Things you need to know
- Investors embrace the ‘no recession’ story and take stocks higher
- Treasuries remain inverted pointing to ‘a recession’
- Gold waffles between maybe it is or maybe it isn’t
- Oil under pressure as Saudi Aramco hints at upping production
- Big week for the retailers – will it be Christmas in September?
- Try the Parmegiana Crusted Mahi Mahi
Stocks rose on Friday – posting another week of gains – marking the longest stretch since November 2021. The Dow advanced by 424 pts or 1.3%, the S&P up 73 pts or 1.7%, the Nasdaq raced ahead by 270 pts or 2.1%, the Russell up by 42 pts or 2% and the Transports gained 75 pts or 0.5%.
The mood was helped on Wednesday by the recognition that inflation might just be subsiding as Joey tried to make very clear – Saying that “the CPI for July came in at 0% m/m….let me repeat that 0%”…….now that sounds great, but when you take out food and energy (which they do) the CPI for July rose by 0.3%…and y/y it is still up 8.5% – or near 40 yr. highs…… but this report did give investors a reason to think that the FED will ‘take a step back’ and raise rates by only 25 or 50 bps…. which they say – will prevent us from going into a recession… (Unless we’re already in one – that is still up for debate)
And here is another news flash- Congress just passed not 1 but 2 massive bills, One a Climate and Chips Bill – which they sold as a Chips Bill and the other a massive TAX and SPEND Stagflation bill …….and both spending bills are expected to only add to the inflation story, rather than reduce inflation as Chucky Schumer tells us.
(In addition, they are hiring 87k new IRS agents to go after anyone with a ‘VENMO’ account…. You – know all of those billionaires that are moving money via VENMO and not telling anyone thereby avoiding millions of dollars in taxes! It’s laughable!)
So, my friends – ‘not so fast’…. While inflation did recede in July – one month does not negate the 17 months of advances – (March 2021 – present). So, is it a bit early to rip off the bandage and celebrate? I think so….remember – since we are seeing history repeat itself (1980/82 and 2021/22) – do not be surprised to see inflation and employment suddenly reverse course and move up in the months ahead – and all that means is – The FED should not change the pace or increment of increases that they have led the markets to believe is happening – meaning 75 bps should be the call, anything less risks the chance that they will be seen as ‘waffling’ – bowing to the pressure…..a mistake for sure
For those of you NOT around in 1981 – soaring inflation also ‘retreated’ and unemployment mounted (rising to 7.4%) and the FED pivoted – only to see inflation and unemployment rear their ugly heads and zoom higher – forcing the FED to re-pivot and force rates up to 21% to tame the beast…and that forced the country into a deeper recession – that lasted from July 1981 – thru November 1982 – One that may not have happened had the FED stuck to the plan. So, I say – stick to the plan…. raise rates by 75 bps in September.
At the moment- the Treasury curve remains deeply inverted…. but don’t tell anyone. The inversion points to the idea that the FED tightening that is coming will send us into a deep recession….and remember- they haven’t said a word about reducing the balance sheet at all…by September – we were supposed to reducing it by $90 billion/month – how’s that working?
Oil traded down 2% on Friday on the expectation that any disruption from the damaged pipeline – in the Gulf of Mexico would be short term at best – so any fear that supplies would be disrupted for any length of time are no longer an issue. 7 offshore deep-water platforms had been affected helping to send oil higher on Thursday….…. but that is no longer an issue and so the run up on Thursday was met with selling on Friday. This morning – oil is trading down $4 to $88/barrel – Saudi Aramco telling us that they are ready to raise crude output to a maximum of 12 million barrels/day IF the Saudi gov’t requests it to meet demand. Easing of covid restrictions in China and a pickup in demand in the airline industry is behind that request. Funny, but the Chinese just reported weaker macro data (due to the lockdowns) – so which is it? A stronger China or a weaker China?
Gold surged by $12 on Friday to end the day at $1819/oz. A declining dollar suggesting that the FED will change course is causing the metal to rally. This morning gold is under pressure – falling by $17 to trade at $1,798/oz…. struggling to hold the trendline at $1801. Overnight China’s central bank cut rates in order to support their economy – which has come under pressure due to covid 19 lockdowns and a brewing real estate crisis. Many are now saying that Chinese demand for gold will ebb as their economy struggles and so the algo’s are sending gold lower….
