Things you need to know.
– So, NVDA did not end up igniting a fire, but maybe did create a storm.
– Stocks FALL and fall hard….
– Jackson Hole is in full on mode – JJ, Chrissy and Andy are all due to speak today.
– Futures are shaky, the Dollar is UP, Treasury Yields are UP, Oil is UP, the VIX is up, and Gold is Down
– Try the Baby Back Ribs
Wait, what happened? Weren’t the NVDA results supposed to make everything ‘ok’? Weren’t they supposed to put everyone at ease? Wasn’t the talk of a rate pause supposed to make it all better? Weren’t stocks supposed to keep going UP, UP, UP? Well, maybe not so much (remember it is the August/October time of year – and that is still hurricane season here in the US) ….
I mean on Wednesday – it was all about how the FED was going to surprise us and announce a pause in rate hikes….and it was also about the NVDA results (that blew the roof off) that came after the bell…. Everything moved up in anticipation of what that was supposed to do to investor psyche….
And while the opening yesterday was strong for Nasdaq – as many expected the NVDA results to send tech even higher, it was weak for the broader market…The Industrials started weak and ended weaker and ultimately the tone changed….and changed big – taking all the indexes and many stocks well into negative territory just as all of the attendees were arriving at Jackson Hole – flying in from all around the world to attend…..…..by 4 pm the Dow lost 375 pts or 1.1%, the S&P’s down 60 or 1.35%, the Nasdaq LOST 257 pts or 1.9%, the Russell down 24 pts or 1.3% while the Transports gave back 120 pts or 0.8%.
Bond yields which fell on Wednesday (on the back of the pause narrative) rose yesterday – after we got another round of mixed commentary by different members and former members of the FED ….Boston’s Suzy Collins – telling us that rate hikes are not over yet and when they are – we can all expect the FED to hold rates higher for longer than the market is currently pricing in…..And to add salt to the wound – we then heard from Former Treasury Secretary Larry Summers and Former NY FED President Billy Dudley who both joined the Collin’s chorus for higher saying that ‘the markets are still underestimating the so-called neutral rate and that any hint of an upward revision would likely ripple across global markets forcing a revaluation…..’ and just to put the cherry on top – (another former member of the FED) – St Louis’s – Jimmy Bullard – now the Dean at the Purdue Business School – just had to chime in – telling Bloomberg TV that ‘the pickup in economic activity this summer could delay plans for the FED to wrap up the increases’……Now remember – Jimmy B was always the one that they put forward when they wanted to test out an idea – he was the one that released the balloon and he had a seat at the table…..Today – he is no longer at the table – but it would not surprise me if the FED is still using him as that ‘deep throat’ mouthpiece….because the industry has enormous respect for him….and the FED knows that.
But then we heard from Philly Fed President Patty Harker who told us – live from Jackson Hole – that he sees interest rates on hold for the balance of the year and that the FED has ‘likely’ undertaken sufficient tightening.
At the end of the day – the 2 yr. ended the day yielding 5.02% (up from 4.966%), the 10 yr. at 4.2532% (up from 4.19%) – again suggesting confusion from one day to next – just because of all the speculation about what he will say – which is why he just needs to say – “Quit it – we are not done yet and rates are going to 6% – Period”. How’s that sound? It’s definitive, it’s clear and it’s probably true.
And so – the message remains confused…and the markets remain confused (and stretched) and so no one should be surprised by the action….Remember – we have been talking about this since July….August/October is a volatile, seasonally weak time of year….this is not something new….so sit back and watch it unfold – because in the end, it is what it is.
In just 3 hours FED Chair JJ Powell will take center stage – what will he say today that is different than what he has been saying all along? Will his speech change the most recent narrative? Can he negate the FOMC mins from last week as if they never happened? I don’t think he can…. (Think credibility).
I think he is going to do exactly what he has been doing all along…. he is going to play on both sides of the fence – he wants the optionality to be able to change course if the data dictates…. …. He is not going to put himself into a box by telling us that he won the war – Why? Because he hasn’t (yet)… Inflation is still causing prices to rise by 4%, not FALL by 4%….and so – he has to remain a bit hawkish – maybe not way out on the scale, but he has to be right of the center…..anything less will suggest that he is turning dovish and dovish will then be interpreted as he is about to cut rates….something that is NOT happening anytime soon. A dovish tone will send markets higher – again, something he is trying to avoid….in fact – he would like to see some of the wind come out of the sail….and he has been very clear on that…. I also would like to see that…. (But that’s for selfish reasons….).
Now yesterday the eco data once again suggested a mixed picture…. a drop in Initial Jobless Claims and Cont. Claims continues to suggest a strong labor market, Chicago Fed Activity was slightly better but Durable Goods Orders were down sharply while the Kansas City Fed Manufacturing Activity was zero – but that was up from negative 10 last month.
