Reality check aisle five – Markets reset its January rate-cut hope and rotate

• Good data, bad reaction – Surprised? Don’t be.
• Better CPI causes the Algo’s to throw a temper tantrum.
• Earnings season gets off to a good start – Banks are not disappointing.
• Try the Veal Saltimbocca alla Romana.

Wait — what? Stocks sold off?

Yes. Even after a better-than-expected CPI report, a far better-than-expected New Home Sales number, and three earnings beats DAL, BK, and JPM. On the surface, that should have been a recipe for a rally.

But markets don’t always trade on “good news” in isolation — they trade on what that news changes, and in this case, it changed nothing at the FED. Easing inflation, resilient housing demand, and solid earnings did not alter expectations that JJ and his band of merry men remain firmly in pause mode, with no urgency to cut rates - No “slash-and-burn”, no policy pivot — and that’s what the market was upset about.

So, the reaction wasn’t panic — it was disappointment. But here’s the thing – a January rate cut was NEVER in the cards – JJ made that clear at the December presser….but the fast money guys (think traders and algo’s) didn’t want to pay attention and so when the data didn’t change the narrative, they threw a temper tantrum and stocks ended lower. In reality though, the damage was contained. By the close, the Dow fell 400 points (-0.8%), while the S&P slipped just 0.2%, the Nasdaq lost 0.1%, and the Russell dipped 0.1%. The Equal-Weight S&P actually rose, even as the Mag 7 declined, reinforcing the message: this was not a breakdown, it was a rate cut-expectations reset and continued rotation — not a vote of no confidence in the economy.

But here is the point – there should have never been a ‘rate cut expectation reset’ – unless of course the data demanded it and yesterday’s data did not…Period. So, while I understand the need to ‘explain’ away every move – sometimes – you just can’t explain it. In the end – it is what it is and if you are a long-term investor – that is properly allocated – then there is nothing to worry about.

Of the 11 S&P sectors – we saw strength in Industrials, Utilities, Consumer Staples, Energy, Basic Materials and Real Estate…. Weakness was in Tech, Financials, Consumer Discretionary, Communications and Healthcare.

The contra trades all ended higher (duh!)– the DOG + 0.8%, the SH + 0.25% the PSQ + 0.2%, the SPXS + 0.6% while the VIXY gained 2.4%.

So, let’s turn our attention to earnings season, because it is officially underway. While Day One delivered a trifecta –all three companies beat estimates — the market response made it clear that not all beats are created equal and this one day does NOT make a trend. Each report came with its own set of caveats, and investors reacted accordingly. Remember – the banks are expected to post strong results, so the if we see any cracks in the story, then expect the algo’s to go into ‘sell’ mode.

For JPMorgan Chase & Co., which fell 4.2% to $310.77, the concerns weren’t about headline earnings. Instead, the stock came under pressure due to two issues: growing political noise around a potential credit-card interest-rate cap, and a significant increase in loan-loss reserves. That reserve isn’t for losses that have already occurred — it’s capital set aside for what might happen. In theory, if defaults don’t materialize, those reserves can be added back into earnings. But for now, the move raised a yellow flag for investors, prompting a more cautious reaction.

Delta Air Lines also beat estimates but saw their shares drop 2.3% to $69.33 after issuing a muted full-year profit outlook. Management cited rising geopolitical uncertainty as a key risk to global travel demand. CEO Ed Bastian summed it up clearly:

“We realize there is still a fair bit of uncertainty in the environment, particularly on the geopolitical front. We’re not going to project or commit to record earnings until we understand the uncertainties a little better.”

In the end – the algo’s didn’t love the caution — even if it was prudent.

Then there was BK - Bank of New York Mellon, which did exactly what investors want to see. BK beat across the board — EPS, net interest income, net interest margin, capital ratios, assets under management, deposits, loans, and revenue — and the stock rallied 1.9% to $122.91. No hedging, no caveats, no narrative gaps. Traders and algos did what they would be expected to do when fundamentals deliver: they bought it.

So, the bottom line is that while earnings season got off to a good start, markets will always reward performance, clarity and confidence in forward guidance. Today we are going to hear from BAC, WFC, C – and you can expect that investors will want to hear what these banks think about the risk of rising loan defaults as well. Will Brian, Chucky and Jane be as cautious as Jamie was? (They are the CEOs at BAC, WFC and C).

Additionally – markets are expecting the supreme court decision on tariffs today…. (it’s not confirmed, but that is the rumor) and we have already discussed the potential outcomes for the markets. It should not be a total market sell signal, but sometimes you just can’t predict how everyone will react.

My sense is that Industrials and Basic Materials would likely feel pressure as tariff protection fades and pricing power erodes. On the flip side, Consumer Discretionary and Technology quietly benefit from lower input costs, less supply-chain friction, and reduced inflation pressure. Financials, Healthcare, and Utilities should shrug it off. Bottom line: this doesn’t derail the bull market — it simply reshuffles leadership.

