Things you need to know
- Hotter PPI reignites the inflation narrative.
- Powell stands pat and hints at ‘higher for longer’.
- Investors reprice risk and stocks decline.
- The Mid-East Conflict rages on…
- Try the Pork Chop Pizzaiola
Yesterday was all about inflation at the producer level (PPI) and the FED policy decision…..and it was not pretty…..the PPI came in much stronger than expected and that set the tone….futures that we higher in the pre-mkt did a 180 and never recovered…And it only got worse after JJ took the stage….
Now remember – the PPI measures the cost of producing the goods that we ultimately buy, and when those costs rise at the producer level there is a high probability that those costs eventually get passed on to the consumer. Which means higher consumer prices down the road.
Typically, there is a lag of several weeks to a couple of months before higher prices begin to show up in the Consumer Price Index, so yesterday’s report immediately raised concerns that next month’s CPI could be stronger as well. And that is not what investors — or the Federal Reserve — want to see right now.
To be clear — the numbers were significantly hotter than expected. These are not small misses. These numbers suggest that inflation pressures are still very much alive — something that I have been screaming about for months now.
And here is what makes this report even more important. These are the February numbers. Which means this report reflects inflation before “Operation Epic Fury” even took off. In other words — before the recent surge in oil prices and geopolitical tensions are now beginning to ripple through energy markets.
So, if producer prices were already rising before that event…you have to ask yourself: What happens next? What will the March CPI look like? What will the March PPI look like?
Here are the numbers — just so you know:
• Headline PPI m/m: +0.7%
• Core PPI (ex-food & energy) m/m: +0.5%
• PPI y/y: +3.4%
• Core PPI y/y: +3.9%
To be clear — this wasn’t a small miss.
Futures — which were up triple digits for both the Dow and the Nasdaq — got whacked, and the tone went from mildly positive to negative in a hurry. Then the bell rang and boom — down we went. But that wasn’t the end of it. Investors still needed to hear what JJ was going to say, and that moment came at 2:00 pm with the Fed decision.
As expected, the FOMC held rates steady, leaving the Fed Funds target range unchanged. But as always, the real story wasn’t the rate decision itself. The real story was the tone, the message, and the implications for policy going forward.
And the message from JJ was clear.
The Fed is in a tough position, and it is important to keep policy “mildly restrictive.” Rising energy costs will likely boost inflation, and that certainly does not support the argument for multiple rate cuts this year.
In fact, Powell is still penciling in one cut in 2026 and another in 2027, but traders are increasingly questioning whether even that is realistic, as the probability of rate cuts continues to decline. Recall that just three weeks ago the market was pricing in a 55% chance of a June rate cut.
Today? The probability of a June cut has collapsed to below 10%. And that September cut? Only about 12%.
Powell went on to say that:
“The implications of developments in the Middle East for the U.S. economy are uncertain, and the Committee is attentive to the risks to both sides of its dual mandate. If we do not see progress on inflation, then we won’t see a rate cut.”
And after yesterday’s hot PPI report, it became increasingly clear that progress on inflation is not exactly happening.
In fact, the conversation may now have to shift from when the Fed cuts rates…to whether the Fed might actually have to consider a rate hike before it considers a rate cut. All of this – caused the VIX to surge – rising 12% yesterday to end the day at 25.10.
And stocks moved lower…. Which does not mean that there are not buyers, it just means that buyers are taking advantage of the news and are moving their bids lower causing sellers to become more aggressive, causing buyers to move lower yet again…and so the cycle continues…and stocks decline.
At the end of the day – this is what it looked like – the Dow lost 769 pts or 1.6%, the S&P gave back 92 pts or 1.4%, the Nasdaq lost 327 pts or 1.5%, the Russell gave back 41 pts or 1.6%, the Transports gave up 192 pts or 1.1%, the Equal Weight S&P choked – losing 102 pts or 1.3% while the Mag 7 gave up 485 pts or 1.5%.
Bonds got hit as well – on the idea that rates are not going any lower and in fact might be going up…the TLT and TLH lost 0.6% and that sent yields higher…the 10 yr is now yielding 4.27% while the 30 yr is now yielding 4.89% and while we are still below levels that are sure to cause angst, we are getting closer, so expect stocks to pay very close attention.
Oil – not helping the situation…. Brent crude is now kissing $114/barrel and WTI is trading at $96.50 as the conflict in the Middle East rages on…. Iran hitting an LNG facility in Qatar causing ‘extensive damage’ only raises the temperature across the region and the world. The latest attack threatening the longer-term supply disruption, raising the prospects of higher longer term energy prices which raises the prospects of higher inflationary pressures on the global economy.
Oil now remains in the $90/$120 trading range…..with the path of least resistance higher not lower.
Gold is down again this morning — off $145 or about 3%, trading at $4,674. In fact, gold has now lost about 14% since the start of this conflict and has broken through its short-term support trendline, putting the intermediate trendline near $4,590 squarely in focus.
So, you might ask — what happened to gold as the “ultimate safety trade”? Well… nothing really. It still plays that role. But let’s be honest about what happened first.
