JJ plays economic twister

• JJ says that tariffs impacts are ‘TRANSITORY.’

• And then he says – he’s not sure!

• But he continues to hint at 2 rate cuts – maybe.

• He cuts economic growth and raises threats of inflation.

• Bonds rally; stocks rallied.

• Oil flat, gold steadies.

• Try the Pork Chop Pizzaiola.

Good morning and happy spring…..and while the weather is improving the market remains a bit stormy.

Say it isn’t so?? JJ said that the impacts caused by tariffs would be ‘transitory’? He then hedged himself by saying that this was a ‘base case’ and that in fact – he really ‘can’t know’ if the effect will be transitory…..Oh boy…Here we go!

He then went onto to tell us that they slashed their economic outlook for the US taking GDP down to +1.7% from 2.1% while at the same time hiking their inflation outlook taking core prices up to +2.8% from the current +2.5%.....and this defines ‘stagflation’…..rising inflation/falling growth…. He accentuated all of this by saying that the ‘uncertainty around economic growth has increased but the FED is attentive to the risks to both sides of its dual mandate.’

*Dual mandate refers to the two primary objectives assigned to the Fed. The objectives are:

Maximum employment: The Fed aims to promote a strong labor market, striving for conditions that allow as many people as possible to find jobs, effectively keeping unemployment low.

Price stability: The Fed seeks to maintain stable prices, which typically means keeping inflation in check, often targeting a moderate inflation rate (around 2% annually) to avoid both runaway inflation and deflation.

In practice, the Fed uses tools like interest rates and monetary policy to navigate the trade-offs between stimulating employment and controlling inflation.

And after all of this – he is still projecting 2 rate cuts this year and he reconciles this by saying that investors should not worry that inflationary pressures caused by tariffs will prevent the FED from cutting rates if the economy weakens ‘materially’.

And the algo’s went wild – but appear to be suffering a ‘hangover’ this morning… Yesterday by the closing bell we saw the Dow gain 383 pts or 1%, the S&P up 60 pts or 1.1%, the Nasdaq up 245 pts or 1.4%, the Russell up 32 pts or 1.6%, the Transports up 72 pts or 0.5%, the Equal Weight S&P up 50 pts or 0.7% while the Mag 7 gained 384 pts or 1.7%.

The Industrials, S&P and Equal Weight S&P are all now in the normal zone. The Nasdaq, Russell, Transports and Mag 7 continue to trade in the correction zone (down more than 10% off their recent highs) ….

Every sector in the S&P rose…. Consumer Discretionary leading the way – Up 1.9% (but remember – that sector was down 14% ytd – so call it ‘bargain hunting’). Energy +1.6%, Industrials and Tech up 1.3%, Communications +1.2%, Financials + 1.1%, Utilities and Basic Materials + 0.4%, Real Estate + 0.1%, while Healthcare and Consumer Staples ended flat.

Airlines surged by nearly 3% - bargain hunting - they were down almost 15% ytd, Homebuilders + 1.4%, Retail + 1.8%, Disruptive Tech + 3.8% (again more bargain hunting as it was down 15% coming into yesterday), the growth trade gained 1.6% (bargain hunting).

The contra trades all moved lower (makes sense) but remain in positive territory ytd.

The VIX - fear trade – has backed off of its most recent high - seen during the couple of anxious weeks. It is now down 34% off that high leaving it sitting on trendline support. This morning though – It is up $1 or 5.25% as futures are unsteady and investors dissect more of the commentary….

Bonds moved higher on the news – the TLT + 0.5%, the TLH + 0.4% while the AGG added 0.3% all while JJ confirmed that there was no need for drastic action in the face of Trumps trade war. And by the way – he also announced that the FED plans to lower the monthly cap of the amount of treasuries on its balance sheet that it allows to mature without being reinvested…..so he is adjusting monetary policy – slowing the pace of QT (quantitative tightening) – reducing how quickly the FED shrinks the balance sheet and pulls money out of the system…..this SCREAMS a more cautious approach – keeping more liquidity in the system – easing the pressure on rates.

So, in short: lowering the cap slows the reduction of the Fed’s balance sheet, keeps them buying more treasuries and keeps more money flowing, and suggests the Fed is dialing back how hard it’s hitting the brakes on the economy. The FED has signaled they are a ‘buyer’ of treasuries! Capisce?

