9%, the S&P up 37 pts or 0.65%, the Nasdaq up 55 pts or 0.3%, the Russell up 25 pts or 1.2%, the Transports up 115 pts or 0.8%, the Equal Weight S&P up 92 pts or 1.3% while the Mag 7 LOST 256 pts or 1%.

Now of Friday we learned that U of Michigan sentiment surveys were disappointing and that caused the market to rally……(think FED)…..and yesterday Retail sales were the focus after January’s disaster – and the results suggest that consumer spending is NOT collapsing….….investors and analysts sat patiently on the edge of their seats waiting for the Retail Sales number published by the US Dept of Commerce to hit the tape…and while they did not ‘blow’ the roof off, they did make a solid recovery from the weak January numbers….

So, for instance – January’s Retail Sales m/m number was revised down to -1.2% (from the original -0.9%) but February’s number came in at +0.2% up a substantial 1.4% over January…. How about Ex Autos and Gas? That came in at +0.5% vs. January’s -0.8%, a 1.3% advance m/m….and the ‘control group’? That came in at +1% vs. last month’s -1% - so a 2 percentage pt turnaround…. Those are good numbers, they are not a disaster at all….and did offer some more support for investors…..and so, investors, traders and algo’s went bargain shopping….and stocks rallied….90% of the S&P ended the day higher…..

Real Estate in the lead up 1.8%, Industrials +1.4%, Consumer Staples +1.5%, Energy +1.6%, Healthcare and Basic Materials both up 1.3%, Financials +1.2%, Communications +0.7%, Tech up 0.7%, Utilities +0.4% while Consumer Discretionary gained 0.2%.

Just fyi - YTD – we have 9 of the 11 S&P Sectors higher – suggesting that there is opportunity for investors and that supports the whole ‘diversify’ conversation….. - Energy and Healthcare up 6.5%, Utilities +4.7%, Basic Materials up 3.5%, Real Estate + 3.7%, Industrials +1%, Communications +0.5%.

Leading us lower by the ytd are Consumer Discretionary down 12.5%, and Tech down 7.4%.

Further down the chain – we have ytd losses in Homebuilders (XHB) – 5.7%, Retailers (XRT) – 13%, Airlines (JETS) – 13%, Disruptive Tech (ARKK) – 11%, the Value trade (SPYV) is flat, while the Growth trade (SPYG) is down 6.4%, Semi’s (SOXX) down 5.2%.

On the upside – Cybersecurity (CIBR) is up 3.7%, Gold is up 25%, Aerospace and Defense (ITA) is up 5.5%, Steel (SLX) is up 9.5%, Metals & Miners (XME) up 2.5%, Emerging Markets (EEM) are up 8.5%, Short Disruptive Tech (SARK) is up 14%.

Bonds were higher yesterday – the TLT up 0.5%, the TLH was up 0.3% while the AGG was up 0.1% - leaving these assets up 3.7%, 3.5% and 1.5% respectively.

3- & 6-month (short duration) bills are now yielding 4.3% and 4.27% while the 2 yr is yielding 4.03% up from 3.82%, while the 10 yr is yielding 4.3% up from 4.10% just 2 weeks ago.

Oil – while down 11% from the January high is up 4% off the recent low of $65.20 – trading at $68.61…..up $1 this morning…. the recent strength being credited to escalating middle east tensions and demands by Putin on any ceasefire deal in Ukraine…

Overnight – Israel launched an attack on Gaza – after Hamas refused to release any more of the hostages… – bringing any ceasefire to an end (for now) while Trump ramps up the pressure on the Ayatollah…. On the next page - Vlad made all kinds of demands on any ceasefire deal with Ukraine – effectively torpedoing the plan endorsed by the US, the international community and Ukraine….Trump is expected to speak to Vlad later today to try make him a ‘deal he can’t refuse’.

For now, oil remains in the $65/$70 range.

As discussed – Gold BROKE OUT of the triangle (that we identified 3 weeks ago) on the 12th at $2930 as investors continue to flock to the ‘safety trade’. The push up taking gold into a NEW century…...and this morning it is up $30 at $3033/oz up 25% ytd and up 45% in 2 yrs….…. the recent strength credited to the geo-political uncertainty and the economic uncertainty at home and abroad in addition to all of the central bank buying that we have been discussing for months now.

Eco data today includes Housing Starts expected to be +1.4% and that would be a massive turnaround from last month’s -9.8%, while Building Permits are expected to be – 1.4% - even worse than last month’s -0.6%. Industrial Production +0.2% while Capacity Utilization remains strong at 77.8%. In addition – it is the start of the FED’s two-day FOMC meeting - the results posted tomorrow at 2 pm…. where it is expected to remain unchanged at 4.25%-4.5% range.

