Tech stocks plunge, geo-political risks escalate, and investors brace for earnings deluge

• Tech stocks in retreat – S&P and Nasdaq now down 5% & 7% respectively.

• Geo-political risks remain front and center.

• Earnings and Eco data also remain front and center.

• Bond Markets prepare for an onslaught of supply.

• Oil and Gold remain erratic.

• Try the Mezza Rigatoni.

So, I go away for a couple of days and BOOM!  Israel strikes Iran on Thursday evening – after Iran attempted to strike Israel earlier in the week – that sent oil prices up and tech stocks (which have been under pressure anyway) lower…. leaving some investors rattled.  Toss in the other geo-political risks (think Russia/Ukraine, China/Taiwan), US political risks, recent hot inflation numbers, and the ongoing hawkish commentary coming out of the FED, and you have a recipe for market instability.

On Friday – the S&P fell 44 pts or 0.9% while the Nasdaq got whacked – falling 320 pts or 2% - leaving the S&P down 5.7% and the Nasdaq down 7.8% off their most recent highs…(now this is getting interesting)  …..all while the Dow, Russell, Transports and Equal Weight S&P rose.

Tech stocks continue to get crushed this after TSMC (Taiwan Semi) – 3.5% scaled back their outlook and ASML -3% posted disappointing earnings…. – XLK down 2.2% – AI darlings NVDA, AMD, AVGO and SMCI fell by 10%, 5.5% , 4.3% and 23% respectively while NFLX -9%, AMZN – 2.6%, META – 4.2%,  CRWD – 4%, ARKK down 2.2%, IGM – 2.3%,  and the list goes on…… the Nasdaq choking as the algo’s run for the exit door causing a selloff in tech that hit home hard on Friday, all while the street gears up for a deluge of earnings reports from the industry…leaving us to wonder whether or not we are in for surprises as the expectations are running high for anything AI.  Investors are expecting both strong results and strong forward guidance……anything short of that has the potential to send this market careening deeper into oversold territory.

The Nasdaq RSI (relative strength index) is now at 30.1323 – leaving this index sitting atop the oversold trendline (30) … the S&P RSI is sitting at 31.2916 – again right atop the oversold trendline- which doesn’t mean it can’t go lower – it just means we might get a bounce before we go there.

Look – not sure what the surprise really is…. How long have I been saying that the market was well ahead of itself? How long have I been screaming about the ridiculous rate cut narrative (6 – 7 cuts in 24)  that the market talked itself into believing and then rallied hard….…How long have I been saying we need to see the market back of 7% -10% - if for no other reason than to shake the branches a bit to see who falls out…Well, it appears that we might just go there.

Now when stocks were going up on the back of that ridiculous narrative – there were some (mostly trader types and large asset managers that trade around a core position)  that took some chips off the table and went to cash – waiting patiently for the pullback to happen….and guess what – the pullback is happening….and these investors/traders – are now using the weakness to get back into names that are on sale…– NVDA – 22% off the high, AAPL -17%, SMCI -43%, AMD – 27%, ASML -18%, CRWD – 18%, I mean, come on – where are these names going? Out of business?  Hardly…. but you have to have a strong stomach.  This has been a healthy consolidation – one that needed to happen – and while it may not be over yet, it has taken some of the froth out of the market. 

Bonds rose just a bit – the TLT up 0.4% while the TLH gained 0.3% but that did little to stop the bleed -  leaving this asset class on track for the worst month this year, the TLT down 6% this month (and -9.8% ytd) while the TLH is off 4.9% this month (and 7.8% ytd).   All this as the market awaits a slew of auctions this week in what is sure to be a major test for both investors and bond yields. Brace yourself – because on top of the all the geo-political drama happening and the massive funding bills that congress just passed so that American taxpayers will pay for the war in the Ukraine, the conflict in Israel/Gaza and the pending threat of China and Taiwan – investors are going to be asked to ‘absorb’ $183 billion worth of 2, 5 and 7 yr. notes – (the 2’s and 5’s are at record levels) all this ahead of the latest PCE report due out on the 26th. On Friday we saw the 2 yr. yields continue to hug 5%, the 5 yr. hit 4.67% and the 7 yr. yield hit 4.65%.  The 10 yr. ended the day yielding 4.62% and it is the 10 yr. that has the most effect on how investors allocate investment dollars - leaving some to wonder has the 10 yr. has hit its peak or will it attempt to pierce 5%?

Oil which traded as high at $87.67 last week after Israel sent missiles into Iran – ended the week a bit lower and this morning is trading at $82.81. Over the weekend – the IMF (Int’l Monetary Fund) raised their estimates of the parity price of oil to equal the budgets of 7 countries as a result of the OPEC production cuts. Now the Parity Price is the average price of oil that achieves neither a deficit nor surplus of the country’s budgets. So, for example– Algeria and Bahrain need oil to be $127/barrel, Qatar needs $43.10/barrel while the ‘Kingdom’ (Saudi’s) needs oil to be $96.20/barrel in order to balance their budget. (Revenues = Expenses). For now – Oil remains in the $80/$90 range but you can be sure that given the opportunity – the Saudi’s will push for higher prices.

