Powell’s “Wait and see” stance crushes rate cut hopes, sparks market turmoil

• JJ says, “Let’s just wait and see’…slashing hopes for rate cuts.

• Stocks got SOLD while bonds and gold got BOUGHT!

• TECH, Communications and Consumer Discretionary get clobbered.

• Oil surges…. Sanctions and production cuts are the reasons.

• You can find me (and many others) at the Money Show in Miami on May 15th – 17th. (see below).

• Try the Herb Crusted Crown Roast of Pork.

What have I been saying? In fact – I said it again in yesterday’s note….While I am not a voting member of the FED or even a member – I have an opinion – and that opinion is that we are not getting any rate cuts this year no matter what the market is ‘pricing’ in….it was 3 cuts, (June and the late summer/fall) and this morning it’s confused…. – but at about 1:30 – JJ takes center stage at the Economic Club of Chicago and offered a few thoughts on the subject (more like dropped a bomb on anyone who keeps thinking that he is cutting rates) – and let’s just say – he wasn’t offering any time frame on any rate cuts…in fact he said –

“For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance”. (key words here: For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance).

He went onto say that the current administration was making substantial policy changes in trade, immigration, fiscal policy and regulation and that these changes could have a negative impact on the economy, potentially leading to higher inflation and slower growth….and then someone asked JJ if he ‘envisioned a FED PUT – (that’s where the central bank intervenes to calm the markets) – JJ said emphatically “NO”, qualifying his answer by saying there is still too much uncertainty around policy.

And with that – stocks fell out of bed. The ‘buy’ algo’s pulled their bids and moved lower, (leaving that void in prices) while the ‘sell’ algo’s went into overdrive – looking for where the buyers went - and within minutes the Dow was down nearly 1000 pts…the others followed suit – and while we did NOT end the day on the lows – we suffered a bit of a beating….the Dow lost 700 pts or 1.7%, the S&P’s down 120 pts or 2.25%, the Nasdaq lost 516 pts or 3.1%, the Russell lost 20 pts or 1%, the Transports down 300 pts or 2.25%, the Equal Weighted S&P lost 90 pts or 1.4% while the Mag 7 Index gave back 880 pts or 4%.

Yesterday it was TECH that got clobbered – the XLK down 3.5%, behind that – Communications - XLC lost 2.7%, Consumer Discretionary XLY lost 2.5% (think wants vs. needs). Industrials XLI down 1.4%, Financials XLF down 1.6%, Consumer Staples (needs vs. wants) XLP lost 1%, Healthcare lost 1%, Basic Materials down 0.8%, Real Estate ended flat while Energy gained 0.8%.

And again – all of the contra trades gained – but again those are very strategic, you do not buy the contra trades and hold them like you do AAPL, IBM or JNJ…. The DOG + 1.8%, the SH 2.25% while the PSQ gained 3% and the triple levered S&P – SPXS added 6.6%! And if you played the volatility – the VIXY gained 8.4% while the VIX (fear index) was up 13%.

The weakness in ‘tech’ was a direct result of Donny’s new restrictions on semiconductor exports to China (announced on Tuesday night) while the weakness in the broader market was that, as well as the realization that this is NOT over yet….trade tensions will continue to risk undermining the FED’s mandate of full employment and stable prices.

All while the WTO (World Trade Organization) slashed (and burned) it forecast for trade this year due to soaring US tariffs and the broader uncertainty. And so, it goes….. Which leaves me confused – so I have to ask – what are all the ‘smart guys’ (generic for both men and women) thinking? I mean I went to BU; I didn’t get a 1600 on my SAT’s and I don’t have a Ph. D, but I can tell you there is a problem here….. The one’s making decisions are all ivy educated, they had 1600’s on their SAT’s and some even have Ph.D.’s and they DON’T see the problem? Really? Or is this just that it’s time to pay the piper for all of the out of control spending over the past decade or two?

As you might expect – the weakness in stocks – led to strength in Bonds and GOLD. The TLT (20 yr Bond ETF) rose by 0.6%, the TLH (10 – 20 yr bond etf) gained 0.5%, while the AGG (the total US investment grade bond ETF, which includes treasuries, other gov’t related & corporates) rose by 0.3%. The rise in bond prices sent yields a bit lower…. The 3- & 6-month yields are now yielding 4.30% and 4.20% (annualized) while the 2 and 10 yrs are yielding 3.79% and 4.30%. 12 month CD’s range from 4.3% to 4.6% depending on minimum investments while 30 yr mortgages are averaging 6.9% - but rates also remain volatile.

