Things you need to know
- Remember – HOPE is not a strategy.
- It was RISK ON after headlines suggest a deal is close.
- Bonds surge, gold surges, Oil, Yields and the VIX fall.
- But the Strait IS still closed and Ships remain anchored.
- Try Papa Richard’s El Camino Cheesesteak.
So, yesterday was all about HOPE……
Hope that the U.S. and Iran are finally inching toward some type of framework deal. Hope that the Strait of Hormuz eventually reopens. Hope that oil prices continue to fall. Hope that inflation pressures ease. And hope that the Fed may not have to stay restrictive. (that’s assuming you think it is restrictive – I do not – but apparently a lot of people do).
As a result – Stocks ripped higher, bonds rallied, yields fell, oil collapsed, the dollar weakened, Gold surged and the VIX fell. And those moves caused investors, traders and algo’s to rush in and go RISK ON after they ‘assumed’ the worst-case geopolitical scenario isn’t going to happen after all. And that is a BIG assumption…. because Iran really can NOT be trusted, at all….and now, we are supposed to believe – after 47 yrs – that they want to play nice in the sandbox? OK – let’s go with that – since that is what the market believes.
Stocks surged – at the end of the day – the Dow added 612 pts or 1.25%, the S&P rose 105 pts or 1.5%, the Nasdaq added 512 pts or 2% while the Russell added 42 pts or 1.5% – all 3 closing at new all-time highs. The Transports added 345 pts or 1.7%, the Equal Weight S&P added 65 pts or 0.8% while the Mag 7 tacked on 697 pts or 2%.
Now just FYI – as of last night – YTD performance is kind of impressive considering the landscape – the Dow is up 3.8%, the S&P is up 7.6%, the Nasdaq is up 11.2%, the Russell is up 16.3%, the Transports are up 17.3%, the Equal Weight S&P is up 6% while the Mag 7 is up 4.5%.
Once again tech led the way higher yesterday thanks to another monster move in semiconductors after AMD reminded investors (as if anyone needed to be reminded) that the AI trade is alive, well, and still accelerating.
Recall that on Tuesday evening – AMD delivered strong earnings, strong guidance, and more importantly – reassured investors that hyperscalers are STILL spending aggressively on AI infrastructure, data centers, chips, networking and compute power.
And that was all the algo’s and Momo crowd needed to hear. And to add fuel to the fire – think about all those emotional investors that were feeling FOMO’ized…. (Fear of Missing Out) because they sold stocks when they got nervous as they try to continue to ‘time the market’ – trying to pick tops and bottoms rather than just building a portfolio that will spend ‘time IN the market’ – which is always the winning strategy. And then there were the shorts that got caught with their pants down, (thinking a deal was not close) that had to ‘run for cover’ after the headlines hit the tape, which only added to the surge higher.
Of the 11 S&P sectors Tech gained 2.7%, Industrials gained 2.6%, Basic Materials rose 1.7%, Consumer Discretionary rose 1.5%, Communications added 1.5%, Real Estate was up 1.3%, Consumer Staples added 0.2%, Healthcare added 0.1%. Energy fell 4% and Utilities lost 1.4%….
Energy – is easy to understand – oil fell 6% to end the day at $96.20 so the sector got whacked. Now both Energy and Utilities – have had a strong run – the energy sector up nearly 34% in Q1 while Utilities were up 8.3% in Q1, outperforming the broader market as investors found refuge in those sectors as the conflict unfolded across the global stage. Yesterday there was a partial giveback of that outperformance, remember – both sectors got bought as a hedge against the conflict, so both gave back ground when the headlines suggested the conflict may be ending. Just FYI – Energy is still up 27% ytd while Utilities are up 7% ytd….
And to be clear – on a day where the Nasdaq is up 2% and AMD is up 18%, ARM +13.6%, INTC + 4.5%, QCOM + 3.2%, while the SOXX was up +5% nobody is really reaching for oil companies or a regulated electric company – they are just not ‘sexy’ enough.
But let’s be clear — the REAL story yesterday was about how oil reacted to the headline…. Because for the last 2 months the headlines have driven oil higher fueling the inflation narrative.
Every move higher in crude raised fears about gasoline prices, transportation costs, food inflation, manufacturing costs — all of it. Rising oil became the excuse for higher Treasury yields, a stronger dollar, and a Fed trapped in “higher for longer” mode.
So, when oil fell 6% after the headlines suggested that the US and Iran may actually be making “great progress” toward a deal – the script got flipped. And just like that…investors went from Inflation panic to inflation relief.
And once oil rolled over — Treasury yields followed. Bonds caught a bid, The TLT and TLH both up 0.8%. The 2-yr yield fell 7 bps to 3.86%, the 10 yr fell 7 bps to 4.34% while the 30 yr fell 5 bps to end the day at 4.93%. Now while they are still higher than where they were when this conflict began, the hope is that we will see lower yields in the months ahead.
But listen…this market is still trading on headlines – not resolution. Despite the optimism, the reality on the ground hasn’t changed nearly as much as stocks are suggesting. Iran may be talking about ‘making a deal’ and ships may start to move thru the Strait, but global shipowners are still cautious. Tankers are not suddenly going to pull up anchor and war-risk insurance premiums are not going to suddenly plunge. Mines don’t magically disappear and global energy flows do not normalize overnight. But the headlines suggest hope.
