Things You Need to Know
- OMG – stocks sold off again! Someone call the police!
- Lots of strong eco data yesterday, but PCE q/q raises concerns.
- Valuations are rich – think the ‘elephant in the room.’
- Yields up, Oil and gold steady.
- Try the Cacio & Pepe
Now this is LAUGHABLE…..Bloomberg runs with this headline:
S&P Posts LONGEST Losing Streak in One Month!
(Stocks dropped for a 3rd straight session – hardly a ‘losing streak!)
Is someone kidding me??? The S&P is down 97 pts off the all-time high – it has fallen 1.8% and they run with THAT??? The headline screams disaster, I mean look at it…. It must be me! That headline would make it look like the S&P has crashed….no?
Yes, stocks were weak again…. (you can’t be surprised!) and that’s after we got all kinds of positive economic data. The gov’t reported a REVISED 2nd qtr. GDP of +3.8%, up from +3.3%, Personal Consumption of 2.5% well above the expectation of +1.7% (think strong consumer) and Durable Goods exploded higher! +2.9% – well above the expected negative 0.3% (think those new home sales). Recall what I told you about Durable Goods yesterday.
“…..but here’s the thing – if new home sales are really that strong, then it should show up in Durable goods because all of those new homes need appliances, bath fixtures, windows, AC/Heat (all durable goods) – capisce? So, homebuilders will have to ORDER these Durable Goods to put in all these new houses…. Which means Durable Goods should also ‘explode higher’.
Initial Jobless Claims unexpectedly fell by 13k claims and Manufacturing Activity in Kansas ticked higher (both positive).
Now the one that I think caused the issue is the one that no one talked about – Core PCE Price Index Q/Q! That rose to 2.6% above the expected +2.5% and some suggest that it is a precursor to what we might hear today. More below.
But let’s not light the place on fire. In the last 4 days the S&P has fallen by 1.8%, the Nasdaq down 2.2%, the Russell has lost 2.8% while the Mag 7 is down 2.3%. Hardly worthy of the ‘hysterical sounding’ Bloomberg headline!
By the end of the day the Dow lost 173 pts or 0.4%, the S&P down 33 pts or 0.5%, the Nasdaq gave back 113 pts or 0.5%, the Russell lost 24 pts or 1%, the Transports down 19 pts or 0.1%, the Equal Weight S&P lost 65 pts or 0.9%, while the Mag 7 gave back 307 pts or 1%.
Let’s revisit this – Do I need to remind you of maybe why stocks have been a bit weak? Valuations are stretched – period the end. THAT IS THE ELEPHANT IN THE ROOM! The single biggest, unavoidable reason for stock-market weakness is rich valuations. Everyone knows it, or should know it, but they talk around it…
I have been saying that valuations are rich since August (as we got ready to move into the typical cautious, volatile time of year) and with every tick higher, they only got richer and more pronounced….and In fact, earlier this week – we had this exact conversation, I pointed out that the S&P was trading at 25 x’s earnings… a level that is ‘unsustainable’. I pointed out that the RSI’s in both the S&P and Nasdaq were in well ‘overbought’ territory, I argued for caution, not panic.
JJ warned that stocks are ‘fairly highly valued’, BankAmerica telling us that the market is trading at ‘statistically expensive levels on 19 of 20 metrics. We have had a number of FED officials – Hammack, Schmid, Goolsbee, Musalem and Bostic all come out and argue against the idea that rates are ‘going lower’ again in November and December citing the usual suspect – simmering inflation.
Then we got Mishy Bowman telling us that ‘inflation is close enough to the FED’s target to justify more rate cuts because the job market is weakening’. Well Mish, let’s discuss – inflation is 3% – a full 1% above the target is showing signs of rising, not falling. (Unless of course 3% is now the ‘secret’ target). The job market does not appear to be going down the drain at all, unemployment is at 4.25% (historically considered near FULL employment), and yesterday’s Initial Jobless Claims fell.
And of course, we have gotten a number of key CEO’s telling us to be cautious – Jamie Dimon (JPM), Ken Griffin (CITADEL), Janie Fraser (C), Brian Moynihan (BAC) and of course Davey Solomon (GS) who on one hand warns of valuations but then on the other hand raises the year-end target on the S&P to 7000!
Today we are going to get another round of economic data that is sure to keep investors and markets on the edge of their seats – not only because of what the data may reveal, but also because we are now just 3 days away from quarter end.
