Israel strikes Iran’s nuclear sites, Oil surges 6%, global markets slide, defense stocks soar

• Mid-East explodes overnight as Israel ‘eliminates the threat’.
• Oil surges higher by 6%, Gold up 1%.
• Global markets under pressure – but Aerospace and Defense stocks are UP.
• U of Mich Survey today, FOMC next week.
• Try the Watermelon & Tomato Salad.

Breaking news! The Middle East is on fire once again…. Israel does the world a favor – taking out Iranian nuclear sites…eliminating a ‘clear and present danger’.

The Ayatollah who flashed his middle finger to the world stating that they will not halt uranium enrichment, asserting its right to continue enrichment for ‘peaceful purposes is about to pay the price. Khamenei calling US demands ‘nonsense’ saying that we nor anyone else has the right to question their authority in their own country.

Just an fyi – currently they are enriching to 60% purity, which is only 30% away from weapons grade – think nuclear bomb. Just another FYI – the Joint Comprehensive Plan of Action (JCPOA) limits enrichment to 3.67%...which is enough to use for ‘peaceful purposes’, so, 60% is well beyond what they need…. capisce?

The international community condemning Iran’s actions so as you might imagine - Tensions have exploded…... Overnight Israel - who had given fair warning - took the bull by the horns and launched multiple air/drone strikes on Iran – aiming to ‘search and destroy’ taking out one of the biggest nuclear sites in Natanz, along with power lines, transformers, labs and testing facilities across the country – forcing Iran to shut down the centrifuges that are enriching the uranium deep underground. They killed the commander in chief of the Revolutionary Guard; they took out command and control centers and launch facilities. And Israel will continue to hit Iran for days or weeks until they have taken it all out. Period. Let’s be honest – Israel has done the world a favor.

Trump warning Iran that the US was not involved so the targeting of ANY US site in the Middle East would take this conflict to a new level.

Iran has tried to strike back – sending drones toward Israel – The Iron Dome preventing penetration…assisted by some other Middle East states. This is a developing story – so expect it to continue. Remember – the US and International community had given Iran plenty of time to negotiate their way out of this, Iran chose not to….and so – here we are – It is a new day across the Middle East.

Global markets are under pressure – Asian markets all down about 1%, European markets have opened 1+% lower and US futures are pointing 1.5% lower in early pre-mkt trading…..Oil surging by 15% - has backed off a bit – now up $4 or 6% at $72.40, Gold up $34 or 1% at $3,440 as global investors assess the damage…..So, what you are seeing is that classic ‘risk off’ reaction to the news….the depth of which will be defined by what Iran chooses to do next. Remember – political chaos causes short term market chaos which can provide opportunities – as these risk off moves typically fade after the initial shock to the system.

Now – back to the US economy…. you have to ask.

‘Where’s the Beef?’ – Both the CPI and PPI came in ‘better than expected’ – meaning inflation is trending LOWER NOT HIGHER….causing all of the naysayers to lose their minds – since the whole tariff ‘thing’ has failed to send prices skyrocketing – much to their dismay….….BUT they promise that higher prices are still coming….not sure when, but they are coming….and to that I’d say – so is Christmas.

In addition – Avg hourly and weekly earnings remain robust all while Initial Jobless claims remained flat with last month at 248k claims…now – they are going to point at the fact that the ‘expectation’ was for 242k claims – so 248k is a negative….OK – you run with that….I’m not.

Now – as you can also imagine – Trump came out again and demanded that JJ cut rates by 100 bps (1 full percent) on the back of this data – to which I would say again – Trump needs to stay in his lane…..and if anyone thinks this latest eco data is going to change next week’s narrative – I say – ‘it’s time for you to see a shrink’… There is no way that JJ and the FOMC is cutting rates next week at the June meeting…It’s just not happening – nor do I see it happening in July – which means IF it happens at all this year – we are looking at September as the earliest date. (Remember – there is no August FOMC meeting – but there is the Jackson Hole Boondoggle – more on this later).

