Things you need to know
- S&P and Nasdaq hit back-to-back record closes.
- NFLX beat and gets punished because of guidance.
- Oil is down, Yields are up, Gold is unchanged and the VIX – well?
- Today is Regional Bank Earnings – next week we get the meat & potatoes.
- Try the Lollipop Lambchops and a Simple Salad.
**I will be on Varney & Co at 9 am this morning and then I will be joining Cheryl Casone at 7 pm on Maria Baritromo’s Wall St. – All on Fox Business**
Good morning – What an exciting 12 days it has been…Stocks marching higher as investors, traders and algo’s continue to look thru the geo-political data to focus on the US economic data and the start of earnings season…
At the closing bell – the Dow added 115 pts, the S&P added 18 pts, the Nasdaq added 86 pts, the Russell ended up 6 pts, the Transports ‘exploded’ rising 865 pts or whopping 4.1%, the Equal Weight S&P added 38 pts while the Mag 7 gained 52 816 pts.
The S&P and Nasdaq pushing deeper in record territory….and that gave strength to the rest of the market…..
Of the 11 sectors – Energy gained 1.4%, Communications + 1.25%, Tech + 1.15%, Real Estate + 0.9%, Basic Materials + 0.7% while Consumer Staple rose by 0.5%.
We saw weakness in Industrials – 0.5%, Financials – 0.3%, Consumer Discretionary – 0.5%, Healthcare – 0.7%.
Down the chain – Software continues to benefit rising 1.6% – but still leaving it down 20% ytd…Hello??? Cybersecurity up 2.2%, Semi’s +1%, Disruptive Tech lost 0.2%, while Quantum names rose. Metals & Miners rose 0.25% while Aerospace & Defense gave up 1%. Homebuilders down, Retailers were up.
But let’s not confuse price action with conviction…because under the surface, the story is more nuanced – I am not being a party pooper, I’m just keeping real…
We know what’s driving the recent surge – It’s been the same thing that’s been driving this market all week… The hope trade.
Headlines suggesting progress on the geopolitical front continue to fuel sentiment. And now we have a new development—a 10-day ceasefire between Israel and Lebanon, brokered with U.S. involvement, taking effect as we speak and designed to open the door for broader negotiations.
That, combined with ongoing discussions around a potential US-Iran framework, is exactly what the market wants to hear and honestly what we all want to hear.
And we saw that in the tape again yesterday…..Late-day buying…confidence into the close…investors leaning into the idea that maybe—just maybe—we’re moving toward a more complete de-escalation.
But here’s the problem… (This is the part that keeps it real)
While equities are leaning into optimism—the bond and commodity markets are telling a more cautious story. Yesterday oil rose by $2. – leaving it to end the day at $93.20 and all that does is keep pressure on inflation expectations. This morning oil is trading down $3.80 or 4.1% at $90.83 at 6 am. Now, there isn’t anything ‘NEW’ since the latest Israel/Lebanon, US/Iran news but I should point out that we are back to where we were last Thursday – and that explains the action in the stock, bond and gold markets this morning…. More to follow.
Yesterday – the pressure showed up in yields. Bonds took a bit of hit – the TLT lost 0.6% while the TLH lost 0.5% and that caused the 10-yr to rise by 3 bps to end the day at 4.31%, the 30-yr rose by 4 bps to end the day 4.93% – inching ever closer to the key 5% level. Now some will describe this as a quiet but important move because it suggests the bond market is not fully buying the peace narrative just yet.
They are telling you something important. Yields moved higher – not aggressively, but steadily – and that matters. Because higher yields mean tighter financial conditions…they raise the cost of capital, pressure equity valuations, and signal that the bond market is not fully convinced that everything is “all clear.” You could say that the bond is acting like ‘the only adult’ in the room…less emotional, more cautious and more skeptical. Remember – it is 4.5% on the 10 yr and 5% on the 30 yr that are the lines in the sand for some investors and markets.
And then there’s gold…Gold continues to trade in that classic push-pull dynamic that we discussed last week. On one hand, you’ve got geopolitical risk and uncertainty—which should be supportive of the ‘safety trade’ idea, on the other hand, you’ve got rising yields and a confused dollar – which increases the opportunity cost of owning gold. Yesterday it started and ended the day at $4,790 but during the day it traded as high as $4,838 and as low as $4,773. This morning gold is down $1 at $4,789. It remains stuck in the $4,700/$4,900 trading range.
So, what you’re seeing is a market that wants to rally on less fear—but is being held in check by reality.
Now if you look at the VIX – it has retreated, suggesting fear is subsiding, and that gives strength to this rally. Yesterday it lost 1.3% to end the day below the trendline at 17.94 – this morning it is up 1.1% at 18.06 and is now kissing the trendline.
Again, it seems a bit confused – and while you’d say – but look we are down from 48% off the high seen in early March and that puts us into the complacent zone, NO? No, not quite…we have to trade below 15 to be in the complacent zone….18 is still at the lower end of the ‘calm’ zone – which is good, but which also means we are not in the complacent zone yet! And all that does is keep the heat on medium low.
