Things you need to know
- S&P, Nasdaq close at new highs, Dow, Transports and Equal Weight not confirming.
- Big Tech Week – METS, MSFT, AMZN, GOOG & APPL all on deck.
- Iran remains in focus – the ball is in their court.
- Wednesday is JJ’s curtain call – It is now the Warsh Era.
- Try the Linguine with Spinach Pesto.
Good morning…..Time to wake up – because this week is chock full of excitement…. So, let’s go….
Stocks ended the week mostly higher….on Friday the Dow lost 80 pts, the S&P gained 57 pts, the Nasdaq surged by 400 pts (thanks to INTC), the Russell added 12 pts, the Transports lost 200 pts, the Equal Weight S&P lost 14 pts while the Mag 7 tacked on 700 pts. Again, it is important to note that both the S&P and Nasdaq closed at new all-time highs, while the Dow and Dow Transports and Equal Weight S&P did not! And that is just one caution signal.
Because when you get this kind of divergence, it’s telling you one thing – the rally is being driven by a very narrow group of stocks. Now that doesn’t mean the market is about to roll over…but it does mean be careful. So, it’s great to celebrate the new highs, but understand what is happening under the sheets.
Last week gave us earnings that spanned a range of sectors across the economy – we saw beats on the top and bottom lines that are running at about an 80%, but it is the guidance that raised some eyebrows. Companies are cautious about rising costs of raw materials as well as the rising cost of energy and that is beginning to put pressure on margins – note the comments from Procter and Gamble and some of airlines.
In fact, the warning from the airlines was crystal clear – fuel is an issue and that is causing margins to get squeezed. I mean AA expects an EXTRA $4 billion in jet fuel costs this year. Now remember, airlines can raise prices, cut capacity, raise baggage fees and even add on new seat fees depending on location – BUT they can’t do it fast enough to offset this spike.
So, yes the pressure is building and if it is not corrected – it is going to hit the consumer – so proceed with caution. Speaking of the consumer – Thursday brings us the March PCE price index…. the FED’s favored inflation gauge – and it IS expected to show an increase both m/m and y/y on the top line and Ex food and energy. The fear is that it will be even more than expected, the surprise will be if it is weaker than expected.
Now, remember the April FOMC meeting begins tomorrow and the decision is out on Wednesday – the day BEFORE we get the latest inflation data, but it is hard for me to believe that they don’t know what it will reveal – but let’s go with that idea – that they are kept in the dark…..
In any event – I do not expect to hear anything other than rates to remain on hold, but I do expect JJ to emphasize that rising costs – energy and raw materials – are presenting a problem for the FED – which only means that he will say that cuts will be pushed further out on the timeline.
And then—just to make it more interesting…Late Friday we learned that the DOJ officially dropped its investigation into JJ Powell. No charges. Case closed—at least from a criminal standpoint.
Now why does that matter? Because it strips away a political overhang that’s been hanging over the Fed, and it removes any excuse for Senator Tommy Tillis to hold back support for Kevy Warsh – he was the holdout. That vote also takes place on Wednesday and is now expected to a done deal.
And that’s the next chapter. So, think about this…If this is JJ’s last meeting – Does the policy tone matter more or less? Remember – last week – Warsh called for a ‘Regime Change’ on how the FED manages monetary policy, so some may think it matters less, but does it? What JJ says will set the tone for the ‘starting point’ for Kevy. It will frame the inflation narrative, it will frame the growth narrative, and it will frame how he hands it off, before he turns off the lights.
Now oil – that is still the driver….and this morning it is up $2 or 2.1% at $96.40 – leaving it just below $100…. The move this morning appears to be a direct result of no peace deal, no ceasefire deal. On Saturday morning – Trump stopped Steve Witkoff and Jared Kushner from going to Islamabad – saying that he wasn’t going to waste their time anymore. That the ball is now solidly in Iran’s court and IF they have something to say – they can always pick up the phone and call the White House, if not, then not. And as of 6 am today – no one called.
Gold continues to get stuck in this tug of war – this morning it is down $6 at $4,705 – as the geopolitical situation says rally, but the bond yield situation says, ‘not so fast’. Gold is now below intermediate trendline support at $4,745 as gold traders await the next headline. For now, it feels like we are in this $4,545/$4,860 trading range.
