Things you need to know
- Stocks surge, the Momo guys are getting FOMO’ized.
- Oil pulls back – but it’s not a peace deal.
- Bonds steady, gold lower, VIX is asleep.
- Earnings remain strong.
- Try the Springtime Pasta
Good morning… wake up… it’s May 1st — Happy May Day. Grab a coffee… maybe something to eat… because if you missed it, you missed it — stocks exploded higher yesterday. The mood? More than euphoric, capping off an incredible April. The S&P gained 10.5% in April, the Nasdaq up 15.3%, the Russell up 12.3%, the Equal weight S&P up 6%.
Investors, traders, and the algo’s all made the same decision — ignore the Iran drama and focus on what really mattered… earnings, and they came in strong and stocks got rewarded: LLY + 7%, QCOM + 16%, CAT + 10%,
Now, oil — which was kissing new highs early in the day — suddenly backed off by midday, giving the market exactly the relief it needed. – But be careful – make sure you understand what that message was really about. (more below).
At the same time — the economic data? Mixed… but telling.
GDP at +2% — solid. Jobless claims at 189k — strong labor market. But then there’s PCE — the Fed’s favorite inflation gauge — and that came in HOT. At +0.7% m/m and + 3.5% y/y on the top line while we saw + 0.3% m/m Ex food and Energy and + 3.2% y/y Ex food and energy. Which btw the way was just another month of ‘higher than expected’.
So yes — the economy is holding up…But inflation? Still very much part of the story. – see yesterday ‘s note. But investors, traders and algo’s decided to put most of the negatives aside and ACCENTUATE THE POSITIVES.
As the closing bell rang – this is what happened. The Dow added 790 pts or 1.6%, the S&P up 74 pts or 1%, the Nasdaq surged by 220 pts or 0.9%, the Russell was up 60 pts or 2.2%, the Transports added 262 pts or 1.3%, the Equal Weight S&P gained 118 pts or 1.5% while the Mag 7 bucked the trend – losing 143 pts or 0.4%. You can pin the blame on META -8.6%, MSFT – 4% & NVDA -4.6% and that was the negative.
It was the same story and it’s not complicated. Massive AI capex + no clear return timeline = sell the stock. It didn’t matter how good the quarter was… that’s the trade right now. The market is sending a very clear, unified message to every hyperscaler: We believe in AI… we just don’t believe you need to spend THIS much THIS fast. And what makes this even more interesting is how the market is handing out the punishment.
Microsoft Corporation — beats, Azure +40%, capex spending is pushing $190 billion… stock down ~4%.
NVDA didn’t even report… still down ~4–5%. Why? Caught in the crossfire as customers start talking about building their own chips.
Meta Platforms Inc. — blows the doors off… revenue +33%… and the stock gets spanked -9%. Why? Because capex goes up AGAIN — now $125 to $145 billion.
I mean… the irony here is almost laughable. The better the quarter, the more visible the spending, the harder they whacked you. Zucky just put up arguably the best numbers of the group…and got hit the hardest. That tells you everything you need to know about where we are right now and it isn’t about growth, it’s about discipline.
OK – now let’s move onto the pullback in oil…because this is also important because the pullback was NOT about a peace deal, it was more about demand DESTRUCTION. Look – nothing changed on the supply side – the Strait is till essentially closed, Trump has rejected the Iranian proposal and we (the US) are still considering ‘all military options’. So don’t kid yourself – the supply shock is alive and well –
So, what caused the move? The IEA (International Energy Agency) came out and basically told the market: Yes, supply is collapsing… but now demand is collapsing too.
Global supply just fell 10.1 million barrels a day — the largest disruption in history. At the same time — demand is starting to crack. According to them – 2026 demand is now expected to shrink. Q2 demand projected to drop 1.5 million barrels/day, the biggest decline since COVID – let that sink in. Asia cutting production, Households are getting squeezed, flights are being cancelled across the Middle East, Asia, and Europe, Jet fuel demand is rolling over. Vietnam and the Philippines are telling people to stay home… work remote… limit travel. Denmark telling citizens to avoid non-essential transportation. And summer is coming across the northern hemisphere. And that’s a problem.
Because demand destruction at this scale? That’s not bullish… that’s a warning sign. It tells you that the economic damage from this Iran situation is spreading — beyond energy and if this lasts another month, or 2 or 3 it is going to hit the global economy hard. And that, my friends, is exactly the kind of setup that makes the Fed’s job and your job as an investor a whole lot harder as we head into the summer.
