Things you need to know
- Same CPI – 2 very different stories.
- Are investors, traders and algo’s trading the narrative or the results?
- Rates are falling, expectations are rising – but cred matters.
- Oil up, gold down, Bonds up, Yields down.
- Try the Rigatoni with Caccio e Pere (cheese & Pears).
AHHH – same data – two completely different emotional reactions….
Bloomberg frames it this way
“The consumer price index ROSE 0.2% in January, the smallest GAIN since July and restrained by lower energy costs.”
Technically correct. But psychologically playful? It forces you to focus on “rose.” Inflation still rising. Still a problem. Still pressure. That’s a negative story.
Now consider this –
“CPI m/m FELL 0.1%… BETTER than estimates… y/y down to +2.4% from +2.7%.”
This version forces you to focus on the ‘directional improvement and expectations. It highlights the trend, the deceleration. That’s a positive story. Capisce?
And here’s the key: That is classic framing bias – “Inflation rose 0.2%” sounds sticky. “Inflation cooled more than expected” sounds like progress. We can bet that the Dems will accentuate the ‘sticky story’ while the Republicans will emphasize the ‘progress story’. It is what it is – and the world turns.
Same number. Different message…. And here’s why it matters. We’re in a market that is hypersensitive, think midterm election noise, Fed drama, Warsh speculation, rate-cut tug-of-war. In that kind of environment, language becomes fuel.
The hard data says: Inflation is cooling. Trend is down. Y/Y improving. But the headline says: “Prices ROSE.”
Now here’s the dangerous part. The algo’s don’t know what to focus on. The language or the data? They don’t just read 0.2%. They read “rose.” They read “pressure.” They read “sticky.” Negative adjectives cause Sell programs to light up while the positive numbers cause Buy program to step in. The message is mixed – the quant model reads disinflation, so they buy, the sentiment model reads ‘prices rose’ and they sell…..leaving the markets confused….do we buy them or do we sell them?
It’s not confusion about the data. It’s confusion about the narrative. And in a market this antsy – where positioning is already tight and volatility is elevated; the narrative whiplash creates market whiplash.
So, the real question becomes – Are we trading the trend or are we trading the adjectives? Look – in the end CPI didn’t reaccelerate, the tariff tantrum has not played out the way so many expected, the inflation story is moderating – there is nothing confusing about it. We do not have an inflation problem any longer – what we have are higher prices – complements of the Biden’s that will remain elevated unless we get a real recession – a 1979 style 2 yr UGLY recession – that nobody wants….So, what we need to do is grow the economy, to get ourselves out of this mess….and that IS happening….Period, full stop!
The disconnect – between improving fundamentals and dramatic negative framing — is exactly why markets feel so unstable right now. And that’s when discipline matters most.
Stocks ended mixed on Friday – the bulk of the market advancing while tech continues to feel the pressure…..at the end of the day – the Dow rose by 49 pts, the S&P up 3 pts, the Nasdaq fell 50 pts the Russell rose 31 pts the Transports gained 317 pts, the Equal Weight S&P rose 84 pts while the Mag 7 ended the day flat.
Only Communications and Financials ended the day lower – both down less than 0.1%…. the other 9 S&P sectors did end the day higher…. Utilities were the biggest winner – up 2.7% – taking that sector up 9% ytd. Real Estate up 1.5%, Healthcare up 1.1%, Basic Materials +0.9%, Industrials up 0.8%, Energy up 0.7%, Consumer Staples gained 0.4% while Tech did advance by 0.25%.
Down the chain – we saw Homebuilders up 1.9% – taking that sector up 17.8% ytd, Retailers up 1.6%, Airlines up 0.1%, Disruptive Tech up 2.6%, (this sector down 8.7% ytd), the Value trade up 0.6% (now up 3.8% ytd) while the Growth trade was down 0.4% (leaving growth down 3.5% ytd). Emerging markets continue to push higher – up 0.4%, Metals & Miners up 1% (taking that sector up 13.7% ytd), Cybersecurity gained 2.6%, Semi’s up 0.9%, Quantum Computing up 1.2%, Exploration & Production up 2.2%, Big Pharma up 0.8% while Biotech lost 0.25%.
Eco data today includes nothing that will drive the action…. But there is plenty to consider later in the week – we will get Durable Goods, Housing Starts, Building Permits, Industrial Production, the January FOMC mins (which will not reveal anything that we don’t already know). We will also get the December PCE report – which is expected to remain unchanged as well as the 4Q GDP, and both services and manufacturing PMI’s. We will end the week with New Home Sales and the U of Mich Sentiment surveys….
Earnings season is coming to a close – but there will be plenty to consider starting tomorrow…..Names like Medtronics, Palo Alto, Cadence Designs, Energy transfer, Vulcan Materials, DTE, First Energy and Labcorp Holdings. These companies – represent – Medical devices, Cybersecurity, Semiconductor Tools, Energy and Nat Gas Midstream, Construction, Utilities, and Healthcare Services/Diagnostics.
(But let’s not kid ourselves…. NVDA reports next week – and the market waits….)
Bonds caught a bid on Friday — the TLT up 0.6%, TLH +0.5% — and when bonds rise, yields fall. That sent rates lower across the curve. The 10-year dropped 6 bps to 4.04%, the 30-year fell 6 bps as well to 4.68%. And this morning? More of the same. Bonds are being bought again, pushing the 10-year down to 4.02% and the 30-year to 4.66%.