Now to be clear – if we cut rates by 100 bps – the cost to carry our debt would go down by $300 billion, but we risk re-igniting inflation on the country, the question I have is, Why didn’t Janet refinance the bulk of our debt at 30 yr rates of 1.8% (vs. the 4.5% today) when she could have? Well – because issuing long-term debt ran the risk of raising long-term interest rates, impacting mortgage rates and other borrowing costs, which carried political risks during the Biden Administration. Ok – but when rates were 1.8% what was the risk? 2.5%? Great – because now we run the risk of refinancing that debt at 5% or more.

Now while all this good economic news hit the tape, we got other news that causes us to pause just a bit. Scotty is telling us that we have reached the ‘framework’ of a deal with China and Howie is making the rounds driving this point home. Now, markets are cautious as they should be because we’ve heard this before and with the Middle East tensions brewing, the push higher was muted.

Bonds had rallied nicely on the back of all the good eco data that we’ve seen over the past week – the TLT up 4% the TLH up 3.8%.... and that has sent yields a bit lower – the 2 yr is back to yielding 3.89% down from 4.01%, the 10 yr is at 4.34% down from 4.52% and the 30 yr is at 4.83% down from 5.02%.

Oil shot higher overnight trading as high as $77.50/barrel in the early moments of the Israeli attack…I suspect that oil will remain elevated until we see how this plays out and if it stays here – then higher oil prices will work their way into the economy….Capisce?

Eco data today is about the U of Michigan sentiment surveys…and yes – that is soft data that depends on who gets surveyed…the expectations are for the survey to improve – just a bit but improve just the same.

Next week – it is all about JJ and the FOMC. We are now in the ‘quiet period’, the ‘blackout period’ where voting members of the FOMC committee can no longer speak to the media – the meeting begins next Tuesday and finishes on Wednesday – so the only ones we can hear from are the ‘non-members’ and the ‘deep throats’ – Nicky T of the WSJ and our friends at Goldman. Keep you eyes and ears open – If there is a change of heart at the FED – one of them or all of them will blanket the airwaves…..Nicky T will write a front page article, Goldman will publish a ‘Special Report’ and Neely Kashkari will be front and center on CNBC because someone (JJ) whispered in their ear about a ‘change of heart’…..and they do not want the market to be surprised….Capisce? But to be clear, the FED is not cutting rates next week or next month or later this year UNLESS the economic data circles the drain.

As noted - US futures are getting slammed …. Dow futures down 500, S&P’s down 70 pts, Nasdaq down 310 pts and the Russell is down 36. While the broader indexes are all lower – look for Aerospace & Defense stocks to rally……. Currently in the pre-mkt RTX +5%, LMT + 4%, NOC +1.8%, LHX + 3.8%.... XAR or ITA (Aerospace & Defense etf’s) are both up by 1.8%. Look for opportunities in sectors that get slammed just because of ‘risk aversion’ not because of a change in the thesis, because more than likely – the markets will look thru this latest drama as well when it becomes clear that the world will not put up with Iran much longer.

Watermelon and tomato salad – It’s summertime

Enjoy this refreshing and delicious Watermelon and Tomato Salad... The colors, and freshness of this chilled salad will make any summer dinner table a pleasure to look at and more so – a delight to eat. If you have never had this salad, you have to make it… and if you have had it, then you can appreciate the simplicity of it.

For this, you need: Fresh Garden tomatoes, mint, watermelon, feta cheese, s&p, Olive oil, and balsamic vinegar.

Cut the tomatoes in half and then slice the halves into slices (you understand what I mean – no?). Next slice the watermelon and cut away from the rind… cut into cubes and place a large bowl. Now add the tomatoes, crumbled feta and chopped fresh mint… Drizzle with Olive oil and a splash of Balsamic – season lightly with s&p… (you can also hit it with a smidge of sugar) … cover and place in the fridge to keep chilled. Spectacular.