Things you need to know
- US/Iran Conflict is about over – Markets Explode Higher.
- Energy and inflation fears ease – FED now on HOLD.
- Caution remains front and center despite the bounce.
- Try the Baked Pasta for Easter.
“What a difference a day makes, Twenty- four little hours, Brought the sun and the flowers – Mmmm where there used to be rain” …… Dinah Washington -1959 – but here’s a little tip that you didn’t know – the song was a translation of the 1934 Spanish song – Cuando Vuelva A Tu Lado…..
Mamma mia – What a way to end the quarter!
The spark? Headlines. Trump announcing that the U.S. had done its job — eliminating the threat of a nuclear-armed Iran and effectively neutralizing Tehran’s ability to destabilize the region. In his words, “a couple more things to take care of and we should be out in about two weeks.”.
Then, around 1 pm, the Iranian News Agency only added to that story suggesting Tehran may be ready to negotiate, though they would require certain guarantees. And just like that — the Momo guys, the algos and all everyone else that got out suddenly wanted back in and BOOM – stocks ripped higher.
Add to that the fact that the major indices and many sectors were deeply oversold, with RSI readings screaming for a snapback rally, and the stage was set for the kind of rip-your-face-off rally we saw into the close.
Now here’s the bigger story.
The Strait of Hormuz has effectively become everyone else’s problem.
From the world’s perspective, the U.S. and Israel removed the nuclear threat, while much of the rest of the world chose to sit this one out. Europe and Asia — the region’s most dependent on Middle East oil flowing through the Strait — largely stayed on the sidelines. Which now leaves them with the task of figuring out what comes next.
And here’s why markets care. Because the real is the oil that comes out of the Strait.
We’ve seen it over the past month – If the Strait shuts down — oil explodes. If oil explodes — inflation reignites. And if inflation reignites — the Fed and other global central banks have another problem. Inflation.
That’s the chain reaction investors have been worried about. But yesterday’s headlines suggested that maybe — just maybe — the worst-case scenario might be avoided. In fact, you could even imagine that this might have been the plan all along. Let the U.S. and Israel take the lead in neutralizing the threat — and then let the rest of the world step in to stabilize the region and negotiate what happens next.
Because one thing is clear. Tehran can’t accuse Europe or Asia of helping — they didn’t. So, if Iran wants to rejoin the global conversation, they have to rethink their next move.
But the story is not complete until you weave in the middle east countries that got caught up in the fray. They find themselves in a very different position this morning. Gulf producers like Saudi Arabia, the UAE and Kuwait benefit – Tehran has been their primary regional rival for decades — and higher oil prices, even temporarily, boost their revenues. But they still need the Strait of Hormuz to remain open, because most of their crude exports pass through that narrow channel.
Qatar, the world’s largest LNG exporter, faces the same dilemma since its natural gas shipments to Europe also move through the Strait. Iraq sits somewhere in the middle — rich in oil but politically fragile and still influenced by Iranian-backed militias.
Israel, meanwhile, gains strategically if Iran’s capabilities are reduced, while its growing Eastern Mediterranean gas fields could become increasingly important for Europe. And Turkey suddenly becomes more valuable as an energy corridor, sitting at the crossroads of pipelines that could help move oil and gas into Europe if shipping lanes become unstable.
In short, most of the region (and the world) are quietly celebrating a weaker Iran (I mean who is kidding who!), but none of them want prolonged instability because the real issue is keeping energy flowing through the Strait of Hormuz, which handles roughly 20% of the world’s oil supply.
And by now you know that stocks surged on these headlines. The Dow rose 1125 pts or 2.5%, the S&P up 184 pts or 2.9%, the Nasdaq up 800 pts or 3.8%, the Russell added 82 pts or 3.4%, the Transports rose 580 pts or 3.2%, the Equal Weight S&P jumped by 155 pts or 2% while the Mag 7 added 1280 pts or 4.5%.
Only Energy ended the day lower, down 1.1% – and that makes sense – the price of oil dropped from its high of $106.70 to end the day at $102.56 and it is lower again this morning. The biggest gain – Tech up 4.2%, and all the subsets of tech – Disruptive Tech (ARKK) up 6.4%, Cyber up 3.3%, Semi’s up 6.1%, Software up 3.3%, Expanded Tech up 3.3%, Web Tech up 5.3%, the Quantum names up more than 8% while the Growth Trade (SPYG) added 4%.
