Things you need to know – IT’s TAX DAY!
- Big bank earnings — JPM and C crushed it, WFC got a timeout. BAC and MS today.
- PPI came in cold — way below expectations — and the bond market noticed immediately.
- Oil cracked 7% — the Iran deal trade is alive and well.
- Mag 7 roared back — up 3% — taking the whole tape with them.
- VIX broke below its trendline — the fear trade is unwinding.
- The market is betting on a deal and acting like it already happened.
- Try the Veal Cutlet Bolognese (and it is not a tomato sauce)
**I am on NYSE TV at 9 am and then the Big Money Show on Fox Business from 12 -1 pm today.**
It was Super Tuesday on Wall Street — and the banks set the tone before most people had their morning coffee…..and for the most part – they did not disappoint….
JPM – Jamie Dimon delivered. Again. JPM posted EPS of $5.94 vs the $5.45 estimate, revenue of $50.54 billion vs $49.17 billion expected, and net income up 13% to $16.5 billion. Fixed income trading surged 21%, investment banking fees jumped 28%. And loan loss reserves – he allocated just a bit more, but the increase was ‘modest’ and expected. The point – it was not a deterioration story. Credit is contained, the bank is disciplined and there are no signs of systemic stress. The stock lost 0.8%.
Citi was the real winner of the day. Jane Fraser’s turnaround is no longer a story — it’s a reality. Revenue of $24.63 billion beat the $23.6 billion estimate. EPS of $3.06 crushed the $2.63 consensus. Stock closed up 2.7%.
Wells Fargo? They are still in the “show me” phase. EPS of $1.56 vs. $1.57 – no biggie…. revenue of $21.45 billion missed the $21.76 billion forecast. Now it is not all bad – WFC is making progress – 15% EPS growth, 10% loan growth and they are giving $4 billion back to shareholders in the form of the dividends – But let’s get real – they have to beat on earnings and revenues – until then – they will keep punishing the stock. The stock ended the day down 5.7%.
And then there was the other big macro event – the latest PPI. The producer price index rose just 0.5% m/m in March vs. the 1.1% estimate. Y/y it rose 4% vs. the estimate of 4.6%. (Huge relief). Core PPI, ex-food and energy, was up only 0.1% m/m versus the expected 0.5%, while y/y it rose 3.8% vs. the 4.1% expectation. (Another huge relief).
Wholesale inflation is behaving — and with oil pulling back, the inflationary pressure everyone feared will start to ease (That’s good). Now let’s be honest – it was good, but it ain’t over til the Fat Lady sings……that will happen when the conflict is over, oil drops back to the high $60’s and the PPI drops back to 3%.
And stocks surged….the Dow added 317 pts or 0.7%, the S&P added 82 pts or 1.2%, the Nasdaq added 455 pts or 2%, the Russell ended up 35 pts or 1.3%, the Transports surged by 422 pts or 2%, the Equal Weight S&P added 31 pts or 0.4% while the Mag 7 exploded – rising 972 pts or 3%.
Sector performance told the whole story. The strongest sectors on the day were Technology +1.6% (think all sub-sectors – Disruptive Tech + 4%, Software +1%, Semi’s + 2%, Quantum + 2.3% and those individual quantum names surged – IONQ +20%, RGTI + 11.5%, QBTS +16%), Consumer Discretionary +2.2%, Communications + 1.5% and Financials +0.3% – no surprise there – these have all been underperforming all year.
The weakest? Energy got clobbered — XLE down over 2% as oil cratered 7% on the idea that Iran is ready to talk (after we’ve completely blockaded every port on the Persian Gulf. Airline stocks though – were huge beneficiaries – JETS + 4.4%.) Consumer Staples slipped about 1% and Basic Materials gave back 0.4%.
And as the geopolitical situation appears to be calming down — investors are shifting their focus back to the economy and choosing to put money to work where they see opportunity. Tech, Communications, Consumer Discretionary and Financials were all down on the year — the casualties of a market that panicked when the Iran war became the headline. And now? That’s exactly where the opportunity is — as long as you believe this conflict is nearing an end.
Energy, Consumer Staples and Basic Materials — your classic defensive plays — came under a bit of pressure yesterday as the smoke appears to be clearing.
And that makes sense. But here’s the thing — if you were properly diversified going into this, there was nothing to worry about. Those defensive names did their job when the market was under pressure. They offset ‘some’ of the weakness. They gave you cover. And now that the situation is calming down, the beaten-up sectors will begin to shine again — and that’s exactly why you don’t panic, you don’t bail, and you stay diversified. Capisce?
Bonds rallied – the TLT and TLH rose 0.5% and that caused yields to fall. The 10 yr fell 5 bps to close at 4.24%. The 30-yr ended the day yielding 4.85%.
Now let’s talk about the elephant in the room — or more accurately, the elephant that LEFT the room.
