Things you need to know.
– Stocks got slammed on Friday – wiping out all gains for the week.
– NFP did not change the narrative on rate cuts.
– Trump to impose tariffs and reciprocal tariffs as the story builds.
– Bonds price down, yields up, Oil up and Gold up BIG!
– Try the Classic Veal Parmegiana
Stocks fell on Friday, the NFP report did not support the rate cut narrative, while the ‘Tariff angst’ only adds to the inflation worry- the Dow lost 445 pts, the S&P’s down 58, the Nasdaq gave back 270 pts, The Russell lost 27, the Transports gave up 52 pts, while the Equal Weighted S&P lost 38 pts. The Mag 7 Index gave back 540 pts or 2%.
Non-Farm Payrolls – came in a bit weaker than expected – producing ‘only’ 143k jobs (vs. the expected 170k – but the last two months were revised higher by 100k), the unemployment rate dropped to 4% while wages rose more than expected – rising 0.5% m/m (vs. the expected +0.3%) and 4.1% y/y (vs. the expected 3.8%).
In the end, all that means is that while ‘hiring slowed’, it remains strong. There was nothing in this report that suggests weakness at all and that doesn’t help the rate cut narrative…….Add in tariffs that went into effect last week against China, Steel and Aluminum tariffs that go into effect this week and the talk of ‘reciprocal tariffs* on any country (think Europe) that charges us a tariff announced by Trump on Friday afternoon – in what some describe as ‘an escalation in the trade war’ only added to the angst felt by the algos’…. And you know what happens when the algo’s feel ‘anxious’.
*(Reciprocal tariffs are trade tariffs that are imposed by one country in direct response to the tariffs levied by another country. They are often used in international trade negotiations as a way to encourage fair trade practices and level the playing field between trading partners.)
Now, all this explains why policy makers (think FED) may not be in a hurry to lower borrowing costs after the 3 ‘aggressive cuts’ down in the 4th quarter of 2024. Tariffs and reciprocal tariffs have the ability to raise prices ‘one time’ as they adjust to that increased costs – something that gets lost in the conversation – but even that one time increase is inflationary and that is what should be concerning to the markets and should be concerning to the FED. The one cut that is expected in 2025 has now moved from July to September leaving some to consider NO cut at all – something I have been saying for months. And if the labor market, wage pressures and inflation remain top of mind (as they should) then you have to ask – What reason does the FED have to cut rates? Answer: None.
Remember one thing – make no mistake – it’s better to have a stronger economy and a healthy labor market that a weakening economy and a weakening labor market – and stocks can do well even if we get mild inflation if the economy remains strong. Higher rates will only be the market if the economy stalls.
Every sector in the S&P lost ground…. Yet the sales were concentrated in Consumer Discretionary, down 2%, and Basic Materials down 1.25%. The other 9 sectors while down, were down less than 0.5%. Home builders gave up 2.5%, Retail down 2.2%, Semi’s lost 1.5%. The VIX gained 6.7% – as fear rose causing all the contra traders to advance. The SH + 1%, the PSQ added 1.4%, the DOG up 1%, the VIXY up 3.4%, while the SPXS (triple levered S&P short) gained 3%.
Bonds prices fell sending yields higher….on the back of the economic data – the TLT down 0.6% while the TLH lost 0.5% and this caused 2 yr yields to rise 7 bps to end the day yielding 4.28% while the 10 yr yield rose 6 bps to end the day yielding 4.49%. 12-month CDs are now yielding 4.4% while your US gov’t MM fund is yielding 4.5%.
Oil re-tested trendline support at $70.45 and held – closing at $71– which is a positive….….This morning – oil is up $1 or 1.5% at $72 as OPEC + raises prices to China and the rest of Asia as tough US sanctions on Russia and threatened sanctions on Iran allow the Middle East producers to raise prices – something that the Saudi’s want and need in order to support their vast spending plans. The move this morning took oil up and thru both intermediate and longer-term resistance at $71.67 and $71.95…. If we remain here, then we could see oil potentially re-test $73/$74/barrel.
Gold continues to push higher into the new century…. this morning it is up $40 – trading at $2926/oz….as the Trump tariff threat spurs ‘safe haven buying’. Gold is now up 11% since January 1st…. this on top of the 25% gain in 2024. Recall – many of the BIG Banks had been calling for $3000 gold by year end…. Well, by the look of it, we’re going to have $3000 gold by the weekend! Recall that the last time Trump imposed tariffs (2018) gold surged by 50%…as investors piled into the ‘safe haven’ trade ahead of the expected economic uncertainty and inflationary risks.
