Things you need to know
- Stocks hit new highs, while the VIX signals caution.
- Earnings continue to beat, investors reward and punish.
- Geo-politics remains front and center – do not get drawn in.
- Oil up, gold down, Yields up, VIX cautious
- Try the Sweet Sausage & Pea Risotto
Good morning…wake up, grab the coffee – because volatility is back on the menu, and this market is sending mixed signals that you cannot ignore. On the surface? It all looks great — Yesterday we closed at record highs, investors leaning in, maybe getting a little euphoric. The Dow Jones Industrial Average rallied 340 pts, the S&P 500 gained 1%, and the Nasdaq Composite surged 1.7% — with both the S&P and Nasdaq tagging fresh all-time highs for the second time this week. The S&P 500 Equal Weight Index went nowhere all while the Mag 7 added 564 pts or 1.7%.
Now layer in bonds — the 2-year is yielding 3.81%, the 10-year 4.32%, the 30-year is kissing 4.92% and all moving higher, telling you inflation concerns are still alive, and the market is trying to figure out what policy looks like under a Kevin Warsh Fed. A peek at the VIX suggests we are still in the ‘cautious’ zone.
Oil (WTI) is up 2% at $94.76 while Brent is now north of $103/barrel. This morning Gold is down $44 at $4,696 – now breaching trendline support at $4,735….as gold traders also consider where rates are going amid all of the geo-political chaos.
And then there’s earnings — because this is where the rubber meets the road. The net result so far? Companies are delivering – so far we have an 80% beat rate on the top and bottom lines…. but they’re not being rewarded the way you’d expect. That tells you everything about sentiment right now.
Look across the board and you see an economy that’s not breaking — but it’s evolving and getting more selective. Yesterday morning we got: GE Vernova absolutely crushed it, as demand for power tied to AI data centers explodes — a true “picks and shovels” winner. That stock advanced by 13.6%. Boeing is stabilizing- not booming but getting better and investors celebrated – taking that stock up 5.5%. Masco showed that the consumer is still spending and investors ate it up – pushing that stock up by 10.8%. And then Philip Morris International surged by 7% – a reminder that in this market, investors are still willing to pay for defensive growth, pricing power and cash flow in addition to their 4% divy. Put it all together and the message is clear: the economy is holding up, but growth is getting more expensive, expectations are high, and this market is rewarding strength — and punishing anything less.
After the bell – TSLA (or really Elon) reminded everyone that the AI arms race is real… but it ain’t cheap. Capex is set to EXPLODE causing traders to punch the stock in the face. ServiceNow beats and gets crushed – down 13% in the after-hours trading because subscription numbers didn’t dazzle. Then it was IBM’s turn – they did everything right…beat on the top and bottom lines….and still got sold because they didn’t ‘WOW’ the street. This morning? TSLA down 3.5%, NOW down 13.5%, IBM down 7.5% – apparently, investors are saying “good isn’t good enough.”
***Side note – The move in IBM this morning takes it right back down to the April lows ($233 ish) – a level I think is attractive to the long-term investor – but that’s me – you do you.
Now…today is where we get another read on the broader economy. PHM is your housing tell – where you have to ask – Are higher rates finally biting or is demand still hanging in there even with 6.25% mortgages? (I say yes.). AXP gives you the high-end consumer – travel, dining, discretionary- and if they’re spending, then the consumer (or at least the high-end consumer) is still alive. (I say yes). HON- is a global industrial bellwether – aerospace, automation, infrastructure – that’s business investment and global demand – What will that tell us? Then you’ve got Dow Inc. and FCX – chemicals and copper…they don’t lie — they tell you exactly what’s happening in manufacturing, construction and global growth. Add in LMT and that speaks to defense spending – add in AAL and that ties it all together with fuel costs, travel demand and pricing power in a world that has seen jet fuel surge by 80% in just weeks. And now you ask why airlines are raising prices, cutting routes and warning about margins. So far – PHM and LMT miss, HON, AXP, AAL & DOW beat…still waiting for FCX.
Now be careful – the tone IS negative this morning, so there is no need to rush – let the news hit the tape and settle in…..
