Markets roil on geopolitical fears: Banks slide, investors seek safe havens amid uncertainty

• Markets retreat on geo-political angst on Friday.

• Banks begin the beauty pageant – investors take profits.

• Israel shoots down 300+ Iranian missiles/drones on Saturday evening.

• Markets around the world are all HIGHER on Monday.

• Try the Slow Roasted Sirloin.

Stocks got hit hard, the VIX surging 16% on Friday as the geo-political risks rose (think Iran/Israel),  investors, traders and algo’s took chips off the table ahead of what was expected to be an anxious weekend….In addition – it was the start of earning season and while JPM, WFC and C all reported ‘better than expected’ results on both the top and bottom lines and all supported each other saying that the US economy and US consumer are in healthy condition…they warned that their NII (Net Interest Income) component (think core lending income) is coming under pressure and will be ‘muted’ this year as they are forced to pay higher rates on deposits – think NO rate cuts anytime soon – and that is the KEY – no rate cuts anytime soon.

Look – those stocks appeared to be under pressure in the pre-mkt even before they reported results…and to that I would argue that the group – XLF was up 7.5% coming into Friday…. JPM +15%, C +17% and WFC up 15% was primed for some profit taking…. and we always see that pattern hold true – they take them up in the weeks ahead and then they hit the sell button on earnings day to take some profits off the table.  I (personally) think the 6% loss in JPM was way overdone – but it does make some sense to some people…the stock is up 45% off the October low and was up 15% this year alone, C lost 1.7% while WFC lost 0.3%.  The action helped to drag down the whole sector – anything in the financial services sector got whacked, the Big Banks (think JPM, C, BAC, WFC, BAC, GS etc.), the Regional Banks (TFC, PNC, RF, FCNCA, KEY etc.) , the small banks (NYCB, CBU, FULT, WBS) and even the investment managers got whacked –(BLK, TROW, BEN, AMG etc.).   

In fact, it was the action in the financial/banking sector coupled with the anxiety surrounding the Middle East that sent some to run for the exits….

At the end of the day -the Dow lost 475 pts or 1.25%, the S&P lost 75 pts or 1.5%, the Nasdaq -265 pts or 1.6%, Russell -40 pts or 2%, Transports -250 pts or 1.6% while the Equal Weight S&P lost 106 pts or 1.5%.

Now in addition to the bank drama – the world braced for – a well-publicized – response from Iran against Israel for the attack on the Iranian consulate in Syria – in what some suggest is Iranian soil….so the markets braced for what they weren’t sure would happen….  Jo Jo (and  Sec of State Antony Blinken and Sec of Defense Lloyd Austan) telling us all day that they warned Iran to take a breath – don’t go there – while at the same time telling us that a response was in the works and the world should brace for it and that the US was solidly in Israel’s court, Kind of like when they told us that they told Putin not to invade Ukraine and that the US was solidly in Ukraine’s court – and then Putin invaded Ukraine…. Just wait until Xi Xi attempts to take Taiwan…. because over the weekend when asked – Jo Jo told us that the US is solidly in Taiwan’s court…. Does anyone see a pattern here? Jo Jo warns these ‘thugs’ – don’t do it – and then these thugs do it….

In any event – this is the world we live in today… On Saturday evening – Iran launched some 300+ drones and missiles into Israel (Directly from Tehran – not from one of their proxies)  – but the Iron Dome knocked 99% out of the air – leaving little to no damage or deaths in Israel…some suggesting that it cost Israel more than $1 billion dollars to defend itself against this attack – multiple times greater than what it cost Iran to send those missiles into the zone. And for this reason alone – my sense is that the Aerospace and Defense industry is going to see a fair amount of ‘action’ today and going forward -   Think – XAR, ITA – both ETF’s – which have been underperforming all year…XAR – 1%, ITA – 0.8%. Some individual names though performing better - RTX +18% ytd, CW + 12% ytd, GD + 11% ytd – while others not so much - LMT – 0.6% ytd and NOC – 2.5% ytd.

The mid-east is now even more of a tinder box – ready to explode at any moment – Israel has vowed to respond…. Nassar Imani – and Iranian analyst – said this –

“Iran’s operation has a crystal-clear message to Israel and its allies that the rules of the game have changed and from now on – if Israel strikes any Iranian targets or kills any Iranian’s – we are willing to strike in a big way from our own soil.”

Do not expect this issue to go away any time soon – so adding some ‘contra trades’ helped to mute any selloff.

The VIX – fear index – surged by 16% on Friday, (it’s up 50% since late March) the VIXY etf – rose by 8% (it’s up 18% since late March) and this makes perfect sense – it is a FEAR index and when FEAR rises the VIX rises…..Recall, that the VIX has been hovering between 12.5 / 14.5 for weeks now – historically a complacent range…but it was the breakout in early April amidst the fear over earnings and the fear over the risks in the mid-east that set up the market for its recent retreat….

As expected, the other contra trades were up on Friday as well. The DOG + 1.3%, the SH + 1.5%, and the PSQ + 1.7%. I suspect that we will see lots of volatility in the days ahead. 