And GOLD!!! OMG – at one point was up over $100 – trading at $3,358/oz…before closing at $3,348…..this morning it is down $8 at $3,340…..the move into gold is well understood – I have been outlining it for days now (please refer to yesterday’s note)….but the same ways stocks are getting sold, gold and bonds are getting bought because of one underlying theme – UNCERTAINTY. Period the end. But you must understand that uncertainty shall end…..(at some point).

Oil – well, that was strong yesterday as well…. Oil gained 2% yesterday and is up another 1.25% today…trading at $63.25. The strength in oil due to new U.S. sanctions on Iran targeting Iran’s oil exports, raising the prospect of tighter global supply. In addition, some OPEC+ members pledged to cut production to compensate for overproduction of the above agreed quotas. This also signaled a commitment to tightening supply. You can also point to a technical bounce back after the substantial decline (28%) from January 15th. In any event – we remain in the $60/$68 trading range.

Overnight stocks in Asia were mixed but mostly higher…. Taiwan and China ended lower while Japan, Australia, Hong Kong and South Korea ended higher.

In Europe – markets are under pressure…. all centers down about 0.7%. Mkts remain in cautious mode……

And US futures? Dow futures down 500 pts, the S&P’s up 20, the Nasdaq up 145 pts, while the Russell is +10. Remember – today is the last trading day of the week, markets are closed tomorrow so expect volumes to be lower and moves to be more exaggerated…..(which I also think was part of the story yesterday – it’s a big vacation week as well.)

This morning, we heard from TFC, KEY, MMC, BX, (all beat) while UNH, DHI (missed). LLY announces that their phase 3 trial of their first diabetes/weight loss pill is showing positive results…. The stock is quoted up to $100 or 13%!

Just to be clear - this is not over yet…. We are now knee deep into earnings season…. investors will try to focus on the individual reports and react accordingly…..but let’s be honest (and it is clear) markets reaction will continue to be the news out of DC that will continue to dominate the headlines, so expect the turbulence to continue.

The S&P closed at 5275 – down 120 pts… – the earnings parade continues…In addition to the names I identified above – look for earnings from AXP, SCHW, LVS, ALLY, STT - again it’s what these CEO’s say about the next 6 months and beyond. Mkts are closed for Good Friday in the US and on Monday markets across Europe are closed for Easter Monday…so expect volumes to decline a bit – and volatility to increase a bit….

Again, my sense is still that we are closer to a bottom than not – and I expect that we will test the lows again before this is over…. ….. We remain in the 4835/5775 trading range; we just need more clarity and finality on trade……. Period.

Herb crusted simple crown roast of pork

Serves: 10–12, Prep Time: 15 minutes, Cook Time: ~2.5 to 3 hours (depending on size and preferred doneness), Rest Time: 30 minutes

Ingredients: Dried herb blend (Italian herbs, herbes de Provence, or make your own), kosher salt, black pepper, 1 crown roast of pork (about 10 lbs. / 16 ribs),

Preheat your oven to 350 degrees.

Season the roast: In a small bowl, mix together the dried herbs, salt, and pepper. Generously rub the seasoning and blend all over the pork, including between the bones.

Place the roast in a large roasting pan in a rack, ribs pointing upward like a crown.

If you are not using a rack, lay the 6 celery ribs across the bottom of the pan and set the roast on top. (This also adds subtle flavor to your drippings.)

Place in the oven and roast until the internal temperature in the thickest part of the meat reads 135 degrees for medium (or 150 degrees for well-done). This will take approximately: 14–18 minutes per pound for medium, 16–23 minutes per pound for well-done.

Once it hits the desired internal temperature, remove the roast and tent loosely with foil and let it rest for 30 minutes—the temp will rise another 5–10 degrees as it rests as long as you don’t have it under the AC.

Meanwhile, pour it off and reserve the pan drippings.

Then increase the oven temperature to 475 degrees. Return the uncovered roast to the oven and roast for 10 minutes, just until the exterior develops a deep golden-brown crust. Check to ensure the final internal temperature is at least 145 degrees.

Bring the roast to the table whole for a dramatic presentation. Carve by slicing between each rib bone into individual chops. Serve with your favorite sides—think roasted root vegetables, mashed potatoes, or a pan sauce made from the drippings.

Notes:

For extra fun, stuff the center of the crown with a wild rice pilaf or sautéed apples and onions before serving.

Leftovers make excellent sandwiches or can be sliced and reheated gently with a splash of broth.

Happy Easter -