Things you need to know
- It’s the end of the qtr! The conflict drags on.
- Oil steady, Gold steady, Bonds Up, Yields Down.
- JJ says we’re in a good place – but are we?
- It feels a bit like ‘Purgatory’.
- Try the Sea Bass.
Good morning. It’s more of the same…
Investors woke up Monday morning trying to figure out which risk matters most – war in the Middle East, $100 oil, no rate cuts, or Treasury yields pushing toward 4.5% on the 10-year and 5% on the long bond.
Markets continue to wrestle with a toxic mix of geopolitics, surging energy prices and a Federal Reserve that is clearly in no hurry to come to the rescue. Stocks struggled again yesterday as investors reacted to the latest headlines while trying to assess what it all means for inflation, interest rates and economic growth.
Fed Chair JJ weighed in as well, telling investors that monetary policy is currently “in a good place,” which is Fed-speak for we’re not doing anything right now. But then the dropped this bomb –
“US debt is growing much faster than the economy” – calling it ‘unsustainable”, warning that “it will not end well if we don’t act soon!”. (sounds ominous, no?)
For some perspective – U.S. debt is now approaching $39 trillion, and at current interest rates the government is already spending about $1 trillion a year just to service that debt. If interest rates rise another 0.5% (50 basis points), that annual interest bill could climb to roughly $1.2 trillion.
The message was clear – the Fed is content to sit back and watch how the oil shock and global tensions evolve before making any move, leaving traders, investors and of course the algos to battle it out in the meantime.
The rate cut narrative is essentially ‘off the table’ as the conversation is now about a rate hike, not even a rate hold…and that too is putting pressure on stocks as investors, traders and algo’s try to define what that really means.
Now, just for the record, I am not in the increase camp (just yet). I am though very much in the HOLD camp and as many of you know, I have been a hold for months now…. I never thought we needed to cut last fall, but I am not a voting member of the FOMC – so it was what it was.
By the end of the day – the Dow ended higher – gaining 50 pts, the S&P lost 25, the Nasdaq lost 153, the Russell lost 35, the Transports lost 145, the Equal Weight S&P gave up 18 pts while the Mag 7 lost 43 pts.
Of the 11 S&P sectors – we saw strength in the Financials up 1.8% – they are the biggest underperformer – down 14.9% off its most recent high …..Utilities +0.7%, Communications +0.9% – they too are a big underperformer – down 11%, Healthcare + 0.4% – another underperformer down 10%, and you ask why? It is the mid-term election year and as a result so much can change in terms of policy that affects healthcare, so the unknown causes the shoot first / ask questions later mentality.
Basic Materials + 0.4%, and Real Estate + 0.5%. Industrials were weak – down 1.6% – leaving them down 12% off their high, Tech continues to get hit – down 1.8% (that story is getting old now) now down 17% off their high, Energy finally got sold – down 1% (It is the biggest OUTperformer this year up 38%), so it makes sense that we see some profit taking there – especially as we close out the quarter. Consumer Discretionary ended flat.
Further down the chain – Homebuilders lost 1%, (now down 22%), Retail lost 0.3%, (now down 14%), Airlines choked – losing more than 2% (now down 25%), Emerging Markets down 0.8% (now down 14%), Metals and Miners lost 2.3% (now down 24%).
Semis got smashed – falling 4% (now down 15% off the high) as investors continue to struggle with rising yields. Remember – semi’s trade at premium valuations because investors are pricing in strong long-term growth tied to AI, cloud computing and data center demand. When long-term rates push higher, the present value of those future earnings declines, which tends to hit high-growth sectors like semiconductors. Think NVDA – 22%, AVGO -30%, AMD – 25%, QCOM -32%,
Aerospace and Defense stocks also got hit – falling 3.3% leaving that group sitting right atop its long term trendline (now down 18% off the high) …. a level that is KEY to what happens next. A failure to hold could see that group decline by another 8% or so…. taking it back to levels last seen in November.
And I’m guessing you know what has performed well…..the Contra trades! The SH added 0.4% leaving it up 8.3% ytd, the PSQ up 0.8% leaving it up 10.3% ytd and the DOG – while it lost 0.1%, it is up 6.5% ytd. The VIXY? It fell by 0.9%, but if you went long this etf – you’d be up 47%. And the triple levered S&P – the SPXS – it rose 1.1% and is up 25% ytd.
The VIX was essentially unchanged yesterday, closing at 30.61, and that in itself tells us something important. A VIX above 30 signals a market that is clearly on edge — investors are nervous and protection is expensive — but the fact that it did not surge higher despite the continued geopolitical headlines and the spike in oil prices suggests that much of the fear is already priced in.
In other words, volatility is elevated, but it is not accelerating, which tells us the market may be in the process of absorbing the shock rather than entering a new phase of panic selling and that is a KEY observation, one that we will keep our eyes on over the coming weeks.
