Things you need to know
- More churn – all 11 S&P sectors lower. Rare Earths? Let’s go!
- Oil continues to be the driver – Tankers still not navigating the Strait
- Iran sending plenty of oil to China.
- Eco data today is about the latest CPI – Don’t overreact.
- Try the Risotto Al’ Amarone
Yesterday, investors spent the entire session trying to digest a mix of geopolitics, energy prices, rising yields, and US economic data all while positioning themselves for today’s CPI report. The result was a market that felt uneasy, not panicky, but one that wants to recalibrate. By the end of the day the Dow lost 34 pts, the S&P down 14 pts, the Nasdaq rose 1 pts, the Russell lost 6 pts, the Transports lost 163, the Equal Weight S&P lost 65 pts while the Mag 7 gained 121 pts.
Now what interesting here is how it played out for the 11 S&P sectors – they all ended lower – Energy in the lead – down 1.3%, Healthcare – 0.7%, Utilities -0.6%, Industrials and Financials down 0.5%, Consumer Staples lost 0.3%, Basic Materials lost 0.2%, Real Estate and Consume Discretionary both down 0.15%.
Emerging Markets – EEM gained 0.4%, Metals and Miners up 1.8%, Cybersecurity – 0.75%, Semi’s +0.7%, Aerospace & Defense – 1%, Quantum +0.2%, Oil & Gas Exploration – 1.75%, Big Pharma – 0.6%, Biotech + 0.25%, Software – 1.25%.
Pay attention to nuclear – NLR – the Uranium and Nuclear ETF, gained 1.8% yesterday and is now up about 15% year-to-date. The move reflects the growing global push toward nuclear energy as a reliable power source, particularly as demand for electricity surges alongside the buildout of AI infrastructure and data centers. Names in the space include Cameco, Constellation Energy, Denison Mines, NexGen Energy, PG&E, Paladin Energy and more….
At the same time, USA Rare Earth (USAR) announced a landmark agreement with the U.S. government as it works to develop the leading “non-China” rare earth supply chain. We know that this is becoming an increasingly important national security issue, as we (US) look to reduce dependence on China for critical minerals used in defense systems, semiconductors, EVs, and advanced technologies.
USAR is up about 71% year-to-date, underscoring just how quickly capital is flowing into companies tied to energy security and critical mineral independence.
The contra trades were essentially flat, but the triple levered SPXS did gain 0.6%, while the VIXY gained 4.9%.
The biggest driver continues to be the volatility in oil and the fear that Iran could threaten shipping through the Strait of Hormuz. Overnight we learned that the situation remains tense. Reports indicate that the U.S. sank 16 Iranian minelayers, while 17 cargo ships reported incidents in the region — 13 were attacked and four reported suspicious activity, although those details remain unclear.
All of this is causing markets to once again price in the possibility of escalation around global oil supply, reminding investors that while the immediate panic may have faded, the elevated geopolitical risk has not disappeared.
And here is a NEWS FLASH – Iran continues to export oil, sending shipments through the Strait largely unimpeded, or loading cargo from Kharg Island and the Jask terminal, which in some cases can bypass the Strait altogether. Much of that crude is heading to China – their biggest customer. Tracking data suggests that Iran has shipped roughly 11 million barrels of oil to China since the conflict began, which at current prices translates to about $900 million worth of crude.
Yesterday – oil lost 9% ending the day at $83.40, but this morning it is up 6% trading at $88. The sense is that oil will remain elevated and volatile until we see tanker ships navigate the Strait safely. Once that happens – many expect oil to fall back to pre-conflict prices.
This morning the WSJ reports that the IEA (Int’l Energy Association) has proposed the largest release of oil reserves in its history – 400 million barrels – which would be double the prior big release – all to help bring down crude prices. 400 million barrels would equate to about 20 days’ worth of global supply…. a time frame that seems to suggest the end of this conflict.
At the same time the bond market continues to worry. Bonds got sold – the TLT lost 1% while the TLH lost 0.7% sending yields up again…. The 10 yr is now yielding 4.16% while the 30 yr is yielding 4.8%.
In other words — the bond market may already be looking past the geopolitical event itself and focusing on future inflation implications. Something that I think is overdone – as noted, once the Strait is open to ‘all’ tanker traffic then oil should retreat and this 30- or 40-day increase will go away, taking the pressure off of the energy induced inflation narrative.
Yesterday the mainstream media tried selling an inflation scare by featuring gasoline prices in — of all places — California, telling viewers that prices are surging, currently around $5.20 a gallon, all because of the conflict in the Middle East. Well…not so quick –
California drivers are paying a whole lot more than just the price of oil. The state charges 61.2 cents in excise tax, plus the federal tax of 18.4 cents, about 10 cents in state sales tax, and roughly 2 cents for the underground storage fee. But that’s not the whole story. California also tacks on roughly 50 cents per gallon tied to environmental programs, things like cap-and-trade and the low-carbon fuel standard.
Add it all up and California drivers are paying about $1.40 per gallon in taxes and regulatory costs alone.
