Things you need to know
- And the saga continues – It’s a split decision.
- Oil closed higher on Friday, but is plunging this morning.
- Bonds are telling you the story! Pay attention.
- Gold Unchanged,
- SPCX – reports tomorrow – It’s Homer’s Odyssey in real life.
- Try the Prosciutto e Melone
Well good morning and welcome to August…… The market ended the last week of July looking mixed on the surface—but underneath, Friday was all about one thing: investors separating AI winners from AI promises.
The Dow gained 277 pts, the S&P up 52 pts, the Nasdaq up 250 pts, the Russell lost 14 pts, the Transports lost 50 pts, the Equal Weight S&P lost 17 pts while the Mag 7 added 1060 pts or a whopping 3.2% – AAPL the only loser in the group – reminding us once again that the AI story is alive and well. Investors rewarding the companies that are proving they can monetize AI vs. those that are asking you to trust the process.
AMZN – was the undisputed star of that show…. investors, traders and algo’s along with some short covering caused that stock to explode – gaining 15% to end the day at $271.58 – creating a $30 gap in the chart… That’s the market telling you the earnings weren’t just good—they fundamentally changed investors’ expectations.
As we discussed Friday, AWS accelerated again, margins improved and management proved that the hundreds of billions being invested in AI infrastructure are finally generating real returns.
On the other hand, we had AAPL told a different story. Yes, they reported solid quarterly results while at the same time offered a softer outlook because of supply-chain constraints and more moderate revenue expectations. The stock initially plunged – falling nearly 10% only to have it recover a bit – ending the day down $24 or 7% at $308.91.
Interestingly enough – only 4 of the 11 S&P sectors ended the day higher…Consumer Discretionary gaining 3.3% – but before you go and start celebrating the return of the consumer – the move was almost entirely a result of AMZN. Remember, Amazon is the largest weighting in the sector, and after delivering another blowout quarter – and surging by 15% the result – is strong sector performance. The reality is that investors weren’t buying discretionary stocks because they were suddenly bullish on the consumer – they were buying AMZN because it proved the thesis – AI spending is translating into real earnings growth.
We also saw strength in Communications, Energy and Industrials. Basic Material led the way lower – falling 2.4% and we can point to sector rotation and higher treasury yields.
The media would have you believe a report suggesting that the Chinese manufacturing sector is stalling. Ok – so here is how you would connect those dots (if you believe the data). China is the largest consumer of industrial commodities, so if the report suggests a weaker China, then you can expect them to buy less copper, aluminum, steel, chemicals, cement, lumber, iron ore.
Not sure about you, but that’s a bit of a stretch for me…because I don’t really believe much of what comes out of China, so I’m more in the camp of sector rotation and higher yields rather than a sudden collapse in Chinese demand.
The other weak sectors included – Utilities, Financials, Consumer Staples, Healthcare, & Real Estate – which makes sense if you consider the ‘rotation’ out of the defensive, dividend-paying sectors, back into the mega-cap AI names.
Semi’s surged 14.7% for the week, after losing 28% since mid-June – That move a reminder that some of the strongest rallies often begin after the most painful selloffs. Let’s see if we see more follow thru this week.
Ok – let’s move onto the bond market – because treasury prices fell again on Friday – the TLT fell 0.7% while the TLH lost 0.6% and that sent yields higher…. the 2-yr ended the week yielding 4.28% – up 4.8% over the past month, the 10- yr at 4.73% is up 8.2% since July 1st, while the 30- yr was at 5.26%. up 10% since July 1st. And for me, that is the real reason we have seen the market become more volatile.
Remember, it’s the 10-year Treasury that serves as the benchmark for what consumers and businesses pay to borrow over the long term. Mortgage rates, auto loans, commercial real estate financing and corporate borrowing costs all tend to follow the 10-year much more closely than they follow the Fed Funds rate.
Why? Because the Fed only controls the overnight lending rate. It can cut short-term rates all it wants, but it can’t dictate what happens at the long end of the curve. That’s determined by the bond market—and that’s what really matters to investors.
So, think about it…if the bond market is pushing yields higher on its own, then money becomes more expensive across the economy. That’s a tightening…. So why would the Fed need to raise rates again if the bond market is already doing the heavy lifting? That’s been Kevin Warsh’s message all along – and it’s exactly what we’re seeing play out today. Maybe Neely Kashkari, Lorie Logan and Beth Hammack need to go back to school. And let’s be clear – there isn’t really a reason to cut rates either right now (other than Trump stamping his feet) – the economy is not in a recession, and the eco data remains fairly strong, so a hold was appropriate.