And then there was the Fed. St. Louis Fed President Alberto Musalem reminded investors that inflation risks still remain elevated, while Chicago Fed President Goolsbee warned against assuming the Fed can simply rush to cut rates. Suggesting to me that the Fed is NOT rolling over to play dead just because oil had one big down day.
At the same time, we got some good eco data showing the labor market remains resilient. ADP payrolls came in stronger than expected, suggesting companies are still hiring despite all the geopolitical chaos and economic uncertainty.
So, when you put it all together — yesterday was the perfect recipe for a melt-up in stocks causing the S&P, Nasdaq and Russell to clock in new highs.
But remember…until the Strait of Hormuz is truly open, commercially operational, fully insured, mined, protected, and functioning normally again…this story is NOT over.
This morning oil is down 2.6% or $2.50/barrel at $92.60 – sitting just atop the short term trendline at $90.60 – that’s a positive. What we need to see is oil breach that support and if we do – then we could see oil test the mid $80’s…and that would create more excitement. For oil to go back to pre-conflict levels – we need to see a complete end to this conflict and a normalization of global trade.
Gold was up $135 yesterday and is up another $42 this morning, now trading at $4,734 – all on the idea that once the conflict ends, the inflation threat will disappear, rates will fall and the dollar will weaken – those are all positives for gold. We are now kissing trendline resistance at $4,775. A failure to push up and thru only means we may back off and retest $4,500. Should we push up and thru, then expect us to see gold test $5,000 fairly quickly.
The VIX traded down to 16.20 in the pre-mkt yesterday morning on the headlines – which only gave stocks more of a reason to surge…. It ended the day at 17.39 – and this morning it’s up 10 cts at 17.49, suggesting the investors are still betting on a deal….
Earnings today include – MCD – that’s all about fast food & consumer discretionary, ABNB – think travel/leisure & consumer strength. COIN – speaks to the crypto/financial tech sector, NET is all about cybersecurity/AI infrastructure. AFRM – is about consumer finance while RKLB is about aerospace & defense and space exploration – it is another proxy on ‘tech/defense’ spending. Let’s round it out with WBD – and that’s all about media, streaming and ads.
Eco data – Challenger Job Cuts y/y, Unit Labor Costs – which are expected to be down (positive), Initial and Cont. Jobless Claims. Remember – tomorrow is the BIG day – at 8:30 we’ll get the April NFP report and you can bet – it will be widely watched and interpreted!
European markets are teasing around the flat line – not one country stands out.
US futures are attempting to push higher. Dow futures up 32, S&P’s up 10, the Nasdaq is up 42 and the Russell is flat.
The S&P closed at 7,365 – up 105 pts – closing at a new high again. We are in unchartered territory – trendline resistance is non-existent…..Support is down at the 7100 level. At the moment, this could go either way – so strap in!
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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Papa Richard’s El Camino Cheesesteak
My father didn’t cook in the kitchen. He cooked on a four-foot flattop grill that he got from a restaurant that went bust. Loaded it up in the back of his El Camino. Strapped it in, drove it home, and dragged it up onto the deck. It was technically illegal to have a thing like that at a house. We were waiting for it to burn the house to the ground. It didn’t! Instead, it set the stage and the scene. This was my boyhood.
Saturday afternoons. The air tasted like salt. The whole family descended. Thirty people loud enough to wake the dead. Uncle Tony walking up the deck stairs carrying wooden crates of tomatoes and grapes. Tony was a fruit salesman in Boston. He wore a black eye patch after getting hit by a delivery truck full of melons. Uncle Tony brought all the fruits and vegetables to feed the family table every weekend in the summer down the Cape.
Now for this, you need: The rib-eye steak, peppers, onions and mushrooms, olive oil, melted Velveeta cheese and of course the roll – we call them submarine sandwiches.
You have to begin by freezing the steak the day before, so that you can slice it paper-thin. He used a commercial grade meat slicer!
So, now slice the meat and set it aside. Slice the Peppers and Onions and mushrooms. (the veggies).
For the sauce:
Take a brick of Velveeta, cut it into big chunks and melt it down gently in a small saucepan on low heat with a splash of milk. Stir steadily until it turns into a smooth, obscene, gooey, golden sauce. Keep it on simmer.
Now, heat up a bit of olive oil on the griddle or sauté pan and add the veggies and sauté them until they are soft and a bit caramelized.
Next – lay your perfect paper slices of meat down on the griddle or pan and let that ribeye cook. With thin-sliced ribeye, once the red is out, it’s done—it’s a beautiful brown color.
While that’s happening, split and lightly toast your bread. Butter it up.
When the meat is ready, grab your spatulas and go to town. Add back the veggies and combine. Pour the melted Velveeta on top—theatrically!
Scoop the whole glorious ‘goodness’ onto the rolls and press down gently with the back of your spatula, so the cheese marries with the bread, and the juice starts running out the sides exactly the way it’s supposed to.
Serve it immediately – No plates required. This is the kind of food you eat standing up, leaning over the deck railing, smelling the salt air.
Buon Appetito