Things you need to know
- CPI was HOTTER today we get PPI…. Sit tight.
- S&P, Nasdaq and Russell ends lower – the Dow advances.
- OIL closes at $102.60, and Bond Yields Kiss the Danger zone.
- Try the Pork Loin
***Good morning…. I am on with Maria this morning on Fox Business from 6 – 9 am***
Let me start with the number that defined the whole day: CPI. April inflation came in at 3.8% y/y – HOTTER than the 3.7% expected and it was exactly I said I was the ‘fear’. Yesterday’s read was the highest reading since May 2023, and the second straight month of acceleration. (not good…). Core CPI (ex-food and energy) rose 0.4% on the month and 2.8% over the year. (again, HOTTER than expected), so now strip away the noise and the message is simple – inflation is not cooperating. Period. Can we please acknowledge that?
The Iran war, the Strait of Hormuz, $100+ oil — all of that is working its way through the price system exactly the way you’d expect. Bond yields are kissing the danger zone, in fact – the 30 yr is IN the danger zone. The 2 yr is yielding 3.99%, the 10 yr is yielding 4.46%$ while the 30 yr is now solidly in the 5% zone – clocking in at 5.03%.
The Fed is now boxed into a corner. Cuts are OFF the table, I just hope Stevey Miran stops his ridiculousness – calling for more rate cuts. In fact, maybe he doesn’t realize it, but traders and the markets are pricing in the possibility of a rate hike before next April. Let that sink in.
Markets opened lower….. The Nasdaq was down more than 2% at its worst point of the day, the Russell got similarly whacked. Then, as the session wore on, buyers stepped in and clawed back a chunk of those losses, the Dow went green. At the end of the day the Dow advanced by 56 pts, the S&P lost 12 pts, the Nasdaq lost 185 pts, the Russell closed down 27 pts, the Transports lost 188 pts, the Equal Weight S&P gave up 10 pts while the Mag 7 closed down 175 pts.
In the end it was by no means a catastrophe, but it is not the picture of confidence either. The VIX jumped nearly 7% in the early part of the day but ended up falling by 2% to end the day at 17.99 – leaving it in the complacent zone.
Now about the Dow – because the green close deserves some explanation. At 9:47 am – it was down 396 pts….and at the end of the day it closed up 56 pts…that was a 452 pt reversal….And while the rest of the market ended lower – what was it about the Dow that caused it to finish higher when it had every reason in the world to close lower.
Let’s look under the hood….. It was a 50/50 split….15 of the 30 stocks closed higher and 15 closed lower. Remember it is a price weighted index – so high-priced names have the ability to influence the move and MORE high-priced stocks rose in value than fell – thus the advance.
UNH $396, AMGN $336, JPM $304, JNJ $224, WMT $ 130, V $326, AAPL $294, AXP $314, NVDA $220, CVX $185, TRV $298, GS $945 MRK $112 – all advanced and collectively added 240 points to the index.
And while 15 stocks did end lower, their prices did not carry the same weight or influence. So even though the breadth was neutral at best, it was the math that made the move appear stronger than the broader market really was.
That’s why you cannot just look at the headline number and assume broad participation. The Dow “won” because the heavyweight, high-priced names did the lifting, not because investors were aggressively buying everything in sight.
In the end, it was the S&P and Nasdaq that told you the more honest story…investors were more defensive and increasingly sensitive to higher yields, hotter inflation and rising oil prices. Don’t mistake the scoreboard for the story.
Oil closed at $102.60. This morning it is down $1 at $101.20. The reason? Trump declared the US-Iran ceasefire is on “massive life support” after rejecting Tehran’s latest peace proposal. Reports that he’s discussing restarting military operations added to the drama all while he plans on escorting commercial vessels through the Strait.
Meanwhile, Saudi Aramco’s CEO could not have made it any clearer – the market is losing roughly 100 million barrels of oil supply every single week. If the Strait stays shut into June, you can do the math on what that means for prices. Expect to hear some pundits call for $150 oil…..and if that really happens – a gallon of gas will shoot to an avg of $5.50 nationally – and much higher in places like California, New York and parts of the Northeast.
