Things you need to know
- It’s Risk Off for some and Risk On for others.
- The Middle East Remains the focus – Saudi’s Speculate on oil.
- The VIX remains fearful
- Gold Down, Dollar Up, Oil Up & Yields Up.
- Try the Feta Shrimp
Stocks mostly fell again yesterday as the conflict in the Middle East continues to be the focus weighing on the investor psyche as investors, traders and algos tried to assess the growing geopolitical risks and what they might mean for energy markets, inflation and ultimately monetary policy at home and abroad. The realization that the FED may not cut rates anytime in 2026 is now more of a reality than not but not a foregone conclusion yet and so markets will reprice that risk.
We already know that JJ is out and Kevy is in – OK…but…..
Kevy Warsh as chairman, is only ONE voice and does not control monetary policy alone. That decision is made by a committee of 12 – so he needs consensus and while he will try really hard to influence the decision – he can not force it.
Consider the macro backdrop – Oil spiking, Middle East instability, a solid labor market, a robust economy, rising inflation (and that is before the recent spike in oil) – so cutting rates continues to look a bit premature – UNLESS of course, Kevy pulls a fast one and shrinks the balance sheet (think – take money out of the system) – which would force the long end higher allowing him to get support from the committee to lower short term rates…(Fed Funds are considered short term – capisce?)
Lower short-term rates + higher or stable long-term rates means the yield curve would steepen and that would help to normalize the financial system after 18 yrs of ultra-easy monetary policy. And if done right – we would see stocks rally with financials and cyclicals being the biggest beneficiaries. So, expect to hear a lot more about QT (Quantitative Tightening) in the months and year ahead.
Yesterday – The Dow lost 203 pts, the S&P lost 19 pts, the Nasdaq gave back 62 pts the Russell GAINED 16 pts, the Transports GAINED 88 pts, the Equal Weight S&P lost 2 pts while the Mag 7 gave back 327 pts or 1%.
Of the 11 S&P sectors – Energy rose by 1.6%, Tech added 0.4% while Financials ended just slightly higher up 0.05% (half of a 0.1%) ……the other 8 sectors lost ground again with Basic Materials taking it the hardest – down 1.5%. Consumer Staples gave up 0.8%, Consumer Discretionary gave up 0.8%, Industrials lost 0.7%, Utilities down 0.4%, Communications down 0.4%, Healthcare down 0.4%, and Real Estate down 0.25%.
Israeli Prime Minister Benny Netanyahu told the world that Iran is no longer in a position to enrich uranium or manufacture ballistic missiles, predicting that this war will end “faster than people think.” Whether that proves true or not remains to be seen, but markets remain concerned and are not completely convinced yet that the situation will be resolved quickly.
On the economic front – the news was mixed…. New Home Sales plummeted – falling 17% vs. the -0.2% estimate dropping to a 3-yr low. The headline number looked ugly, and IS ugly, but the weakness wasn’t because housing demand suddenly collapsed. It was mostly a mix of rates, weather, and inventory dynamics.
Mortgage rates are now around 6.2% – 6.4% up from 5.8% – 5.9% and while you might think ‘no big deal’ it is enough to push some marginal buyers to the side. Next was the weather – need I remind you what that looked like in January and February? The weather delayed tours, construction and contract signings…and remember – New Home Sales are counted when the contract is signed, not when the house closes – so if the weather delays tours and signings then the New Home Sales data is negatively affected. If true, then next month’s reading should show significant improvement. And finally – some buyers remain more cautious due to uncertainty – uncertainty about a job, uncertainty about inflation, uncertainty about rates, so, they delay and delay and delay again.
And for those of you that think there is no inventory – you’d be incorrect – The most recent data shows that there is about 10 months’ worth of supply (~480k homes) – which means buyers have a choice, which means they can take their time. As a result – home builders are slashing prices to keep you interested or offering you ‘free’ upgrades to keep demand strong.
Did you notice that? Homebuilders are slashing prices to keep demand strong…isn’t that what we have been talking about all along? 6% rates (which are NOT high by historical standards) will force prices to come down and if new home prices come down, then it makes sense that existing home prices should come down as well (in order to compete) and that is what we are seeing. Which is why I keep saying the FED should not cut rates anymore (yet).
The VIX remains elevated, and that is also contributing to the ongoing weakness in equities. This morning the VIX is up $1.60, or about 7%, pushing it to 25.80 — a level that signals continued anxiety in the marketplace. When the VIX sits in the mid-20s, it tells you that traders and algos – that dominate daily trading – remain nervous and reactive.
As long as the VIX remains elevated, markets are likely to stay skittish and prone to sharp intraday moves as participants react to every new headline coming across the tape.
That said, long-term investors see these periods very differently. Elevated volatility tends to create opportunities – as strong companies get pulled lower (mispriced) along with the broader market. Something I have emphasized over and over again.