The VIX – as expected did push higher yesterday – up 5.7% to end the day at 15.98 - again FAILING to pierce trendline resistance at 17. Thus the ‘not so bad retreat’ in the indexes…. This morning the VIX is up another 2.3% at 16.38 but is still just below resistance. Futures are weaker – so this all makes sense….so here is what to watch – should we kiss resistance and penetrate it, then you can expect stocks to shift into a more aggressive sell mode and if we fail to penetrate it then stocks should settle down and churn…..

Bonds edged slightly higher, putting modest downward pressure on yields. The 10-year Treasury is now yielding 4.15%, down from 4.18%, while the 30-year sits at 4.81%, down from 4.85%. That move is starting to show up meaningfully in the housing market. Thirty-year mortgage rates have fallen over the past week, with quotes now near 5.99%, down from roughly 6.20%. Meanwhile, Guaranteed Rate — now branded simply as “RATE” — is posting a national average of 6.027%. If accurate, that represents roughly a 3% decline in borrowing costs, making the so-called “affordability crisis” incrementally more affordable.

Step back and look at the pattern forming: lower mortgage rates, easing inflation, lower gasoline prices, moderating home prices, softer grocery costs (think dairy, eggs, produce), cheaper electronics — alongside rising wages and solid GDP growth. That’s not a recessionary setup — that’s disinflation with growth, exactly what policymakers have been trying to engineer.

Meanwhile, oil did exactly what the charts suggested it might — and then some. Crude pushed decisively through all three key trendline resistance levels, igniting momentum buying. Oil jumped 2.7% yesterday and is up another 1.2% this morning at $61.88, driven primarily by escalating unrest in Iran (with Venezuela a secondary factor). Markets are increasingly focused on what President Trump might do next and whether tensions could disrupt flows through the Persian Gulf.

That said, there’s an important offset worth noting. Energy Secretary Doug Burgum is expected to announce that U.S. oil drilling permits (for oil and Nat gas) are at all-time highs, the result of deregulation aimed squarely at boosting domestic production. In other words, while geopolitics are adding risk premium to oil in the short term, supply dynamics at home are improving, which could ultimately cap how far prices can run.

The chart suggests that we could see WTI trade up to $64 ish if the Iran continues to spin out of control. Should that situation resolve – then I would expect oil to retreat.

Gold surged again yesterday and is extending those gains this morning, up roughly $50 at $4,636/oz. From a technical standpoint, defining an upper range is difficult because we’re now trading in uncharted territory. Ongoing geopolitical anxiety continues to fuel safe-haven demand, and momo-driven buyers are clearly adding to the move. That said, momentum works both ways — the same traders who chase it higher can just as quickly exit. For now, though, the path of least resistance appears to remain higher.

On the economic calendar, Mortgage Applications are out today and are expected to show improvement given the recent pullback in rates. November PPI is forecast to rise 0.2% month-over-month and 2.7% year-over-year, largely in line with what we saw from CPI. In either case, this data is unlikely to change the Fed’s stance — January will not see a rate cut.

We’ll also get Retail Sales, expected to rise 0.5%, with ex-autos and gas up 0.3%, alongside Existing Home Sales, forecast to increase 2.2%. Taken together, the data points to an economy that remains resilient — cooling inflation without a collapse in demand — keeping the Fed comfortably on hold for now.

European markets are mixed, with modest gains in the UK, France, Spain, and Italy, while Germany and the Euro Stoxx are slightly lower. Net-net, there’s nothing here that moves the needle — just markets treading water and waiting for direction.

U.S. futures are lower this morning — Dow -140, S&P -25, Nasdaq -140, Russell -4 — and it’s the same familiar storyline. A lingering temper tantrum over the absence of a January rate cut, some caution ahead of earnings, and an ever-growing list of geopolitical flashpoints weighing on sentiment — Iran, Venezuela, Cuba, Greenland, Denmark, China, Russia, Ukraine… do I really need to keep going?

In short, it’s not about the economy — it’s about headline fatigue, and markets are simply marking time until clarity emerges.

BAC just reported and beat on the top and bottom lines…. giving upbeat guidance – the stock is up 0.5% in the pre-mkt.

The S&P 500 closed yesterday at 6,963, down 13 points, and this morning’s action suggests a bit more consolidation ahead. That shouldn’t concern you — consolidation is healthy. It allows the market to digest gains, reset positioning, and build a stronger base for the next move.

For now, the index remains comfortably within a well-defined trading range, with trendline support near 6,820 and resistance around 7,000 — more psychological than technical. If earnings continue to beat expectations and economic data remains supportive, the likely path remains advance, backfill, then advance again.

In the end, the message is unchanged: stay disciplined, stay focused, stick to your plan — and don’t get drawn into the fray.

Veal saltimbocca all romana

You need 9 things…. Veal cutlets (pounded thin), prosciutto, flour white wine, butter, olive oil, s&p and sage.

Start by laying out the veal cutlets – top with the prosciutto and sage – then take a toothpick and pin it all together.

Now dredge in seasoned flour on just the one side (not the side with the sage and prosciutto) and then sauté it in a sauté pan with butter and olive oil – sage side down first.

Flip and repeat. Hit it with the wine and when the wine evaporates, remove and set aside.

To that same pan – add another dollop of butter, white wine and a little bit of flour. Blend to incorporate as it turns into a sauce and then serve over the cutlets.

Simple and easy. Enjoy.