Things You Need to Know
- Dissension in the ranks!
- JJ stands pat – Donny is NOT happy.
- Algo’s throw a temper tantrum – Sept is NOT guaranteed.
- Bonds down, oil UP, gold down.
- META and MSFT absolutely CRUSH it and off we go.
- Try the Lime/Basil Swordfish.
**Bingo! Powell Holds Rates Steady, and the Algos Throw a Tantrum**
As expected, Federal Reserve Chairman Jerome Powell kept interest rates unchanged, but the algorithms went wild, sending stocks reeling in the moments after the announcement hit the wires. I’ve been warning about this exact reaction: one negative headline is all it takes to spike the VIX and drag stocks down.
And spike it did – The VIX was trending just south of the unchanged line all day – suggesting nothing is happening, all while stocks were trading just north of the unchanged line – again suggesting no one was worried – but then every one got worried at the same time….it was about 2:35 – 5 mins into the press conference and then it happened……..JJ started to clarify the latest statement and the algo’s did not like it….oh, not at all….
The initial plunge was dramatic – the VIX spiked – rising 11% and stocks got punched in the face……. The Dow, S&P, Nasdaq and Mag 7 indexes fell by 1%, the Russell lost 2% – the tone going from complacency to ‘annoyance’. But in the end, cooler heads eventually prevailed. Stocks closed lower but well off their lows, with the Dow shedding only 171 points (-0.3%), the S&P 500 dipping 8 points (-0.1%), and the Nasdaq eking out a 31-point GAIN (+0.15%), buoyed by anticipation for stellar earnings from Meta and Microsoft (and they did not disappoint). The Russell 2000 lost 10 points (-0.5%) while the Transports gave up 487 pts ( -3%), the Equal Weight S&P lost 48 pts (-.06%) while, the Magnificent 7 stocks took back all of the losses in the final hour rising 28 pts or (+0.1%) – again you can thank META and MSFT and the AI story even as these companies did not report until AFTER the bell.
So, why the market reaction? It wasn’t because anyone expected a rate cut—nobody did. The real culprit? Powell didn’t commit to a September rate cut, which the algos had convinced themselves was practically guaranteed. When they didn’t get their way, they threw a temper tantrum.
Let’s be clear: this was an overreaction. Powell didn’t rule out a September cut; he simply stuck to his script, saying,
“The central bank has made *no decisions* about a potential policy change in September. Our obligation is to keep long-term inflation expectations well anchored and prevent a one-time price increase from becoming an ongoing inflation problem. Higher tariffs are starting to impact prices of some goods, but their broader effects on economic activity and inflation remain unclear.”
Now both Waller and Bowman voted for a cut – which btw – should have been no surprise – those two have been banging that drum for weeks now….so here’s the skinny – you know how I feel – I agree with JJ, I don’t’ think the data is screaming for a cut….The Fed, in my view, is carefully managing rates and expectations without committing to near-term policy shifts. Yes, inflation has eased from its peak, yet core inflation, especially in services, remains sticky, and remember – we are a 75% services economy. And do not discount that risks like supply shocks or wage pressures aren’t off the table yet.
The labor market remains strong and while it is cooling it is NOT collapsing – overall, employment remains solid. It is that mixed signal that is making the job a bit trickier so now the focus turns to what happens at the next meeting – which is on September 16th and 17th – just days after the latest CPI and PPI reports. As of today – the market is 60/40 in favor of NO cut (but we can expect that to change) – and already you have former FED member- Bobby Ferguson telling us that a September cut is not guaranteed! Again, I don’t see them moving unless the weakness becomes broader and deeper.
I’m not shocked Powell didn’t commit to a cut, and I’m certainly not lighting my hair on fire either. The market’s been running hot—over the past week, I’ve noted that the S&P, Nasdaq, and Mag 7 were deep in overbought territory. (RSI’s > 70) A pullback IS inevitable. But let’s put yesterday’s action in perspective: a 0.3% drop in the Dow and a 0.1% dip in the S&P hardly qualifies as a “pullback.” To me, a true pullback means a 4-5% drawdown, (a correction defined as 10%). For the S&P, a 4-5% pullback would take it to around 6,000. A 9.9% drop would take us to 5725 ish and that would still be just a pullback, not a correction. So, let’s keep the parameters straight and focus on the long term. Yesterday’s decline was nothing more than an algo temper tantrum – period the end.
And then after the bell – both META and MSFT reported and suffice it to say that they did NOT disappoint at all…. META is trading up 11% or $80 in the pre-mkt at $775/sh while MSFT is up 8.5% or $43 at $556 sh. It’s all about AI, Data Centers, Ad revenues and the amount of money they are spending on the technology…. All you need to know is that they CRUSHED it! I’m curious – did anyone think they wouldn’t?
