Things you need to know
- Geopolitical tensions continue to dominate the headlines.
- Stocks did advance yesterday, but today they look a bit nervous.
- 8 pm is now 12 hrs away –
- ISM remains in the expansion zone, but prices paid signals caution.
- Try Miss Amy’s Shrimp and Artichokes.
Good morning America! Wake up and strap in…..because the market is once again trying to separate the noise from the news…..Stocks did manage to grind higher on Monday – but let’s be clear, this was not a risk-on rally.
At the end of the day this is how it looked – the Dow gained 165 pts, the S&P gained 30 pts, the Nasdaq advanced by 117 pts, the Russell up 10, the Transports added 208 pts, the Equal Weight S&P advanced by 33 pts while the Mag 7 added 85 pts.
It was a cautious advance as investors tried to balance hope for diplomacy in the Middle East against the possibility that the next headline shows blown up bridges, power plants, roads and more… Overnight – it is confirmed that the US hit military targets on Kharg Island in a move to get Tehran to come to the table – quickly.
At the same time Tehran presented a 10 pt peace plan is demanding a permanent end to hostilities and broader concessions that include but not limited to a guarantee that Iran will not be attacked again, that Israel will not attack Hezbollah in Lebanon and a lifting of ALL sanctions. They also proposed that every ship that passes thru the strait will be charged $2 mil – that they will split with Oman as compensation for reconstruction.
So, the question investors are asking this morning is simple – Do we get an 11th-hour agreement or not? Right now, the signals suggest that a deal is still possible. I am in the camp that there will be an 11th hour deal – not perfect – but something that satisfies both sides allowing for ongoing negotiations…….
Back to the markets…
Yesterday’s economic data featured the ISM Services PMI, which came in at 54 — slightly below expectations, but still firmly in expansion territory. Remember — anything above 50 signals growth, and since the U.S. is now roughly a 75% services economy, this is an important data point.
And it matters because it stands in sharp contrast to last week’s S&P Global Services PMI, which came in below 50 at 49.4, suggesting contraction in the services sector. So, the question is… which one are you supposed to believe?
Historically, investors tend to put more weight on the ISM survey, largely because it has a longer track record and a deeper survey base. And if the ISM read is correct, then the largest part of the U.S. economy is still expanding, even as geopolitical noise and rising energy prices try to cloud the picture.
But don’t get too comfortable because there is one more catch. Just like the S&P PMI Prices Paid Index which surged – the ISM Prices Paid also surged to its highest level since October 2022 and that is a flashing yellow light. Inflation pressures are creeping back in.
So, if this conflict drags on past April and energy prices remain elevated, those inflationary pressures will get stronger and eventually start to bleed into the services side of the economy. Higher fuel, transportation and other input costs at the producer level ultimately filter down to the consumer, and when that happens households begin to reconsider discretionary and services spending.
And when the consumer starts pulling back — the services economy will feel it. So, while the ISM report tells us that services are still expanding today, the real question is how long that can last if energy prices stay elevated and inflation begins to reaccelerate?
A look at the sectors gives us a clue on what investors were thinking yesterday. Consumer Staples wound up in first place rising by 1% – taking that group up 6.5% ytd, in an odd twist – Consumer Discretionary came in second – rising 0.8% – leaving that sector still down 8.7% ytd. Financials rose 0.75%, Industrials +0.5%, Energy +0.7%, Real Estate gained 0.4%, Communications ended flat, while Utilities, Healthcare and Basic Materials lost 0.4%.
Industry groups: Homebuilders up 1%, Retailers up 1.7%, Disruptive Tech up 0.4%, the Value Trade up 0.5% leaving it flat on the year, the Growth Trade up 0.4% leaving it down 6.5% ytd. Emerging Markets – EEM – up 0.9%, Semi’s up 1.3%, Software up 0.1%, Oil and Gas Exploration +0.75%, Big Pharma -0.8%,
Now let’s talk bonds – the TLT and TLH lost a little ground yesterday down 0.15% leaving 10 yr yields at 4.32% while 30 yr yields are at 4.88%.
Crude remains the key pressure point for the entire market. Oil closed yesterday at $112.40 and is trading around $114.60 this morning — keeping us firmly in the $110–$120 trading range.
