Things you need to know.
- Global stocks took a hit on Friday but appear to be taking it in stride this morning – markets are cautiously higher.
- Oil – surges by another 1.2% this morning – taking us to $74.10/barrel.
- Gold teasing higher, bonds are confused.
- Lots of eco data this week – the Biggie – will be JJ’s presser on Wed at 2 pm.
- Try the Lemon Ricotta Pasta
**I am joining Maria Bartiromo, Cheryl Casone and Liz Peek this morning from 6 – 9 am on Fox Business – please join us**
It was Risk Off – Most stocks got sold on Friday – the Dow down 770 pts or 1.8%, the S&P down 68 pts or 1.1%, the Nasdaq down 255 pts or 1.3%, the Russell down 40 pts or 1.8%, the Transports lost 225 pts or 1.5%, the Equal Weight S&P down 90 pts or 1.25% while the Mag 7 gave back 200 pts or 0.75%.
All this after the Israeli Defense Forces (IDF) launched Operation Lion attacking the Iranian nuclear facility – Natanz, missile manufacturing facilities and air defense systems in an effort to prevent the Iranians from getting a nuclear bomb – after the Iranians told the world that they were not interested in negotiating anything concerning their nuclear ambitions – leaving the Israeli’s and the world to assume that a nuclear bomb was close to completion.
The Israeli attack being described as “precise” and demonstrating “precision” in targeting military infrastructure, not civilian infrastructure – the aim of minimizing civilian harm while achieving operational goals. These attacks were characterized by meticulous planning and advanced intelligence, ensuring accurate strikes on high-value targets. The actions – welcomed by the ‘civilized world’ with many saying that the IDF did the world a favor. Netanyahu promising to ‘finish the job.’
On Saturday and Sunday – the Iranians responded – sending in waves and waves of ballistic missiles and drones – most which were neutralized by the Iron Dome – and those that were not – hit civilian targets, neighborhoods where families live and children go to school. A very different ‘target zone’ than what the Israeli’s hit. And that speaks to Iran’s lack of military sophistication. Iran’s ballistic missiles have circular error probables (CEPs) in the range of hundreds of meters, unlike the pinpoint accuracy of Israel’s LORA, which can hit within meters. This gap stems from outdated guidance systems and limited access to advanced GPS or satellite technology. In any event – the conflict remains escalated, and the world remains in limbo….
Now while we did see the broader swath of stocks get hit – there were sectors that benefitted – Oil and Aerospace & Defense (A&D) stocks were bought and ended higher – the XLE + 1.8% and the ITA (iShares A&D etf) gained 0.4% while the XAR (S&P A&D etf) lost 0.3%…and so you ask why? Because of the difference in weightings of the names in the etf…. ITA has RTX as a 16% weighting and that stock was up 3.5% on Friday…. XAR only has RTX as a 3.6% weighting – Capisce?
Sector specific energy stocks like XOM + 2.2%, CVX +0.65%, IMO +3.5%, SU +4.7%.
Sector specific A&D stocks like RTX +3.5%, LMT 3.6%, NOC + 4%, GD + 2.4%.
In addition – Utilities and Healthcare – both down 0.5% – did not get punished nearly as much as the other sectors that saw losses greater than 1% with Financials down the most at 2%.
The contra trades had a winning day – the DOG + 1.9%, SH+ 1.2% and the PSQ + 1.3%. SPXS (triple levered S&P short) +3.7% while the VIXY +7.7%. Remember – these names are not long-term holdings at all. They are used as strategic hedges when investors expect a pullback and when the pullback is over – you flatten out that position.
Now, if you think the market is overdone on the downside and are betting on a rebound – then you might consider the SPXL (triple levered S&P long) – it reacts 3X’s as much as the underlying S&P. Again – that is not a recommendation at all, it is just information for you to help position yourself if you think the market is going higher in the short term – again, it’s a short-term trade not a long-term hold.
