Things you need to know
- PPI is scorching hot, yet S&P and Nasdaq print new highs.
- Bond Yields surge…Treasury sells a 30-yr bond with a 5% coupon.
- Oil down, gold steady.
- Retail Sales at 8:30
- Cerebrus IPO gets priced at $185/sh – 20 x’s OVERSUBSCRIBED.
- Try the Pasta Norma
Good morning America — wake up, grab the coffee and let’s go because this market continues to do what so many thought was impossible… rally in the face of rising inflation, rising yields and rising geopolitical risk.
Yesterday’s market action was another reminder that right now the momo guys remain firmly in control. The S&P and Nasdaq once again closed at fresh all-time highs even though underneath the surface the story was much narrower than the headlines suggest.
The Dow lost 67 pts, the S&P added 43 pts, the Nasdaq surged 315 pts or +1.2%, while the Russell ended essentially flat. The Equal Weight S&P lost ground while the Mag 7 exploded higher by another 2%. Translation? Investors, traders and the algo’s continue piling into AI, semis and mega-cap tech while much of the broader market struggles to keep up.
And all of that happened DESPITE one of the hottest inflation prints we’ve seen in years.
Producer Prices exploded higher by +1.4% m/m versus expectations of +0.5% as energy, shipping, insurance and logistics costs continue ripping through the system. On a year-over-year basis, PPI is now running at 6%, well above the 4.8% expectation and sharply higher than last month’s 4% read.
So, let’s call it what it is- inflation is reaccelerating. And if this conflict in the Middle East is not resolved soon- and I mean SOON – then this story is going to get worse before it gets better. The longer oil stays elevated and the longer shipping routes remain disrupted, the more pressure gets embedded into the global economy.
And if producers are paying more, you better believe consumers are going to pay more too. Period. Companies are not charities. They exist to make money, and they will pass those higher costs directly through higher prices, reduced discounts and margin protection. Which means the inflation fight remains front and center and incoming Fed Chair Kevin Warsh just inherited a much more difficult setup.
And if Trump and Stevey Miran think rates “have to go down” in the face of reaccelerating inflation, surging producer prices and oil above $100…then somebody may want to dust off the old Econ 101 textbook. Cutting rates into rising inflation pressure is exactly how you risk losing control of the bond market, the dollar and inflation expectations all at once.
And speaking of the bond market…it is screaming: “CAUTION — slippery when wet!”
This week’s hot CPI and scorching PPI reports have forced investors to completely rethink the Fed path all over again. The fantasy narrative of multiple rate cuts is now DOA. The new narrative? Higher for longer… and possibly even higher still.
As a result — yields continue marching higher all around the globe. This morning the 2 yr Treasury is yielding 3.97%, the 10 yr is yielding 4.46% while the 30 yr has pushed above 5%, trading as high as 5.05% yesterday. That matters. A LOT.
In fact, yesterday the Treasury sold $25 billion of a brand-new 30 yr bond maturing in May 2056 carrying a 5% coupon — and even then investors demanded MORE yield if the government wanted their money. The bond priced below face value, pushing the real yield to roughly 5.046%.
Now let’s translate that into plain English…
The United States government is now officially paying MORE than 5% interest to borrow money for the next 30 years. Think about that for a minute. Janet Yellen had the opportunity to lock in generational debt at 1.8% but chose to stay in the short end of the pool. Now Scotty Bessent is the one forced to deal with reality — and the message from the bond market is crystal clear: investors no longer believe we are returning to the near-zero rate world of the early 2020’s.
Why? Because inflation expectations are rising again. Oil prices remain elevated. Supply chain pressures are building. Geopolitical tensions continue intensifying. And investors are demanding to be compensated for taking long-term inflation risk.
And here’s why you should care…higher long-term yields eventually work their way through EVERYTHING — mortgage rates, credit cards, auto loans, commercial real estate financing, corporate borrowing costs and ultimately equity valuations.
So, while the stock market continues celebrating the AI story, the bond market is quietly telling you a very different story — one where inflation remains sticky, rates remain elevated and the era of “free money” is officially dead.
This morning oil is trading at $100.70 — down about 25 cts — after overnight headlines suggested OPEC+ members may raise production targets later this year. That’s helpful…BUT…let’s be honest. No one is meaningfully increasing supply as long as the Strait of Hormuz remains unstable. Which is why the real solution remains the same: reopen the Strait.
If that happens, I do think oil begins working lower over time — perhaps back into the mid-$80’s or even high-$70’s. Not pre-conflict pricing, but certainly better than where we are today. If it does NOT happen? Then the risk of oil blasting through $110 grows significantly — and that only makes the inflation story worse.
Gold remains near $4,700 and continues reflecting investor anxiety around inflation, geopolitics and policy uncertainty. Meanwhile the VIX remains remarkably calm — which tells you complacency is still deeply embedded in this market.
Today’s economic calendar matters. At 8:30 this morning we get Retail Sales, Retail Sales ex-autos and Weekly Jobless Claims. Investors will be laser focused on whether the consumer is finally beginning to crack under the weight of higher prices and borrowing costs. Tomorrow we’ll hear from Empire Manufacturing, Industrial Production and Capacity Utilization — all important reads following this week’s inflation shock.
