Things you need to know
- PPI weaker than expected – Is Inflation dead? Not so fast
- San Fran Mary Daly -says inflation is too damn high
- Treasury yields rise – Oil rises, Gold remains steady at trendline
- Retail Earnings out next week – Consumer is in the spotlight
- Try the Maple/Bourbon Ribeye Marinade
*** Here is the Barstool Sports – Family Office – Podcast that I was on last week with my friends Large and Tyler*** Part 2 in September….
https://beacons.ai/barstoolfinance
Walgreens is offering $75k signing bonuses – if you are a pharmacist….as they struggle to fill open positions…. Base pay for the average Walgreen pharmacist is about $100k – top earners are pulling in $125k….so where are all the pharmacists? What is happening?
Producer prices are in decline…. that’s good, but many question whether one month’s inflation data for both the CPI and PPI is now the trend? Does this one month negate the last 12 months of surging prices? And let’s just remember one thing – inflation is still running at 8.5% y/y……and that’s a far cry the 2% target that the FED is aiming for….
Stocks started out strong on the back of the ‘weaker’ PPI report but then failed as morning turned to night…. leaving stocks well off their morning highs to end the day flat to lower. The Dow added 30 pts, the S&P lost 3, the Nasdaq lost 75, the Russell gained 6 and the Transports added 100. Treasuries price declined sending yields up – leaving the curve still inverted…with the 2’s yielding 3.20%, the 5’s yielding 2.9% and the 10’s yielding 2.87%…. In the end – the bond market is telling us that IT is expecting a significant slowdown into the new year – think hard landing – and that the FED will be forced to CUT rates in order to try and avoid a hard landing….which I don’t think is possible….I think we need to expect it to be hard and then celebrate if it is soft. (Which sounds counter intuitive!)
Oil which had traded down to the trendline support at $89.25 ish…. last week has managed to hold that line and trade up. Yesterday it rose 2.2% or $2/barrel to end the day at $94.25….and this morning it is up again – small but up – trading at $94.57/barrel. There is a small disconnect between OPEC and the IEA…. OPEC is calling for a small decrease in demand growth while the IEA is expecting an increase in demand growth…. (Again – that’s what makes a market…. both buyers and sellers). The popular narrative is that all the fears of a deep recession are fading and so the idea that demand would collapse is now no longer the narrative – in fact producer, refiners and suppliers are all calling for an increase in demand going into the second half of the year. And remember – RBC and GS along with a handful of others are pushing the narrative that we will see $120/barrel before we see $60/barrel.
Gold is hugging the trendline at $1802 as traders decipher what’s next for the economy and the FED. Signs of declining prices – thus declining inflation – will keep a lid on gold, but let’s not get crazy – Again – does one month set the new trend? What if inflation did indeed stop going up BUT remained at these elevated levels? Does that mean inflation is dead? Hardly. And that means that gold will be a beneficiary.
And the latest narrative out of the NON-Voting members – Evans, Kashkari and Daly all suggest that the FED will remain aggressive – so, it’s confusing – In fact Mary Daly told us yesterday that inflation is too damn high and that her base case if for ‘at least’ a 50 bps increase but is not taking 75 off the table at all….(but remember – she doesn’t get a vote – but she is a mouthpiece)…..leaving many to place bets on the next move…..Is it 75? 50? Or is there a complete pivot on the horizon leaving the FED to do nothing at the September meeting? Here are my odds….60/40 for a 75 bps move vs. a 50-bps move.….0 for a complete pivot.
The recent rally in stocks off of the June lows that we’ve seen – DOW +12%, S&P +16%, Nasdaq + 20%, Russell + 21% and the Transports +18% – is all about the idea that the FED will slow and then pivot sometime in the 1st qtr. of 2023….I think that a big ask…..I just don’t see it but I’m loving the ride back up….as are so many of you. Money managers are also hoping that the worst is over as they now have to decide what to do with all that cash that they have been holding for most of the year….and if they suddenly all think that the bottom is in – then expect them to start to plow money back into stocks as we move into yearend (This is exactly what started to happen on the big Wednesday rally – the decline in the CPI lit a fire under all of those asset managers that have been doing nothing with investor money) ….so for those of you who focused on the long term and didn’t panic and kept putting money to work – you feel good, you did the right thing – as long as you had a well-diversified portfolio with good solid long term names….
Last week – when I was on Varney & Co on Fox Business – Stuart asked me if I was ready to jump in with both feet now that it looked like the worst was over…and my response was – I don’t have to…I never panicked and got out…I kept putting money to work all year (buying stocks ON SALE) – so I am already ‘all in’…. so, this idea that the retail long term investor has to buy and sell and buy and sell and try to time the market is now officially debunked!
Eco data today includes the U of Michigan sentiment survey and inflation expectations…. Sentiment is expected to be 52.5 – up from 51.5 while analysts expect 1 yr. inflation rates to be 5.1% and the 5 – 10 yr. outlook to be 2.8%. (I think that data point is useless…. but you make your own decision).
US futures are up again this morning…. Dow futures +110 pts, the S&P’s +17, the Nasdaq +70 and the Russell is +10. The narrative this morning is that the FED will cave and pivot…. that the economic data is now telling us that the FED is succeeding and that they do not need to be aggressive…. Next week brings us retail earnings…. think WMT, HD, LOW, TJM, TGT, KSS, TPR and EL…. will we see trade down from private label to generic label? Is the consumer slowing down? What will they say about inventory? Will we see big Christmas SALES in September? We’re about to find out….so sit tight.
European markets are slightly higher…. – Preliminary UK 2nd qtr. GDP showed a contraction….as the cost-of-living skyrockets…. We are also expecting inflation prints out of France, Spain, and Italy. Eurozone Industrial Production is also due. At 7 am – European markets are all up by about 0.2%.
The S&P ended the day at 4207 – after testing a low of 4201 – (holding the century mark) and a high of 4257. We remain in the 4115 / 4335 trading range…. smack in the middle of both trendlines…. I suspect that we will remain in this range thru month 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
Maple/Bourbon Rib-Eye
This is a simple marinade and is wonderful when grilling a nice sirloin steak or bone in Rib-Eye.
For this you need: 1 cup of real Vermont maple syrup, ½ cup of Jack Daniels Bourbon, s&p and a shot of ground red pepper….
Mix well – and then use it to marinate your favorite cut of meat. (Overnight always works well).
When ready -remove the steak from the fridge and let it come up to room temp.
Light the grill and get it nice and hot. Sear the steak and cook for 4 min on each side (depending on thickness….) and then remove and let it rest for 5 mins.
Put the Idaho potatoes into the oven to bake…. Make a big salad with all the trimmings…tomatoes, red onion, cucumbers, scallions, and chopped romaine. I add sliced hard-boiled eggs as well. Season with s&p, oregano. Dress with Olive oil and fresh lemon juice.
Slice and fan it out on the plates. Accompany with the baked potato – butter and sour cream a must.
Buon Appetito.