As usual though, it will be the presser at 2:30 that sets the tone going forward. What will JJ say now about the economy? Will he comment on tariffs? Does he or the committee see a ‘recession’ in the near future? What will he say about the Atlanta FED’s GDP forecast?

The Atlanta GDP Now forecast is expecting 1st Qtr. GDP to be -2.1%, down from the previous estimate of -1.6% on March 7th, influenced by the January retail sales data that lowered the nowcast for real personal consumption growth from 1.1% to 0.4%. But yesterday’s retail sales data saw a bit of a rebound so, I suspect that we should see that estimate change a bit….Now, keep in mind that GDPNow is a running estimate based on ‘available’ economic data and can be volatile, especially early in the quarter, as more data becomes available. So, proceed cautiously before making assumptions.

US futures are lower…. this morning…. Dow futures down 140 pts, the S&P’s down 14 pts, the Nasdaq down 90 pts while the Russell is down 10 pts. As discussed above – I am not in the camp of a V shape recovery and continue to expect more volatility thru mid-spring…. The end of the qtr. is coming…..and we will continue to see money move out of what is considered stretched and tired sectors and move into what asset managers and retail investors consider safer, more stable investments under the cloud of uncertainty in economic and geo-political polices. (Note the ytd performances that we identified above). The end of the qtr. can be a bit volatile, and this qtr. will be no different….

European markets are all higher…. Germany up 1.1% - the German parliament is expected to vote on a spending program worth billions of euros and that has been the major catalyst for Eurozone performance this year. German markets are up 17.5% ytd, Italy +15%, Spain + 14.5%, Eurostoxx +12%, France +10% while the UK is up 6.6%.

The S&P closed at 5675 up 36 pts yesterday….Trendline resistance is at 5742 – a level that I suspect will prove to be tough to get thru on the first go around….This morning futures point lower – my sense is that we are in a 5600/5740 trading range…I would not be surprised though if we test the lows of 5504 (seen on the 13th) before we pierce trendline resistance.

Do not expect that the anxiety is over just yet…..I think we continue to thrash around because there was a fair amount of damage done to the markets over the past couple of weeks…. that needs to be repaired and that only happens with time. I think we trade here for a while to repair the damage as the ‘issues’ get resolved (or not) and that will determine where we go next. If the issues do not appear to be resolving…. then the thrashing continues, if they do resolve – then off we go….in the end – patience is a virtue…..

Get comfortable by being a bit uncomfortable, stay defensive while being cautiously optimistic. In any event – you know the drill – stick to your plan, don’t panic and if the recent pullback is causing you undue stress then maybe you need to reconsider your plan….…. Know what you own and why you own it…. remain diversified…..

Veal osso bucco served on a bed of polenta

For this you need: 6 veal shanks, Kosher salt and freshly ground black pepper, flour, extra-virgin olive oil, 1 large onion, diced (about 1 cup), 2 carrots, peeled and diced (about 1 cup), 1 stalk celery, diced (about 3/4 cup), 1 small can of tomato paste, 8 medium cloves garlic, finely chopped, Red wine, beef broth.

For the Gremolata:

1/2 cup flat-leaf parsley, finely chopped, 1 tablespoon grated zest from 1 or 2 lemons, 2 medium cloves garlic, minced (about 2 teaspoons)

Preheat your oven to 350 degrees.

First rinse the shanks and pat dry....dredge in seasoned flour – (here you can use GF – gluten free - flour) and then brown in a frying pan with heated olive oil.....making sure that you keep the heat on high to sear the outside while trapping all of the juices inside....After you have browned the meat - place in a roasting pan - making sure not to crowd them too much.....At this point - chop (not dice) the carrots, celery and onions....crush 7-8 garlic cloves and spread the garlic and veggies over the meat. Add lemon zest on top - not too much - but enough so that you know it’s there.

Back to the frying pan - deglaze with red wine, add beef broth and a can of tomato paste (not puree) paste. Stir - bringing to a boil - then reduce heat and let thicken a bit - all of 4 mins or so.........if need be - add a bit more beef broth - then add this mixture to the roasting pan - making sure that you bathe the shanks in wine/beef broth. Cover tightly and place in a 350-degree oven for 1 hr. and then reduce heat to 325 and cook for another 4 hrs..... when ready.... take a look, smell the wonderful aroma, notice how it fills the kitchen and permeates the house.....

When done - remove 1/2 of the veggies and puree. Make a bed of polenta and then place a veal shank on top of that. Next - take some of the remaining veggies and circle the shank. Pour a bit of the pureed veggies on top.

Have your guests take a seat and enjoy a robust glass of red wine of your choice. Brunello di Montalcino works really well with this dish.