Industrials +3.2%, Consumer Discretionary + 3.1%, Communications +2.6%, Financials +2.1%, Healthcare +2%, Basic Materials + 1.8%, Real Estate +1.5%, Consumer Staples + 0.1% while Utilities ended the day flat.
Down the chain – Homebuilders up 3.3%, Retail + 2.6%, Airlines + 4.2%, Metals and Miners up 4%, Aerospace & Defense up 4.8%, Big Pharma + 2%, Uranium & Nuclear Energy up 4.7%, Biotech’s up 7.5%
All while the Contra trades (DOG, SH, & PSQ) gave back nearly 3%, the triple levered S&P gave back 8.5% and the VIXY lost a whopping 9.3%.
But let me keep your feet on the ground. Even with that monster rally, the first quarter was still ugly. The S&P finished Q1 down about 4.6%, the Dow down 3.6%, and the Nasdaq off more than 7%. So yes — Tuesday felt good but there is still a lot of work to do for markets to retake the highs….Remember if the market loses 10%, it must rise by 11% to get us back to flat….and if a stock loses 36% (think MSFT) it has to rally by nearly 40% to get back to flat.
But it appears that Iran still isn’t getting it – overnight they warned 18 very specific US tech and finance companies in the middle east – that they are now ‘fair game’ for Iran – starting today…telling employees in the region to stay home, do not go to the office….to which I would say – Not a smart idea.
The VIX – fear index – fell by 17% to end the day at 25.10 – leaving it still in the cautious zone but no longer in the panic zone….and this morning it is lower again – down 40 cts or 1.63% trading at 24.79 – and if this situation continues to settle down – I would expect the VIX to retreat to at least the trendline at 21.70 and then reassess.
Bonds got bought — and that sent yields tumbling. The 10-yr Treasury ended the day at 4.31% while the 30-yr finished at 4.90%, down sharply from 4.44% and 4.98% just a few days ago.
This morning the move continues. At 6 am, the 10-yr is yielding 4.28% and the 30-yr about 4.87%, suggesting investors are beginning to dial back some of the inflation and geopolitical risk that had been pushing yields higher.
Now, if the worst of this geopolitical flare-up is indeed behind us, then yields could drift a bit lower from here. But we still need to consider the economic damage already done — higher energy prices, supply disruptions and renewed inflation anxiety. And that leaves the big question still hanging over the market:
What does this mean for the Fed — and for other central banks around the world? Because even if the immediate crisis fades, the inflation ripple effects may not fade nearly as quickly.
Oil, as noted, was down yesterday and is lower again this morning. At 6 am, WTI is trading around $100 — down $1.33 or about 1.3%.
Now, if this conflict is closer to the end than the beginning, then we should expect oil to continue drifting lower — perhaps into the mid-$70s, which would be a whole lot better than the $150/barrel scenarios some were floating just days ago.
In fact, I would not be surprised to see oil ultimately pull back toward the mid-$60s, which is roughly where it was trading before this conflict began. And if that happens, then the inflation scare fades — and the Fed narrative changes yet again.
But for now, the Fed narrative is simple: HOLD. Not up. Not down. Just hold.
Yes — there were whispers about a possible rate hike as energy prices surged, but I think that idea is dead for the moment.
Gold, meanwhile, surged yesterday on the headlines — which felt a bit odd. Because if the conflict is actually de-escalating, then the traditional “safety trade” into gold should begin to fade. Unless, of course, the market is now pivoting to a different story — a slowing economy that eventually forces the Fed to cut rates.
And to that point, our friends at Goldman Sachs are out there pounding the table — suggesting gold could reach $5,400 by year-end, driven by continued central bank buying and their expectation for TWO (not one) Fed rate cuts later this year.
And all that tells me is that the market is still trying to decide which narrative wins next — geopolitics… inflation… or growth.
Now, you could also explain the move in gold by looking at what happened to the dollar. It lost ground yesterday, falling about 0.6% to end the day at 99.90, down from 100.50.
And remember the rule: Weaker dollar → stronger commodities. Stronger dollar → weaker commodities. It’s one of the most consistent relationships in the market.
