What to know today

  • Geopolitics and markets collide.
  • What worked in March.
  • Risk management is self management.
markets

Defense Stocks Surge Amid Broader Selloff

Do you know about the Strait of Hormuz?

Everything looked really good until the last two hours of trading on Thursday, a market at ease in the aftermath of comforting words from Fed Chair Jerome Powell.

The major indexes were well into the green, up more than 1 percent, powered by a mini-tech resurgence.

And then came the reversal, a late-day tape-wreck probably wrought by geopolitics.

What you see below is the S&P 500 selling off, hard and defense contractors Lockheed Martin $LMT and RTX Corporation $RTX rallying, hard, into the close.

This curious price action comes almost a full two days after Iran said it would respond to an air strike on its embassy in Damascus by punishing Israel. 

As the Fed Guy, Joseph Wang, noted on X, although we heard from six central bankers on Thursday, this was not about “Fed speak.”

The S&P 500 Index sold off late on Thursday but defense contractors Lockheed Martin $LMT and RTX Corp $RTX rallied on geopolitical tension.

Federal Reserve Bank of Cleveland President Loretta Mester said she wants to see a couple of more months of data but that the central bank is getting closer to a cut. Still, she wants to see inflation “moving down.”

And Federal Reserve Bank of Minneapolis President Neel Kashkari said we may see no rate cuts this year if inflation continues to move sideways.

On Wednesday, Powell said basically the same thing, that he and his colleagues are waiting for more evidence their fight against inflation has succeeded before trimming the benchmark fed funds target range.

Powell emphasized the importance of inflation expectations trending lower, and that’s what’s happening.

All told, Thursday’s speakers just weren’t this kind of intraday-downside-reversal important. That move suggests an outside shock, something Mish Schneider suggested last month in a Weekly Market Outlook represented the most significant threat to this bull market.

There was no specific indication of a new crisis.

But Brent crude oil spiked above the $90-per-barrel point for the first time since October, and West Texas Intermediate added another 1.67 percent. And this is  the day after OPEC+ said it would hold steady at current production levels.

As Samuel Smith and Marco Pinchetti explained in a post on their Bank Underground blog on Thursday, geopolitical risk can show up in two separate and distinct ways: deflation at the macro level, and inflation in the energy sector.

Stay tuned.

deep dive

On the Bright Side

March was another great month for stocks.

Nascent market darling Nvidia $NVDA had another monster month in March, adding 14 percent to its market capitalization and nipping harder at Apple’s $AAPL’s heels.

Alphabet $GOOG also enjoyed a stellar month, growing bigger by another 9 percent.

The top- and bottom-performing sector groups in the Morningstar US Market Index during the first quarter.

But artificial intelligence is The Thing right now, and NVDA as The Vehicle.

As Ivana Delevska, the founder and CIO of Spear Invest, said during a StockPick Interview on Thursday, we’re at an inflection point, and it’s being driven by AI.

Delevska notes that NVDA’s forward earnings estimates are still very conservative and that the valuation looks very reasonable here.

Spear is positive on the US economy too, as it emerges from a multi-year downturn and despite elevated interest rates. Stablizing rates are in fact contributing to an uptick in economic activity.

Upside has been driven by technology, Delevska notes, but we’re starting to see strength in other sectors as well.

Like energy.

deep dive |
April 5, 2024

On the Bright Side

RISK MANAGEMENT

How Did You Do Today?

You must plan for your plan to fail.

It made a lot more sense to circle back to this topic when stocks were soaring on Thursday, before the intraday crash. Such is life, and I guess we have ourselves an object lesson.

To wit: How did you respond to that post-2:00 p.m. ET bloodbath on Thursday?

In the very first issue of StockPick Daily I confessed my long-term up-and-to-the-right bias. But, as even my personal experience reveals, that’s not how life is lived.

Indeed, I’ve just come out of a cycle of planning and paying for a wedding.

Live events are real.

It’s a day-to-day thing, with attendant risks – and rewards! – rising and falling in a jagged and lumpy fashion, not a straight line higher.

A cartoon illustrating how we plan versus how our lives are lived.

Blake Milard, the director of investments at Sandbox Financial Partners put it really well: “Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. Deal with it…”

Thursday was a “deal with it” day.

It was also an opportunity to evaluate yourself. Did you panic-sell? Did you panic-buy?

Did you deviate from your plan?

My friend Phil Pearlman said a few weeks ago that whenever the stock market gets crushed – and it gets crushed a couple of times a year – people emerge from the woodwork to talk about risk management.

I imagine on a day like Thursday your loss aversion was kicking in, hard. Of course it’s too late in the moment to manage it.

The time to talk about risk management is not when every screen is red.

As Pearlman said, “The time to talk about risk management is when the market has been going up like crazy and you, and I mean you, think you have it all figured out.”

Is your portfolio set up with a risk profile you can handle during natural market cycles?

We’re coming up on the end of what Jeffrey Hirsch of The Stock Trader’s Almanac labels the Best Six Months of the stock market from a seasonal perspective, wrapping up in April.

Now is probably a good time to assess yourself and your portfolio.

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