This morning – stocks are in reset mode – apparently deciding to take it all in stride …Futures are up as the week begins. Dow futures up 177 pts, S&P’s up 26, Nasdaq is up 150 pts, and the Russell is up 8 pts.
The economic calendar is full of important inflation data this week….Tomorrow brings us the January CPI report and while the estimates are not suggesting anything to worry about, my gut says – don’t be complacent…CPI m/m is expected to be up 0.3% and y/y of + 2.9%….while core CPI up 0.3% m/m and +3.1% y/y. Recall that the two prior PPI reports have been stronger than expected and at some point those increases show up in the CPI UNLESS of course producers are eating those costs – something which I think is not happening…..so I am expecting the CPI to be a bit elevated this month.
And then on Wednesday – we will get the January PPI and that is expected to be higher on the m/m reports yet slightly lower on the y/y reports…. But again, I would not be surprised to see those figures rise. Later in the week – we will get Retail Sales m/m – the expectation is for -0.1% while Ex autos and Gas of +0.4%, a 0.1% increase over last month. We are also going to get Industrial Production and Capacity Utilization…. figures on Friday.
On the earnings front – look for results from MCD, ROK, KO, DD, ECL, HUM, MAR, GILD, ET, LYFT and many more…and these names represent restaurants, Industrial Automation, beverages, Basic & Diversified Chemicals, Specialty Chemicals, Managed Care, Hotels, Biotech, Midstream Oil & Gas, & Interment Services.
In addition – watch for JJ to go to the Hill on Tuesday and Wednesday to give his semi-annual Humphrey Hawkins testimony….to congress about the state of the economy….This is when JJ gets to update congress on monetary and economic developments in the country, allowing senators and congressmen/women to ask a bunch of questions that they don’t even understand….While this happens twice a year (Feb and July), do not expect any of it to drive the markets.
European markets are all higher as well…. up between 0.3% and 0.6% as investors there appear to be shrugging off any of the tariff threats that are looming. Eco data out of Europe this week includes German inflation, Uk GDP and the latest Eurozone growth data.
The S&P closed at 6025 down 58 pts leaving us smack in the middle of the trading channel – bounded by 5920 on the downside and 6275 on the upside. This morning – the tone is positive, so I suspect we will take back what we lost on Friday…. Leaving us in the state of churn. In any event – I do not see any of the data this week – causing the markets to break down nor break out….So my comments to you are stick to the plan, do not over react to any specific headline that will cause you to make a short term erroneous decision. You are invested so you are participating…. use weakness as an opportunity in good names.
Any questions? Give me a call. Click here https://slatestone.com/contact-us/
to contact me – Put KP in the message box and I will reach out to you to discuss your investment portfolio and any questions you may have.
Take good care.
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.
Classic Veal Parmegiana
For the sauce: olive oil, garlic cloves, minced, 1 lg onion, chopped, diced pancetta, ¼ cup dry red wine (Chianti), 1 (28-oz) can San Marzano tomatoes, hand crushed, s&p, fresh basil leaves, torn.
For the Veal Cutlets: veal cutlets, pounded thin, s&p, flour, 3 large eggs, heavy cream (richer than milk!), breadcrumbs & panko (50/50 mix for max crisp), grated Pecorino Romano, grated parmegiana, garlic & onion powder, Fresh Mozz.
Make the Sicilian-Style Sauce – olive oil in a saucepan over medium heat. Add pancetta and cook until crispy, for about 3 minutes. Add onions and garlic, sauté until soft and fragrant.
Pour in red wine to deglaze the pan. Let it cook for 1-2 minutes. Add crushed tomatoes, salt, black pepper and basil. Simmer for 30 minutes to develop deep flavor.
Prepare the Veal Cutlets –
Set up the assembly line…. Flour in one dish, Egg + heavy cream (whisked) in another, Breadcrumbs, Pecorino Romano, Parmegiana, s&p, garlic & onion powder in a third – mix well.
Dredge each cutlet: flour, then egg, then breadcrumbs (press firmly).
Heat olive oil in a skillet over medium-high heat. Fry veal 2-3 minutes per side, until golden brown, Drain on paper towels.
Assemble and Bake
Preheat oven to 375, Spread a thin layer of the marinara sauce in a baking dish. Place fried veal cutlets on top. Spoon a little more sauce over each. Cut up the mozz and place on top.
Sprinkle with Pecorino Romano. Bake for 12-15 minutes, until cheese is melty and bubbly. Garnish with chopped parsley and lemon zest (adds a fresh contrast to the richness!).
You can serve this over spaghetti with the same marinara sauce for a delicious meal.
Buon Appetito