Oil – WTI ended the session at $91.20/ — down 7% on the day. A week ago, oil was trading at $115. The reason for the pullback? HOPE. Pakistan is supposedly working to arrange a second round of US-Iran negotiations before this week ends. Both sides are signaling a willingness to talk – Iran says they’re open to dialogue within the framework of international law.
What? Suddenly Iran wants to play by the rules of international law? They have been lying and murdering for 47 years – ‘Death to America’ has been their battle cry – and now they want to play ‘nice in the sandbox’ because we are choking them to death? Funny how that works, no?
The futures market has oil trading at $72ish…the physical market is trading $30 higher because the Strait of Hormuz is STILL disrupted and oil is STILL not flowing normally. When that gets done — if it gets done — expect that gap to collapse and the inflation narrative to disappear. This morning – oil is trading at $92.46.
Gold was up $13 to end the day at $4,864. It remains stuck between the trendlines at $4,700 and $4,900. This morning gold is down $35 at $4,806 on the idea that the end is in sight — some of that war premium is getting taken out. But remember — Gold is still a hedge and is still relevant. In a world that remains chaotic, Gold will always be the ultimate safety trade.
And the fear trade? It just got a lot less fearful…..the VIX fell 4% to end the day at $18.36 — sitting directly on top of its long term trendline at $18.21 — and that puts us well into the complacent zone. This morning the VIX is down another 1.1%. – and is now below that trendline and if we make real headway with Iran – then I suspect that we could see the VIX fall another 12 – 15% into the $15/$16 range and if that happens – you can expect stocks to push higher.
Eco data today includes Mortgage Apps, Empire State Manufacturing, Import/Export price index, NAHB housing index – none of which will be a market mover. At 2 pm – we will get the FED Beige Book – which could be a market mover – so sit tight.
Key earnings reports include – Bank of America (BAC) — the last of the Big Five banks. After JPM trimmed NII guidance and WFC missed on revenue, all eyes are on BAC to see if the pattern holds. Analysts are expecting EPS of around $0.82 and revenue of roughly $26 billion.
Morgan Stanley (MS) — wealth management and trading will be the story. Analysts expect EPS of $2.95 on revenue of $19.2 billion. After Goldman’s blowout quarter, the bar is high.
ASML — the Dutch semiconductor equipment giant. This one matters beyond the company itself — ASML is the best read on global AI chip demand. What they say about orders and backlog will move the whole semiconductor space. ASML is up 42% ytd vs. the sector which is up 33% ytd.
European markets are mixed as they digest all the excitement and the moves higher over the past couple of days.
US futures are flat to slightly lower – take a breath. After the two-day rip that reclaimed ALL of the Iran war losses, consolidation is healthy. Dow futures -45, S&P’s -3, Nasdaq – 10 and the Russell is down 5.
The S&P closed at 6967- up 81 pts – closing right on the high. All of the major indexes are back in positive territory ytd. The Transports should be featured on Time Magazines ‘Index of The Year’ up an amazing 22.5% and what THAT tells you is that the economy is still moving, goods are still flowing, and the consumer is still spending. The Transports don’t lie and right now they’re telling you the economy is just fine.
Call me at 561-931-0190 and let’s talk about how SlateStone Wealth can help you navigate all of this and reach your goals.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Veal Cutlet Bolognese
Now this is NOT a tomato sauce – it is a veal cutlet FROM Bologna.
For this you need – thin sliced veal cutlets, flour, eggs, clarified butter, seasoned breadcrumbs, prosciutto, fresh grated parmegiana cheese, chicken broth (some people use white wine).
Clarified butter is the KEY here – it has a much higher smoke point – 450 degrees vs. 350 degrees. …. To make it at home — melt butter slowly over low heat, let it simmer gently until the foam rises to the top and the milk solids sink to the bottom, then skim the foam and carefully pour off the clear golden liquid, leaving the solids behind. That clear liquid is your clarified butter. It keeps in the fridge for weeks.
Chefs love it for sautéing, finishing sauces, cooking eggs and basting steaks. It gives you the rich flavor of butter without the burn.
Begin by dredging the cutlet in the flour – shake off excess, now dip into an egg wash and then into the breadcrumbs – making sure to cover both sides.
In a large sauté pan add the clarified butter – enough to cover the bottom of the pan. Heat it up – when hot, add the cutlet and fry on one side. After 3 – 4 mins – flip. Place slices of prosciutto on the cutlet and then top with the fresh grated parmegiana cheese – not a little, be generous – cover the cutlet with the cheese. Now add in a cup of chicken stock – around the cutlet NOT on the cutlet.
Turn the heat to med and cover the pan for 2 – 3 mins – long enough to let the cheese melt.
Serve immediately on a plate making sure to spoon the sauce (butter) over the top. You can thank me later.
Buon Appetito