Oil wasn’t helping the situation either. On Friday, WTI was trading in the mid-$80s while Brent hovered in the upper-$80s, keeping inflation concerns front and center and adding to the pressure on the bond market. But once again, the story changed over the weekend. Trump called off what he had described as a “big” military action after regional allies indicated that negotiations were making ‘meaningful’ progress toward a deal. At the same time, Saudi Arabia confirmed it will increase oil production—something the market had largely expected, but welcome news, nonetheless.
The combination has sent crude sharply lower this morning. WTI is down roughly $5 to around $79.50 a barrel, while Brent has fallen about $4 to near $83.50. If these declines hold, they’ll help ease some of the inflation concerns that have been driving treasury yields higher and could provide a welcome tailwind for both consumers and the broader market. But as I’ve said before – it isn’t over until it’s over.
And gold – continues to trade in the range we discussed – $4,000/$4,200. This morning it is trading flat at $4,047. Nothing really to say, but if a deal is done and the temperature in the region subsides and oil declines taking the pressure off of inflation – then the next move in Gold should be lower. The chart suggests $3,450/$3,500.
Eco data today – includes the S&P Manufacturing PMI of 53.8 and ISM Manufacturing PMI of 53.9 – both in the expansion zone. We will also get the ISM Prices Paid component – which is supposed to come in at 71 down from 73 and that suggests input costs may be easing.
Earning reports include PLTR, SNAP, BRK, MAR, TSN, WMB – And these names represent Tech/Software, Communications, Diversified Industrials, Hotels/Consumer Discretionary, Consumer Staples and Energy/Nat Gas/AI Data Centers.
And then comes the Odyssey……Because why not?
Tomorrow, SpaceX reports…..and so begins another chapter in the Musk saga. Think about it – Odysseus (like Musk) didn’t set sail knowing exactly how the journey would end. There were storms, monsters, sirens tempting him off course, and moments when success looked anything but certain. Yet every challenge revealed something about the strength of the ship, the resolve of the crew, and the leadership of its captain.
Tomorrow’s earnings aren’t the destination—they’re simply another stop along the voyage. Investors want proof. They want to know whether the company is navigating in the right direction, whether Starlink is generating the cash needed to fund the next leg of the journey, whether Starship remains on course, and whether Musk can keep steering through the inevitable storms that come with building THE most ambitious company in history.
And then comes Thursday—the first insider lock-up expiration – 900 million more shares become eligible to trade. Think of that as sailing between Scylla and Charybdis (think rock and a hard place). On one side lies the risk of heavy insider selling, flooding the market with new shares. On the other side lies the opportunity for insiders to hold tight, signaling confidence that the greatest part of the journey still lies ahead. How the market and investors navigate this narrow passage may matter even more than the earnings themselves.
SPCX closed at $108.37 – it is down $42 from the opening trade and down $117 from the high on June 16th and with so much supply coming to the market – the next move is anybody’s guess. Street analysts suggest the stock could trade down to the mid $80’s…before finding a bottom…Stick tight…. This will be interesting to watch.
European markets are all higher…..all up about 0.8% – The UK is the only one not participating.
This morning US futures are up BIG!!! I wonder who knew on Friday that Trump was gonna call off the attack. (did I just say that?!) Dow up 510 pts, S&P’s up 45, Nasdaq up 100 pts while the Russell is up 25.
The S&P closed at 7,489 up 52 pts. On Friday – we broke thru trendline resistance at 7468 – and it looks like we will pierce again this morning. While we did not hold it on Friday – my gut says we will today. Keep your eyes on all of the geo-political headlines – because that is front and center. But remember – they may create short term opportunity and chaos – but they do not price stocks in the long term – which is why you need to stick to the plan.
If you’d like to discuss your goals, evaluate the risk in your portfolio or simply get a second opinion, give me a call at 561-931-0190.
I’m always happy to provide complimentary portfolio review and risk assessment.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Prosciutto e Melone
So, here’s the thing about today’s tape… it had a split personality. AMZN & MSFT surge, while AAPL & META slide. Semi’s get crushed while Defensives get rewarded. It’s kind of sweet and salty, at the same time. Get it?
For this you need – a ripe cantaloupe, cut it into wedges. Thin slices of fresh cut prosciutto and good olive oil.
Place the cut cantaloupe on the plate – drape thin slices of prosciutto crudo right over the top. That’s it. No stove, no fuss. Maybe a drizzle of olive oil if you’re feeling fancy.
Sweet melon. Salty ham. Two completely different and diverse flavors yet somehow, it works. Just like today’s market.
Buon Appetito