Eco data today includes Empire Manufacturing…. expectation is for it to be 5 and that would be down from 11 last month. Tuesday brings us Building permits and Housing starts – both expected to be down m/m as well. Capacity Utilization and Industrial Production suggest that inflation is not subsiding…. Capacity Utilization is expected to be 80.2% – anything > 80 is considered inflationary…. but let’s not quibble – surely someone will change THAT definition as well.
Wednesday is all about the July FOMC mins…and while they are old, no one is expecting to learn anything new at all – although so many analysts will be combing thru the minutes to find something that no one else saw (like plans to reduce the balance sheet maybe?)…….the mins expected to reveal that the FOMC is laser focused on inflation and has every intention of staying the course. Recall – that was all but promised by Chucky Evans, Neely Kashkari and Mary Daly last week even Dallas (former) Fed President Bobby Kaplan – who resigned this position back on October 8th, 2021 (think ‘Pelosi style trading’ – but that’s not important right now) – he jumped in saying that the FED needs to stay the course….….Remember – none of these people have a vote as they are not on the committee but they can be a source of information when there are so many questions. Just an update – the Dallas Fed has appointed Lorie Logan as the new Dallas Fed President – she takes over in late August and will be a voting member of the FOMC. She was the executive VP of the NY Fed, and we are about to find out if she is a Dove or a Hawk.
US futures are down this morning – the talking heads will tell you it is because of weaker data out of China (ok – you run with that, I’m not) …. Dow futures -150 pts, the S&P’s -25, the Nasdaq -70 and the Russell is -12. It is a BIG retail earnings week…. WMT, HD, LOW, TJM, TGT, KSS, TPR and EL…. Investors will be watching how surging inflation is affecting consumer psyche……Recall – that we have gotten a bunch of revised estimates, all lower – so a fair amount of damage was already done – (WMT and TGT are just two names that come to mind….).
The thinking here (as is usually the case) is to get out in front of the report, cut the outlook, announce the misses, take the hit, and then when they do report it will appear as if they ‘beat the estimate’ – See how that works….? Last week – WMT also announced that they are laying off 200 corporate employees – hmmmm, what’s up with that? Is the consumer slowing down? What will they say about inventory? Will we see big Christmas SALES in September? Will they raise their dividend? Will they announce a bigger stock buyback program? We’re about to find out….so sit tight.
European markets are slightly higher…the Europeans apparently not concerned about the China data……there is no macro data to point to – just last week’s UK GDP which contracted, along with inflation prints from France, Spain and Italy. –At 6 am – European markets are all up by about 0.2%.
On a side note – Another delegation from congress led by Sen Ed Markey (D:MA) landed in Taiwan on Sunday….to discuss climate change and supply chain issues along with trade….So, I ask – Why exactly did we go to Taiwan again just 14 days later? Discuss climate change with Taiwan? Climate change?
The S&P ended the day at 4280 up 73 pts – We tested a low of 4219 before bouncing to end the day on the highs. We remain in the 4115 / 4335 trading range – but I think we will find support at the 4200 level – unless the retailers report horrible numbers and weaker, cautious guidance going into year end. Remember – the Jackson Hole Kansas City Fed boondoggle is only 2 weeks away…. there is sure to be lots of speculation around what we are expected to hear. In any event – sit tight….
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Parmegiana Crusted Mahi Mahi
This is a great dish…simple to make – and better to eat.
For this you need – the Mahi Mahi, fresh grated parmegiana cheese, mayonnaise, Seasoned breadcrumbs s&p and fresh lemon, Olive oil.
Rinse the fish – pat dry – season with s&p, fresh lemon juice and a splash of olive oil. Marinate the fish in the fridge for at least 30 mins.
When ready – remove the fish from the fridge and it come up to room temp.
Preheat your oven to 400 degrees.
In mixing bowl, combine ½ c of mayo, parmegiana cheese, and some seasoned breadcrumbs. (Should be enough for 4 pieces).
Now – place the fish in a baking dish and top with the mayo/breadcrumb mix. Place in the oven and cook for 20 mins or until it is nice and golden brown. Serve with a lemon wedge – rice pilaf and steamed broccolini goes really well with this.
Enjoy this with you favorite chilled white wine.
This should cost you about $30 to feed a family of 4
Buon Appetito.