Oil – as discussed – shot higher – moving from $69 to $77 overnight (Thursday into Friday) before ending the day at $73.08 – up $5 or 7.5%. And the wildcard in this conversation will be what happens next amid all this uncertainty. Higher oil prices will become an additional concern for investors and for the economy to overcome. Now, I do not believe that oil prices will continue to rise, as I do not think this ‘conflict’ continues for long. But, we’ll see…. Oil is trading higher this morning up $1.10 at $74.08.
Bonds did not do what you would expect….many would have expected bonds to rally – as a ‘safe haven’ play and that would make sense – EXCEPT the surge in oil prices is causing some investors to reconsider a spark of new inflation and so bonds got sold! The TLT lost 0.9% and TLH lost 0.8% and this caused yields to rise. The 2 yr rose by 4 bps to end the day yielding 3.947% while the 10 yr also rose 4 bps to end the day at 4.398% – still well below the 4.5% rate that causes markets to get anxious. The 30 yr – which had traded down to 4.84% (down from 5.02%) over the past week – gained 5 bps on Friday to end the day yielding 4.893% – again still below the 5% level that causes angst.
If the conflict causes oil to continue to surge – then I suspect we will see bonds under pressure and yield higher…If – oil retreats then we will see bonds recover a bit sending yields lower again.
Gold gained $50 or 1.5% to end the day at $3,450 – which I thought was a surprise – I would have expected gold to trade higher on this headline…… Gold is now teasing the May high of $3,470 – a level that will get pierced if the conflict continues….which then puts the April high of $3540 in the bulls eye.
At 5 am – US futures are UP kinda big…and ‘kinda big’ is better than being down again…..….. Dow +226 pts, S&P +37, Nasdaq +138 and Russell +19. All this unfolds as the world watches and waits, with the crisis escalating and sparking deep concern across global markets and the broader economy. The risk of regional escalation is now very real — and much will depend on who gets drawn in next. For the moment, however, the conflict appears contained – but it’s only Monday…..
Eco data this week includes Empire Manufacturing this morning – exp of -6.2, up from -9.2 last month. Tomorrow brings us Retail Sales m/m of -0.6% (weak), Ex auto and gas of +0.3% (strong), Industrial Production – flat, Capacity Utilization of 77.7% (healthy) and the start of the FOMC meeting.
Wednesday brings us Mortgage Apps, Housing Starts of -0.2% m/m and Building Permits of +0.2% – and the end of the FOMC meeting and – let’s be honest – what JJ says at 2 pm…..
Remember – what I said – no one should expect a rate cut on Wednesday, but if we get a ‘Special Report’ from Goldman or a headline article from Nicky T in the WSJ – this morning or tomorrow morning – then watch out…that will be the signal that something has changed.
European markets are trading higher as well. Markets across the board are up 0.5%+ as they too rebound from Friday’s sell off.
The S&P closed at 5976 – down 68 pts…. taking us back to the highs of mid-May. Ongoing conflict has the potential to take markets lower – but once it appears to stabilize – which it will – stocks will focus on the economy and corporate profitability. Markets this morning appear to be putting the ‘political chaos’ aside and refocusing on the economic data….and while the conflict is an issue – markets tend to put it aside — especially if the chaos doesn’t immediately threaten global growth, earnings, or liquidity.
For now, markets will remain mostly on edge until they lower the temperature in the region – something I do not think happens until Iran is completely neutralized. I think we remain in the 5900/6100 trading range.
Call me for a free (no obligation) portfolio analysis. 561-931-0190
Take good care,
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Lemon Ricotta Pasta
So delish…. A great summertime recipe.
For this you need – fresh Ricotta, lemons, Pecorino Romano cheese, s&p and the Fettuccini.
Begin by bringing a pot of salt water to a rolling boil.
In large bowl – add the ricotta, add the juice of one lemon and the zest of half the lemon. Season with s&p.
Add the pasta to the water and cook until aldente.
While it is cooking – take one ladle of the ‘tears of the Gods’ and add to the ricotta. Now mix well until it becomes nice and creamy.
When the pasta is done – add it directly to the lemon Ricotta. – Mix well. Now grate the Pecorino Romano directly into the dish. Again mix well.
If it thickens up – add more of the ‘tears’ to keep it moist and delish.
Buon Appetito
