From animal spirits to irrational restraint: Markets tank as Trump and Bessent stir recession fears

• OUCH…. Stocks get hammered.

• Is the RECESSION upon us? Or is it a Period of Transition?

• NASDAQ loses 4% - individual names even more.

• Bonds up, gold up and oil down.

• Try the Porcini Rubbed Rib-Eye.

Trump says ‘we’re in a transition period’, Scotty (Bessent) Treasury Secretary says we need to ‘detox from out of control gov’t spending’ , all while Musk continues to find billions of dollars of wasteful spending that has done nothing other than line the pockets of your favorite congressman – both Trump and Bessent said they expect a slowdown and that caused the street analysts and strategists to warn of more volatility and uncertainty as a result of tariffs and other policy decisions potentially that will ‘torpedo growth’ in the US economy causing ….wait for it…….a ‘recession’….and that’s all the algo’s had to ‘hear’…..if you turned on any channel yesterday – all you heard was recession, recession, recession…..it reminds me of transitory, transitory, transitory….. and so, the ’bottom fell out’….. and if you are not aware – it was ugly and uncomfortable as stocks got hammered.

The Dow lost 890 pts or 1.5%, the S&P lost 155 pts or 2.7%, the Nasdaq gave up 730 pts or 4%, the Russell down 56 pts or 2.7%, the Transports lost 355 pts or 2.2%, while the Equal Weight S&P gave back 100 pts or 1.4%.

I left you with this thought yesterday morning after we saw the stocks rally on Friday afternoon.

But - Listen to me…..the damage has been done…. expect more sales in the days ahead. Where does it stop? 5600? 5400? That’s not clear at the moment…. the next move is going to depend on what happens next out of the WH…..more uncertainty will create move volatility and lower prices as many investors let fear drive their decisions…. the path of least resistance is now lower because the uncertainty is higher.

And BABA BOOOOMMMMM! Some Investors, traders and algo’s decided to run for the door….and it started in the pre-mkt and then rolled over into the trading day…..you could feel the pressure from the moment the bell rang…..the S&P came under immediate assault breaching its 200 dma on the opening and the rest was history….we saw not one, not two, but three century marks on the S&P yesterday….5700, 5600 and 5500…as the move out of RISK took root….Now be careful how you say that – because again, for every trade there are two sides – a buyer and a seller….so while some moved out others moved in.

And then you hear things like ‘the selling has erased more than $5.5 trillion of market cap’ OK, it is dramatic, and it is true….…. but you need to understand context.

When the stock market "loses $5.5 trillion of market cap," it means the total value of all the shares of publicly traded companies in that market has decreased by $5.5 trillion over a certain period. So, a $5.5 trillion loss reflects a drop in stock prices across many companies, reducing their combined market value by that amount.

This doesn’t mean $5.5 trillion in cash was physically removed from the market or that investors directly "lost" that exact amount in their bank accounts. Instead, it’s a paper loss—a decline in the perceived value of investments based on what people are willing to pay for stocks at that moment.

But when you see this statement – ‘Last week saw $3.5 billion of outflows in the small cap space….’

That’s a bit of misinformation….. markets operate on a basic principle of balance: for every seller, there’s a buyer, and for every dollar that "comes out" of a market, there’s a corresponding transaction on the other side that ‘come into’ the market. If $3.5 billion "came out of the markets," it doesn’t vanish into thin air; it shifts somewhere else, and the books have to balance.

Let’s break it down. If $3.5 billion exited "the small cap space” it implies assets were sold for that amount. The sellers received $3.5 billion in cash, which means buyers put up $3.5 billion to acquire those assets. The offset is equal: $3.5 billion in assets sold, $3.5 billion of those same assets were bought…. No one sells "to nobody"—there’s always a counterparty. So, the money doesn’t disappear; it just changes hands or form.

Now this is important – because the buyers had their ‘cash’ somewhere else……was it in a CD or was it in other parts of the market? Did they sell something in order to buy something else? Either way, it is now the sellers who have the cash (before that the buyers had the cash) and now they have to do something with it….and if they don’t put it back into ‘other’ stocks, then they put it somewhere else….think bonds, gold, silver, real estate, money mkt funds, margin loan repayment or other debt payments… In the end – the point is that while some got ‘out’ others got ‘in’ and that is important to remember.

Now, yesterday after they sold Tech – 4.25%, Consumer Discretionary – 3.6%, Financials – 2.25%, Basic Materials – 2.1%, Communications – 2.5%, Industrials – 1.5%, Healthcare – 1%, Real Estate – 1%, Retail – 1.8%, Airlines – 4.7%, Disruptive Tech – 8.75%, Metals & Miners – 4%, Cybersecurity – 4%, Semi’s –4.6%, NVDA – 5%, the Mag 7 – 5.5%, XAR – 2% etc.

They put that cash into Utilities + 1.1%, Energy + 0.75%, they put it in VZ + 1%, JNJ +0.6%, (all of those have strong divvy’s in common), they put it into bonds – the TLT + 1%, the TLH + 1%, & the AGG +0.5% and they also put ‘some’ cash into the contra trades – (the short trade) – sending the Short Disruptive Tech trade + 17.5%, Triple Levered S&P short up 8%, the VIXY (long the FEAR trade) + 11%, while the DOG + 2%, the SH +2.7% and the PSQ + 3.8%. and then they put some aside into their gov’t money mkt fund to wait for the dust to settle…and it will settle……..but it might take a while….because there has been a lot of internal damage done to the technicals….lots of trendlines shattered and that tends to cause the selling to intensify… in that ‘shoot first, ask questions later’ reaction and buyers are happy to accommodate – I mean who doesn’t LOVE a bargain?

