Stocks remain anxious, new home sales fall as rates rise
Shares fell yesterday as investors rethink some of the issues.
Stocks are rising this morning as confusion reigns.
Oil jumped an additional 4.7%, raw materials increased by 2.6%.
Falling New Home Sales – Rising Mortgage Rates – Hello?
The crisis in Ukraine is now 1 month old.
Try the cauliflower risotto with truffle butter and parmegiana shavings.
Stocks reverse and fall globally – suddenly the algorithms weren’t sure about continuing to create buy orders in light of a more aggressive FED, rising energy prices, persistent supply chain “problems”, a marked slowdown in the US economy and soaring inflation. Fed futures are now calling for 8 rate hikes this year – meaning we’re going to get an ‘out of month’ hike…. Considering that there are only 6 meetings left (the FED plans another 6 hikes). At this point, does it even matter? The Dow lost 450 pts or 1.3%, the S&P lost 56 pts or 1.23%, the Nasdaq lost 190 pts or 1.3%, the Russell lost 38 pts or 1.7% and Transport lost 300 pts or 1.8%.
The 10 years. the yield on Treasuries fell slightly – ending the day at 2.29%, while OIL soared… rising 4.7% or $5.10 a barrel to end the day at $114.35 . Gold rose 1.2% or $23/oz. The BCOM (Bloomberg Commodity Index) rose 2.6% to end the day at 128.38 – as it circles highs and well above the 3 trend lines. This index includes corn, wheat, soybeans, pigs, cattle, aluminum, nickel, steel, platinum, copper, coffee, sugar, etc. capisce.
Now look, there are regular calls for $150-$200 oil and if we continue on the path we are on – we should get there in no time… I mean – in a month – oil is up 30%….so if we keep going – we’ll be at $150 by the end of April, then $200 by May. Yesterday’s surge is attributed to news that Russian oil exports via the Kazakhstan pipeline to the Black Sea ‘could temporarily drop’ (due to storm damage) by 1 million bpd – which equals 1% of global demand.
Now – you will say – 1%, that’s okay….and maybe under normal circumstances it wouldn’t really be a problem, BUT that’s not where we are right now…. the tension is high, the air is thick enough to cut with a knife… and therefore the reactions are exacerbated. Supposed repairs on this pipeline could take months…. think of supply chain shortages on needed parts or consider that Vlad may be in no rush to get oil to Europe, causing Europeans untold pain on their wallets.
Either way – rising oil prices lead to higher gas prices… and it acts like a tax on consumers… – but California Governor Gavin Newsome has a plan… he’s going to issue cards $400 debit to ‘anyone with a vehicle‘ to help fill the tank…and considering gas costs over $7 in California – and a typical car uses 18 gals – it would cost $126 to fill your tank…so $400 ? Yeah, that’s good for 3 tanks…. how does it work for you?
As you can imagine – Utilities – XLU and Energy – XLE were the only two sectors that grew…. Utes (considered defensive) by 0.2% and energy by 1.7%. Losses led by Healthcare – XLV – 1.8%, Financials – XLF – 1.8%, Technology – XLK down 1.5%, Communications – XLC – 1.4%, Consumer Discretionary – XLY down 1.25%, Industry – XLI down 1%. Short hedges all gain – DOG +1.3%, PSQ +1.5% and SH +1.3%.
The green data showed exactly what I warned you about…New home sales fell 2% from the expected 1.1% increase…and that should come as no surprise at all. …rising mortgage rates and supply chain issues continue to raise concerns in the housing sector….
I mean – here’s the simple math…. a $500,000 house with a 20% down payment means you have a $400,000 mortgage. Two months ago you would have gotten a rate of 3% and that would equal $1,686/month to carry the mortgage. Today, you’ll get that same mortgage at 4.5%…and that works out to $2,026/month – a 20% increase in the cost of carry…and if what we predict happens, then the next month, that same mortgage costs you 5% or $2,147/month…. an increase of 27% compared to the rate of 3%. And that’s before property taxes, home insurance, and turning on the electricity. What if you heat your house with oil – oh boy……. And that’s a $400,000 mortgage – the numbers get more exaggerated the bigger the mortgage – should we go there? I didn’t think so… so expect house prices to start to pull back as rumors of a 50 basis point interest rate hike in May and June spread through the system . Remember that mortgage rates are VERY sensitive to daily movements over the 10 year period. and 30 years old.