Bonds – which have been under pressure – rallied a bit on Friday – the TLT + 0.5% and the TLH + 0.5%.

Oil - which has rallied significantly – seems to be in a holding pattern – trading at $84.90 – this after trading as high as $87.70 on Friday (ahead of the expected response) before closing at $85.66.  The unrest in the mid-east now – will now be the driver for oil prices…for the foreseeable future.  The idea that there was NOT more damage or fallout over the weekend is giving some relief to the oil markets and the equity markets across the board. My sense is that oil remains on an upward trajectory and any further angst out of the mid-east could see oil top $90/barrel.

Gold surged up and thru $2400 on Friday – trading as high as $2448 on the back of the geo-political anxiety in what was viewed as the ultimate flight to safety.  But by the end of the day – gold came in and closed at $2375.   This morning – it is trading down $7 at $2368…. for all the same reasons…. but if the tensions heat up again – expect Gold to rally.

This morning US futures are up strongly…the Dow futures +100, S&P’s + 22, the Nasdaq +100 and the Russell is ahead by 3 pts.  The idea that there was not MORE fallout over the weekend and that many are now speculating that diplomatic efforts will prevent the most recent conflict from escalating is helping the tone.  Over the weekend – at the emergency UN security council meeting the Iranians – supposedly told the UN that the ‘issue can be deemed concluded’.  The US and other nations calling on Netanyahu to rethink his response in order to not escalate the tensions in the region - creating an all-out regional war.  

Eco data today includes Empire Manufacturing of -5, Retail Sales of +0.4% and Ex autos and Gas of +0.3%.  Later in the week – we will get Housing starts, building permits, Industrial Production, Capacity Utilization, the Fed’s Beige book, Existing home sales and the Philly FED business outlook.

Earnings today include GS (double beat up 3.4% this morning….), MTB, & SCHW

The S&P closed at 5123 – down 75 pts…. After testing as low as 5107…. a level I identified last week as a level that would offer some support to the markets.  This morning – futures suggest a bit of a rally…. mostly because of the muted geo-political events and not because of earnings…. It feels like the algo’s want a broad rally after the broad sell off on Friday. Expect all kinds of chatter today about what took place over the weekend – and what elected officials and market mavens speculate what happens next.  My sense is we are in this 5100/5200 trading range. 

Apple is in the news again – Chinese competitor shipments rise…. Ok – so apple shipped 50.12 million units vs. 55.4 last year. – Chinese ‘Xiaomi and Transsion both making comebacks…I’d like to know who is buying those Chinese phones?  American’s or Chinese, Iranians, & Russians.  Remember – apple is about more than just phones, and while it is under pressure this morning, - 1%, I am not changing my investment thesis on this headline at all nor am I buying a Chinese phone or a Chinese car. But that’s me – you make up your own mind.  Earnings due out on May 2nd.

Now as suspected – the market has sold off about 2.75% from the highs – some individual names even more…. but remember what I told you on Friday -

“I would love to see us shake the branches a bit more…. think 8% - 10% - which would take us back to 4800/4900 range…. But while I would like to see that, I do NOT think we will…. the buy the dippers are too anxious….5100 is the short term trendline – a level that I do think we will test and will hold.” 

So, I suspect that we will see a bounce back rally – unless we get heated rhetoric out of the Mid-East.  

The market appears to have accepted the narrative that we are not getting any rate cuts anytime in the near future – so the focus will try to turn to earnings but will be overshadowed by the global political drama. Remember – the geo-political drama creates short term angst (thus the opportunity) but does not usually price stocks in the long term…So be strategic with your money…Look for those opportunities.

Slow roasted sirloin

Get yourself a nice sirloin roast - 5 / 6 lbs..... season with salt and let rest for 20 mins on the counter.  While this is resting, slice fresh mushrooms, chop 2 lg carrots, 2 celery ribs, 1 large onion, a can of low sodium beef broth and a can of tomato paste.  Next select a nice bottle of red wine -

After resting - season beef with pepper and sear it in a frying pan with Olive Oil making sure to brown on all sides even allowing a crust to form.  When complete - place in a V rack in a roasting pan and place in a preheated 275-degree oven uncovered.  Allow to cook for 2 1/2 to 3 hrs. or when ready according to the meat thermometer.

After putting the roast in the oven - return to the frying pan - as the chopped veggies to the oil and sauté until tender - 8 / 10 mins.  Add tomato paste and mix.... add 1/2 bottle of the red wine and stir - bring to boil and let the alcohol burn off a bit...3 mins.  Add the beef broth and simmer - stirring occasionally.  do not let it dry out...if necessary - you can always add a bit more broth.  After about 10 mins.... taste to make sure you like it.  If so - puree 1/2 this mixture and return to the sauté pan.  turn off heat.

When beef is ready - take out of over and let it rest for 10 mins - covered in foil.  Reheat the sauce...thinly slice the roast and arrange on plate - top with sauce.

Serve it with mashed potatoes and sautéed peas - always include a large green salad and don’t forget the wine.