This morning the dollar is under pressure again — down another 40 cents to around 99.50, and it’s beginning to look like it wants to test that trendline support down near 98.63. And if it does? Well… that will only make Goldman’s $5,400 gold call look a whole lot more relevant. (And yes… I hate when that happens! – LOL)
Overnight global markets rallied – the Kospi – South Korea – which has been getting slammed – rose by 8.5%, Taiwan up 4.6%, Japan up 5%, Australia up 2.2%, Hong Kong up 2% and China was up 1.7%.
European markets this morning are on fire…. Italy up 2.7%, Spain UP 2.6%, Germany and the Euro Stoxx up 2%, France up 1.5% and the UK is up 1.6%….
And US futures – well it is the start of a new qtr. and you remember what I said – my gut said that the new qtr. will bring buyers and that is what we see…Dow futures are up 256 pts, S&P’s up 34 pts, Nasdaq up 165 pts while the Russell is up 17 pts.
Today’s Eco data includes Mortgage Apps – last week they were down 10.5% – let’s see what today brings. ADP Employment is expected to show 40k new jobs created, Retail Sales are expected to be up 0.5% (strong), Ex Autos and Gas of +0.3% – unchanged over last week. We will also get S&P and ISM Manufacturing PMI’s – expected to be 52.4 and 52.3 respectively…. again, strong in the expansion zone. ISM Prices Paid though might be the party pooper – it is expected to be 74 and that is up from 70.5 and that just suggests higher prices at the producer level…which ultimately means higher prices at the consumer level – but I (like JJ) suspect this is TEMPORARY.
The S&P closed at 6,528 — up 185 pts. Yesterday morning it felt like purgatory… but by the close it felt like the angels were singing. Now, even after that rally, the S&P remains below the long-term trendline at 6,638, leaving us stuck — for the moment — in a 6,350 to 6,638 trading range.
My guess? We kiss that trendline soon. We test it…probably fail the first time as it plays a little hard to get… but then we come back, kiss it again, and once we finally pierce it, the mood will change. And then? It’s off to the dance.
But before we get there — remember that earnings season begins next week.
JPMorgan kicks things off on April 14, the official start of the season, and then Tax Day hits on the 15th. So it’s the good, the bad and …..will it be ugly or handsome? So expect a bit more churn in the near term — but I suspect we begin to see higher lows and higher highs develop.
And then the real story begins. What the C-suite says about the future. Because right now, we have not seen any major downward revisions to earnings expectations — not for this quarter and not for the full year. Which means forward guidance will be everything. (as it always is…)
Call me at 561-931-0190 and let’s talk about risk and reaching your goals.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Another Easter Pasta Dish
Baked pasta with Ground Beef, Peas, Guanciale in a Bechamel Sauce.
Yum, yum yum.
For this you need 1 lb. of elbows, 1 lbs. of ground beef, frozen peas, chopped celery, carrots and onions, a thick slice of Guanciale, the Bechamel sauce, White Wine, Chicken Stock, Provola and of course fresh grated Parmegiana. Provola is a semi hard cheese – similar to provolone but more delicate.
Begin by bringing a pot of salted water to a rolling boil.
Preheat the oven to 350 degrees.
In a large sauté pan add some olive oil and add in the chopped veggies and the slice of guanciale. Sauté for 10 mins allowing the guanciale to render all the flavor. Remove and set aside. Remover the slice of guanciale.
Next add the ground beef and brown for 15 mins. Now add in the frozen peas – and the celery, carrots and onions. season with s&p. Add in one cup of wine and let the alcohol evaporate. Once that happens – add in 1 c of chicken stock. Leave on med low.
While this is happening make the bechamel leaving it on simmer to keep it warm.
Add the pasta to the water and cook for 7 mins – leaving it a bit undercooked. Strain.
Now in a large bowl – add the pasta and the Bechamel Sauce – mix to coat.
Next – add the meat and veggies. Mix. Now add in bite sized pieces of the provola cheese.
Place it all in a greased Pyrex baking dish – Top with plenty of fresh grated Parmegiana cheese. I mean cover the dish with the cheese.
Put in the oven and cook for 20 mins or until the cheese is golden and crispy.
Remove and let sit for 5 mins and then serve – Expect all kinds of applause.
Buon Appetito.