And so it was what it was…..The funny part is that some people are suggesting that Trump is willing to tolerate hardship in the economy to satisfy his long term goals – OK, so I guess you then you have to say that JoJo was willing to ‘tolerate hardship in the economy ’ as inflation surged to 9.5% to satisfy his long term goals. – No? Whatever….in any event the sentiment has changed…what was animal spirits has become almost ‘irrational restraint’ – but remember – everyone should expect a 5% drawdown every year, they should expect a 10% drawdown every 19 months and they should expect a 20+% drawdown every 4 yrs….it’s called a ‘cycle’…..but in the end – if you are well diversified you are good….. What is important now is – don’t panic – unless of course you own ‘crap’ – then you should panic!

After yesterday’s blood bath, today’s JOLTS report could either calm the markets or pour gas on the fire! The JOLTS report…. tracks job openings, hires, quits, layoffs, and other separations, offering a detailed snapshot of labor market health beyond headline unemployment numbers. Here’s why it matters – It take the temp of the labor market – detailing employer demand – a big number suggests a strong labor market giving workers leverage, a weaker number suggests slowing economic growth. The Quit rate speaks to worker confidence…suggesting that when they QUIT (voluntary) it’s because they think they can get a better job…. JJ loves this statistic. And JOLTS can be a leading indicator…. the ‘canary in the coal mine’….as it reveals where the strength and the weakness lies…. This report is due out at 10 am.

Tomorrow brings us the February CPI And Thursday brings us the February PPI..both important reports as well….as it suggests where inflation may (or may not) be going.

Oil continues to test lower…and if it fails to hold here at $66 then as discussed – we can expect it to test $64. This morning it is up 40 cts at $66.46.

Gold just continues to trade in that tight range that we discussed earlier this week….It is trapped in the tight triangle -with $2,900 as support and $2,930 as resistance….This morning it is at $2,915….as it moves into the ‘point’ of the triangle – forcing it to either break down or break out…..My gut says that if the recession narrative takes hold and the uncertainty remains top of mind – then gold will trade higher….Capisce? ($2,970 is the target).

Now it should be NO surprise that futures are HIGHER this morning – after the beating yesterday…..investors, traders and algo’s all looking for the bargain…and there are plenty of them….at 6 am – Dow futures are up 125, S&P’s up 23, the Nasdaq up 105 and the Russell is ahead by 21. And while we may see a bounce today I continue to say – go slow…. expect more thrashing around as the market attempts to repair itself..and it will, it just needs a bit of time and clarity.

European markets are all a bit higher…. Germany in the lead up 0.6%.... While the UK is the only one struggling down 0.15%.

The S&P closed at 5614 – down 155 pts….Now remember – we started the day in the low 5700’s….and traded down to 5564 – 3 century marks….and below where I thought we might find support at 5600…..Today is a new day and yes, the tone is better, but do not think the selling is done yet….expect more volatility until we get more clarity on a range of issues.

Yesterday I said if we pierce Friday’s low at 5,666 then the selling will intensify…and it did….so now 5564 is the new ‘key’ level to watch on the downside…the upside will be defined by the 200 dma which is now resistance at 5734…(what was support is now resistance).

LOOK – get comfortable with being a bit uncomfortable…. If you are a baby boomer - Make sure you are well diversified and not overweight in any particular sector – if you are younger, then hold your nose and jump in…. And while it may become uncomfortable, it is not a disaster…. but again, it depends on who you are and where you are in the life cycle…. Your portfolio should reflect that.

Remember, while the weakness can cause you to be worried in the short term, you are a long-term investor, stick to the plan, modify it a bit if it makes you feel better, but the goal is NOT TO PANIC….and to take advantage of the chaos.

Let’s have the porcini rubbed rib-eye – Served tagliata style

For this you need: Dried porcini mushrooms, sugar, s&p, garlic, olive oil and balsamic vinegar, bone-in, rib-eye, arugula, red onion, shaved parmesan cheese and one lemon.

Grind 1 oz of dried mushrooms until fine...you can use a mortar and pestle or a food processor.

Next combine the mushroom powder with 2 tbsps. of sugar, 1 tbsp. of s&p, 4 garlic cloves (chopped) and about 1/4 cup of olive oil. Set aside. You can make a container of this rub up to this point and store it in the fridge in a sealed jar. When you get ready to use it - take it out of the fridge. Mix and then massage it into your meat of choice.

In this case – we are using a bone-in rib-eye – again you can use a different cut if you want, but I love the rib-eye.

Season the meat with salt. Now massage the porcini rub into the meat, making sure to coat it well.

Preheat your oven to 400 degrees.

In a large cast iron skillet – add about 1 tbsp. of olive oil and heat it up. Add the steak and listen to it sizzle, brown on both sides. Now, place the skillet into the oven and let it cook for about 5-8 mins – depending on its thickness. If you have an instant read thermometer it should read 135 degrees when inserted in the center. Remove and let stand for 10 mins – tent it to keep it warm.

Now slice the steak at an angle so that you can fan it out on the plate. Lay down some arugula and red onion, place the steak on top and then drizzle with a bit more of the olive oil and a squirt of fresh lemon juice. Then top with the shaved cheese.