Gold ended the week at $2406/oz – after trading as high as $2433 on the back of rising tensions in the Middle East.  This morning Gold is trading down $40 at $2373 after Tehran ‘downplayed Israel’s retaliatory strike’ in what appears to be an attempt to turn down the temperature in the region.  And while it appears to be settling down let’s not kid ourselves, it remains erratic as middle east risks continue to loom…. Any spike in the conflict will see gold surge higher once again.

US futures are up this morning after last week’s weakness – the focus shifting from conflict to earnings and economics….…. Dow futures are up 200, S&P’s up 28, the Nasdaq up 110 and the Russell is up 12. It’s a big week of Eco data and earnings…. TSLA reports on Tuesday after the bell, META Wednesday after the bell, while AAPL, INTC & MSFT all report on Thursday after the bell. In addition, we’ll hear from a range of other companies representing a range of industries…. NUE, CLF (steel producers), UPS (courier services), PEP (non-alcoholic beverages), GM (autos), SHW (specialty chemicals). HAL (oilfield Services & Equipment), VZ (wireless telecommunications) and the list goes on.

Eco data during the week includes – Chicago, Richmond, Kansas City and Philly Fed reports, S&P Manufacturing and Services PMI’s (both in expansionary territory), Retail Sales, New Home Sales, Pending Home Sales, Durable goods, 1Q GDP, Personal Income and Personal Spending and the much awaited for PCE Deflator on Friday. 

The VIX (fear index) which spiked higher on Friday (+18% - think Middle East tensions) – caused all kinds of angst but is settling down today….and if the focus turns to economics and earnings then I would expect the VIX to continue to settle down.  Now if tech earnings and guidance should disappoint (for any reason) or if the conflict heats up then I would expect the VIX to surge again – Sit tight – it’s a big week.

Across Europe – markets are higher…as investors there also focus on economic and earnings data rather than middle east tensions….the FTSE up 1.4% as investors there hope that the BoE is on the verge of cutting rates while the Italian market is under some pressure – down 1% - nothing specific – just appears to be some reallocation of assets as Italy is the best performing country across the zone – up 10.6% ytd while the UK mkt is up only 3.6% ytd.

The S&P closed at 4967 – down 44 pts.  And now solidly below the short term trendline at 5116 but sitting right atop its intermediate term trendline at 4934 – a level that needs to be held. A failure to hold the line here will ignite another round of ‘technical selling’ if we breach that trendline. My sense is that while futures are pointing higher this morning – I am not sure that the pullback is over…. We are now in the 4934 (intermediate term trendline) and 5116 range.   Ongoing ‘better than expected’ earnings and better forward guidance will be the drivers now. I think it is fair to say that JJ made it very clear about where rates are going…or NOT going….so there should be no confusion about rates.

The market is repricing the new narrative….individual names are repricing even more – this is the time to remain strategic…..Staying in the game and buying core stocks on pullbacks is the preferred plan…..buying some protection using the contra trades could also be helpful as long as you understand those trades are not Long-term trades at all. They are meant to be strategic and short term in nature.    

In the end - stick to your plan, talk to your advisor…..If you are nervous – then raise some cash and put it aside and if you have a large cash position already then you can relax a bit and let this play out…..This is not the time to bail, but nor is it the time to chase stocks, it is time to sit back , take advantage of mispricing’s and see how this plays out.

Mezza -rigatoni with mushrooms, shallots in a wine/cream sauce

This is an easy dish to make and one that looks incredible on the plate.

For this you need:  Shallots, diced garlic, white button mushrooms (chopped), butter, olive oil, heavy cream, white wine, (you can use chicken broth), s&p, chopped Italian Parsley, fresh grated parmegiana and the mezza-Rigatoni.

Begin by bringing a pot of salted water to a rolling boil on the back burner.

In a large skillet – add a splash of olive oil and the shallots and garlic.  Sauté for 3 – 5 mins. Now add the chopped mushrooms and mix well. Cook for 3 – 5 mins.  Add 1 c of white wine (or chicken broth) – keep the heat on med high until the liquid evaporates.

Add the pasta to the pot of water and cook until aldente.

Now add 1 tblspn of butter to the shallots and mushrooms – melt. Season with s&p.   Now add in 2 c of heavy cream – turn heat down to simmer. Allow it to thicken.  When the pasta is done – add directly to the sauté pan along with one ladle of the pasta water and mix well.  Top with the chopped parsley and fresh grated parmegiana cheese – serve immediately.