There are only a handful of earnings reports today, but the one everyone cares about is Applied Materials after the bell. AMAT sits right in the middle of the AI infrastructure buildout story and investors will be listening closely for commentary around hyperscaler demand, foundry spending, AI related capex, China exposure and semiconductor backlog growth. Right now, the AI trade is carrying this market on its back.
And overnight the other big buzz was the Cerebras Systems IPO — which was an absolute blockbuster. This isn’t just another AI IPO. Investors are betting Cerebras could become a legitimate next-generation AI infrastructure player because of its “Wafer Scale Engine” technology — essentially one giant processor designed to eliminate the bottlenecks that slow traditional AI systems down.
The IPO priced at $185/share – $25 above the revised range – and was reportedly 20x oversubscribed. That tells you all you need to know about investor appetite for anything tied to AI infrastructure right now. Whether Cerebras ultimately becomes a true long-term threat to Nvidia remains to be seen — Nvidia still owns the ecosystem and software stack — but this IPO is important because it shows investors are already searching for the NEXT generation of AI winners.
European markets are modestly higher this morning while U.S. futures are pointing to another positive open. UK PM Starmer is under fire for his lack of leadership. Rumor has it that Wes Streeting – Health Secretary is making a run for his seat. – Stay tuned.
The Dow futures are up 300 pts, the S&P’s are higher by 15 pts and Nasdaq futures are up 44 while the Russell is flat.
Bitcoin is trading near $79k while Ethereum is at $2,250 and Solana is trading at $90.92.
The S&P closed at 7444 — another new all-time high. The momo guys are giddy. They are chasing AI, dismissing geopolitical risk, ignoring rising yields and looking straight through what was clearly a hotter inflation report.
My advice? Enjoy the ride — but stay disciplined. DO NOT make emotional, FOMO-driven decisions. Momentum can feed on itself for longer than anyone expects, but when markets begin feeling frothy you have to acknowledge the risks.
Stay focused. Stay in quality. Stick to the plan.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
This media segment contains general market commentary based on publicly available information and is provided for informational and educational purposes only. It is not intended as, and should not be construed as, investment advice or a recommendation to buy or sell any security.
Any references to specific securities, asset classes, market levels, technical indicators, or sectors are provided solely for illustrative purposes to support market commentary. Such references do not represent recommendations and should not be interpreted as reflecting the performance of any SlateStone Wealth, LLC investment strategy, portfolio, or client account. Past performance of any referenced security or index is not indicative of future results.
Forward-looking statements, including projections of market levels, technical support or resistance ranges, economic outcomes, or potential market reactions, are based on current opinions and assumptions and are subject to change without notice. Actual results may differ materially. Investing involves risk, including possible loss of principal.
Discussion of market opportunities, valuation compression, or sector rotation does not imply that any particular investment is suitable for any specific investor. Investment decisions should be made based on an individual’s objectives, financial situation, risk tolerance, and time horizon.
The firm and its clients may hold positions in securities discussed, and such holdings may change at any time without notice.
Advisory services are offered through SlateStone Wealth, LLC, a registered investment adviser. Registration with the U.S. Securities and Exchange Commission does not imply a certain level of skill or training. An advisory relationship is established only pursuant to a written agreement. For additional information regarding our services, fees, and conflicts of interest, please review our Form ADV Part 2A, available at www.adviserinfo.sec.gov or upon request.
If you contact our firm to request a consultation, any discussion would be preliminary in nature and would not constitute personalized investment advice unless and until an advisory agreement is executed.
Pasta Norma
Penne with Eggplant and Ricotta Salata – This is a staple Sicilian dish It gets its name from the classic Vincenzo Bellini Opera – Norma. Theater director – Nino Martoglio – honored this dish by calling it Pasta Norma as a way to express the perfection he found in both the dish and the opera. Simple to make and pleasing to the palate……Dress the outdoor table with fresh linens and colorful dishware…. Add some candles, soft music, fresh Italian bread and a nice Chianti and enjoy this meal as the sun sets…. Create the mood……Live the dream….
You need: Penne Rigate Pasta, Eggplant, Ricotta Salata, crushed tomatoes, onion, olive oil, fresh basil, garlic, fresh Mozz and s&p…..
Bring a pot of salted water to a rolling boil….
Cut up the eggplant into cubes – leaving the skin on. Place in a colander sprinkle salt and let sit for 30 mins…or so……..this will draw out excess water and make the eggplant sweeter……
Heat the oil, add the garlic and sliced onion – sauté until soft and golden….Now add the eggplant and stir….about 3 mins or so….now add a can of crushed tomatoes (not puree)…season with s&p….turn heat to simmer, cover and cook for 20 mins or so…..stirring occasionally.
Now cook the penne rigate until aldente…. strain (reserving a mugful of water) …put back in pot – add back a bit of the water to re-moisten then add 3/4 of the sauce – stir…add fresh basil and the grated ricotta salata.
Serve immediately in warmed bowls and top with a bit of the remaining sauce – have grated Parmegiana on the table for your guests.
Buon Appetito