Things you need to know.
– The BIG number wasn’t that BIG of a deal.
– FOMC mins do not reveal anything new.
– FED to cut by 25 bps, while some are still calling for 50 bps.
– Mkts teasing the high…. Will it stall?
– Try the Baloney (Bologna) Sandwich
So that BIG number – The ‘Preliminary’ Annual Payroll Revision – the one that was supposed to cause all kinds of angst – was revised and revised downward by 818k jobs – that is the largest ‘adjustment’ in more than 15 yrs. and would suggest that the labor market had been cooling LONGER than the FED realized – putting the FED behind the 8 ball….forcing them to become ‘reactive’ vs. ‘proactive’.
Now the adjustment of 818k jobs means that we created about 70k jobs per month LESS than reported from April 2023 – March 2024… That’s a fairly large adjustment, one that had been rumored to create all that angst…. but in fact, it did not, and you want to know why?
Because that ‘significant’ weakness only empowers those that are betting on a rate cut, and now they can point to the fact that the FED HAS to make a bigger cut to try and catch up…because the sense is that IF we had known the real numbers at the time they were reported, then the appearance would have been that the job market was getting weaker and that would have caused the FED to have started to cut rates earlier….but since they ‘didn’t know’ they didn’t cut….which must mean they have to make a bigger cut now….And with that – stocks rallied
The Dow gained back 55 pts of the 62 they lost on Tuesday, the S&P added 23 pts – 12 pts more than they lost on Tuesday, The Nasdaq gained double the Tuesday loss adding 102 pts, the Russell rose by 28 pts – 3 pts more than the loss, the Trans up 154 pts or 9 pts more than the loss on Tuesday, while the Equal Weighted S&P rose by 50 pts or 20 more than what they lost on Tuesday.
We are now once again NOT debating IF they will cut, but by HOW much they will cut and HOW many times they will cut before year end? That is the question. I am in the 25 bps and 3 x’s camp….and that is where the bulk of us are – the sense is that even with that payrolls adjustment – the US economy is not circling the drain – so there is no need to suggest that it is – and that is exactly what a 50 bps cut would suggest….Now, don’t get me wrong – the 50 bps camp guys will surely be disappointed if they don’t get what they want – and you know what that means….they will stamp their feet – ok, great. Let’s move on.
In any event – I think once JJ makes it clear – the market will back off – because they have already priced it in, I expect it to be that ‘buy the rumor/sell the news’ type of event for the traders, the momo guys and the algo’s. Long term investors should use any pullback as an opportunity to buy stocks that go on sale and that doesn’t mean buy them when they lose 3% or 4%….it means, let them come in – down 10% or 15% is nice entry point – to start your shopping spree. But again – that is all about you…. You decide when it makes sense….
And then we got the July FOMC mins at 2 pm…and that wasn’t a barn burner either…there was nothing in there that changed what we already knew……Yes, some went thru it with a fine tooth comb -looking for anything that might suggest something different…but let’s be serious…there was nothing….Did some think they could have cut in July – Yes, but guess what – WE KNEW THAT…..so like I said – nothing new. The ONLY thing it did confirm (and that we knew) is that a September cut is alive and well…. So again, let’s move on….
Let’s talk about this…the indexes (and stocks) are once again about to kiss the ‘overbought’ range on their respective RSI’s. The Dow, the S&P and the Equal Weight S&P right there, while the Nasdaq, Russell and Trans are still approaching…so don’t’ be surprised if we test the all-time highs of 5660….before it stalls….Remember – stocks are typically weak during the Aug – Oct time frame…and after the swift move lower in early August – it demands that the market retest it to shake the branches and test investor support.
Of the 11 S&P sectors – only the financials closed lower…- 0.2% – everyone else rose – Basic Materials – XLB – was the leader – up 1.15%, remember – this sector has been underperforming all year….it is now up 7.2% as of yesterday – putting it in the 7th position of all the sectors. Only Consumer Discretionary, Energy and Real Estate trail it. Now while Tech and Communications are this year’s leaders up 29% and 23% respectively….…Utilities, Consumer Staples and Healthcare – all boring, non-sexy’ sectors are all up double digits as well….…. +18.5%, 15% and 13% respectively – Not so bad, huh? Love that since I have been a big supporter of those groups all year.
