In this morning market briefing Kenny Polcari outlines the latest U.S. equity performance, emphasizing that the recent rally is being driven primarily by mega‑cap, AI‑focused growth stocks rather than a broad‑based advance. He notes a divergence where the S&P, Nasdaq and the “Mag 7” are in overbought territory while the Dow and Dow Transports lag, suggesting rotation and possible fatigue. Polcari reviews key macro data – ISM Manufacturing and S&P PMI still in expansion, but a sharp rise in the ISM prices‑paid component, a dip in vehicle sales, and manufacturing employment slipping below the 50‑point expansion threshold – all of which give the Fed room to stay patient on rate cuts. He flags the VIX at 17 as a contrarian signal of mis‑priced risk, especially given ongoing Iran‑U.S. tensions and uncertainty around the Strait of Hormuz and the 60‑day War Powers Resolution clock. The host recommends staying invested but cautions against equating calm markets with clarity, highlighting under‑performing sectors (financials and healthcare) as potential value opportunities. Earnings remain the rally’s engine, with an 80% beat rate; however, not all beats are rewarded equally, as seen with mixed reactions to Chevron and Exxon. Polcari then surveys the bond market – 2‑year at 3.87%, 10‑year at 4.36%, 30‑year at 4.95% – underscoring a “quiet warning” that inflation remains sticky and the Fed’s higher‑for‑longer stance persists. Commodity commentary notes oil trading around $103 amid supply‑chain disruptions, while gold is pressured lower by rising real yields. The segment concludes with a preview of the day’s earnings lineup (Palantir, Vertex, Cummins, On Semiconductor, Diamondback, Williams, Biontech) spanning tech, healthcare, industrials, semis, and energy, positioning these reports as the next test of the market narrative.
Chapters
Well, good morning, it's Kenny Polcari, your host of the party. Today is Monday, May 4th, 2026, and here are the things you need to know to get your day started. Well, stocks continue to advance. The S&P, NASDAQ, and Russell are all in overbought territory. The Dow and the Dow Transports though are not confirming the push higher. The eco data remains mostly resilient and strong. Oil is lower, gold is lower, VIX is lower, and bonds are holding steady. And what do we have at dinner tonight? We're gonna have the pan seared roasted chicken thighs. We're going to get to that in a moment. Had it last night for dinner. It is delicious. Okay, look, stocks wrapped up another week of gains, and yes, the headlines feel great. The record-breaking run drove stocks to new highs in their longest weekly advance since 2024. Hopes of a deal to end the Iran conflict and strong earnings were the drivers. But let's be clear, earnings have been strong and the narrative is bullish, but underneath the, the sheets, there are things to consider. On Friday, the Dow lost 152 points, the S&P added 22, the NASDAQ was up 222, the Russell gained 13 points, the transports, like the Dow, lost 195 points, the Equal Weighted S&P lost 21, while the Mag 7 added 363 points. Now that divergence, right, the Dow and the Dow Transports is your tell. This is not a broad-based melt-up. This is a mega-cap, AI, and growth doing most of the heavy lifting. The Dow and the transports lagging suggests rotation, maybe a bit of fatigue, maybe managers locking in gains after a big run. I mean, just look at the transports, they're up 18% year-to-date, and yet here we are, 6 straight weeks of gains. Now On the economic front, the data remains okay, right? The S&P and the ISM Manufacturing PMIs both remain in the expansion zone. That's a positive, but inflation remains sticky. The prices paid component rising to 84.6, that's up from 78.3 last month, and it's up from 58.5 in January. That's a 45% increase in the prices paid component in just 4 months. Not really very good. Remember, prices paid are the prices that manufacturers have to pay for raw materials that they need to purchase to manufacture the products that they produce. Now, so the fact that the data point continues to rise gives the Fed cover to do what? Stay patient. Think no rate cuts anytime in the future, which keeps upward pressure on yields. The two other data points from Friday suggest continued caution in the outlook. Total vehicle sales dropped to 15.9 million. That's down from 16. Not a huge data point, but still a data point, uh, nonetheless. And ISM Manufacturing Employment dropped to 46.4, down from 48.7. Now remember, 50 is a dividing line. Greater than 50 equals expansion, less than 50 suggests contraction. So at the moment, the reading suggests that manufacturing employment is in the contraction zone. Now, it's not bad enough to break the market or investor psyche, but it's not good enough to justify this kind of complacency that we're seeing, because the VIX, it closed at 17 on Friday. Now recall, the VIX is essentially the market's insurance policy. It reflects the cost of protecting portfolios against downside risk. So when the VIX is below 20, it's telling you that investors see very little near-term threats. They're not buying protection, they're not hedging. And for me, that's kind of a contraindicator. In fact, historically, when the VIX is below 20, it signals a market that's relaxed. In fact, maybe too relaxed, because remember, risk doesn't disappear, it just gets temporarily mispriced. And with the ongoing geopolitical chaos in the Mideast, a VIX of 17 not only suggests a mispricing to me, but it also seems to suggest an end to the chaos. And that's where we differ. While I do think the chaos is going to end, I'm just not sure it's going to end as quickly as the VIX and the market is suggesting. Thus, I'm not chasing names that have surged over the past 5 weeks. Think tech. But I am finding opportunities in other sectors. Remember, I own those names. I bought more when they went on sale, but now I'm putting money to work in other sectors that are underperforming. So yes, as always, you should stay invested, you should stay disciplined, but don't confuse calm with clarity, because when risk is being mispriced, that's when you have to be most thoughtful about where you're going to put new money to