Just fyi – Dan Ives of Wedbush fame who is his own type of fashionista has been screaming about this for months now…and his recently launched IVES AI Revolution ETF is up 11% in just 8 weeks. It features all of the boyz…. NVDA, ORCL, TSM, AVGO, AMD, MSFT, AMZN, GOOG, AAPL, META and that’s just the top 10 names….
Eco data today includes Challenger Job Cuts, Personal Income and Spending expected to be up 0.2% and 0.4%, PCE Price Index up 0.3% m/m (which is higher than last month) and up 2.5% y/y (which again is higher than last month). Core PCE is expected to be unchanged m/m and y/y. And we will get the usual Thursday data points – Initial Jobless Claims and Cont. Claims.
Oil shot higher yesterday – up 1.6% or $1.10 to end the day at $70.30! It is once again all about imposing massive secondary sanctions on Russian oil – Sanctions aim to restrict Russian oil exports. When these sanctions disrupt Russian oil flows, particularly to major buyers like China and India, the global oil supply tightens. This reduction in available oil pushes prices upward thus the move…. This even as the Saudi’s are expected to increase production again in September – on top of what they did in August. We are now in the $66/$75 trading range – the next move is going to be how China and India react because their purchases of Russian oil are what is funding the war on Ukraine…. Trump is trying to choke Vlad…. the question is will Xi Xi and Nari Modi support the effort to stop the war…
Gold lost $53 or 1.6% after trader types hit the bid after JJ took the stage. Saying that the ‘policy settings remain well positioned’. Gold closed at $3,327 – taking it right down to the trendline – where it found support. (remember – we discussed this). This morning – gold is churning – up $4 as traders try to digest all of the latest commentary. Gold has now broken down thru the apex of that triangle chart pattern that we discussed but is finding support on the trendline…. My gut says that we are now in the $3,335/$3,415 trading range.
Bonds took a small hit yesterday – the TLT and TLH lost 0.5%. The 10 yr is yielding 4.35% while the 30 yr is yielding 4.88%. – both below ‘anxiety’ producing levels.
Today after the bell we will hear from AMZN, AAPL, COIN, NET, MSTR, along with a handful of others…but clearly the focus is on TECH & Crypto, and those names are the one to pay attention too!
US futures are taking it all back…. Dow futures up 155, S&P’s up 65, Nasdaq is SCREAMING – up 315 pts while the Russell is down 6!
European markets are churning….UK, Germany and Spain are up about 0.5% while the Euro Stoxx, France and Italy are down 0.5%.
The VIX which spiked yesterday and then cooled down is down 3.6% this morning…..and that makes sense…. because the drama from yesterday was nothing more than a temper tantrum….
The S&P closed at 6362 down 8 pts…and this morning it looks like we are gonna blast right up and thru 6400 on the opening bell….and while I love the fact that stocks are up – I am still cautious as we move into August/September.
I am in a holding pattern – not adding to the runaway names (as I already own them) but am always looking for opportunities in names that are on sale. For now – my investment dollars are sitting in the gov’t mm fund earning 4.25% (it only represents 3% of the total portfolio – so I am invested) – Let’s see what happens next. Remember – I am thinking that a 4 – 5% pullback is not out of the question….the RSI on the S&P is now at 69.9763 – if we see it rally today – the RSI will pierce 70 again…and that just suggests caution ahead….The Nasdaq remains just north of 70 and will clearly go deeper into overbot territory. Again, I would not chase, you are invested so you are participating…. remember – this is a long game, you make money when you BUY at the right price not when you SELL! Capisce?
Want to talk about strategy? Let’s review your plan. Call me for a complimentary, no-obligation portfolio analysis: 561-931-0190.
Take good care,
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Grilled Swordfish in a Lime/Basil Dressing.
This screams summer…. for this you need: The swordfish steak, olive oil, fresh lime juice (¼ c), chopped basil, chili flakes (optional), garlic cloves, s&p.
Make the sauce – whisk the oil and lime juice to emulsify, add basil, garlic (2 cloves chopped) and s&p. Separate into two bowls.
Heat the grill – then brush…. get it nice and hot.
Now – take the steaks – season with s&p and then brush it with the sauce from one bowl.
Now place on the grill – turn heat to med hi and allow to cook for 3 – 4 mins (depending on thickness) – then flip and cook for 3-4 more mins. Remove and place each steak on a plate, Drizzle the remaining lime/basil sauce (from the other bowl) over the swordfish. Serve with a large mixed green salad and you are done.
Buon Appetito!