9/11 25 Years Later: Bond Market Warning, Oil Above $100 & Fed Rate Hike Fears | Kenny Polcari

Well, good morning. I'm Kenny Polcari, your host of the party, and today is Friday, September 11th, 2026. And here are the things you need to know to get your day started. Well, before I talk about the markets, I want to, and I actually need to acknowledge what today is, right? 25 years ago today, on September 11th, 2001, Our world changed forever. I was on the 55th floor of Tower 2 at the World Trade Center that morning in my office, and even though the 25 years have passed, there are moments from that day that remind me as clear as day today as they were then. The sights, the sounds, the confusion, the fear, and then ultimately the realization of what had just happened. Nearly 3,000 Americans woke up that morning and did exactly what they did every morning. They got ready for work. They kissed their husbands and their wives and their children goodbye. They grabbed a cup of coffee. They got on a train. They boarded an airplane. They walked into an office, or they reported for duty. And then they never came home. Every one of them— mothers, fathers, sons, daughters, brothers, sisters, aunts, uncles, and friends— someone who was loved and someone who is still missed today. I was very fortunate that morning. So many others were not. And I will never forget the firefighters, police officers, and first responders who, while thousands of us were desperately trying to get out, They were running in. Think about that just for a moment. But here's something else that we've learned over the past 25 years. September 11th didn't end on September 11th. For thousands of survivors, first responders, recovery workers, and others who were exposed to the toxic air and debris at Ground Zero, the battle continues today. 25 years later, Too many of us, and me included, are now fighting cancers and other illnesses that have been linked to their exposure in the days, weeks, and months after those attacks. Now, we survived that day, but for many of us, September 11th followed us home. And sadly, some of us who made it out that morning or ran in to help are still paying a price today. And so the battle continues. But there is another group that we must never forget: the thousands of young American men and women who watched our country come under attack and answered the call to serve. They went to Afghanistan, they went to Iraq, they served tour after tour. Eventually, they came home. But for far too many, part of that war came home with them as well. And the wounds aren't always the ones that you can see. That is one of the reasons I am so proud to serve on the board of the Headstrong Project. Headstrong Project provides confidential, barrier-free, and stigma-free PTSD treatment to our veterans and their families. The men and women who stepped forward after our country was attacked. And who sometimes continue fighting those battles long after their service ends. So on this 25th anniversary, I'm asking you to do more than just remember. Honor them. Honor the men and women who answered our country's call. If you'd like to turn that into— if you'd like to turn that remembrance into action, Please consider supporting me in this effort to support the Headstrong Project because every dollar counts. You can donate to the Headstrong Project at theheadstrongproject.org. There's a big donate button right on there. Feel free, please, to reach out, click the button, whatever you can, because every dollar goes towards our veterans. September 11th isn't just history. It's a day that changed me, a day that changed all of us. 25 years later, its impact is still being felt by families across America. We remember, we honor, and we will never forget what happened on that day. Okay, so now let's talk about the markets and what happened yesterday, because if there was one market screaming for your attention It wasn't stocks, it was bonds. The bond market got punched in the face yet again yesterday, and this time it wasn't even subtle. The TLT and TLH both lost 1.2%, leaving them down 7.3% and 6.5% year to date respectively. The 2-year yield surged 12 basis points to 4.55%, its highest close in more than 2 years. The 10-year jumped 10 bps to 4.94%, its biggest one-day move since May and its highest close since October of 2023. And then there was the 30-year, up nearly 8 bps to 5.36%, its highest close since June of 2004. And this is where the bond vigilantes come in. The investors who effectively impose discipline when they think about inflation, deficits, government borrowing, or just all getting out of control. They sell their bonds, prices fall, and guess what? Yields rise. And right now, the message is very clear. If you want us to own your debt, you're gonna have to pay us more. Exactly what I have been saying for weeks now. But