work. So of the 11 S&P sectors I currently like the financials, which are down 5% year to date, and healthcare, that's down 6% year to date. They're way underperforming the rest of the market. Now, there are certainly plenty of other sectors to consider. You just have to go and do your homework, right? I'm just going to talk about the broad S&P at the moment. And then there are earnings, because right now they are clearly the engine powering this rally. So far we're running at about an 80% beat rate, and all of the hand-wringing around the hyperscalers— think Amazon and Meta and Microsoft and Alphabet last week— did very little to derail all this excitement. In fact, Thursday night Apple delivered and investors loved it, sending the stock to new all-time highs, right? But then came Friday morning. We heard from Chevron and Exxon, right? Both large-cap, mega-cap energy companies, both beat, yet the reaction was kind of choppy and mixed. Exxon lost 1%, Chevron lost like 1.5%, and that tells you everything you need to know. This is a stock picker's market. Not everything is working. Not every beat is being rewarded. Investors are being selective, rewarding quality as they should, while sometimes punishing anything that doesn't live up to their narrative, right? I'm not necessarily sure that the narrative for Exxon and Chevron was that, was that negative, but trader types and algos did. And let's not forget the geopolitical backdrop. US and Iran tensions, the ongoing risks around the Strait of Hormuz and what that all means for the global supply chains and pressure building on the global economy. Yes, the headlines softened a bit on whispers of negotiations, but don't kid yourself, this is far from over. In fact, if you step back, you'll see how this is beginning to play out because there's a bigger game being played here. Iran has every incentive to stretch this out. And why? Because time becomes a weapon. The longer this drags on, the closer we get to that 60-day threshold under the War Powers Resolution, and that's when Congress has to step in, debate, and potentially constrain Trump's next move. Now, here's where it gets even more interesting, and in fact, it gets more complicated. Some members of Congress are already arguing that we've hit that 60-day window, that the clock started the moment US forces were engaged, and a ceasefire doesn't erase that obligation. On the other side of this argument, you get Secretary of Defense Pete Hegseth. He's suggesting that a ceasefire paused the clock, effectively buying more time. So which is it, you ask? As usual, guess what? It's gray because the law is vague. Which leads me to ask, did they do that on purpose, leaving it vague to all this interpretation? Look, both sides are going to interpret it in a way that fits their own agenda. But for the market, it remains an uncertainty because if this drags on and Congress gets pulled into the fight, it's going to get really messy and potentially less predictable. So while the market is reacting to every possible deal headline, pushing stocks higher, calming volatility, you have to ask yourself, is anything actually being resolved? Or is it just being— is it just being the can being kicked down the road? Because if you look under the hood, the market isn't reacting to a resolution. It's looking through the uncertainty. It's betting that this is all going to get cleaned up, that oil is going to come down, the supply chain is going to normalize, that the Fed doesn't have to respond, right, to higher inflation. But the reality says something very different. The strait isn't fully open, shipping is still disrupted, oil isn't collapsing, and Iran, they are not rolling over. So this is not the time to go to sleep. Make sure you stay awake. Now flip over to bonds because that's where the truth usually lives. The 2-year yielding 3.87%, down from 3.94%. The 10-year sitting at 4.36%. Okay, that's down from 4.4%. And the 30-year yielding 4.95%. That's down from just over 5%. The bonds are holding in firm, right? That's a quiet kind of warning. While equities are celebrating, the bond market is saying, uh, not so fast, cowboy. The Fed is still in this fight. Inflation is not dead, and higher for longer remains very much alive. Oil is trading at $102.85 this morning after trading as high as $110 last week. This after the headlines continue to suggest that Iran floated some kind of negotiation proposal. And of course, the algos read that headline and they react instantly because that's what the algos do. But let's not kid ourselves, nothing is resolved. The strait is still closed, supply is still tight, shipping costs are still elevated, and the geopolitical backdrop has not really improved. But over the weekend on Truth Social, Trump said that the US will assist in guiding neutral ships that have been trapped in the strait. He also went on and he made it very clear in another Truth Social post. He said, and I quote, if in any way this humanitarian process is interfered with, that interference will unfortunately have to be dealt with forcefully. Clearly talking straight. To Iran. Now, Iran's national security responded this way on Twitter, on X: the management of— and I quote— the management of the Strait and the Gulf won't be dictated by Trump's delusional posts. Welcome to diplomacy in the 21st century. It's ridiculous, but it is what it is. Now, gold is telling you something too. This morning it's trading at $4,543. It's down $70, not acting like a safe haven at all. Why? Because yields are rising and the dollar is firming. So instead of acting like a safe haven, gold is getting pressured by higher real rates. As discussed, we identified it last week. Gold remains in the $4,280, $4,760 trading range, but the path of least resistance appears to be lower, at least right now. Earnings today is more about confirming the narrative. We're going to hear from Palantir, Vertex Pharmaceuticals, Cummins Engines, uh, uh, On Semiconductor, Diamondback Energy, Williams Companies, and Biontech. These companies represent a range of sectors: tech, AI, and software, healthcare, industrials, semis, oil exploration and production, nat gas, midstream pipelines, and biotech. EcoData today includes
