Stocks soar as MOP and 'F' Bombs fuel rally, S&P breaches 6100

• Stocks continued to rally. MOP and ‘F’ Bombs credited for the move.
• S&P kisses and pierces 6100 – RSI suggests we are getting overbot.
• JJ appears on Capitol Hill – says nothing new – but.
• The tide is turning against JJ – Everyone calling for lower rates!
• Iran and Israel honor the ceasefire.
• Try the White Meatball over Bucatini.

Saturday night the US dropped the MOP bombs on Iran and stocks rallied on Monday - then yesterday morning Trump dropped the ‘F’ Bomb on his way to the Hague and stocks marched higher again!

The Dow up 560 pts or 1.3%, the S&P up 76 pts or 1.25%, the Nasdaq gained 300 pts or 1.5%, the Russell up 32 pts or 1.5%, the Transports gained 276 pts or 1.8%, the Equal Weighted S&P up 60 pts or 0.8% while the Mag 7 added 265 pts or 1%.

Recall that I thought the S&P would attempt to kiss 6100 unless the narrative turned negative – well, the narrative didn’t turn negative, in fact, it got more positive so the S&P not only kissed 6100, but it penetrated it as well – trading as high as 6101 before closing just off of the day’s high at 6092 – which is a positive as it suggests bullish momentum and potential for further gains.

A look at the RSI (Relative Strength Index) is not suggesting ‘overbot’ yet, but we are close – so my gut says that we will most likely churn. Remember market behavior depends on various factors like economic data, geopolitical news, and broader trends. Futures this morning are suggesting a rest…Dow futures are -40, S&P’s up 2, Nasdaq up 44 and the Russell flat.

Yesterday, JJ made his way to the hill to deliver the semiannual Monetary Policy Report to Congress (aka – the Humphry Hawkins Testimony). He testified before the House Financial Services Committee – chaired by French Hill (R – Arkansas). This testimony involves Powell discussing the Federal Reserve’s monetary policy, economic outlook, and responses to questions from lawmakers. And as expected he didn’t promise anything, but he did sound a bit more dovish than hawkish and that helped the market yesterday.

And while he had plenty of opportunities to tell them that the FED is going to cut rates – he chose to dodge that question…..trust me – many members of the committee tried to box him in, but he pushed back – choosing to say instead that the FED is not in a rush to ‘adjust policy’. This even as Donny jumps up and down demanding a cut and at least 3 members of the FED that we know of have gone out of their way to say they would like a rate cut in July.

What JJ did say was very coy but not much different than what he told us at the FOMC press conference -

“If it turns out that inflation pressures do remain contained, then we will get to a place where we cut rates, sooner rather than later, But I do not want to point to a particular meeting. I don’t think we need to be in any rush because the economy is still strong. For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”

Today he will appear in front of the Senate Banking committee chaired by Timmy Scott (R -South Carolina) – I expect more of the same…. more dovish, but no commitment.

Ok – let’s just look at this…. The macro data (hard) is strong, survey data (soft) is weakening, but not really weak. 4.25% is not usurious by any stretch of the imagination…..but compared to what it was – 0%-0.25% then I’d argue it is, but in the broader historical perspective it is not.

Let’s just recap something – Fed funds were 0%-0.25% for 13 yrs (2008 – 2021), then they SHOT up to 5.25% - 5.5% (2021-2024) when inflation surged to 9.4% - so the average fed funds rate during this whole time would be 2% - 3%- but neither of these times were normal. Let’s be clear - Zero rates are NOT normal, and I’d say that 5.5% is not historically normal either. What I will say is that excluding these abnormal times – the average rate during ‘normal’ economic periods is guess what? 3.5% - 4.5%.

We are at 4.25%-4.5% - yes towards the higher end, BUT the economy is strong, and we did have the tariff threats – remember the ones that were supposed to super charge inflation? So, I’d argue he did the right thing. But now it is clear that the tariff threat is NOT a threat and inflation is coming down – in fact it is the weakest it’s been since it began to surge during the Biden Administration. While I did not think we would get a cut before September (if at all) and I did say that I reserved the right to change my mind – my gut is telling me that they are turning up the pressure on JJ….(they is defined as – elected officials, business leaders, economists/strategists and now individual FOMC members that appear to be moving away from JJ.) So, July 30^th is beginning to look a lot like ‘Christmas’. Now the question is will it be 25 bps or 50 bps? In any event – it is what it is, and it will be what it will be.

Today is day 2 of JJ’s testimony – I expect to hear more of the same…. Senators trying to box him into a corner and commit him to a rate cut……

Oil is trading up 80 cts at $65.20 – this after plunging by more than 15% over 2 days trading as low as $64/barrel. Now all that did was take us right back to where we were before this 12-day war began and to intermediate term trendline support at $64.75.

I heard an oil analyst on tv this morning tells us that oil is in a ‘fragile recovery’ (because it is up 80 cts) – which makes me laugh…fragile recovery? Oil is going lower, not higher as long as the middle east cools down. My guess is that we will settle back into the $60/$65 range as the mid-east ‘situation’ settles down. Remember – the Saudi’s are ramping UP production, the US is a swing producer and now if Iran plays nice in the sand box, they will bring oil back to the market as well….and this one again becomes a demand/supply story rather than a ‘war/oil shock’ story.

Gold too has been in retreat…. since we dropped the bombs – both the MOP and the ‘F’ bomb…..Yesterday it declined by $56 or 1.7% and is now down 3.5% since the height of the crisis. It tested the trendline at $3,345 – something I said I expected it to do, and it appears to be holding – should we fail to hold that line – It would not surprise me if we traded down to $3290 ish. If we hold the line – then I suspect it will just continue to churn on the line.