here's the question that's got me thinking about it now, because the FOMC meets next week, and if Kevvy Warsh hikes next week, Does the long end of the curve calm down? Well, maybe a hike could initially settle the 10s and 30s because the bond market says, okay, Kevvy, we hear you, you're taking the inflation threat seriously. But what if it doesn't? What if Warsh hikes 25 bps and the 30-year still sits there at 5.35% or in fact goes higher? Then we've learned something very important, because at that point, this isn't a Fed problem anymore. It's a bond market problem, and that's a much bigger conversation. Now, oil— it's all at the root of this problem. WTI surged through $100 yesterday and settled at $102.50, up 6.7%, its 8th consecutive advance and longest winning streak in 3 years. Now, it's still below the nearly $120 April high, but suddenly we're back at levels we haven't seen since May. Brent surged by 6.3% to settle at $107.60, its highest level since May versus the April peak at $126. Now, it's, it's not about where it is. It's about the speed of the move back above $100 that's forcing the bond market to reconsider the effects on inflation. And the Fed. And don't forget the diesel story that we discussed on Wednesday. Retail diesel crossed $6 a gallon yesterday according to GasBuddy. And distillate supplies, well, they remain tight. And remember, diesel moves the economy. Trucks use it, trains use it, farmers use it, construction equipment use it, shipping uses it. Everything that gets grown, built, moved, or delivered has transportation costs embedded somewhere in the price. And that is how an energy shock becomes an inflation shock. And then PPI showed up. August producer prices rose 0.4% month over month and 5.4% year over year, with energy prices jumping 4.2% during the month, something we've been concerned about. So no, Toto, we're not in Kansas anymore, and this isn't theoretical. Oil is up, diesel's up, producer prices are up, and yields are up, and expectations for a Fed hike are up. Which brings us to this morning's CPI, and that is today's main event. And it is not expected to be up sharply. In fact, I'd call the expectations fairly benign, which again I told you is confusing to me. But so if the headline inflation runs hotter because gasoline and energy are exploding while core remains well behaved, Then the Fed has a very interesting decision to make next week because Kevin Warsh can raise rates by 25 bps, he can raise them by 50 bps, but he can't open the Strait of Hormuz. He can't produce another barrel of crude oil. He can't refine another gallon of diesel, and he can't end the conflict. So I'm asking the same question. Do you use monetary policy to fight a geopolitical supply shock? Now, I know the other side of this argument, right? It's not about a hike to magically bring WTI back to $75. It won't. And frankly, another 25 basis points isn't going to stop $100-plus oil and, and, uh, and $6 diesel from working their way through transportation, food, goods, and other costs either. What a hike can do is try to slow demand enough to make it harder for those companies to pass along those higher costs. And maybe more importantly, it sends a message that the Fed will not allow an energy shock to become embedded in wages, pricing behavior, and inflation expectations. But think about what we're saying. We're talking about intentionally trying to weaken demand because we have a geopolitical supply problem. So to fight the inflation created by this problem, does the Fed have to slow the other side of the economy down enough to offset it? And that is why I'm still not convinced a September rate hike is the right answer. But the market's trying to pound it into me that I'm wrong. Remember, I'm in the camp that the Fed does nothing in September and potentially nothing for the rest of the year. Now yesterday, traders pushed the odds of a rate hike next week to Just better than 70%. That's up from 50% just a week and a half ago. I see it. I'm just not there yet. But if CPI comes in hot, especially at the core, then I'm gonna have to probably reconsider that call. Now, Christine Lagarde, president of the ECB, well, apparently she is there. While we're debating whether Wall Street should hike, Christine Lagarde pulled the trigger yesterday and raised rates for the second time. The ECB raised rates another 25 basis points yesterday, taking its deposit rate to 2.5%, right? The second hike since this war began. Lagarde called the decision a no-brainer. Oh boy, here we go. The ECB now sees inflation running at 3% this year, the 2.5% in 2027, and 2.1% in 2028. And Lagarde made it clear that higher energy prices are increasingly at risk of bleeding into food and core inflation. So Lagarde took the bold step and made her choice. Now let's see what Kevvy does. Stocks, well, they got whacked, right? But they weren't the story. The Dow did lose 317 points or 6%. The S&P lost 45 points or 6/10 in its 4th consecutive down day. The NASDAQ lost 172 points or 7/10 of a percent. The Russell got hit harder Down 1% or 30 points, and that matters because once again the SMIDs took the bigger hit. Higher borrowing costs hurt companies that actually need financing, and SMIDs need a lot of financing. And a 10-year knocking on 5% changes the valuation equation, especially further down the cap stack. The transports gave back 11 points. The equal weight SP lost 60 points or 7/10. while the Mag 7 gave up 58 points or 2/10. So you see, it wasn't a huge disaster, but it's the ongoing pressure on stocks. 