Things you need to know.
- Moody’s wasn’t the disaster that they made it out to be.
- Stocks recovered, Bonds recovered, Gold surged and then retreated.
- FED Heads suggest they are on HOLD.
- XiXi screaming about export controls.
- Iran says, ‘No way will we stop enriching uranium.’
- Try Nana’s Asparagus Tart
“In the end – while the headline is dramatic this morning – I think it’s a non-event in the long term – but expect it to create short term noise and maybe even a bit of chaos.”
That is what I told you yesterday – the Moody’s headline was dramatic, it did cause some angst and some would say chaos, it allowed everyone to discuss it yesterday across the different media outlets and then everyone moved on. What started out as a Risk Off day across all the indexes turned into ‘semi’ Risk On’ for the broader market with stocks rebounding off of the earlier lows as investors, traders and algo’s looked right through the downgrade.
At the end of the day we saw the Dow gain 138 pts, the S&P up 5 pts, the Nasdaq up 4 pts, the Russell lost 8 pts, the Transports gave back 41 pts, the Equal Weighed S&P lost 1 while the Mag 7 gave back 60 pts.
Now remember – while the downgrade caught some by surprise – all Moody’s did was fall in line with their counterparts. S&P had cut their triple A rating back in 2011 while Fitch slashed it in 2023…So, in reality – what did they really do? They weren’t the first to cut, they didn’t cut deeper, they just fell in line…. Period. And guess what? The idea that bond buyers would sell America because of that downgrade – That’s NOT happening. I think the action suggests that many do not consider the ratings agency as really ‘relevant.’
And to remind you, they have no one to blame other than themselves – recall how they handled themselves pre- GFC…. They sold themselves out to the big banks– do I need to remind you? Does Sub-Prime mortgage-backed securities mean anything to you?
The major credit rating agencies—Moody’s, S&P, and Fitch— under pressure from big banks and issuers WHO PAID FOR THE RATINGS, were coerced by the big banks to assign AAA ratings to subprime mortgage-backed securities (MBS) that were bundled with risky, low-quality loans, giving them top-tier scores. (this was the KEY mistake). This inflated their perceived safety, fueling demand from global investors and contributing to the housing bubble. And that action was the root of the hysteria that saw the collapse of the CDS market and the end of Bear Stearns, Lehman Brothers, Washington Mutual, Countrywide Financial, Merrill Lynch (as we knew it) causing the gov’t to bail out AIG, GM, and our friends at Goldman Sachs (to name just a few) as that collapse brought the global financial system to its knees causing global equity markets (that had nothing to do with it) to suffer massive losses as investors sold anything they could! Oh, boy – we could spend all day on this topic!
Ok – so in the end – like I said – the Moody downgrade is really a non-event because they told us what we already knew – there was NOTHING NEW in their release.
Now bonds – well they initially got sold (on the headline) – sending the 10 yr yield up 10 bps – to 4.56%, the 2 yr up to 4.04% while the 30 yr pierced 5%….and this only added to the early morning weakness in stocks….but as the day wore on and investors reconsidered – then bonds recovered, yields declined and stocks rose. By the end of the day the 10-yr yield closed at 4.45%, the 2-yr yield at 3.95% and the 30-yr yield closed at 4.91%.
Gold surged by $60 in the early morning – in that ‘flight to safety’ move as bonds and stocks were in decline – trading as high as $3,252 before ending the day at $3,234 still up $48 from Friday’s close. Now remember, when gold was trading at $3509 – we discussed how it was a bit ‘extended’ and that a pullback to the trendline would not be a surprise. Well – we pulled back to the trendline at $3,188 and found support- so I expect gold to churn right in here – anxiously awaiting the House vote on the Big Beautiful Bill this Thursday. If they pass the bill, then I think Gold pulls back, but if they do not pass the bill, then I would expect gold to surge again… (on the idea of more DC chaos, and higher taxes and a weaker economy).
Oil continues to trade just below the trendline at $63.64 – remaining in the $60/$64 range.
There was no eco data yesterday and none today…. Thursday brings us the VOTE by House, the Manufacturing and Services PMI’s, Existing Home Sales, and the Kansas City Fed Manufacturing Survey. Friday brings us New Home Sales, Kansas City Fed Services, and building permits.
This morning US futures are under a bit of pressure… Dow futures are down 13, S&P’s down 15, the Nasdaq down 90 and the Russell is down 8.
News that China is accusing the US of undermining the latest trade ‘agreement’ is causing some of the angst. Howie Lutnick – Commerce Secretary – issued guidance saying that using ‘Huawei’s Ascend Chips risks violating export controls’ – and that is causing XiXi to have a stroke – demanding that Howie take it back and say, ‘I’m sorry’! All this suggests is that the tension remains high and the relationship remains fragile, and that uncertainty is just a reason to be cautious. And here is another reason to be cautious – markets have rallied strongly off the lows – so expect some churn as we continue to repair the damage suffered since April 2nd.
Yesterday we heard from the NY Fed Chair Johnny Williams, Atlanta’s Raffi Bostic, Minneapolis’s Neely Kashkari and Vice Chair Philly Jefferson and all of them suggested that they are in a wait and see mode…Capisce? Like I have been saying – ‘No rate cut for you!’.
European markets are all a bit higher…up about 0.5%, with Spain way out in front up 1.7%.
HD just reported and they missed –EPS came in at $3.56 vs. the expected $3.59 but is not all bad…. guidance was better than feared and they are NOT passing along any tariff increases to customers – the stock is up $12 or 3.1% in the pre-mkt.
The S&P closed at 5963 up 5 pts…..I just said – the move off the low has been too dramatic, we busted up and thru all 3 trendlines within 2 weeks, so you should expect us to pull back and churn – maybe testing the trendline at 5772 before advancing further.
There is still a lot of uncertainty ahead – the tax bill, more trade agreements, more economic data and the ongoing ‘nuclear’ talks between Iran and the US – that Iran has already poo pooed, saying that they will never stop enriching uranium…. never. Ok – sports fans – game on!
Stick to your plan and remain resilient – Call me for a free portfolio analysis. 561-931-0190
Take good care,
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Nana’s Asparagus Tart – and easy and delicious way to enjoy asparagus…the kids will love it.
For this you need asparagus, eggs, seasoned breadcrumbs garlic s&p, fresh grated Romano cheese and olive oil.
Preheat it to 425 degrees.
Begin by trimming and then boiling the asparagus spears for 5 mins in salted water. Remove and place it in a bowl of cold water.
Now – scramble 6 eggs in bowl – add in 1 cup of Romano cheese and two garlic cloves sliced..
Take your baking sheet – oil the bottom. Now sprinkle some of the breadcrumbs on the sheet. Now – place the asparagus on the sheet – lining them up next to each other. Once you have all the asparagus laid out – take the egg mixture and pour it over the asparagus.
Now take the rest of the breadcrumbs and cover the spears. (You don’t need to bury them, then lightly cover. Now drizzle some olive oil on top and place in the oven for 25 – 30 mins…
Remove and slice into pieces. You can enjoy this as a side dish or just to have in the house for a snack – Makes me think of my grandmother.
Buon Appetito
