The Morning Call: CODE RED

U.S. equity markets were higher yesterday with tech leading the way as oil prices slid and recession concerns seem to fade. The question is, is it valid? We had another one-day reversal. This time to the upside. Why? Inversion is here. Pundit's fears are being realized. The 5-year Treasury yield hit 2.63% yesterday and the 30-year hit 2.60%. Inverted. The first time since 2006. The 5-year and 10-year had done that earlier in the Month. The slope of the yield curve is most popularly measured by the difference between?the 2-year and the 10-year. It has shrunk from 1.56% to ~0.1% in a year. Every recession is preceded by inversion. The bull argument is that inversion is not taking place at the short-end of the curve with the spread of the 3-year and 3-month treasury still around 2%. Stock and bond holders will want to keep a close eye on these spreads.

Ratchet?Powell has changed his tune. He’s now saying that we will raise as much as needed if appropriate. For good measure, he said that if the situation requires he go beyond neutral into more restrictive policy, "We will do that as well". As of this morning?the 10- to 2- year spread is less than 10 bps. That's where it stopped in 1994. Things ARE different this time. Way more money at play. A shooting war in Europe. Cyberwarfare that we don't even know about. A fractured political system that is being exploited by autocracies. But as the saying goes, a Dollar?is a Dollar is a Dollar.

The CPI in February was?+7.9% y/y. The fastest increase since January of 1982. The PCE drops on Thursday. It's expected to be 5.5%. What's in the market? The flattened yield curve is killing bank stocks. Unlike a lot of names, they will rebound. Higher rates will work through the dividend discount model. They will help compress valuations. Yet the DOW Transports are looking interesting. It's not beyond a possibility that we get a DOW theory BUY signal and an Inversion at the same time. What to do then?

Our plan is to trade from the Sell side. That doesn't mean we sell everything. Instead, we own specific themes and specific companies. But all the names are sell candidates when the price is right. There's no automatic reinvestment. And given the amounts of money that may be lost in Bonds, Buy Stocks.

Earnings Update

• Dave & Buster's?shares are slightly lower in the premarket after missing both revenue and earnings estimates reporting EPS of $0.52 vs consensus of $0.61. (Investing.com)
• On deck is?Micron,?lululemon,?Chewy?after the close.?Walgreens Boots Alliance?before the open. Stay tuned.

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Economic Data

• Consumer Confidence?data drops at 10:00am ET and is expected to fall from 110.5 to 107.0.
• JOLTs Job Openings?numbers drop at 10:00am ET and are expected to drop from 11.3M to 11.0M.
• On deck tomorrow is?ADP Nonfarm Employment Change?numbers at 8:15am ET and?Q4 GDP data?at 8:30am ET.

Invest the Money. Stay Close to Shore.

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