Things you need to know.

–        Stocks continue to come under pressure – but are you surprised?

–        Fianncials and Pharma were the day’s losers.

–        Energy, Utilities and Communications were winners…

–        Has the FED lost control of the narrative (again?)

–        Oil flat, gold down (profit taking)

–        Is JoJo about to withdraw?

–        Try the Pan Seared Veal Chop

So now it’s not just technology that is under pressure……the weakness that we’ve seen in tech over the past week or so has now moved onto the broader market –

The VIX (fear index) surging up and thru resistance on both Wednesday and Thursday – rising 26% and that was one of the catalysts that sent stocks lower….Go back and read my comments on Wednesday….I pointed this out and warned of the possibility …suggesting that investors consider adding some of the contra trades to their portfolio’s to help blunt any swift move lower…

Yesterday – The Dow lost 533 pts or 1.3%, the S&P down 44 pts or 0.8%, the Nasdaq gave back 125 pts or 0.7%, the Russell down 42 pts or 1.8%, the Transports gave back 277 pts or 1.8% while the Equal Weighted S&P was down 60 pts or 0.9%.

Healthcare and Financials were yesterday’s victims – down 2.3% and 1.2% respectively. Pharma giant –  LLY – 6.3% came under pressure after Roche announced phase 1 results from their weight loss – a once a day oral drug that treats both type 2 diabetes and obesity,  that apparently works faster with less complications (think thyroid cancers, stomach issues, kidney problems, gall bladder problems and pancreatitis) than LLY’s Zepbound…but the weakness was not confined to just LLY – JNJ, MRK, ABBV, PFE, AMGN were all losers on the day.  But before you go and light your hair on fire – LLY is still up 45% ytd….and the Healthcare sector is up 7.8% ytd….

Financials came under pressure after JD Vance’s acceptance speech emphasized that Trump’s 2.0 economic agenda would not cater to ‘Wall Street’  – and even though he wasn’t more specific than that – trader’s and algo’s decided that they aren’t waiting for clarification….and boom – out they go….Weakness could be seen across the board in names like JPM, GS, MS, C, BAC – but remember – these names are up more than 25% ytd and the sector is still up 18% ytd….

Again, do not discount the speed at which the algo’s can cause chaos on the way down….the technology allows for instantaneous cancellations of buyside interest – leaving a void in prices all while the selling heats up, as the algo’s trip over each other to ‘get out’….….and remember – it feeds on itself….the algo’s having no emotional intelligence, they make black and white decisions….there’s no middle ground – they tend to amplify the moves down, the same way they do on the way up (but no one was complains when stocks are rising…)….so do not let yourself get caught up in the mania….but do your homework….talk to your advisor.

Now while Utilities, Tech, Consumer Staples and Communications were lower – they were the outperformers – down less than the broader market in percentage terms, while Consumer Discretionary, Basic Materials, Real Estate, and Industrials performed in line with the markets. Energy was the outlier – gaining 0.2% on the day….

And so here is what we have been talking about – the idea that the FED is going to cut rates is now more about the economic weakness rather than the slaying of inflation….Yes, inflation has come down, but many of the latest economic data points appear to be suggesting that the FED held rates too high for too long….and the chorus of Wall Street analysts singing about a crash landing is building…… 

Now, I am not in that camp – and while we have been seeing mixed economic data, I am not convinced yet that it is because of 5% rates….but it is what it is….and suddenly every news article is warning of an economic slowdown because the FED has been reluctant to cut rates – I mean all of these other central banks are cutting why aren’t we?  The WSJ points out that waiting to cut carries the risk of increasingly weak eco data while cutting sends the message that we’re in trouble…..And this is the problem…..Can the FED position the narrative, and  convince markets and investors that the eco data is not suggesting we are about to go off the edge?   Because that is what the market is now assuming…. and that is exactly what we have been discussing…. It’s all about how they position it….

And let’s not forget – the market is overdue for some consolidation…. I mean trees do not grow to the sky…. How long have we been having that conversation?   So, anyone that is surprised by this recent action has been living under a rock.  Technically – you can look at the charts and you can look at the RSI’s (Relative Strength Indexes) for individual names as well as sectors and indexes….LLY was in overbought territory, Financials were in overbought territory, the Dow, the Nasdaq, the S&P and Russell are (or were) in overbought territory.  In fact so many of the sectors that were in overbought territory have now retreated, but like the pendulum that swings too far to the right and then too far to the left – do not be surprised if we see stocks and the markets overshoot to the downside – presenting opportunities for the long term investor.