And honestly? If oil were to spike to $150/barrel then all the traditional market relationships begin to break down. Because at that point, this stops being about “higher energy prices” and starts becoming a full-blown global economic shock. And remember — gasoline is not just a consumer issue. It becomes a transportation issue. A food inflation issue. An airline issue. A manufacturing issue. A trucking issue.
And ultimately…it becomes a consumer confidence issue. Because when households are suddenly paying $5:50 + for gas while food, airfare and delivery costs are all rising at the same time, it changes behavior fast. Consumers pull back, businesses begin reassessing hiring and expansion plans, margins come under pressure and confidence deteriorates. Historically, once energy prices remain elevated for too long, economies begin to crack under the pressure.
Think 1973-75 it was the Arab oil embargo, 1979 the Iranian revolution, 1990 the gulf war, 2008 – that spike sent oil to $147 – it lasted a few months at the extreme levels because the global economy started breaking underneath it. And then we had 2022 – Russia and Ukraine. This feels more like 1979 & 2008 – because we have geopolitical unrest AND higher inflation.
And if we really saw $150 crude? Then the Fed gets trapped in the worst possible scenario imaginable. You’d have inflation reaccelerating at the exact moment growth is slowing. Consumer spending would weaken, bond yields would likely remain elevated, and markets would suddenly begin repricing recession risk in a very serious way.
Earnings today include CSCO – Tech/AI infrastructure, NBIS – AI/Cloud infrastructure – we will also hear from 2 big Chinese companies – BABA and Tencent – which I do not really care about personally, but it should give us some insight into the Chinese economy – if we really believe anything China says!
Eco data is all about the April PPI and after yesterday’s hot CPI print, investors will pay VERY close attention. And like CPI, the PPI is expected to be HOT – hotter than last month and again the fear is that it will be even HOTTER than that! Top line is expected to be + 0.5% m/m, Core up 0.3% m/m, while y/y estimates call for +4.8% and +4.3% respectively. Remember the fear is that if producers are seeing rising input costs due to oil, transportation, chemicals, manufacturing and logistics, then we can expect those higher costs to eventually flow downstream into future CPI reports.
European markets are all a bit higher…. – up between 0.4% and 0.8% across the board as this back and forth continues.
US futures are mixed as well. Dow down 35 pts, the S&P is up 20 pts, the Nasdaq is up 223 pts, while the Russell is up 7.
Bitcoin is trading at $81k, Ethereum is at $2,300 while Solana is trading at $95.20.
S&P closed at 7400 — down 11 pts. The chart look beautiful…. up and to the right…. but it also feels a bit frothy – we are 6% above the short-term trendline and sentiment is increasingly one-sided. Investors are once again chasing the AI trade, ignoring rising yields, dismissing geopolitical risk and looking through what was clearly a hotter inflation report. That doesn’t mean the rally is over — it just means expectations are elevated and with the VIX suggesting complacency – my gut says it is time to be careful…And listen — that doesn’t mean the market can’t go higher. Momentum has a way of feeding on itself, but when it starts to feel frothy you have to at least acknowledge the risks.
Now, there are always other areas of the market that are not nearly as extended and that may offer long-term opportunities, areas where valuations are more reasonable, sentiment is less euphoric and investors aren’t all crowded onto the same side of the boat.
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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Marinated Pork Tenderloin…
Pork tenderloin is an easy dish to make – you can’t really screw it up unless you forget it in the oven……
For this you need a couple of things – Olive oil, Soy sauce, Minced garlic, Dijon honey mustard, s&p and the boneless pork loin….
To make the marinade – use equal parts of olive oil and soy sauce – so typically you would use 1/2 c of each. Now add 2 minced cloves of garlic, about 5 tbls of Dijon honey mustard, and a bit of s&p.
Place your pork loin in a zip lock bag and add in the marinade for at least an hour…..
Preheat oven to 350 degrees – place the pork loin in a glass dish with the marinade. You should cook it for about 45 mins or so…..a meat thermometer should read 145 degrees for it to be cooked to perfection. Remove and let rest for 5 mins – then slice.
Serve this with a baked sweet potato (dollop of butter and a splash of syrup), and a large mixed salad dressed with a red wine vinaigrette.
Buon Appetito