Small caps were also a beneficiary yesterday….as these companies will surely benefit from lower rates (they have big borrowing needs) The Russell is up 7% ytd, while the IJJ and IJT are up 5.4% and 8.9% respectively. Some analysts think that the SMID’s (small and mid-caps), which have underperformed all year – have already priced in a slowdown so if one comes – they may provide an opportunity for investors looking for value. Again, you should have some exposure to the sector – but I would not be overweighting it.
Bond prices rose – one because some nervous investors are trying to lock in 3.9% and 3.8% rates before the FED cuts…. as some investors also prepare for a marked slowdown…. that could send stocks lower…. 10 yr. yields are now 3.82% while the 2 yr. is 3.9%, while gov’t mm funds are still paying close to 5%. More bond buying will send yields even lower from here, and the FED hasn’t even started cutting yet.
Oil did what yesterday? Oh, right it lost another 1.7% to end the day at $71.94. – slicing right thru that $72 level that I have been discussing for a couple of weeks now – testing as low as $71.58 before closing a bit higher. Recall – that when we broke thru the long term trendline at $75.85 and failed to take it back I said it only meant that we were about to test those June and July lows of $72…. and here we are…. Now IF we fail to hold here – then the next stop is $70/$70.50 ish…
Gold continues to churn in the mid 2500 century…. This morning it is down $4 at $2543/oz. Support at $2500 – resistance is yet undefined. Maybe $2600?
US futures continue to push higher…. Dow futures +40, S&P +7, while the Nasdaq +45 pts and the Russell is -2. Enjoy the ride, you are invested….it’s all good….just don’t get drawn into that FOMO trade…..You are not missing out at all….Keep you cash liquid, earning 5% in the gov’t mm fund….ready to pounce when the pullback occurs.
European markets are also higher…up between 0.2% and 0.6%. Eurozone PMI & (UK PMI) data reflected an increase in business activity even as wage growth slows, and this supports another rate cut by the ECB when they meet in September as well. Investors across the zone – are also awaiting today and tomorrow’s Jackson Hole event…. Remember – central bankers from around the world are in attendance…and they too hope that they will learn something new about what all of these bankers are thinking.
The S&P closed at 5620 – up 24 pts….and is now only 40 pts away from all time high…. Eco data today includes both Manufacturing and Services PMI’s – manufacturing is supposed to be in contractionary territory while services remain in expansionary territory….so it’s a toss-up…. are we or aren’t we in an economic slowdown? Existing home sales are expected to be up 1.3% m/m…but yesterday’s mortgage apps were down 10.1%…so again – are we or aren’t we in an economic slowdown? No matter what the eco data says – the focus remains squarely on JJ. So, sit back….and grab the popcorn.
Give me a call – if you are concerned. 212-381-6194
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Fried Bologna (Baloney) Sandwich
Considering what is going on at the DNC convention – Consider a ‘BALONEY’ sandwich. Here you go…
You need: Sandwich roll, butter, onion, 4 slices of bologna, Dijon mustard, mayo and Yellow American Cheese
Caramelize the thinly sliced onion in a sauté pan.
Spread the butter on the sliced roll and place cut side down on a griddle. Toast it until golden brown. Remove
In the same pan – add the bologna and heat up – now stack 2 slices of bologna and top with 1 slice of the American cheese – 2 slices of bologna and 1 more slice of American cheese and let it melt. (so, you have two sets of bologna and cheese).
While this is happening – spread some mustard and mayo on the toasted roll. Now add a layer of the caramelized onions and then the bologna with melted cheese. Add another layer of onion and top with the remaining stack of bologna and melted cheese.
Place the top of the bun on the sandwich.
Buon Appetito.
