Things you need to know.

• Tensions are high – Investors remain cautious but not panicked.
• Israel takes over the skies, Iranians flee Tehran.
• Retail Sales weak? Don’t’ be ridiculous!
• And its FED Day…. Oh boy – can’t wait for this!
• Futures point higher.
• Try the Mahoganey Chicken.

Risk Off, Risk On, Risk Off (again)……. Stocks closed lower as concerns over ‘what’s next’ in the Middle East were top of mind….Dow – 300 pts, the S&P down 50, Nasdaq down 180, Russell down 22, the Transports down 213, the Equal Weighted S&P down 71 while the Mag 7 lost 284 pts.

Tensions are high – let’s not kid ourselves……Iran has been almost neutralized, Israel has taken control of the skies and is committed to taking out the ‘hidden’ nuclear plants that exist deep in the mountains and Trump considers US options (if any…) of how to help Israel finish the job. Residents of Tehran have begun to flee, and the Ayatollah has been given an option – ‘Unconditional Surrender’ Period. His response is that ‘they will show NO mercy to the Zionists’ – Yeah, let’s see how that goes…..As he sits in a penthouse in Dubai…

Then we got Retail Sales and while some considered the report ‘weak’ – I am not in that camp – while TOP line sales came in at -0.9% vs. the expectation of -0.6% and Ex Autos & Gas at -0.1% vs. the expectation of +0.3%, the Control Group came in at +0.4% – better than the +0.3% expectation….and why is THIS important?

Because the control group refers to a specific subset of retail categories used by economists and analysts to gauge consumer spending trends more accurately. It excludes certain volatile or less discretionary categories to provide a clearer picture of underlying consumer behavior.

The U.S. Census Bureau, defines the retail sales control group as total retail sales excluding the following categories:

Motor vehicle and parts dealers (due to high volatility and large ticket purchases).

Gasoline stations (due to price fluctuations driven by oil prices).

Building material and garden equipment stores (often tied to housing market fluctuations).

Food services and drinking places (sometimes considered non-discretionary or volatile).

By excluding these volatile groups – the control group focuses on more stable, discretionary spending categories (e.g., general merchandise, clothing, electronics) that better reflect consumer confidence and economic health. By excluding volatile sectors, it provides a less noisy (clearer) measure of personal consumption expenditures (PCE), a key component of GDP and a key measure for the FED.

So yesterday – top line (including everything) fell by 0.9% but the retail sales control group rose by 0.4% month-over-month – better than the expectation of +0.3% and better than last month’s -0.1%, indicating solid consumer spending despite the negative headline retail sales. The biggest negatives were Auto sales – down 3.5% and Building Materials down 2.7% – two of the sectors that are considered the most volatile. And BTW – how often do you buy a new car, and have you seen the prices of a new car? And the cost to carry or lease a new car? So what that says is that consumers are CHOOSING not to buy new cars. I don’t view that as a comment on the strength of the economy, I view that as a decision by consumers on how to spend their money. So can we stop the histrionics?

And then we have the FED! What will JJ say? What sentences will change this month over last month? What words will he use to describe the ‘tone’ of the meeting and the ‘tone’ of the economy? What will the DOT plot suggest? Will JJ address Trumps constant badgering of how he is handling the job? So here is my take – NO CUT FOR YOU (today). JJ will say as little as possible. He will NOT commit to any future cuts but will clearly leave the door open. I don’t think he will address the Trump name calling directly, nor do I think he cares about what Trump thinks. His job is economics, and I suspect that he will stay on the course. I DO think that the DOT plot will suggest lower rates next year and the year after that.

[Recall the explanation yesterday: The dot plot is a graphical representation used by the Federal Reserve to show its members’ projections for future interest rates. Each dot represents an individual Federal Open Market Committee (FOMC) member’s expectation of the federal funds rate at the end of a specific year or period.

Key points include – it is published quarterly as part of the Summary of Economic Projections (SEP). It is anonymous – Dots are not labeled with specific members’ names. It shows the range of rate predictions and the median forecast. And it attempts to guide markets. While it is a tool to communicate the Fed’s outlook, it’s not a binding commitment, as projections can shift with economic changes. So, in my mind – it’s a game really – to give them something to do.]