So here is the conundrum – stocks are making new highs at the exact same time the oil story is telling you demand is cracking. So, let’s answer the obvious question — if demand is cracking and the oil story is getting worse… then why are stocks making new highs?
Simple. The market isn’t trading today’s reality — it’s trading tomorrow’s expectation. Investors are looking at demand destruction and saying, that’s how inflation comes down… that’s how the Fed eventually gets relief. At the same time — earnings are still strong, they haven’t broken, and until they do, money is going to stay invested. Add to that a ton of cash on the sidelines, shorts getting squeezed and BANG – you get this kind of melt-up.
So, the market has to acknowledge that growth may be slowing, but betting it’s not collapsing. And as long as investors believe that then stocks can keep pushing higher… but don’t get too comfortable, because if that demand destruction starts to hit earnings or the consumer starts to pull back then this narrative flips fast.
Bonds – the 2 yr is at 3.88%, the 10 yr is yielding 4.38% and the 30 yr is at 4.97%.
Gold? It continues to whip around – moving based on what the thinking is today. And today it’s about inflation and rates, tomorrow who knows! This morning it is down $50 at $4,567 – still within the trading range – $4,275/$4,761.
And the VIX? That is an anomaly…. trading even lower, suggesting more complacency. This morning it is up 20 cts at 17.08 – back to levels last seen BEFORE the Iran conflict. And for me – this is a disconnect – considering everything that could go wrong…but remember – the VIX doesn’t’ tell you when you should be concerned, it tells you after the sh*t hits the fan. It is not predictive, its reactive and right now I’m not sure I believe it.
Eco data today includes – S&P Manufacturing PMI and the ISM Manufacturing PMI and both are expected to be well into the expansion zone – 54 and 53.2 respectively. Now Prices Paid are also expected to tick higher (not good.).
Earnings today? Exxon Mobil, Chevron Corporation, Colgate and Dominion Energy Inc.. That’s Energy, Staples, and Utilities — and that gives you a read on the economy in one shot.
Energy — we’re going to hear about oil, inflation, and geopolitics.
Staples — we’re going to hear about the consumer.
Utilities — we’re going to hear about rates and defensive positioning.
US futures – The Dow +116, S&P’s up 9, Nasdaq -30 while the Russell is -5.
The S&P closed at 7,209 – up 73 pts…. It is now up 5.3% ytd while the Equal Weight S&P is up 6.1% ytd. The Nasdaq is up 7% ytd. The Value trade and Growth Trade are fighting for position…. The SPYV is up 5.4% ytd while the SPYG is up 5.3% ytd.
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 still in overbot territory on all 5 of those measures and that suggests ‘don’t be aggressive’.
Listen… yesterday felt great. New highs. Broad rally. Strong earnings. But don’t get lulled to sleep. This is exactly when you need to stay awake. Because the oil story didn’t get better — it got worse. Supply shock still there, demand starting to crack, Economic damage could start to raise its head – and that’s exactly the kind of setup that sneaks up on investors.
So yes — enjoy the rally. But stay disciplined. Stay focused. Stay in high quality. Because this market? She’ll give you the upside…and she’ll rip you open when the narrative shifts. And trust me…that shift will come.
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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Springtime Pasta
For this you need: Leeks, peas, shallots and asparagus tips. Lemon juice, Fresh Parmegiana, olive oil and a lb. of Orecchiette pasta.
Bring a pot of salted water to a rolling boil.
In a large sauté pan – add some olive oil – add in the sliced leeks and shallots. – season with s&p – cover and cook on med low for about 10 mins.
Now, cut up the asparagus, into bite sized pieces – you only want to use the green part and the tips. Blanche in the salted water. After 3 – 4 mins – use a slotted spoon to remove – keep the water for the pasta.
Now add the asparagus and frozen peas to the leeks. Add a ladle of the water, cover and cook for 4 mins.
Now – take about 2/3rd of the vegetables and blend to make a smooth sauce. Add back to the sauté pan – adjust seasoning with s&p. Add a small squeeze of lemon juice.
Now add the pasta to the water and cook until aldente.
Strain – keeping a mugful of water. Add to the sauté pan and mix to coat. Add in a handful or two of cheese and mix.
Serve immediately.
Buon Appetito