Things you need to know.
- And the volatility continues….
- Brian Wesbury could not have made it any clearer…
- Peter Lynch offers long term insight.
- Oil collapses, gold surges higher, Bonds down, Yields up.
- China digs in…..Xi Xi Vows to ‘Fight to the End’!
- Try the Pork Cutlet Milanese
So, Brian Wesbury – Chief Economist – First Trust Portfolios could not have been any clearer – in an X post he said what everyone should understand – and I quote.
“I don’t know how to get this across to people. The US tripled its money supply in the past 18 years. It held interest rates at zero for nine of those years. Everyone thinks mortgage rates should be 3.5% and the stock market only goes up. Stocks were overvalued and interest rates were artificially low. How come no one thinks there is a price to be paid for that? All we are doing is returning to normal after a bender.”
And if you pay attention to famed investor Peter Lynch – he makes it clear as well and his explanation is timeless…
‘The market has had 50 declines in 93 yrs – so, once every two years the market falls 10% – that’s called a correction, now – of those 50 declines – 15 have been 25% or more – that’s known as a bear market – so every 6 years the market is going to have a 25% decline’ .
So, what you need to know is that the market is going to go down sometimes…so IF you are not ready for that – then you need to reconsider owning stocks. The idea is that you have a portfolio that is designed for who you are (think risk) and where you are in the life cycle (think age) ….
Remember – if you like a stock at $15 and you have done your homework and you understand the metrics – then being able to buy it on sale – because of the market cycle vs. a change in the fundamental thesis – offers you an even better opportunity. The idea is being able to ‘take advantage of that sale’ – being a ‘PANIC’ seller is not the position you want to play – you want to be a patient strategic buyer… Which is why you need to know what you own and why you own it…..The cycle will take care of itself….
The point here is that the markets are very anxious and the reaction to every headline is dramatic – In the end – this is not over yet….the news out of DC will continue to dominate the headlines, but investors will once again begin to focus on the broader economic and earnings data and more importantly – the earnings guidance – that is about to hit us…and since there is also a bit of uncertainty concerning the guidance – we can expect the turbulence to continue.
This morning DAL reported and while they beat on earnings and revenues – they did not provide any forward guidance – citing geopolitical, economic and global unease…How many more companies will do the same? And so, it begins….
Ok – so, what happened to the early morning rally? It failed (which should not surprise you….) – stocks continued the wild ride…..the Dow swung 2,323 pts from high to low – ending the day down 320 pts or 0.8%, the S&P swung 357 pts before ending the day down 80 pts or 1.6%, the Nasdaq swung 1,263 pts before ending down 335 pts or 2.1%, the Russell suffered a 130 pt swing before ending down 50 pts or 2.8%…while the transports lost 350 pts or 2.7%, the Equal Weight S&P down 120 pts or 1.9% while the Mag 7 swung 1,900 pts before ending the day down 500 pts or 2.4%.
And the anxiety continues around the world – Asian markets ended mostly lower…. Taiwan losing another 5.8%, Japan down 4%, South Korea down 1.75%, Australia down 1.8% while Hong Kong and China roe by 0.7% and 1% respectively.
European markets are all down more than 2.5% across the board and US futures – have been all over the place – but are currently pointing lower…. Dow futures –700 pts, S&P down 82, the Nasdaq down 245 while the Russell is down 44 pts.
This morning – the WH tells us that 70+ countries are on their way to DC to ‘make a deal’ while one country – China is digging in – vowing to fight to the ‘death’ so as NOT TO APPEAR WEAK both domestically and abroad – Chinese Premier Li Qiang saying that they have ‘ample policy tools to FULLY OFFSET any negative external shock’ – this after Trump raised tariffs on China to 104%!
Now, China does have a few options…..including currency devaluation, subsidies for manufacturers, and control over rare earth exports, which are critical for global tech industries. Additionally, China holds substantial financial reserves—over $3 trillion in foreign exchange reserves as of recent years—providing a buffer to absorb economic shocks.