Now while we won’t get a rate cut today or in July, I think he is going to suggest that the next couple of months will provide more detail leaving the possibility open for a cut sometime in the future while NOT committing to any specific meeting of which there are 3 in the fall – Sept 16-17, October 28-29 and December 9-10. (There is no August meeting – but there is a FED boondoggle in Jackson Hole).

FYI – Fed Fund Futures are pricing in a 60% chance of September cut. I suspect that we will get the same question asked in a different way by 8 different reporters attempting to get him to commit. Here’s a news flash – This isn’t his first rodeo – Capisce? I continue to believe that the HARD data remains HARD and that suggests that rates are fine where they are. Now IF that changes then I reserve the right to change my opinion – but I just don’t see it right now. The drama begins at 2 pm….and I will be joining Liz Claman on Fox Business at 3:15 ish post the press conference.

Ok – eco data today – besides the FED includes Housing Starts and Building Permits, Initial Jobless Claims and Cont. Claims (remember – the market is closed tomorrow for Juneteenth). I suspect that we won’t get any surprises in any of this data.

Oil surged by 5% yesterday – ending the day at $75.49 – all because of the tensions in the middle east and that will not change until the situation changes. And once that does change then I suspect – oil will come crashing back down to the mid to low 60’s…on its way to the mid to high 50’s. Look – OPEC + is upping production, the US is producing 13 + million bpd, and once Iran smartens up – they will also be producing and adding to global supply, capisce?

Gold remains confused…. It has had a dramatic move – even before the Iran thing – it was up 26% coming into the conflict on top of the 22% move higher last year. So while the anxiety is high – gold has not surged even higher…It has found it’s ‘chi’ between $3400/$3500. Now – trendline support is at $3,330 – and we will test it when we have an end to the conflict. But until then I suspect we churn within the range.

Bonds rose – the TLT up 1.2% while the TLH rose 1%. 10 yr yields are 4.37% while the 30 yr is at 4.87%. Shorter duration bills are offering solid ‘annualized rates. 4.24% on the 3 month and 4.18% on the 6 month – but remember – those are annualized rates – so 3-month rates are really 1.06%- and 6-month rates are 2.09%.

US futures are up… (are you seeing the pattern – risk off, risk on, risk off and now risk on – again)..Dow futures are +85, S&P’s up 18, the Nasdaq +75 while the Russell is up 11.

The S&P closed at 5982 – down 50 pts…. A look at the charts shows us that we have not gone anywhere – we are stuck in this very tight range – 5980/6050…..….

Remember – political chaos causes short term angst – causing some to run for the hills while others choose to take advantage of the moves. Remember – a decline in prices due to geo-political anxiety is an opportunity – mostly because it is emotional. Lower prices are due to investors taking cash off the table not because the ‘thesis’ for investing has changed, but also because of the opportunity. For now, markets will remain mostly on edge until they lower the temperature in the region – something I do not think happens until Iran is completely neutralized. I think we remain in the 5900/6100 trading range.

Call me for a free (no obligation) portfolio analysis. 561-931-0190

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.

 

Mahogany Chicken

You need: Chicken parts – on the bone. (thighs and breasts; skin on); Olive oil, Garlic – 1 whole head, but more depending on how much chicken you are making; Fresh rosemary, Fresh sage, Fresh thyme, Bay Leaves, onion, Olives – green and/or black, Kosher salt & fresh ground pepper, and a good quality ‘thick’ Balsamic vinegar

Soak & clean the chicken. Pat dries on paper towels. Arrange in a roasting pan. Drizzle with olive oil, rub it onto each piece. Season with salt & freshly ground pepper.

Peel garlic and arrange around and under the chicken parts. Add rosemary, thyme, sage & bay leaves. Put the herbs around and under the larger pieces of chicken. Add 2 cuttings of large onions and spread it around the chicken. Use Vidalia onions if you have them, but any onion will work.

Roast the chicken in the middle of a 400-degree oven for about 45 minutes. Check the pan every 15 minutes or so and remove any excess liquid with a turkey baster. The object is for the chicken to roast, not braise. – Save the juice on the side in case someone wants some with their meal.

After 45 minutes, drizzle the chicken with the balsamic vinegar, add the olives, turn the heat up to 450 degrees, and roast for 15 minutes more.

You can serve this with roasted vegetables, roasted potatoes or rice. Always include a tossed green salad.

Buon Appetito