Bonds also remain unsure of what’s next. The 2 yr is yielding 3.78% – which is down from last week’s high of 3.83% but up from where it was – 3.68% – before the Kevy Warsh hearing… The 10 yr is yielding 4.31% while the 30 yr is yielding 4.92%. For now – that’s ‘ok’ , but if they spike higher that will cause stocks to back off….
At the moment, I do not see how they can go significantly lower, so I am in the camp that they are going to hold steady until we get clarity out of the FED -and that won’t happen now until Kevy Warsh takes over. The next meeting is June 16-17th…and will be known as the start of Warsh Era.
OK – Earnings…because it is a BIG week. Get ready to hear from MSFT, GOOG, AMZN, META & APPL. And let’s not pretend – investors, traders and algo’s are all sitting on the edge of their seats…These companies represent 25% of the S&P…..they have a total of $16 Trillion in market cap…..So, here is the setup. This is not about whether they beat earnings. It’s about validation.
Validation of – AI spending, Growth, Margins and Valuation support, because let’s be honest—the spending is massive. MSFT is pouring billions into Azure and AI infrastructure. AAPL is doubling down on capex, Meta is about to spend about $100B+ while AMZN continues to invest heavily in AWS + AI – but we know this…. the question is – Is it paying off?
Let’s look – MSFT is your bellwether. Azure growth, AI integration—if this accelerates, the whole AI trade stays intact.
GOOG – watch search and ads. AI is both opportunity and risk here. Monetization matters.
AMZN – AWS (Web Services) is the tell. Always has been. Growth + margins = everything.
Meta Platforms — Strong ads…BUT massive capex. At some point the Street wants ROI, not just spending.
Apple — Different story. This is your consumer check. iPhone demand, China, services growth.
But don’t ignore the rest of the lineup—because this is your read on Main St. V (payments) real time read on the consumer, KO – (consumer staples) – pricing power and global demand, CAT (Industrials) – infrastructure, construction, VZ (Communications) defensive, NUE (Materials) industrial demand, JBLU (Airlines) – fuel costs pressures, UPS (Transportation) – shipping volumes and economic activity, HLT (Travel/Hotels) Business and travel trends and that is only a taste of what’s to come.
European markets are all up…. Spain in the lead -= up 0.6% with the UK up 0.2% – everyone else is in between. The BoE and ECB are due to announce policy decisions on Thursday – they are expected to leave rates alone while leaving the door open to a rate HIKE later this year.
US futures are mixed – Dow -80, S&P’s down 9, Nasdaq + 15 while the Russell is flat. Word is that Iran has submitted a peace plan – but it falls short of being serious…. They want to reopen the strait but postpone any nuclear talks for now. US investors are not ‘buying it’ and Trump not interested in wasting any more time. So, nothing changes….
The VIX is up 30 cts at 19.02…still very much in the ‘caustious’ zone…This could either way – There is a lot to digest this week.
Eco data today – The Dallas Fed Manufacturing Survey – Not a market mover at all.
The S&P closed at 7,165 – up 57 pts…. closing at a new all-time high. On Friday I said that anything tech will be busy (thanks to INTC), but other sectors not so much…Investors are going to be patient – traders and algo’s will continue to take advantage of the anxiety. And that is exactly what we saw…. I suspect we will get more of that this week. Say what you want – but separate from the geopolitical drama, the focus will be on tech – period the end.
Trendline support is officially down at 6,840 – 4.5% lower from where we are and is a level we could test IF the earnings disappoint or the guidance is more cautious or investors do not see a return on all of this tech spending.
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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Linguine with Spinach Pesto
This is so good and so easy to make – it takes as long as boiling the linguine.
For this you need: Linguine, fresh spinach, fresh basil, walnuts, Pecorino Romano Cheese, garlic, olive oil and s&p.
Bringa pot of salted water to a rolling boil and add in the linguine.
In a food processor – add the spinach, 3 or 4 leaves of basil, walnuts – not a lot – maybe half a handful, the cheese, garlic clove, and olive oil and a pinch of salt.
Now blend. – add the pesto sauce into a bowl. Now – place that bowl on top of the boiling water just long enough to warm it up…
Remove – no add the pasta directly to the bowl and toss.
Serve in a warm bowl, top it with some crushed walnuts, a dusting of cheese, a drizzle of olive oil and a pinch of pepper.
Buon Appetito