Things you need to know.
- Scotty Brings XiXi to the table and makes a China Trade deal!
- Global markets are in Risk On mood.
- US futures surge, gold drops, Oil up, Bonds Down, Yields UP.
- Big Pharma NOT happy! Trump vows to slash prices.
- Try the Bosc Pears.
Good morning…Wake UP….Grab the coffee and maybe a donut – just get up….Markets are on FIRE…..Scotty (Bessent) working all weekend, announced an outline of a deal with China, calling the talks ‘very robust and productive’, as he announced a 90 day pause (I’d say ‘cooling off’ period). In this deal, we slashed the tariff rate on China – taking it to 30% down from 145% – while China dropped their 125% tariffs on US goods to 10% and they agreed to work on a stopping the flow of fentanyl – but that is still an ongoing discussion and makes up 20% of the 30% total tariff…, they took away the ‘rare earth’ embargo etc.….And it is RISK ON….US futures are up, Gold is down, Bonds are down, Yields are up, Asian markets ended the day higher and European markets are advancing….
On Friday- I was in NYC and appeared on Fox Business with Stuart Varney and we discussed this very issue as we headed into the weekend….During the interview I said that I was expecting the meeting to be about ‘de-escalation’ but if we get a US trade deal with China that would set the market ‘on fire’…
https://video.foxbusiness.com/v/6372585875112
At 7:45 am – US futures are on fire…. Dow up 1015 pts or +2.5%, S&P’s +175 or +2.7%, Nasdaq + 780 pts or 4.5%, Russell up 95 pts or 4.7%!
All those investors that panicked and chose to hit the SELL button a couple of weeks ago are now lining up at the door to get back in, in fact they are pounding on the door.….…..Expect them to trample over each other as the sun rises over the Atlantic. Just curious – what do you think any seller is going to do today? Stand in the way and get run over or cancel their sell orders leaving a vacuum in prices, causing the buyers to ‘beg’….. Which again goes to my point – stick to the plan, do not make emotional decisions, know what you own and why you own it. Buy when you can NOT when you have to! We discussed this ad nauseum, while it was uncomfortable it was never meant to be long term and it wasn’t, it was about 4 weeks. This morning my friend Mike Lee told Cheryl Cassone on Mornings with Maria – that ‘when you bake a cake you gotta break a few eggs’. And break a few he did, but let’s see how the cake comes out!
All of the favorites are quoted higher and trading up BIG in the pre-mkt …. NVDA + 7 pts or 6%, AAPL +13 pts or 6.5%, PLTR +5 or 4.1%, MSFT +10 or 2.2%, JPM +6 pts or 2.3%, META +40 pts or 6.7%, GOOG + 5 pts or 3.2%, AMZN +15 pts or 7.8%, HON + 3 pts or 1.4%.
The list will be big today…but the ones that will not participate? Big Pharma…..No, they are not happy today because Trump also announced some other big news….He is about to sign an executive order declaring ‘a most favored nation status*’ that slashes and burns drug prices…vowing to cut drug prices by 80%, mandating that Americans pay ‘no more than the people in the countries with the lowest prices’. LLY – $23 or 3%, ABBV – $7 or 3.8%, BMY – $2 or 4.3%, MRK -$2 or 2.6%, PFE – $1.5 or 6.7%, JNJ – $5 or 3.2%…..
* Most Favored Nation (MFN) status is a principle in international trade, primarily under the World Trade Organization (WTO), where a country grants another country the same trade advantages—such as lower tariffs, fewer trade barriers, or better market access—that it provides to its most favored trading partner. It ensures non-discriminatory trade treatment among WTO members.
Key Points:
Non-Discrimination: If Country A grants Country B MFN status, Country B gets the lowest tariffs or best trade terms that Country A offers to any other country. For example, if the U.S. lowers tariffs to 2% for Japan, all MFN countries get the same 2% rate.
WTO Framework: MFN is a core WTO rule applying to all 164 WTO members unless exceptions like free trade agreements (e.g., USMCA) or national security measures apply.
Exceptions: Countries can deviate from MFN for specific reasons, such as bilateral trade deals, developing country preferences, or sanctions (e.g., U.S. tariffs on China in 2025 bypassing MFN due to national security or fentanyl-related concerns).
Impact: MFN promotes fair trade by preventing countries from arbitrarily favoring one trading partner over another, but it can limit flexibility in negotiations.
As noted, Gold is under pressure – down $125 or 3.7% at $3,217/oz…testing the low of May 1st….Trendline support is at $3,155 and I would not be surprised if we tested that in the next day or two…Look – the deal takes some of the ‘risk premium’ off the table (for now), but some remains….Until the deal is a deal there is some level of risk….so while today’s move is dramatic, it is not a surprise at all, again we discussed this last week too. If the news continues to be positive – you can expect Gold to trade a bit lower – but remember – this morning – even with it down $125 is it still up 20.5% ytd and up 45% since January 2024.
