Things you need to know
- Tech gets punched in the face – WSJ ignites a fire!
- Is OpenAi the canary in the coal mine?
- Oil up, Gold Down, Bond yields inching higher all while the VIX declines.
- FOMC at 2 pm – Big Tech at 4:05 pm.
- Try the Brown Butter Parmegiana Pasta
So, we came off back-to-back record closes on the S&P and Nasdaq — yesterday investors decided to take a breath. Nothing dramatic, nothing broken — just a little reality check courtesy of a WSJ article written by Berbee Jin.
Here’s what happened –
They dropped a story – pre-opening that OpenAI missed its own internal revenue and user growth targets — and the CFO apparently raised red flags internally about the company’s ability to pay its massive computing contracts if the top line doesn’t start moving. Should I go on?
That’s all the market needed to take a hammer to anything tech. The Nasdaq gave up 1%, The XLK lost 1.7%$, ARKK lost 1.4%,. The Growth trade gave up 1%, Cybersecurity lost 0.6%, Semi’s lost a whopping 3.7%, Robotics lost 2.2%, Software gave up 0.5%, Quantum lost 2.2%, Even Ark Web lost 1.5%. Now those are just the ETF’s – individual names lost even more…. NVDA -1.6% AMD -3.4%, AVGO – 4.4%, MARVL – 3.1%, ARM – 8%, CRWV – 5.8%.
At the end of the day the Dow gave up 25 pts, the S&P lost 35 pts, the Nasdaq lost 223 pts, the Russell got slammed, down 32 pts or 1%, the Transports lost 111, the Equal Weight S&P lost 38 while the Mag 7 gave up 100 pts….Now, what is important to note is that while stocks closed mostly lower – they were well off the lows of the day. (Trying to be optimistic here!).
Of the 11 S&P sectors – we saw Utilities, Financials, Consumer Staples, Energy, Healthcare and Real Estate all up – not bad considering the overall tone.
The losers included: Industrials, Tech, Consumer Discretionary, Communications and Basic Materials.
Now let’s be clear — one WSJ story doesn’t unwind the AI trade. But it does raise a legitimate question considering what is happening after the bell tonight. Think earnings from META, AMZN, GOOG & MSFT. Here is the one question they are all going to be asking….. Are the hyperscalers spending money — think $625 billion in 2026 — like there’s NO tomorrow on AI capex… chasing a customer base that isn’t growing fast enough to justify it?
Because that was the plot line from The WSJ today — essentially suggesting this whole thing is about to blow a gasket!
Now, before you go lighting your hair on fire… remember – it’s an article, written by a journalist. Not the CFO… not the CEO… and definitely not someone signing the checks. Now, I’m curious – was this just a coincidence that this article came out 36 hrs. ahead of these KEY earnings? Is Berbee suggesting that the hyperscalers are ‘in over their heads’? Or is he stirring the pot ahead of the main event?
Oh boy – strap in! Because this is where the rubber meets the road…..
Meanwhile, oil is doing what oil does when the Strait of Hormuz stays closed — it goes up. WTI teased and kissed $100/barrel yesterday, up over 3%, as Trump made clear he is not flinching — and he is not ending the blockade until Iran gives up their nuclear demands. We are now nine weeks into this conflict, with no resolution in sight, all while the IEA is warning of an unprecedented supply shock. This morning oil is up another $3.50 – now trading at $103.40.
And then yesterday, just to make sure the oil story couldn’t get any more complicated, the UAE dropped a bombshell — they announced they are walking out of OPEC+ effective this Friday. The UAE is OPEC’s third-largest producer, a member since 1967, and they’re done. Done being constrained by production quotas while Iranian missiles target their shipping lanes and the Hormuz closure has slashed their output by 44%. Their energy minister has had enough – they want the freedom to pump what they want, when they want. Period.
Here’s the twist – The UAE leaving OPEC is good for oil prices (or not depending on your perspective) and the global consumer. (think more supply/lower prices). Once Hormuz reopens, Abu Dhabi has the capacity to flood the market with an additional 2+ million barrels per day that quota restrictions have been holding back. Saudi influence over the cartel just took a serious hit, and OPEC’s grip on global supply – already weakened by years of U.S. shale dominance – just got weaker. So, while oil stays bid today because nothing has changed, the market is going to start pricing in what a post-conflict, quota-free UAE looks like. That’s a different conversation – and it’s coming sooner than people think. In my opinion, it can’t come fast enough!