For now, the VIX – in the mid-20s – tells us the market is still digesting the news flow and has not yet fully found its ‘Chi’. (Finding your Chi – means you find you inner balance, energy and natural flow – so when the market finds its Chi, it is focused and balanced allowing you to ignore the noise and stay disciplined.)
Bonds rallied a bit – after getting pummeled over the last week or two…. the TLT rose 0.6% while the TLH rose 0.3%. But this morning they are both a bit lower and that is sending the 10 yr yield up 4 bps at 4.29% while the 30-yr yield is up 3 bps at 4.87%.
Oil – do we need to go there? It remains at the epicenter of this drama. WTI is up 40 cts at $95.90 leaving it solidly between $90/$100… Any resolution to the conflict will see oil decline and if that happens, stocks will surge….. but right now – that is not happening, so oil remains elevated and stocks remain skittish. The Saudi’s are saying that oil could see $180 by April….That’s next week and a bit dramatic, unless of course Iran blows up the middle east oil fields….and if that happens – I would not want to be in Tehran, Mashhad, Isfahan, Karaj or Shiraz.
Gold fell another $170 yesterday to end the day at $4,649! This as the dollar continued to advance and treasury yields remain elevated. It’s a simple equation – Higher Yields + Stronger Dollar = Pressure on Gold. In the last 2 weeks – the 10-yr yield is up 9.4%, the 30-yr yield is up 6.1%, the Dollar is up 2.7% and guess what gold did? It has fallen by 14%. Econ 101. Bam!
There is no eco data today – so the focus will be on the middle east, the first day of spring and what is now officially recognized as ‘International Day of Happiness’ – you can’t make this up…. You just can’t! Look it up – it’s all about ‘life satisfaction’ and the Nordic countries (Finland, Denmark, Iceland, Sweden, Norway) have taken the lead – the US is #23. Apparently its all about embracing Gen Z – and giving them ‘space’ so that they can live…..OMG…..Really?
European markets are mixed to slightly higher…. yesterday – we learned that the ECB and other central banks across the continent left rates unchanged. The ECB thought hinting that the next move might be UP rather than down due to ‘inflation risks’. But they also left the door open in case something changes.
US futures are down again – (see the VIX above). Dow futures are down 165 pts, the S&P is down 34, the Nasdaq is down 165 and the Russell is down 26.
None of this should surprise you – it’s Friday, it’s been another weak week. A lot can happen over the weekend, blah, blah, blah…..Again, while uncomfortable, it is not a disaster. The S&P is down 3.5% ytd and 6.2% off its high.
Now – what did happen yesterday is that we breached the long term trendline at 6,606 – to trade down to 6,557 before rallying back to the trendline. Now, we have been discussing this…. If we break the trendline, it sets us up to test 6,500, a level last seen in September of 2025. And even that move would represent only about a 7.4% pullback from the highs — again still well within the boundaries of normal market trading.
Since the beginning of the year – we’ve been talking about how markets were ripe for a pause or a pullback. Valuations had gotten stretched, the rally was becoming narrow, and investors had become a bit too comfortable. Remember the VIX was at 14.80 – suggesting overwhelming complacency. So what does this mean? It means you should not be surprised, nor should you abandon your long-term plan – find your CHI – stay focused, talk to your advisor and make sure you risk matches your tolerance for risk.
Call me at 561-931-0190 and let’s talk about reaching your goals.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Feta Shrimp (It’s still Friday in Lent)
This is one of my classic Christmas Eve dishes, but it works anytime of the year.
Feta Shrimp – This one is easy and can be served several ways. Either in a large bowl with toasted garlic bread or over a pasta – maybe like an Orecchiette or over white rice….
For this you will need: 2 lbs. of large cleaned and deveined shrimp, sliced garlic (a lot), thin sliced plum tomatoes, feta cheese, butter, s&p, olive oil & Madeira wine.
* You can prepare all of this ahead of time and place it in bowls to have ready for you when you are ready to cook.
Begin by heating up ½ stick of butter and some olive oil on med high heat. Add a handful of sliced garlic and sauté for 4 mins or so…do not burn. Next add in enough shrimp so that you cover the bottom of the pan – do not pile them on top of each other…. When they turn pink – flip them over.
Now add enough Madeira wine to “bathe” the shrimp – (do not drown or cover them in wine) – Turn heat to hi…. season with s&p, place sliced plum tomatoes all over and then top with crumbled feta cheese.
Cover and allow the steam to soften the tomatoes and soften the cheese. No more than 3 mins. Remove and place it in a large serving bowl. Repeat process until you have cooked all the shrimp. When serving – make sure that you have enough garlic bread for your guests.
*If you are putting over pasta – then boil the pasta – strain and mix – adding extra feta cheese to the hot pasta to help make it creamy and delicious.
Buon Appetito.