Oil is trading higher…..up 3.2% or $2/barrel at $62.96. The rally a direct response to the US/UK & US/China trade deals…. Why? Because positive trade deals suggest a global economy on the move! And when the global economy is on the move, energy demand surges…..
The move today brings us just below the trendline at $64.10 – a level that I think will provide a fair amount of resistance, which is unless we begin to see a bunch of other trade deals hit the tape. More deals will be more supportive of energy demand…. but remember, what I have always said – I do not think we have a demand problem at all, the weakness in the price of oil is a supply issue….. If the economy was expected to go into ‘slowdown’ then it makes sense for prices to decline, not because there is no demand but because the buyers were not being aggressive, and supply is plentiful. But now if trade deals are getting done, then the buyers will become more aggressive…It’s the same argument that causes stocks to go up and down. The 3.2% move UP in oil mimics the 3+% move up in stocks.
Bond yields are up 7 bps – the 10 yr is yielding 4.45% up from 4.38%…..the 2 yr is yield is up 11 bps at 4.01% up from 3.9% last week. And this too is a direct result of the trade talks……if investors expect strong economic data or growth, that can reduce demand for bonds as investors shift to riskier assets like stocks, (are you seeing the pattern?) sending bond yields up while bond prices go down. And btw – the market can function with 4.5% 10 yr yields or even 5% 10 yr yields IF the economy remains strong, it’s when yields go up and the economy slows that stocks suffer.
Eco data today is about the CPI and PPI this week. CPI increases are expected while y/y results are expected to be flat. PPI m/m increases are also expected but y/y results are expected to be lower. Thursday brings us Housing Starts expected to be up 3.1% while Building Permits are expected to be down 1.2%. Friday brings us the Michigan sentiment surveys, and they are expected to improve just a tiny bit…. but remember, they are sentiment surveys, they are soft data not hard data. While the soft data remains ‘weak’ the hard data remains strong.
European markets are all higher today…. Italy up 1.8% while the UK is up 0.5%. All of the others are somewhere in between. The excitement there is for all of the same reasons…. Trade deals….and expected trade deals.
The S&P closed at 5,659 down 4 pts…..up 33 pts… Long term Trendline resistance is 5748 – up 89 pts from Friday’s close. Intermediate term trendline resistance is at 5776 up 117 pts from Friday’s close. US futures are suggesting the S&P will open 180 pts HIGHER….blasting right thru both resistance trendlines….taking us up 2 century marks to 5839 ish….The moves beyond that will depend on the headlines…and Scotty has already said that he expects to meet with his Chinese counterparts in the next few weeks to work our a ‘bigger agreement’…If that is true – then buckle up and get ready to ‘take off’.
And if the trade deal sagas quiet down – then the markets will focus on the reconciliation ‘tax’ bill that is before Congress. So, while yesterday’s news is good, and will help build the foundation that we need to repair the damage – let’s not completely overreact and make like there are no issues ahead…..Remember, politics create chaos which creates opportunities, but it is the economy that ultimately prices stocks…..We have now broken out of the trading range we were stuck in (5561/5750) and look for what that new trading range will be after we see how the markets react today. My guess? 5750/6000 will be the new range. The bias is to the upside, but we know how that can change on a dime.
So, sit tight – today is a day to let your portfolio work for you…. Do not feel like you have to do something…. futures are suggesting an UP day, so, go for a swim.
Expect the excitement to continue…. stick to your plan and remain resilient –
Take good care,
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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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.
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My Baked Bosc Pears with Vanilla Ice Cream.
Now if you follow me on X – you saw that I posted dinner yesterday for Mother’s Day.
Grilled Veal Chop with Broccolini, mushrooms and mashed…. Delish…but I finished the meal off with this wonderful desert… You can find the pics on my X account (@kennypolcari).
For this you need 4 bosc pears, Brown sugar, cinnamon, butter and fresh lemon juice and of course some Haagen Daz Vanilla Ice Cream.
Preheat your oven to 400 degrees.
Begin by slicing the pears in half and then taking out the seed using a teaspoon so that you have a little pocket.
Line the pears up in the baking dish, cut side UP. Now squeeze half a lemon over the pears to prevent them from ‘browning’.
Now in a bowl, mix 2 c of brown sugar and 1 tsp of cinnamon. Now sprinkle over the pears, making sure to cover the pear and put any extra in the dish between the pears. Now take a dollop of butter and place it on each pear (in the pocket).
Cover it tightly with foil and place it in the oven. Bake for 30 mins. Then remove the foil and bake for 30 more mins.
Remove and serve immediately – placing a heaping tablespoon of ice cream on top. Use a spoon to drizzle the caramelized brown sugar over the top.
Buon Appetito