Gold – continues to tell us that it is more concerned about inflation and rates than the geo-political conflict. Yesterday gold fell by 1.8% or $85 to end the day at $4,596 and this morning it is down another $30 or 0.7% at $4,569/oz. Look, oil is screaming inflation while rates are rising and the dollar is getting a bit stronger… and that’s NOT good for gold. That now leaves gold up 5% ytd – a far cry from the 30% in January. As I said yesterday – Gold appears to be in the $4,265/$4,750 trading range. If the inflation story gets stickier – then gold will get weaker.
Bonds were unchanged yesterday – but this morning there is more upside pressure. The 2 yr is up 1 bp at 3.848%, the 10 yr is up 1 bp at 4.359% while the 30 yr is up 1 bp 4.949%. Now while they remain in the ‘ok’ zone – they continue to tick closer to the ‘danger zone’ – just another cautionary signal.
And the VIX? It continues to tell you that investors are just not getting anxious…yet. It closed last night at 17.83 — down another 1% — and now sits below all three of its key trendlines. That’s calm. I find that very interesting because we are just hours away from the FOMC rate decision (which is expected to be unchanged) and earnings from Big Tech. That is usually a recipe for angst (founded or unfounded) not calm.
And yet — after yesterday’s WSJ article raising questions about AI capex and the hyperscalers — I would have expected anxiety to build. Instead? It did the exact opposite.
Now about the FED – We discussed this – 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 cuts are now off the table.
I wonder if he will pre-empt the BoE and ECB by saying that the possibility of a HIKE is now on the table. My gut says no, because this is JJ’s last meeting – he will not be in a position to opine on the rate picture going forward. And if he does, I’m betting that the market will discount it – allowing time for Kevy to take control. Current street expectations are for ZERO cuts for the balance of this year and if you believe Jamie Dimon (JPM) brace yourself for a rate HIKE in 2027.
Look, we all know what Kevy wants to do. The question is whether he can actually pull it off. Because unless something changes, I don’t see how you justify cutting rates without simultaneously shrinking the balance sheet. You can’t ease on one hand and keep all that liquidity sloshing around on the other. That’s not policy – that’s confusion. And yes, that may very well be the end game…rate cuts paired with QT, but here’s the problem- that takes time. A lot of time.
Remember, it took nearly 15 years of zero rates and an ever-expanding balance sheet to get us here. Fifteen years of easy money, asset inflation, and liquidity-driven markets. You don’t just unwind that overnight. So even if Kevy comes in with a plan, the market is going to need time to digest it, price it, and believe it. Which means this transition may not be smooth and definitely not quick.
Eco data today includes Mortgage Apps, Retail Inventories, Building Permits, Housing Starts, Durable Good Orders and of course the FOMC at 2 pm.
We’ve got another 30 names reporting this morning…. some of the KEY names to watch – GD (Defense), PSX (Oil Refiners), HUM (Managed Care), SWK (Machinery and Equipment), GNRC (Electrical Power Equipment), ODFL(Trucking), REGN (Biotech), SOFI (Consumer Finance). – but by now you know it will be all about what happens AFTER the close – brace yourself for META, MSFT, AMZN & GOOG.
European markets are all lower. Spain in the lead – down 0.7% with Germany only down 0.2%. Everyone else is in between.
US futures are treading water. The Dow is flat, S&P’s up 2, Nasdaq +75 while the Russell is flat.
The S&P closed at 7,138 – down 35 pts…. We are at a crossroads – the recent action (last 2 weeks) has been all about tech (again). Tonight we are about to learn who is right – the Bulls or Bears. It’s all very exciting.
From a technical standpoint – we are well above all 3 trendlines on both the S&P and Nasdaq, the RSI’s (relative strength indexes) are in overbot territory – so ANY disappointment will cause a swift reaction….The question is – If Big Tech disappoints – how quickly would we test them?
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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Brown Butter Parmegiana Pasta.
Simple, quick and so good.
For this you need: Linguine, butter, sage, pepper, a splash of lemon juice and the fresh grated parmegiana. That’s it.
Bring a large pot of salted water to a boil –
In a large sauté pan – melt 1 stick of butter (for ½ lb. of linguine) on med high heat, add 3 sage leaves, cook until the butter browns – do not burn it…. lower the temp if you have to. Remover from heat.
Add the pasta to the water and cook for 8 mins or until aldente.
Now – slowly reheat the butter – (med low) – add in ½ ladle of the pasta water – Using tongs – add the pasta directly to the sauté pan and toss to coat. Now add 2 handfuls of fresh grated cheese. – Let it sit for a min…do not stir. Allow it to melt.
Now stir it, add some pepper and a splash of lemon juice – you may need to add a bit more pasta water to keep it creamy.
Serve immediately.
Buon Appetito