So, prices rose, and yields fell - The 2-yr yield fell ending the day at 3.97% while the 10 yr fell to 4.24% down from 4.32%. And the sun set on another day.

Oil continues to trade in the tight range…..($66/$68) – this morning it is unchanged at $67.15. Remember – the next move will be dictated by what happens in Russia/Ukraine….and I think that move is lower…. think easing geo-political pressure.

Gold is feeling just a bit ‘toppy’ now….up 6% in the past week and up 16% ytd….and while I continue to think it moves higher, I would not be surprised to see some digestion…..this morning it is down $6 at $3,035 – I’m guessing that we could see it back off to the $2,975 level – just to test it, to see where the bodies lie….Again – easing geo-political pressures should take some of the wind out of the sails for gold, but building trade wars and ongoing market volatility will keep buyers in line…

US futures are DOWN this morning – and you should not be surprised at all…. This whole 2 rate cut narrative…. Yeah…Not so much.

Dow futures -275 pts, the S&P’s down 38 pts, the Nasdaq down 165 pts while the Russell is down 15 pts. As you might expect – I thought yesterday surge was pre-mature…. because I still do not think we will get any rate cuts this year….no matter what JJ says…. Recall – they projected 7 or 8 cuts last year…..and the only reason we got any was political – period. (recall 50 bps cut 5 weeks ahead of a Presidential election?) They could have waited – there wasn’t any rush to cut…. don’t even get me started….…Whatever!

European markets are all lower as they await the latest BoE, policy announcements. The Swiss cut by 25 bps and the Swede’s kept rates steady…..let’s see what the UK does. At the moment – markets across the region are all down more than 1% except the UK – down only 0.3%.

The S&P closed at 5675 up 60 pts…..Now notice what’s happening….on Tuesday it lost 60 pts and then yesterday it gained 60 pts….that is what has been happening….week over week….we lose 150 pts and then gain 150 pts…then we lose 300 pts and then gain 300 pts….as we churn lower. Keep your eyes on 5600…... If we test it and fail – then I suspect that we will then test the March low of 5504……..Trendline resistance remains at 5743.

Remember – there has been a lot of damage done to the internals, investors and the markets need to time to reassess the landscape…and while I am bullish long term, I keep saying that we should not expect a V shape recovery. The end of the qtr. is only days away…. expect more volatility.

Get comfortable by being a bit uncomfortable, stay defensive while being cautiously optimistic. In any event – you know the drill – 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.

Pork chop pizzaiola

Just like its sister recipe - Steak Pizzaiola or Chicken Pizzaiola - this is a hearty, full bodied dish that can be eaten all by itself enjoyed with a glass of Chianti or vino di tavola (table wine) ....no need to go over the top - it's all about enjoying the moment.

You will need: Thick cut Pork Chops on the bone - (about 3/4" thick), Olive oil, Oregano, garlic, onions, red and green bell peppers, a can of crushed tomatoes (not puree), some red wine, salt and pepper.... **crushed red pepper flakes (optional).

In a saucepan - heat olive oil and add crushed/sliced garlic and move it around for a couple of mins until it is nice and golden.... Add a sliced white onion and julienned bell peppers - turn heat to medium and cover.

When the onions and peppers are soft (about 5 mins) add the crushed tomatoes, oregano and *red pepper flakes. Turn heats up and bring to a quick boil then reduce heat to medium. Add red wine (about 1/2 cup) salt and pepper and let simmer and thicken up.... about 10 / 12 mins.

Next - rub the chops with olive oil, salt and pepper - do not drown the chops in oil - just enough to massage the chops and prepare them for the skillet.

Heat skillet (high) and add chops (if you have a ribbed skillet this works best) You can sear for about 4 mins then turn over and continue cooking for another 4 mins. Turn heat down to med low - then add the tomato sauce to the skillet - cover and simmer for another 10 mins.

This should give you a nice medium chop - If you prefer you can let simmer longer for more well done. When done - remove chops from skillet and arrange on plate.

Next - stir the sauce in the skillet pan to deglaze - making sure to scrape the pan for any bits left behind. Spoon sauce over the chops and serve immediately.