Fed day: 10-Year at 5%, Oil over $100 — And a case to hold/try the steak Florentine

This is an abbreviated note - back to my full version tomorrow.

Good morning — and here we go… It’s FED DAY.

Stocks remained under pressure yesterday as investors continued to wrestle with the same three issues: $100+ oil, a 10-year Treasury at 5% and what the Fed is about to do TODAY.

In the end, the Dow lost 0.6%, the S&P fell 0.5%, the Nasdaq gave up 0.8% and the Russell lost 0.8%. The Transports fell 0.4%, the Equal Weight S&P lost 0.5%, while the Mag 7 fell 0.6%. Energy was the clear winner as oil surged, while the pressure spread across much of the rest of the market. Consumer Discretionary and Utilities were the biggest losers – down 1.7% and 1.2% respectively.

And oil? Up again. WTI surged more than 4% to $105.60 while Brent gained 2.6% to $108.40 as the geopolitical risk premium remained alive and well. And THAT matters — because $105 oil is inflationary, period. This morning oil is down 2.3% at $103.35 as it continues to thrash around looking for some sense of what’s next.

Then there are bonds. The 10-year pierced 5%, trading as high as 5.04% before settling just under that level — its highest closing yield since 2007. So, the message here is – Pay Attention.

The bond market is already doing some of the Fed’s work for them. Mortgage rates, corporate borrowing costs, credit-card rates — the whole cost-of-money complex feels it when the long end moves like this. Essentially, the bond mkt has done the work, so will the FED decide to sit tight or hike? This morning – yields are a bit lower; the 10 yr is yielding 4.99%.... not much of a relief, but the day is young.

Gold slipped 0.5% to about $4,332 — but let’s not miss the bigger message there either. Gold remains remarkably resilient despite a 10-year near 5%, a stronger dollar and the expectation for higher short-term rates. Gold is up $40 this morning suggesting to me that the gold bugs might just be betting ‘no hike’.

And then there’s the VIX. It closed at just 17.20 – sitting in between complacent and anxious…. So, while investors are becoming a bit more nervous — they aren’t scared. There is no panic, no rush for the exits and no wholesale demand for downside protection. This morning the VIX is down 1.7% at 16.90 – again suggesting relative calm….no matter which way this goes.

Which brings us to TODAY. Markets are pricing better than a 90% chance of a 25-bp hike — the first Fed hike since 2023. Kalshi – the prediction markets are also pricing in an 88% chance of a hike…. And while the market says HIKE — I still say they should HOLD.

Why?

Because I don’t think the Fed needs to chase $105 oil with another rate hike. The 10-year is already at 5%. Oil is north of $100. Financial conditions have tightened and the bond market is already doing some of the heavy lifting. Another 25 bps isn’t going to resolve the geopolitical tensions driving the energy complex. And it isn’t going to magically make the inflationary pressure from higher energy prices disappear.

What it WILL do is add another layer of tightening to an economy that is already feeling it. So, I say hold rates steady, remain vigilant and let the data — and the bond market — do the work.

But here’s the thing…at 2 pm we’ll know what the headline says and at 2:30 we’ll hear what Kevy has to say to justify the decision. Either way – it will be what it will be.

The statement, the new dots and what Kevy says about what comes next will tell us whether today’s expected move is meant to be one-and-done — or whether the Fed thinks it has more work to do. Markets are already looking beyond today’s decision to the possibility of additional tightening. There is a 45% of an October hike and a 69% chance of a December hike being priced as of this morning.

So, buckle up.

European markets are higher this morning. lower

US futures are higher as well. Dow + 150 pts, the S&P’s +17 pts, the Nasdaq is +125 pts, while the Russel is +5.

The S&P closed at 7,585 — up 34 points — 7600 did not hold so now it become resistance…. Now, if the market likes what it hears, then we will blast right thru it, if not, then 7500 becomes the next level of support on the chart. The S&P is down 3% off its recent high while the Nasdaq is off by 4.5% - neither one is a disaster. As discussed, I am in the camp that we could see a 10% drawdown – which means another 6 or 7% from here over the next month…

Steak florentine

Steak...for meat lovers - this is a great dish....and brings me back to the days when I studied in Florence during fall semester of Jr. year. Aug 1981 - Dec 1981.

Start with a nice cut T-Bone or Rib Eye - always on the bone as the bone provides so much more flavor and makes a nicer presentation for your dinner guests.

You will need: The steaks, 10 cloves of Garlic, Pork fatback, dried rosemary, coarse salt (kosher salt works nicely) and pepper. Remove steaks from fridge - rinse under cold water and pat dry with a paper towel. Leave on a platter for about 20 mins so that they get to room temp. In a food processor blend the pork fatback, garlic, rosemary to a paste like consistency. Next - wash your hands and massage this mixture into the steaks - taking time to make sure that you have worked the meat and the mixture well. Now season with S&P. Set aside.

Light the grill and turn the heat to high and allow the grill time to heat up - it has to be nice and hot. Place the steaks on the grill and cook for about 5 min/side - depending on thickness - This will result in a med rare steak...so if you add a couple more mins on each side you will get a more cooked center. Remember though - when you remove the steaks from the grill - you will cover and let them rest for 4 mins, allowing them time to continue cooking and allowing for the juice to flow. Once ready serve immediately on warmed plates. Accompanied by both a starch and a vegetable. Garlic herb rice and Brussel sprouts* are a good option or mashed potatoes and peas - along with a mixed green salad with red wine vinaigrette dressing.

This meal deserves a robust red wine - my favorite is Brunello di Montalcino - like velvet.