Remember, gold is a ‘safe haven’ play – because it tends to retain or increase in value during times of economic uncertainty, financial market volatility, or geopolitical tensions. If geopolitical tensions subside, the demand for gold as a safe haven typically decreases. Investors may shift back to riskier assets like stocks or bonds, (notice what has happened to stocks and bonds) which offer higher potential returns in stable environments. As a result, gold prices may stabilize or decline, reflecting reduced fear and uncertainty in global markets.

Bonds rallied – the TLT and TLH both higher – Up 0.7% and 0.5% respectively and they are up 5.2% and 4.3% off of the May lows. Yields continue to decline and this morning the 2 yr is 3.79%, the 10 yr is 4.29%, and the 30 yr is yielding 4.83%.

2 of the 11 sectors ended the day lower yesterday – Energy -1.3% and that makes sense and Consumer Staples – 0.1% and that makes sense as well….Consumer Staples are boring, not sexy and clearly not ‘growthy’ – they offer stability, so when markets get excited – investors want to buy ‘exciting sectors’ – sadly that does not include Staples…but that does NOT mean you sell your staples at all, it just means that you put new money into other sectors.

The other 9 sectors were led higher by Tech +1.8%, Financials +1.5%, Communications +1.3%, Healthcare +1.25%, Industrials and Basic Materials at +0.8%, Consumer Discretionary + 0.6% followed by Utilities and Real Estate at + 0.5%.

Just FYI during all of this chaos – there are sectors of the markets are outperforming the broader indexes and that speaks to the benefits of having a plan and not an impulse…. 8 of the 11 sectors are UP ytd – Industrials take the prize +10%, Communications +8.5%, Utilities +7.8%, Tech and Financials +6.5%, Basic Materials + 4.2% and Real Estate + 3.9%. Compare this to the indexes – Dow +1.3% ytd, S&P + 3.5% ytd, Nasdaq + 3.1% ytd, Russell -3% ytd.

Today we are going to get New Home Sales – which are expected to be down 6.7% but remember – Existing home sales surprised everyone – rising by 0.8% vs. the expected loss of 1.3%. I suspect that we will hear the same today. While the number might be negative, I don’t think it will be as negative as expected. Remember – new home builders can ‘sweeten’ the deal by offering ‘extras’ for ‘free’ – that draw buyers in…..and if the narrative continues to be for a rate cut in July then look for the homebuilders to find buyers…that group is down 5.8% ytd….Capisce?

US futures are essentially flat….no dramatic moves in either direction…or if anything – don’t be surprised to see us consolidate a bit. There were no major upsets or developments overnight in the middle east and The NATO Summit in The Hague was generally viewed as positive, though tempered by cautious optimism around geo-political tensions and some internal divisions over the timeline to reach the 5% of GDP target contributions.

European markets are consolidating – and this should not be a surprise after their surge higher over the past couple of days. Spain – the biggest loser – down 1.3% and that is a direct result of the internal divisions at NATO. Prime Minister Pedro Sánchez initially resisted the increase, calling it “unreasonable” and “counterproductive,” arguing it would strain Spain’s welfare state and green transition efforts. Spain is NATO’s lowest defense spender at 1.28% of GDP. The other mkt centers are down between 0.1% - 0.4.

The S&P closed at 6092 and went up to 67 pts. We did gap up yesterday, so my gut says that we will churn lower to fill that gap – which means a pullback to 6025 would not be a surprise at all. If the geo-political headlines continue to be positive - meaning Iran backs off and plays nice and Israel pulls back then I think the future for stocks look good. We are coming into the July 4^th holiday next week – so expect volumes to decline as we move thru the week – but remember – lower volumes can lead to exaggerated moves in either direction….so stick to the plan.

I believe the focus will be on the ‘big, beautiful bill’ and how those negotiations are going. The world is safer today than it was yesterday.

White meatballs over bucatini

Creamy, cheesy, comforting – no tomatoes allowed. You can thank me later!

For the Meatballs: 1 lb. ground beef, 1 onion, diced, 2 grated garlic cloves, 2 slices of day-old Italian bread, soaked in whole milk, 1 egg, ½ cup fresh grated Parmigiana Reggiano, Handful of chopped fresh parsley, s&p,

For the Sauce: 1 cup heavy cream, 1 cup freshly grated Fontina cheese, 1 ladle of pasta water (“tears of the Gods”)

Pasta: ½ lb. of Bucatini

Bring a large pot of salt water to a rolling boil so it’s ready when you need it.

Caramelize the Onions: In a sauté pan, heat a splash of olive oil. Add the diced onions and cook over medium-low heat until golden brown and nutty – about 15 minutes. Let cool slightly.

Make the Meatballs: In a large mixing bowl, combine the ground beef, soaked bread (squeeze out excess milk), grated garlic, egg, Parmigiana, chopped parsley, caramelized onions, s&p. Mix gently with your hands until just combined. Roll the mixture into golf ball-sized meatballs. Be gentle — don’t overwork them or they’ll get tough.

In a large frying pan, heat olive oil over medium heat. Add the meatballs and cook until browned on all sides.

Once the meatballs are browned, lower the heat to a simmer. Add the heavy cream and grated Fontina directly to the pan. Stir gently to combine, letting the cheese melt into a luscious, creamy sauce. Don’t boil it — just a gentle simmer.

Add the pasta in the boiling water and cook until al dente. Reserve one ladle of pasta water, then drain.

Add the drained Bucatini to the meatball pan. Toss gently to coat in the creamy Fontina sauce. Add a splash of the reserved pasta water to loosen if needed.

Plate the Bucatini and meatballs with an extra sprinkle of Parmigiana and chopped parsley. Serve with crusty bread and crisp white wine like Vermentino or Pinot Grigio.