So, if gasoline in California is $5.20, strip out that $1.40 policy cost and the underlying price is closer to $3.80. Add back the national average tax of roughly 35 cents, and the comparable market price would be around $4.15.
Now compare that to other states.
New York charges roughly 55 cents per gallon in taxes, putting gas around $3.25.
Florida collects about 60 cents, leaving drivers paying roughly $3.35.
Massachusetts charges about 45 cents, bringing prices to around $3.40.
The national average sits near $3.55 per gallon, including about 35 cents in taxes.
The point is simple: California’s gasoline prices are not just about oil — they are largely the result of policy choices.
Gold traded in both directions but continues to hover near historic highs. Yesterday it gained $53 to end the day $5,192 and this morning it is down $9 at $5,183 – leaving it well within the trading range that we have been discussing. Remember – on one hand geopolitical uncertainty tends to support the safe-haven play on gold. On the other hand, a stronger dollar and rising interest rates tend to put pressure on it. For now, those forces are creating a tug of war for gold bugs – largely offsetting each other, leaving gold elevated while struggling to break out. In the end – I think gold will back off – again once the narrative shifts and the tension eases. For now – $5,200 appears to be resistant while $5,000 is support.
Eco data – Today it’s all about the February CPI report. Expectations are for the headline number to come in a bit stronger month-over-month at +0.3%, while Core CPI is expected to ease slightly to +0.2%. On a year-over-year basis, inflation is expected to remain fairly steady at 2.4% on the headline and about 2.5% on the core.
But the nuance here is important. This report reflects economic conditions from February, which means it does not yet capture the recent surge in oil prices tied to the latest geopolitical tensions. In other words, today’s CPI is looking in the rear-view mirror.
So yes — the number will grab headlines at 8:30 this morning, if it comes in stronger than expected. If not, I don’t expect it to create much market volatility. The bigger issue for investors right now isn’t what inflation was last month — it’s whether higher energy prices today begin feeding into inflation expectations next month and the month after that. That could happen if oil stays elevated. But if geopolitical tensions ease and energy prices settle back down, that inflation narrative can change just as quickly. Markets tend to price fear fast and then recalibrate once we understand the reality.
And let’s keep some perspective here. A temporary increase tied to geopolitical events that eliminate a regime that has done nothing but threaten their citizens and the world for 50 yrs is very different from the broad-based inflation cycle we lived through a few years ago.
The bottom line: don’t overreact to one report.
The Volatility Index – VIX- the market’s fear gauge appears to have found a bottom for now at around $24 ish. This morning it is up 20 cts at $25.08 leaving us in that ‘elevated uncertainty’ mode – which makes sense – telling us that investors are uneasy but not in full panic mode.
A VIX below 20 suggests calmer markets while anything above 30 suggests fear and more volatility while a surge up and through 40 would suggest ‘crisis level fear’. Just sayin’.
That said, we’re not out of the woods yet. The key trendline is 18.50. Until the VIX falls back to there, the market will remain anxious.
This morning European markets are a bit lower- nothing to write home about – more churn. It’s the same story — investors there, just like here and in Asia, are closely monitoring the situation unfolding in the Middle East.
US futures though are all over the place – up then down then up again. At 8 am – the Dow is down 100 pts, S&P’s down 8, Nasdaq down 356 and the Russell is down 12 pts.
The S&P closed at 6,781 -down 14 pts leaving us in the same trading range we have been discussing – 6,586/6,840 as we wait for the next catalyst to determine whether we test support again or break up and through resistance.
Call me at 561-931-0190 and let’s talk about whether the risk in your portfolio actually matches your tolerance — because this works both ways. You may be taking too much risk… or not enough to reach your goals.
Kp
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Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Risotto Al’ Amarone
For this you will need: Vialone Nano Rice – similar to Carnaroli but produces a creamier delicious risotto, Fresh Monte Veronese cheese – this cheese is made from cow’s milk and is produced in Northern part of Verona. It is thought to be one of the great cheeses of the Lessini mountains.
You also need – Finely chopped onion, butter, beef bone marrow, extra virgin olive oil, beef stock and a 1/2 bottle of Amarone della Valpolicella.
Begin by heating up the Amarone. – do not boil – just slowly heat it.
Bring the beef stock to a boil and then turn to simmer.
In a separate saucepan, heat the butter, bone marrow and a bit of olive oil, sauté the onion. When the onion gets golden brown, add rice, stir and toast over the heat for several minutes. Season with s&p. Slowly add the Amarone – stirring all the time as you add allowing it to absorb in the rice.
To complete – add the hot beef stock one ladle at a time. As it is absorbed add another ladle always stirring with a wooden spoon. Taste and adjust seasoning. Cook until the rice has absorbed all of the broth and the grain retains it texture – do not cook so much that you make it mushy. Turn off the heat; add a dollop of butter and the grated Monte Veronese cheese.
Serve immediately in warmed bowls. It doesn’t get any better than this!
Buon Appetito.