And did you notice? I’ve gone this far and haven’t even talked about Iran… but you can’t ignore it. Because what the market cheered yesterday — this so-called “ceasefire extension” — is already being called dead by Iran’s own leadership, saying reopening the Strait of Hormuz is “impossible” as long as the U.S. blockade remains. And that’s exactly why oil moved higher — because the people closest to the situation are telling you this is far from resolved. Shipping is still constrained, risk is still elevated, and even if you get a headline tomorrow that says ‘we fixed it’, you don’t just flip a switch and reopen the strait – It will take time if not weeks or months to normalize and bring down insurance costs, and restore confidence.
But here’s the disconnect — oil hears it and trades higher… the bond market hears it and pushes yields higher… and yet stock investors? They’re hearing something completely different – they are trading on the idea that this all gets wrapped up neatly and quickly. And that’s the risk. Because if this drags on — and right now it looks like it might — then higher energy prices stick, inflation stays sticky, and the idea that rates are coming down anytime soon gets challenged…which they already are. So yes, the market wants to believe the best-case scenario… but the reality on the ground is a lot messier. And at some point — that matters. Capisce?
And all that means is do not get caught up in any FOMO trade – do not make emotional decisions – talk to your advisor and stick to the plan.
Eco data today includes S&P global Manufacturing and Services PMI’s – both expected to be in the expansion zone (positive).
European markets are all lower…. Spain down 1.2% while Italy is down 0.3% – everyone else is somewhere in between.
US futures are down – Dow futures -330 pts, S&P’s -30, Nasdaq -115 and Russell is -30. The pressure this morning is once again focused on the geo-political situation and the anxiety it is creating. The lack of any real progress on the Iran/US conflict will ultimately cause investors to get a reality check. Yes, earnings are good, expectations are solid etc…but let’s be honest – $95+ oil, plus rising inflation, plus rising yields will ultimately cause stock investors to become more cautious…. which just means – stick to the plan.
We’ve seen this movie before — the headlines hit, the market reacts, volatility spikes… and then it settles down and refocuses on fundamentals. So, while everyone’s watching the tape for the next headline, the smarter money is asking a different question — what does this mean for the economy? Because that’s what’s going to determine where stocks go next.
The S&P closed at 7,137 – up 74 pts. Again, we blasted up and thru what should have been some resistance at 7,075 yesterday, but today is a different story and we will likely test it again…the question is will it hold or fail?
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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Sweet Sausage Risotto
This dish can be a first or main course depending on how hungry you are.
You will need: olive oil, butter, onions, sweet Italian sausage (removed from casing), minced garlic, thyme, Arborio Rice, white wine, chicken broth, frozen peas and Parmegiana Cheese.
In a saucepan – heat up about 6 cups of chicken broth.
In a heavy pan – heat the oil and 1/4 stick of butter over med heat. Add chopped onion and sauté until soft and translucent.
Next add the sausage meat and brown. When ready add minced garlic – no more than a tblspn, and some thyme….do not overdo…. about 3/4 tspn. You can always add less and then taste. Sauté for another couple of mins to blend the flavors.
Now add 1 1/4 cup of Arborio Rice and about 1 cup of dry white wine…mix well and stir until the wine is absorbed. Season with a bit of pepper. NO SALT needed.
Now – one ladle at a time…add the hot stock to the rice and stir…you must stay at the stove – this is key. You need to stir the rice and not allow it to stick. As the stock is absorbed – add another ladle and stir…continue this until the rice is tender and creamy…. maybe like 20 mins…. but taste as you go to determine. (You will not need all of the stock – but just in case you did it wrong you can always try to save by adding a bit more stock.) Now add 1 cup + of frozen peas….and a handful of grated Parmegiana Cheese. Stir well for about 5 mins so that the peas have time to warm up……taste. Taste good? then you are ready to serve…If not – keep stirring. Do not let the rice dry out… This meal should take you about 30 mins – (40 max).
Serve in warmed bowls and garnish with a bit of chopped Parsley…always have extra cheese on the table for your guests.
Buon Appetito