9 of the 11 S&P sectors finished lower. Materials and tech were the worst performers, down 1.2% and 1.4% respectively. Semis lost 2.5%. Memory names down nearly 5%. Disruptive tech down 1.8%. Emerging markets lost 2%. Metals and miners down 3.7%. And the list, well, it goes on. Energy, unsurprisingly, was one of the few places investors could hide. That was seen as an opportunity. But in the end, while war and supply disruptions push oil higher, oil pushes inflation expectations higher, inflation expectations push bond yields higher, and higher yields push Fed expectations higher, and higher yields compress equity multiples. That's how this works. And one more thing, gold didn't save you yesterday either. Spot gold fell about 1% to $4,356. And silver, which is not something I usually refer to, got hit even harder, down 4.6%. Why? Because when the 10-year is screaming and the dollar is firming and the market suddenly thinks that the Fed is about to hike, the opportunity cost of owning something that pays you nothing goes straight up. So as we head into the CPI this morning, here's where we stand. WT's up 54% since July. The 2-year is yielding 4.55%, up 36% since March. The 10-year is yielding 4.94%, up 26% since March. The 30-year is yielding 5.36%, and it's up 16%. Gold is trading at $4,340, and the S&P is down 3%. The NASDAQ is down 4.5%. and the Russell's down 5.8% from their high, recent highs. Fed hike odds are now standing at 70%, and now comes CPI, which is expected to be benign. So hold on to your hats and sit down. 8:30 is only hours away. Now, if Walsh hikes next week, don't just watch the 2-year, watch the long end of the curve, because if Kevvy hikes and the 30-year still refuses to calm down, then this isn't about the Fed anymore. It's about the bond market. Okay, so overnight, the, uh, in Asia, the selling continued, and apparently nobody over there liked what they saw either. Japan got smacked. The Nikkei lost 2.2%. Taiwan down 1.6%. South Korea down 1.7%. Australia lost 9/10, while Hong Kong and China lost 6/10 and 8/10 respectively. And once again, it was bonds and oil driving the complete conversation after the surge in both Brent and WTI. The sell-off in bonds across the Asia-Pacific region continued. Japan's 10-year yield is pushing towards 3%, while the 30-year is above 4%, and they left the door open to further tightening. Australia's 3-year surged as much as 20 bps to 5.05%, its highest since 2011, and New Zealand's 2-year jumped by 25 bps. Think about what's happening here. The ECB just hiked. The Bank of Japan is signaling more potential tightening. The Fed is suddenly 70% odds to hike next week. Oil is trading above $100, and sovereign bond yields are rising around the world, which leads me to ask, are we starting a global rate hike cycle? And here's the surprise. European markets this morning are up after the ECB raised rates yesterday. This morning, the UK reported a stronger than expected GDP print, and that caused yields on gilts Which are UK government bonds, to decline, bucking the global trend. Early this morning, all market centers across Europe are higher by about 0.5%. Now, US futures are also rising this morning after the beating they took this week. Dow futures up 220, S&P's up 30, the NASDAQ's ahead by 113, and the Russell is up 10 points. I think it's just seller exhaustion. The media is going to tell you that it's about lower oil because WTI is down 2.5%, trading at $99.90. Okay, whatever. The S&P closed at 7,591, down 44 points, breaking down and through the short-term trend line support at 7,603, which leaves us vulnerable to test the intermediate-term trend line down at 7,491, which would be a 4.5% move off the high. Hardly anything to get your panties in a bunch about. Now, as I pointed out yesterday, if we continue to see yields rise and the 10-year pierces 5%, then that's going to put more pressure on stocks. Now, I'm in the camp that we could see an 8 to 10% drawdown this fall, which means about another 3.5 to 5.5% from here. And if that happens, we would be looking at the range of 7,170 to 7,325 on the S&P. And that's key