Look – Attacks on infrastructure and shipping lanes continue to disrupt traffic through the Strait of Hormuz. Commercial shipping through the Strait has reportedly fallen nearly 85% since this conflict began. Even if an agreement emerges, damage to ports, pipelines and shipping routes could sideline supply for weeks — possibly months – which means oil is unlikely to fall meaningfully below $100 until there is complete clarity that the conflict is ending and normal shipping flows resume.
Until then, crude will continue to trade with a geopolitical premium.
Gold is trading up $15 this morning at $4,665, after trading as high as $4,695 overnight as traders and investors continue to weigh the odds of this conflict spinning further out of control. Right now, gold is doing exactly what it’s supposed to do — acting as a geopolitical hedge while uncertainty dominates the headlines.
If negotiations break down and no ceasefire agreement emerges, I expect gold to push higher and retest those overnight highs — and likely move beyond them as investors look for safety. But if we get any kind of diplomatic breakthrough, then like oil, gold will likely pull back as the geopolitical premium begins to come out of the price.
How far it pulls back will depend on two things: First — the language in the agreement and whether it signals a temporary pause or a more durable resolution. Second — the extent to which Iran is able to negotiate meaningful concessions, which would determine whether this conflict is truly winding down or simply being postponed. And the clock ticks….
The VIX remains elevated at 25.40 — up $1.20 pushing it further into the “concerned zone.” We hit the panic zone when we cross 30. Remember — we don’t have a deal until we have a deal, and until that happens the VIX is likely to remain on edge as traders continue to hedge geopolitical risk. A deal will see the VIX plunge and stocks surge – while no deal will see the VIX surge and stocks plunge… I am in the first camp…. Where are you?
Eco data today includes Durable Goods – expected to be down 1.2%, Ex Transportation of +0.5% and the NY Fed 1 yr inflation expectation of 3.5% up from 3% last month.
Asian markets closed mixed – Taiwan up 2% while Hong Kong lost 0.7%. European markets are higher this morning up – France up 0.6% while the UK is up 0.1%.
US futures which were higher overnight on hopes of a deal are now pointing lower as headlines suggest that Iran is threatening more infrastructure damage to some of the gulf states – suggesting they are pushing the limits. At 7 am – Dow futures are now down 200 pts, S&P’s down 35, Nasdaq down 168 pts while the Russell is down 20.
Now while this suggests confusion, I think it’s all part of the plan. I am betting on an 11th hr. deal. No one, including the gulf states really wants to see total destruction of Iran – so let’s get real…..I say 6 pm….
The S&P closed on Thursday at 6,611 — up 30 points, leaving us still below the long-term trendline at 6,644. Weaker futures – right now – suggests that we won’t pierce it today – but that could all change in a matter of mins if we get any indication that a deal is possible…so, sit tight – currently the clock says T minus 12 hrs.…
This is not the time to panic or make emotional decisions. Stay disciplined and look for the longer-term opportunities that geopolitical drama often creates. These moments tend to misprice stocks — especially the large-caps — because asset managers can raise cash quickly by selling these names.
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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Miss Amy’s Shrimp with Artichokes
So I had some guests over for Easter – One of them – Miss Amy, who lives in Boston and is married to my cousin – brought her favorite appetizer – Shrimp and Artichokes – it was a crowd pleaser and will become one of my go to’s for an appetizer when I get invited to someone else’s home. You can see the picture on my X acct – @kennypolcari.
For this you need: 1 ½ lbs. of cooked shrimp, cleaned and deveined with NO tail or shell. (you can use frozen jumbos), 2 cans of artichoke hearts in water, not oil, ½ c of red wine vinegar, ½ c vegetable, ½ c of olive oil, 1 egg, 2 tbsp. of Dijon Mustard, 2 tbsp. of Chopped Chives, 2 tbsp. of Scallion, 1 tsp dill weed, and then you need s&p.
Bring a small pot of water to a boil first and then drop the egg in for 1 min – remove and place in cool water.
Now, blend the red wine vinegar, vegetable, olive oil and egg.
Next – pour into a bowl and then WHISK in the mustard, chives, scallions, dill weed and s&p.
Open the artichokes and drain, pat dry with paper towels.
Defrost shrimp, pull any tails and shells off.
Now, in a large bowl – combine the artichokes and shrimp and then pour the marinade/sauce over it – do not drown it, but make sure it’s all coated. Arrange on a white platter – serve cold…. Delish.
Buon Appetito