Personal Income and Spending of +0.3% and +0.5% respectively. But the KEY data point is the monthly PCE price index – the FED’s favorite data point. It is expected to come in at +0.3% m/m (up from +0.2%) and 2.7% y/y (up from 2.6%). Core PCE (ex-food and energy) is expected to come in at +0.2% m/m and +2.9% y/y. Here’s the thing – if the PCE ticks up – even by 0.1% (on top of increases over the past 3 months) it clearly points to rising ‘simmering’ inflation…and that would contradict the narrative of ‘nothing to see here’!
This morning – US futures are fighting…. The Dow is up 70 pts, the S&P is up 3, while the Nasdaq is down 30 and the Russell is down 4. Now while the expectation is for that slight uptick in the PCE – the market is still pricing in 2 more rate cuts this year – however – after yesterday’s solid slate of economic data – upgraded GDP, Strong Personal Consumption, strong Durable Goods etc.…the sense is now that the economy is just fine, it is NOT circling the drain therefore we may not get any more rate cuts……think ‘good news is bad news’ reaction. Stocks go lower.
Oil is trading tight at $64.84 down 15 cts.
Bonds were slightly weaker yesterday, and yields are higher…this morning – the 10 yr is yielding 4.16% and the 30 yr is yielding 4.74%.
Gold is holding the line at $3750 – if today’s PCE report suggests the possibility of no more rate cuts, gold should move lower….so let’s see.
Recall yesterday I said that while the market looks tired I don’t see them letting it back off much before next Tuesday, September 30th. (think end of qtr.). I’ve been calling for some weakness and volatility since mid-August — a healthy 5–8% pullback would be nice — but it hasn’t come (yet).
At this point I would be surprised if they let it happen prior to qtr. end…. Which only means (to me) that comes Wednesday, October 1st, the story changes. Why? Because it’s a new quarter, the market will have another three months to back off, reset, and then make a run into year-end.
European markets are higher even after Trump imposed 100% tariffs on pharma imports…..unless companies manufactured those drugs here in America. As you can imagine – European drug stocks are getting spanked. Down about 2%. Heavy trucks are next – Trump is threatening 25% tariffs on them. But he isn’t the only one…. Germany’s newspaper ‘the Handelsblatt’ reports that the Eurozone is considering 50% tariffs on Chinese steel. No matter what- markets across the zone are up about 0.4% across the board.
The S&P closed at 6,604, down 33 points. A quick look at the chart suggested we should have found some support at the 6,625 level — but we didn’t. That failure now shifts the focus lower to 6,500. And since we broke through 6,625, it now becomes resistance — not major, but resistance, nonetheless.
A lot will hinge on today’s data and, just as important, how the market chooses to interpret it. A stronger-than-expected PCE report will absolutely put the whole rate-cut discussion into a new phase. We’ll have a tug-of-war between rising inflation pressure on one side and a supposedly softening labor market on the other.
Remember the phrase: “history may not repeat itself, but it often rhymes.” That’s a reminder that patterns and themes tend to come back, even if the details are different. What I’d hate to see is a Fed that cuts rates too soon — and ends up reigniting inflation, just like we saw in the late ’70s.
Just sayin’…
Investing is exciting and frustrating at the same time. It’s about ‘the plan’ – make sure you have one. It’s about time in the markets, discipline, and risk management.
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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Cacio e Pepe
Simple. Rustic. Timeless.
Every Roman trattoria has it. Every Italian grandmother swears by her own twist. And for me, it’s the dish that proves you don’t need a dozen ingredients to make something unforgettable.
The beauty of Cacio e Pepe — literally “cheese and pepper” — is in its simplicity: just good pasta, sharp Pecorino Romano, cracked black pepper, and that magical pasta water we cooks call the “Tears of the Gods.”
Here’s how I do it:
Bring a big pot of well-salted water to a rolling boil — don’t be shy with the salt, the pasta needs it.
Crush whole peppercorns and toast them gently in a large sauté pan. That aroma? That’s the soul of the dish waking up.
Drop the spaghetti into the pot and let it cook until it’s just al dente.
In a mixing bowl, add in the fresh-grated Pecorino Romano — and when I say, “a lot,” I mean it. Cheese is the star here. Ladle in some of the starchy pasta water — (aka – the tears of the Gods) — and stir until it forms a creamy, almost silky sauce.
Add a splash of that same pasta water to the pan with the toasted peppercorns, then toss in the spaghetti. Keep the heat on low. Now pour in the cheesy cream sauce adding another ladle of the pasta water to bring everything together. Toss it well — you want every strand coated.
To serve, use a fork and tongs to twirl a neat nest of pasta onto a warm plate. Spoon over a little extra sauce, then finish with another grind of black pepper right on top — for the dramatic effect.
A dish so simple, yet so elegant, Welcome to Rome
Buon Appetito!