because— The long-term trend line is down at 7,160. Remember, 10% drawdown is considered well within the normal trading pattern for stocks. It gets a bit more concerning if it doesn't hold, but let's not go there just yet. A drawdown of more than 10% puts us in correction territory, while a drawdown of more than 20% puts us squarely in bear market territory. And for that to happen, we'd have to trade all the way down to S&P 6,250, something I just don't see don't happening. Yeah, I agree. see. Remember, on any pullback, sectors that have outperformed are certainly more sensitive and may get hit harder, which speaks to knowing what you own and why you own it. But for now, the economy remains strong. There is nothing weak about it. And while the inflation may be ticking up a bit, we are nowhere near a recession. And in the end, remember, there's always an opportunity somewhere. Now, if you'd like to discuss your goals or evaluate the risk in your portfolio or simply just get a second opinion, Give me a call at 561-931-0190, or better yet, you can click on the, uh, you can go to slatestone.com and click on the Connect Contact Us link, and the email will come right to me. I'm always happy to provide the complimentary risk, uh, portfolio review and risk assessment. Okay, so now I thought, I thought about this. So what are we having dinner tonight? So we're gonna have polifieno, right, which is straw and hay. Now, after a morning like this, maybe the recipe should be about something more than just what we're having for dinner. For me, food is always about family. It's always about gathering around the table, telling stories, laughing, arguing, raising a glass, and spending time with the people you love— friends and/or family. And if it's the last— and if the last 25 years has taught me anything, it's that we should never take those moments or those people for granted. for granted. So this weekend, make something simple. Invite somebody over, open a bottle of wine, put the phones away, sit around the table a little bit longer than usual. Because in the end, those are the moments that matter. And this one is perfect for sharing. Or straw and hay. It's a classic combination of golden egg pasta and green spinach pasta tossed with prosciutto and peas and cream and Parmigiano. It's simple, it's comforting, it's beautiful, and it's meant to be shared. Okay, so here's what you need, uh, here's what you need to make this dish. Feeds about 4 to 6 people. A half a pound of egg fettuccine or tagliatelle. You need a half a pound of spinach fettuccine or spinach tagliatelle. You need butter, olive oil, 4 to 6 ounces of prosciutto sliced into thin ribbons, 1 small shallot finely chopped. You need a cup of fresh frozen peas, maybe a cup and a half. I love peas. You need a cup of heavy cream, freshly grated Parmigiano-Reggiano cheese, and of course salt and pepper. A dusting of nutmeg is optional. Now bring a large pot of salted water to a rolling boil. While that's heating up, melt the butter and olive oil in a large sauté pan over medium-low heat. Add the shallot, cook it gently until it's soft and translucent. Add the prosciutto and cook that until the— they crisp, they begin to crisp around the edges. Now you're going to add the peas, cook for another minute or 2, pour in the cream, season it with a little bit of pepper— pepper— and a touch of nutmeg here if you like. Let it simmer gently until it begins to thicken and the peas, you know, thaw out. Cook both pastas now together until they're al dente. And if it's fresh pasta, it's going to cook in 3 minutes. If it's box pasta, it's going to cook in 8 minutes. Before straining though, always reserve some of that beautiful pasta water. Now, take the pasta, add it directly to the sauté pan, toss it with the cream sauce. Now add the Parmigiana and a splash of your pasta water, tossing until everything becomes silky and the sauce beautifully coats those green and golden noodles. Taste it before adding salt because the prosciutto and the Parmigiana are already salty. If you think you need more, then go for it. Finish this with another handful of cheese when you serve it. And here's a KP tip: Don't overwhelm this with cream. Tagliatelle should be silky, not swimming in a cream sauce. And once the Parmigiano goes in, don't boil it. Keep the heat on very— keep the heat on low, like simmer, and toss it till everything just comes together. Then put it in the middle of the table, pour the wine, and enjoy the people you are with. In any event, it's gonna— it looks like it's gonna be a beautiful day here in South Florida. I'm gonna be on Schwab TV at 8:20 with Diane King Hall, and then I'm gonna be on Uh, uh, Varney and Company on Fox Business at the top of the 9 o'clock hour. I hope to see you then. If not, take good care. God bless America and God bless you.