So, we’ve got a market making new highs…while at the same time oil is elevated, yields are firm, and geopolitics—despite the headlines—remains unresolved. Because let’s be clear…A 10-day ceasefire is a pause—not a solution. Trump has already said that IF it doesn’t work – then WATCH OUT. He also said that if it does work – he will go to Islamabad to celebrate.
Now add in the economic data…Initial jobless claims came in at 207k—better than expected and another sign that the labor market remains resilient. Continuing claims ticked higher but remain historically low. So, while the consumer may be feeling pressure…they’re still employed. And that distinction matters. In addition, we saw a bit of weakness in Industrial Production and Capacity Utilization
There are no eco reports today. Next week brings us Advance Retail Sales, Pending Home Sales, Mortgage Apps, Chicago Fed Activity, S&P Global Manufacturing PMI – expected to be sitting right on the ‘neutral line’ at 50.
Now, while we got that out of the way – we have to discuss what’s next…..and arguably, maybe, the most important part of this story…
Earnings. Last night after the bell we got NFLX – another name that ‘everyone’ seems to be in – I am not! (good miss for me!) At first glance—it looked like a blowout. Strong earnings, solid revenue, subscriber momentum…
But then came the guidance. And that’s where the story changed. The outlook disappointed—and the stock got hit after hours. And that tells you everything you need to know about this market right now…
It’s not about what they did…It’s about what they are going to do next. So, watch that open closely. The stock is trading down $10.50 or 9.8% at $97. If it gaps down and stabilizes—that’s opportunity. If it gaps down and keeps going—then the guidance miss IS the story. The chart suggests it could go either way…. the downside is the trendline at $91.60 – just fyi. (Now you know what I think!).
Now, before we get to today’s earnings, I have to say and it is worth noting that the big banks have already reported—and to be fair—they did not disappoint. Think JPM, C, WFC, BAC, MS, & GS. The ‘money center’s banks came in STRONG. Earnings held up, trading desks had a field day with all the volatility and overall, the tone was constructive.
But let’s be honest…That was early in the game. This morning we are moving from the appetizers…to the meat and potatoes.
Today is a regional bank report card. We hear from names like Truist Financial, Fifth Third Bancorp, Regions Financial, Huntington Bancshares, and Citizens Financial Group.
And that matters…because these are NOT the money center banks. These are the banks that sit on Main Street. They don’t have trading desks to bail them out…they don’t have global capital flows to mask weakness…they live and die by deposits, loan growth, and credit quality.
In other words,…The big banks tell you how Wall Street is doing…The regional banks tell you how America is doing. And in this environment—oil above $90, rates at 4.31%, a FED on hold (at best) and a simmering middle east – what they say matters. Because they’re going to give us a read on whether this economy is holding…or starting to crack.
And get ready to buckle up because next week is where it gets real.
We are heading straight into the heart of earnings season—with nearly 20% of the S&P 500 set to report—and that’s going to give us a much clearer picture of whether this rally has real fundamental support…or not. But more importantly…It’s Big Tech week.
We’ll hear from TSLA, GOOG & AMZN in the TECH space. Then look for BA, INTC, IBM, UNH, XOM, CVX, V, ALLY, & ERIC – these represent Industrials, Semis, Enterprise Tech, Healthcare/Defensive Growth, Energy, Payments, Auto/Consumer Finance and Telecom/Infrastructure – and that is not the whole list…..
And make no mistake—this is where the market gets tested. Because these are the companies that have – driven the rally, led the AI narrative, commanding premium valuations. So the question becomes simple…Can they deliver?
Because here’s the issue… Tech is expected to carry the load again driving a disproportionate share of earnings growth across the S&P. But at the same time—these companies are spending hundreds of billions on AI infrastructure… causing investors to ask the obvious question again – When does that spending turn into real returns? That’s the question every CEO is going to get…
And the answers they give will move markets.
European markets are all a bit higher…. Italy taking the lead up 0.7% with the UK the only one in negative territory – down 0.2%.
US futures are higher – as they are expecting more good news out of the middle east. Dow futures +150, S&P’s +13, Nasdaq +31 and the Russell is +11.
The S&P closed at 7,041 – up 18 pts…after trading as high as 7,051. Recall, yesterday I told you that from a technical perspective – trendline resistance is closer to 7,075…. – that’s up 30 pts from here or just 0.4%. What do you think?
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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It’s Friday – make it easy, it’s been one heck of a week.
Lollipop Lambchops with a simple Salad.
This takes you all of 10 mins…
For this you need your lollipop lambchops, Adobo (Spanish spice you buy in the spice aisle), Salad stuff of your choice – romaine, arugula, Boston bib – whatever you like. Red onion, lemon, s&p, oregano, and olive oil.
Put your oven on broil.
Begin by laying out the lamb chops on a baking sheet lined with foil. Season the chops on both sides with the adobo.
Place them on the middle rack – not right up against the heat. While they are broiling – make your simple salad – season with s&p, oregano, fresh lemon juice and olive oil….
That’s it. enjoy this with a glass of light red wine, you could also have Rose or whatever you enjoy.
This is about simplicity after a long week. Kick your shoes off, relax and get ready for the weekend and next week.
Buon Appetito