The message is clear: the bond market is leaning toward Fed easing. June (16th/17th meeting) is now the favorite, with traders pricing roughly a 55% probability of a 25-bp cut.
But here’s the critical point — and this is ‘critical’. If the Fed simply cuts rates without addressing shrinking the balance sheet, markets may not celebrate. In fact, they could see that as a return to excess liquidity — the very distortion created over nearly two decades and the one that we need to normalize. If policymakers want credibility, especially with a new FED chair – then Kevy (Warsh) needs to pair any rate cut with balance-sheet reduction. Anything less risks being interpreted as policy backtracking – not the way Kevy wants to start his reign at the FED.
Oil ended Friday relatively flat after getting whacked on Thursday…. This morning oil is up $1 at $63.86. The move up being credited to ‘military drills’ being proposed by Iran in the Strait of Hormuz – this even as the Iranians are supposed to continue their nuclear talks with the US. The outcome of these talks will define the next move in oil….an agreement will see oil settle down while a non-agreement will put upward pressure on oil. For now – we remain in the $62/$66.50 trading range.
Gold continues to thrash around – this morning it is down $67 at $4,924 – the decline being credited to the Asian Lunar new year – you see much of Asia is closed for the holiday and that is supposedly taking demand pressure off. Ok – we’ll run with that….
It is the year of the ‘Fire Horse’ – something that only happens every 60 yrs…. Now pay attention – because in Chinese astrology, the Horse represents energy, independence, and boldness, while the Fire element intensifies those traits with passion, strong will, and fearlessness. Historically, Fire Horse years are seen as especially dynamic and powerful — sometimes even disruptive — because they combine movement with intensity. Oh boy…..here we go….
Gold remains in the $4,658 (trendline support) and $5,115 trading range.
Bitcoin is trading at $67,500, Ethereum around $1,970, and Solana is at $85.
The dollar is up again today trading at 97.13 – up 21 cts. While we are still below trendline resistance at 98 – we remain above support at 96. My gut says we will remain here until we get more clarity from the FED.
European markets are all slightly higher…. nothing to see here.
This morning US futures are lower again… Dow down 67 pts, the S&P’s down 20 pts, the Nasdaq down 185 pts, and the Russell is down 7 pts.
The S&P closed at 6,836 – up 3 pts – and is sitting right atop trendline support. Let me repeat why this is important.
If this support fails, the algos will light up. And when the sell algos light up, they will accelerate to the downside. The buy algo’s will step aside and look to buy stocks at lower prices…. A break here opens the door to a quick test of the November lows around 6,550-ish. And that could happen over the next week. This is not the time to go to sleep.
If the market doesn’t shake off the negativity early, then it will feed on itself… But remember this – there are two sides to a trade – a buyer and a seller….and while the sellers are nervous, the buyers might just be licking their chops! Because a decline creates opportunity. And the same levels that trigger sell programs for traders and algo’s are the same ones that trigger opportunities for the long-term investor.
But understand something important. Even a pullback to 6,550 is roughly 6.5% off the highs, which is not capitulation. It’s not even collapsing. It’s well within a normal trading band. Markets don’t move in straight lines. They advance, they digest, they reset.
Now… the tone changes if we pierce the long-term trendline sitting down around 6,498. That level represents roughly a 10% move off the top and if we pierce it, it takes us into correction territory. That’s the line between a healthy reset… and something that starts to feel a bit more uncomfortable.
Call me at 561-931-0190. Let’s talk about whether the risk in your portfolio actually matches your tolerance — because this works both ways. You may be taking too much risk… or not enough to reach your goals.
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.
Rigatoni con Caccio e Pere – a Roman Classic
Rigatoni with Cheese and Pears – delish…and so easy to make. It’s salty, peppery and sweet all at once…Yum….
For this you only need a couple of things. The pasta, Bosc pears, Pecorino Romano Cheese, butter, olive oil and black pepper.
Begin by bringing a pot of salted water to a rolling boil.
Next – wash and slice the pears into small cubes…Now – some people peel the skin off while other leave the skin on…. it’s your call – either way is fine. I leave it on.
Additionally – some use diced guanciale in place of the olive oil and then add it back to the pasta when they serve it – that’s great too…just another version of this classic dish.
In a large sauté pan – add a dollop of butter and some olive oil…heat it and then add in the diced pear…. cook quickly for 3 – 4 mins only – season with a bit of s&p. …. You do not want them to get ‘soft and mushy’. You want them to get a bit golden.
Remove and set aside.
Toss the pasta into boiling water and cook for 8 mins.
In a bowl – add 2 handfuls of fresh grated Pecorino Romano, some black pepper and a ladle of the pasta water – mix to form a paste. This is important…you want a paste.
Back to the sauté pan – add in some black pepper and a ladle of pasta water. Keep the heat on med low. When the pasta is aldente (8 mins) – add to the sauté pan using a slotted spoon. Toss. Now add in the pears – toss again – careful not to mush the pears.
Now add in the Pecorino paste and another ladle of the pasta water to make a creamy delicious coating. Serve immediately in warmed bowls.
Buon Appetito.