Just to be clear – currency devaluation makes Chinese goods cheaper for foreign buyers and that keeps their exports competitive – the question is – Can they devalue the Yuan enough to offset the impact of tariffs? Economists think that a 10% – 20% is possible but unlikely……….while a 50% devaluation would completely neutralize the 104% tariff – it would be a move that would prove fatal for China and cause massive global market turbulence which would then trigger severe side effects – remembering that you can NEVER do just one thing… Imports into China would double in cost, fueling inflation, eroding consumer purchasing power and risking huge domestic unrest…..
Bonds continue to come under pressure as the uncertainty rises and that sent bond yields surging….…. This morning the 2 yr is yielding 3.78% while the 10 yr is yielding 4.37%.
Oil is down 4.45% now trading at $56.92 – after plunging right thru $65, then $60 and now about to test $55 – a level that brings us back to the summer of 2021…. Oil is now down 25% since Trump took office. Prices are in decline today on a combination of trade tensions and shifts in supply dynamics…. Now, the decline began last week when the Saudi’s and OPEC+ ‘unexpectedly’ accelerated their plans to boost production by 411,000 bpd vs. the 144,000-bpd expected. Recall – they tried to tie oil’s weakness to waning demand – It’s a supply issue!!! Come on!
Gold is once again surging…up $66 this morning- after having traded down to short term trendline support at $2,985…. again…. it’s all about economic uncertainty and geopolitical tensions… Think ‘safe haven’…..
Look – the pendulum always swings too far to the left and then too far to the right….. markets will thrash around trying to find a bottom. What we need to see is an end to the ‘indiscriminate’ selling and positive headlines out of DC for this to be over in order for the markets to move on….But –this may not happen for a while more…..so expect the volatility to continue.
Speaking of volatility – the VIX remains elevated at 50.83 and as long as it stays here – you can expect stocks to gyrate…. We need to see the VIX trade below 30 before we see any calm in the markets.
Remember – there is no reason to ‘rush out’ and be an aggressive buyer…. Patience is a virtue, and the recent action has only confirmed that narrative. Earnings start this Friday – with the Banks…..And then Tax Day is the 15th…..
The S&P closed at 4982 – down 80 pts…. I fully expect that we will retest the Monday low of 4835 at some point – as markets try to find out if buyers will take a stand to defend the position….4982 is not that level.
Get comfortable by being a bit uncomfortable, stick to your plan, don’t panic and if the recent pullback is causing you undue stress then maybe you need to reconsider your plan….…. Call me to discuss 561-244-2504 or click here to send me a message. https://slatestone.com/contact-us/
Take good care,
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kenny Polcari or SlateStone Wealth.
The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.
While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.
Pork Cutlet Milanese with Tomato, Arugula and Red Onion Salad. This is a great dish – colorful, hearty, and easy to make.
For this you need – Pork cutlets (pounded thin), flour, eggs, seasoned breadcrumbs, olive oil, butter, fresh arugula, Ripe Cherry Tomatoes, sliced red onion, lemon juice, and shaved parmegiana cheese.
Preheat the oven to broil.
In a bowl – beat 3 eggs (add a splash of milk), on a separate plate put some flour and on a third plate – place the seasoned breadcrumbs. (It is like an assembly line – capisce?)
Begin by pounding the cutlets to thin them out. Now – in this order – dredge the cutlet in the flour – dip in the egg wash and then cover in breadcrumbs – pressing gently so that the breadcrumbs adhere to the cutlet. Place on a plate.
When ready – place a Pyrex dish in the oven with enough olive oil to cover the bottom of the dish. You can add a dollop of butter (never a problem) – place the cutlets in the dish – on one side then immediately flip them and allow to broil. Cook the cutlets until they are crispy golden brown then flip and repeat.
When ready to serve – place a cutlet on a warmed plate. Top the cutlet with some arugula, then the cherry tomatoes (cut in half), and the red onion. Squeeze fresh lemon juice sparingly – drizzle some olive oil – season with s&p and top with shavings of Parmegiana cheese. Simple yet outstanding. Enjoy your favorite wine a nice French Rose works well with this dish – but you can always have what you prefer.
Buon Appetito