Oil surged by $5.40 or 5.4% to end the day at $103 after we learned that the Iranians hit a Kuwaiti oil tanker (via drone) near Dubai – representing the most ‘significant attack’ on a tanker since this conflict began. Despite this attack, oil (WTI) is weaker this morning – down $1 at $102.
Meanwhile bonds surged – the TLT up 1.3% while the TLH rose by 1.2% – and that sent yield lower. The 10-yr ended the day yielding 4.34% – down from 4.44% while the 30 yr is yielding 4.90% down from 4.98%.
This morning – bonds are finding a bid again sending yields down another 2 bps. Just fyi – 3-month bills and 1 yr bills are yielding 3.6% on an annualized basis. Current 12-month CDs are averaging anywhere between 3.7% and 4.1% depending on the amount deposited. 30 yr mortgage rates are back above 6% – with most hovering around 6.25%.
Gold, meanwhile, continues to search for its footing. Yesterday it traded in the $4,420/$4,580 range to end the day at $4,510. This morning it is up $46 to $4,556 leaving it between its long-term trendline near $4,125 and its intermediate-term resistance around $4,635.
Meanwhile, the U.S. dollar continues to push higher. Yesterday it pierced the early-March high of 100.54, trading up to 100.61 before easing slightly. This morning the dollar is hovering around 100.45.
The next move in the dollar will likely determine the next move in gold. A continued push higher should pressure gold prices, while any pullback would continue to provide support.
From a technical standpoint, a clean breakout above this level could send the dollar toward 102. But if the dollar fails to push through resistance, it will likely remain trapped in the 98.60 – 100.54 range that has defined trading for much of the past several weeks.
European markets are all higher on this last day of trading for the quarter. Eurozone inflation jumped to +2.5% up from 1.9% in February and well above the expectation of +2%. Markets across the zone are up about 0.5%.
And US futures are up as well. Dow futures up 400 pts, the S&P’s up 52, the Nasdaq up 180 and the Russell is up 25. Lower oil prices are helping, end of the qtr. is helping, and the start of earnings season is only 2 weeks away. News that Trump wants to find a way to end this conflict is making headlines. Rumors that he is willing to end the war without any guarantees of opening the Strait – seem odd to me because why would we do that at this point? Why give Iran that power back after all this? But it ain’t over til the fat lady sings – as they say and I don’t hear her yet…..
The S&P closed at 6,343 — down 25 points, and the chart tells us that right now we are in purgatory. The index has broken below the long-term trendline we had been watching near 6,630, but it has not yet fallen enough to trigger the kind of capitulation that would suggest a durable bottom. In other words, the market is caught in that uncomfortable space between support and fear, where investors are trying to decide whether this is simply a normal correction or the beginning of something deeper.
If the market can stabilize here, the bulls will argue that this is just another mid-term election year pullback. But if the selling continues, the next real area of support sits near 6,230, the July 2025 range, and below that the 6,000 level comes into view — a move that would still represent only about a 14% drawdown from the highs, which historically would not be unusual in a mid-term year.
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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Roasted Sea Bass in A Marsala Wine Sauce
You will need: 1 lb. of sea bass, olive oil, butter, onion, Marsala Wine, Fresh wild mushrooms, Chicken stock, s&p, and chopped parsley for color.
Prepare by chopping the onion, slicing the mushrooms and chopping the parsley. Have all other ingredients out on the counter to ease the process of creating this dish….
Preheat the oven to 450 degrees – Do not put the fish in the oven until it has pre-heated to the proper temperature.
In a sauté pan – heat the olive oil and the chopped onion – cook until soft and translucent. Turn the heat to high to make the pan really hot – then remove the pan from heat and deglaze with 1/4 cup or so of Marsala Wine – you can use White wine if you prefer – but you will get a different flavor – just fyi. (I say remove the pan from the heat because – if you use Marsala – the flame can easily ignite the wine and singe your face. – reg white wine – no worries) When the wine has cooked off add the sliced mushrooms and about a tblsp of butter. Reduce heat to med and cook until tender.
Now add the chicken stock – maybe 1/2 cup or so….and s&p… let it cook down…. just so it thickens a bit….
In another sauté pan heat up a bit more olive oil…season the sea bass with s&p and add to the pan skin side down for about 5 mins…you want the skin to be crispy……flip and cook for about 1 min – transfer to a baking dish and put in the pre-heated oven and roast for another 4 / 5 mins.
Warm the serving dishes and place a bed of the onion/mushroom mixture on the plate and then top with the pan roasted filet. Adorn with a bit of chopped parsley. You can serve this dish with herb/garlic wild rice and sautéed green beans. Complement with a chilled bottle of your favorite white wine, light the candles, turn down the lights…. and you are off to the races…. like putty in your hands.
Buon Appetito.