Gold skyrocketed. It is up more than 200% over the past three years, and at one point was up nearly 90% over the last twelve months alone, smashing record after record as investors piled in. A big part of that move was driven by the declining U.S. dollar, which had been weakening on the belief that the Fed would initiate an aggressive rate-cut cycle sending the dollar lower. But that story is changing.
The dollar did go lower as the FED cut rates and that gave gold the strength to go higher, but the dollar stopped declining in late January, after becoming technically oversold. (you can check out the RSI index to see this). Over the last six weeks, the dollar has rallied about 5%, moving from 95.55 to 100.11, breaking up and through all three trendlines and now pushing above the November highs. And if the dollar continues to advance from here, history tells us exactly what that means:
More pressure on gold. Because remember — gold and the dollar have an inverse relationship. A stronger dollar makes commodities more expensive globally, which tends to pull prices lower, while a weaker dollar tends to push them higher. And right now? The dollar has the momentum.
For now – 4,590 is the next support line for gold and if that fails then it opens the door for gold to test its long term trendline at $4,080…..
The dollar? Well, support is down at 98.20 with resistance right here at 100.10. If the narrative becomes a rate hike – then watch the dollar surge, (and gold fall), if the narrative remains – wait and see – then both will churn…
Eco data today includes New Home Sales, and they are expected to be down 2.7%, while Building Permits are expected to be up 0.2%.
European markets are all lower…..Every country across the zone down more than 2% as the conflict in Iran intensifies. Remember – Trump said that if Iran continues to target Qatar’s energy infrastructure – he would blow up Iran’s South Pars Gas Field…and so this conflict is not resolving itself anytime soon.
US futures are lower this morning, although they are off the overnight lows. Dow futures are down 75 pts, the S&P is off 11, the Nasdaq is down 66, and the Russell is lower by 15.
Look — the tone is not positive, but it is also not a collapse.
The Dow has broken its long-term trendline at 46,530, and it is now down about 8.5% from the high — which, while uncomfortable, is still within a normal correction band. That now puts 45,250 squarely in the bullseye, a level last seen in the summer of 2025.
The Nasdaq has broken its long-term trendline, leaving it down about 8% from the high. Again, it is not pleasant, but still well within a normal trading range.
The Russell has not broken its long-term trendline, and neither has the Equal Weight S&P, which is important because it suggests the broader market has not completely lost its footing.
The S&P closed yesterday at 6,624 — down 91 points, leaving it just 9 points away from its long-term trendline at 6,615. At the moment the index is down about 5.4% from the highs.
Now if that trendline breaks, it likely sets the market up for a test of 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 a normal market correction.
So, what does all of this mean? It means the market is correcting — and frankly this should not be a surprise. We discussed this. I told you at the beginning of the year to expect a pullback for a number of reasons. Now while this Middle East conflict was not one of the factors back in January, it is clearly part of the story today, and it is helping to fuel the move lower.
But remember this as well. When markets pull back like this, opportunity begins to appear. If you look around, you will find some very good companies that have been absolutely slammed in this move — and that is exactly where you need to start looking.
And if you are feeling anxious, do a couple of simple things: Make sure you understand what you own and why you own it. Stick with the biggest, most liquid names. Talk to your advisor. And most importantly – Do not panic.
Call me at 561-931-0190 and 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,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Pork Chop Pizzaiola
Just like its sister recipe – Steak Pizzaiola or Chicken Pizzaiola – this is a hearty, full bodied dish that can be eaten all by itself enjoyed with a glass of Chianti or vino di tavola (table wine) ….no need to go over the top – it’s all about enjoying the moment –
You will need: Thick cut Pork Chops on the bone – (about 3/4” thick), Olive oil, Oregano, garlic, onions, red and green bell peppers, can of crushed tomatoes (not puree), some red wine, salt and pepper…. **crushed red pepper flakes (optional).
In a saucepan – heat olive oil and add crushed/sliced garlic and move it around for a couple of mins until it is nice and golden…. Add a sliced white onion and julienned bell peppers – turn heat to medium and cover.
When the onions and peppers are soft (about 5 mins) add the crushed tomatoes, oregano and *red pepper flakes. Turn heat up and bring to a quick boil then reduce heat to medium.
Add red wine (about 1/2 cup) salt and pepper and let simmer and thicken up…. about 10 / 12 mins.
Next – rub the chops with olive oil, salt and pepper – do not drown the chops in oil – just enough to massage the chops and prepare them for the skillet. Heat skillet (high) and add chops (if you have a ribbed skillet this works best) You can sear for about 4 mins then turn over and continue cooking for another 4 mins.
Turn heat down to med low – then add the tomato sauce to the skillet – cover and simmer for another 10 mins. This should give you a nice medium chop – If you prefer you can let simmer longer for more well done. When done – remove chops from skillet and arrange on plate. Next – stir the sauce in the skillet pan to deglaze – making sure to scrape the pan for any bits left behind. Spoon sauce over the chops and serve immediately.
Buon Appetito.