Bonds continue to churn in line…as they too try to decipher the data and price in the next move….Comments by 3 FED members continues to suggest caution….but the markets are convinced that we will get 3 rate cuts before the end of the year because the data will force it.   Daly and Waller both hinting at a possible move but not committing either way…. all while Fed Chair Powell told us that they could begin cutting rates before inflation reaches the 2% target. Remember – the markets want clarity – good or bad – it is when the data remains cloudy that the markets react negatively.

Oil didn’t really do anything dramatic…. It fell by 45 cts to end the day at $82.40…. Mixed data this week suggesting demand is strong was offset by (supposed) weaker data in China….in any event – oil remains in the $80/$85 trading range….

Gold has come under some pressure this week – after rallying hard over the past couple of weeks…. ticking at an all-time high of $2483.  The move has been viewed as ‘excessive’ – (much like the moves in stocks) and so Gold retreated…falling $12 to end the day at $2447. This morning – gold is down another $40 at $2414.  Trendline support is $2375.  And if the tone remains cautious – I suspect that we will test and hold. 

US futures are mixed….…. Dow futures -65, S&P’s up 2, Nasdaq – 2 and the Russell down 4.  And while the moves feel uncomfortable – let’s put it in perspective….for the week – the Dow is up 1.6%, the S&P is down 1.3%, the Nasdaq is down 2.9% , while the Russell is up 2.2% – yes  some individual names are down (or up) more – so look at them and figure out why?  Stocks that have come under pressure – were they overbought to begin with? Had they gotten ahead of themselves?  Is that a reason to sell?  Are these stocks in tax advantaged accounts or not?  Will selling them create tax issues for you?  Remember – if you’re trading the account that’s one thing, but if you’re investing in that account that’s another thing… Talk to your advisor….

The S&P closed at 5544 down 44 pts…. It is now down 123 pts off the high…. Short term Trendline support is at 5493…. down 1% from here…. The intermediate trendline is at 5267…. down 5% from here, but still in the normal trading band….

Could we see further weakness – of course…. You have to decide if the weakness is a game changer or not…. Again, did the thesis change or is this just the algo’s running roughshod over the markets? 

Last night was the final night for the RNC convention…. Donny and JD are now officially the candidates for the GOP ticket.  The DNC has their convention in August…. what will their ticket look like…Pressure is building on JoJo…he is losing support of the leadership…think Obama, Pelosi, Jeffries, Schumer, Clinton as well as the support of donors…. Rumor has it that he will announce his withdrawal from the race this weekend….….leaving the door wide open for someone else….Apparently there is no guarantee it will be Kammy (we can assume yes, but apparently – it is not guaranteed)…and so – the political headlines will create chaos as well….again it’s the uncertainty that causes markets to sell off….So sit tight…

Give me a call to discuss a long-term plan, one that creates long term and generational wealth.

Take good care,  

kpolcari@slatestone.com

Sources:  Bloomberg, CNBC, Reuters, Wall Street Journal

Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment.  The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kenny Polcari or SlateStone Wealth.

The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.

While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.

Kenny Polcari is the Chief Market Strategist for SlateStone Wealth.  Neither Kenny nor the partners of SlateStone Wealth are compensated in any manner by the issuers of any securities mentioned in the publication.

Pan Seared Veal Chop

I made this last night for dinner – it is simple yet delish…

For this you need 2 (or 4) veal chops…. s&p, olive oil, butter and a Vidalia onion.

Begin by heating up your oven to 450 degrees.

Season the chop with s&p – set aside. 

Slice and sauté the onion – season with s&p.

In an oven proof frying pan – heat up ½ stick of butter – once it is hot – place the chops in the pan and sear on both sides.  Then place the pan in the oven and roast it for another 10 mins –

When done – make a bed of sauteed onion and place the the seared chop on top. Serve with your favorite vegetable and a mixed salad.  Simple – yet delicious. 

Buon Appetito