On the geopolitical agenda – The war in Ukraine is now a month old and Vlad is not happy. Ukraine repels and humiliates Vlad on the world stage. He has now put chemical and nuclear weapons on the table as an option “if necessary” – knowing that this should cause world leaders to step down – but will he? Joey is in Brussels for three meetings…an emergency NATO summit, a G7 meeting and a meeting with the European Union…. The G7 – the US, UK, Canada, France, Italy, Germany and Japan are all ready to warn Putin against using chemicals or nuclear… and he does – so he crossed the RED line…. But what does that mean? Obama drew a RED line in Syria and when they crossed it, nothing happened. So even though it looks dramatic, Vlad doesn’t change course due to a RED line.
US futures are up this morning as the S&P attempts to hold onto the long-term trendline at 4474. Last night the S&P closed at 4456 – below that line but still above it. above the short-term trendline at 4420. We are at an interesting point… . the range between the short term and medium term trend lines is 4420 to 4548. We are at 4456 – right in the middle. The key levels to watch here are 4420 and 4548…. Why? Because if we fail to hold 4420 – then expect a further push down to potentially test the March lows (4200 or so) because “technically” the market is broken and the supply line the buy side will dry up, leaving a gap in prices, which will lead to lower stocks. falling, and a push up to 4548 could see us challenge 4800 (early January highs). Why? Because “technically” we would have broken all 3 trend lines and Algo will see this as a positive – causing buy orders to be created and line supply to be canceled – leaving a gap in prices at the rise…. So you see, this supply chain issue is also an inventory issue.
Ecological data today includes the usual suspects – Initial jobless claims of 210k, Cont. claims 1.4 mil, so we’ll get durable goods down 0.6%, non-transportation transportation down +0.6%, capital goods ordered down 0.5%, capital goods shipped 1% and the S&P Global US Manf PMI of 56.6. S&P Global US Services PMI of 56 – expansionary double digits but trending lower…. remember – 50 is neutral line and Sub 50 is contraction mode….
European markets are all down… as investors follow the trio of high-level meetings… NATO Secretary General Jens Stoltenberg has announced that the alliance is ready to commit major troop increases along the borders oriental. As of 7 a.m., these markets were all down about 0.3%.
Bitcoin is trading at $43,000 while Ethereum is at $3,100.
Ultimately, remember that investing isn’t static, it’s dynamic and long-term. The issues currently surrounding the markets will fade over time… but will continue to cause volatility in the months ahead. Stick to your plan, have names that will provide stability. Big, boring, and beautiful US mega-caps will help protect your capital in an anxious time.
Cauliflower risotto with truffle butter and parmegia shavings
This is another great risotto dish that is easy to make and easy to present. For this you need:
Diced Spanish onion, olive oil, salted butter, 2 cups Arborio rice, 1/2 cup dry white wine, bite-sized cauliflower florets, hot chicken broth, salt and pepper, butter truffle and parmesan shavings.
Heat the olive oil and salted butter in a heavy saucepan over medium heat.
Add the onions and cook until soft – maybe 10 minutes…then add the risotto and stir until well coated in the oil mixture. Add the wine and continue cooking until it is almost completely absorbed.
Next, start by adding a ladleful of hot chicken broth, stirring frequently until it’s almost completely absorbed before adding more. Continue cooking the risotto in this manner, adding the broth a ladleful at a time, until the rice is cooked.
While the risotto cooks, heat a little olive oil in a pan and add the cauliflower. Cook over medium-low heat, adding a tablespoon or two of broth, until the cauliflower is tender and just beginning to turn golden brown. Remove from fire.
After cooking the risotto for about 25 minutes, it should be tender to the bite, stir in the cauliflower. Season with salt and pepper to taste.
Once well mixed, serve the risotto in individual bowls, drizzling the tops with truffle oil or a dollop of truffle butter. Garnish with grated cheese and serve immediately.