Today’s data is all about the U of Michigan surveys – although I’m not sure anyone is really paying attention to that at 10 am vs. what we are about to hear from JJ at 10 am. And then after JJ – we will hear from Andy Bailey – BoE Governor and Christing Lagarde – ECB President along with a host of others…. In the end – none of this will drive stock prices over the long term, but it could create chaos today….Because it’s all about the interpretation…..and we know that people hear what they want to hear vs. what is being said…..I say “The sun is out” (that sounds positive), you say “ Well, It’s kind of cloudy” (that sound negative) but then I say “Yes, but the sun is still out” (and that’s positive again.) and so the market goes up and it goes down….Nothing new.
Now look – let’s cut to the chase….As of 6 am this morning…..there is a 21% chance of a 25 bps rate hike in September and a 36% chance of a November hike of the same amount which suggests that 79% of investors expect a pause in September and 64% expect a pause in November.…..and while I am still in the camp that thinks rates are going up (to 6%) – it is what it is…Let’s see what happens to those percentages at 10:10 am…after JJ starts to speak…..
US futures are up….Dow futures up 70, the S&P’s up 7, the Nasdaq up 5 and the Russell is up 7….and that should not be a surprise after the losses yesterday…..and while they are up, they are by no means suggesting a change in sentiment….it continues to be a ‘dead cat bounce’ as I intimated last week and we can continue to expect volatility around the Jackson Hole summit and the commentary that results.
The weekend is here – I would not be surprised to see stocks fall as we move into the weekend – if JJ says what I expect him to say….
European markets are also rallying…. this morning – as investors across the zone expect JJ to be left of center – suggesting a more dovish stance and then that might mean that Christine Lagarde and Andy Bailey will do the same….and that is causing the algo’s to go into ‘buy’ mode. This morning we also learned that German Business Sentiment has fallen further into the black hole…. going from 87.4 to 85.7 – this is the 4th month in a row for weaker German data and it suggests that more companies are becoming more pessimistic – leaving some to ask – Does the ECB know this? Does the ECB recognize that the German economy is struggling? And if it does – then maybe they pause…. I still say – not yet.
The dollar index rallied yesterday and is up again today…. trading at 104.10 up from 103.36. The move up is telling you that the currency markets expect JJ to remain hawkish…. (higher rates support a stronger dollar – capisce?). We are now testing the June highs at 104.70……. a push up and through that – will send the dollar towards 106. And guess what happens to gold? (It’s not going up…….) This morning gold is down $3 at $1944.
Oil – which has been falling on the declining demand story – did an about face yesterday…. rising 30 cts to end the day at $79.05 and this morning it is up again……rising by $1 or 1.3% to trade at $80.05….and what caused that? LOL…they flipped the narrative…first they tell us that oil firmed up ahead of the JJ speech and then they told us that ‘inventory drawdowns are convincing’. Wait! What happened to the China story? Or the Eurozone story? Morgan Stanley telling us that they expect crude inventories to ‘remain in deficit’ by year end – remain in deficit – means that demand will outstrip supply and when demand outstrips supply – what usually happens? Oh right, prices rise (Econ 101) ….do not discount that the Saudi’s want to see $80 oil at a minimum…. $90 is better….
The S&P ended the day at 4376 down 60 pts…. giving back all of the 48 pts, it gained on Wednesday and then some and while futures are pointing a bit higher today…I am NOT buying it…I still think that prices move lower into the September FED meeting…. which supports my ‘patience is a virtue’ mindset.
We are in the final trading days of August, and we are about to hear from JJ…. Many now wondering – will he sound more dovish or more hawkish…. we are about to find out…. Again – just 7 days ago – the FOMC mins revealed that the majority of the committee is worried about the risk of rising inflation becoming more entrenched…So, can he really flip that narrative on its head? Unlikely – but he will most likely stay in the middle – remain hawkish while leaving the door open to reconsider….and that is NOT new…. He has been playing on both sides of the fence for months now….…. He has always said that he is data dependent and for now that means hawkish, BUT it could become dovish if the data suggests. My gut still says a 6% terminal rate before this ends.
We remain in 4290/4450 trading range (intermediate support and short-term resistance) and get comfortable with being uncomfortable and focus on the long game.
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace Capital Advisors.
Baby Back Ribs
1 c of soy sauce, 1 c of sugar, pepper, 5 cloves of crushed garlic, rough chopped scallions, 2 tbls of toasted sesame oil, sesame seeds, and – 2 lbs. of baby back ribs.
Bring a large pot of slightly salted water to a rolling boil – drop the ribs in and par boil just until the water begins to re-boil. Remove and set aside in a large roasting pan.
Heat the oven to roasting temp – 475 degrees.
Mix the soy sauce and sugar in bowl – making sure that the sugar dissolves…then add in the rest of the ingredients.
Pour the marinade over the ribs and coat well. Let marinate for 15 mins or so. Cover tightly with foil and put in the oven and roast for 20 mins or so – turning after 10- mins.
Preheat the grill – med high – remove the ribs from the oven and place the ribs on the grill and grill for about 5 mins per side. Set the picnic table out on the deck and serve family style with a large potato salad and fresh corn on the cob.
Buon Appetito
