Things you need to know
- Stocks continue to churn lower
- Joey is set to CANCEL $10k worth of student debt – Progressive want MORE
- Oil rallies on the back of the Saudi statements & Nat Gas spikes higher
- Countdown to Friday – JJ’s appearance at Jackson Hole
- Try the Beef Tenderloins
Eco data yesterday revealed a weakening economy…..……US Services PMI plunged to 44.1 – putting it well into contractionary territory, US Manufacturing PMI also fell, but not nearly as much – leaving it at 51.3 – barely in expansionary mode, but it too is TRENDING lower which isn’t a good sign…and then we got New Home Sales….and remember what I said yesterday….the expectation was for sales to fall 2.5% – but the ‘horse whisperer’ was expecting something weaker…..and weaker is what we got….New Home Sales fell a whopping 12.6%!
We now have housing (new, existing and pending) trending lower, we have mortgage demand at the lows of 2001, we have first mortgage lenders filing for bankruptcy, and we have credit card debt up 30% in 3 months….we have inflation running at 8.5% y/y, we just got not 1 but 2 massive spending bills – out of DC, we got Joey to cancel $10k worth of student debt for anyone making up to $124,999/yr., (following through on one of his campaign promises – but you can be sure that the progressive left is not happy – they want more and those borrowers who took huge advantage and borrowed 10x that amount who are NOT happy with ONLY a $10k cancellation…..NY’s Chucky Schumer urging the Joey to ‘cancel AS MUCH AS POSSIBLE’ also suggesting that $10k was ‘chump change’), we got natural gas hitting 14 yr. highs – as demand for the fossil fuel soars in Europe and now we have the Saudi’s (and OPEC) saying that they need to defend the price of oil – suggesting production CUTS to control the demand/supply equation…..and that sent OIL up $3.50/barrel or 3.8% and this morning oil is up another $1.30 or 1.4% leaving it at $95/barrel – Oh to be a fly on the wall in the White House!
Oh, and I forgot to mention – we got JJ and the FED raising rates into all of this…..and that continued to send most stocks lower- but at a slower pace than we saw on Friday and Monday….by the end of the day ……the Dow fell 154 pts or 0.5%, the S&P down 9 pts or 0.2%, the Nasdaq ended flat, the Russell gained 3 pts and the Transports added 95 pts or 0.6%.
So, you ask – what happened? What happened to all the euphoria that we saw in June, July and early August? Well, I’d say – someone(s) woke up….as FED head voices got louder and louder (think more aggressive) with every tick higher in the markets…..and then suddenly – they seem to care about what JJ might say at the Jackson Hole boondoggle on Friday…..which is funny, because we’ve been talking about what JJ might say at Jackson Hole all month as the algo’s kept taking stocks up – leaving many to say the bear was dead while others said it was nothing more than a bear market rally (a big one) but still a rally within an ongoing bear market. In any event – it is what it is, and investors need position themselves for further chop ahead.
Look, I said it yesterday – anyone who thinks that JJ is about to tell you what the FED has in mind for the September meeting will be sorely disappointed….if you think he is going to say –“we are raising rates by X%” at the next meeting – you are not being realistic….now if you are listening for which side of the fence he is playing on (hawk/dove) you might also be disappointed….I think he is – at best- going to sit ON THE FENCE (as he has all along)– hinting that they need to be attentive to inflation, (hawkish) while also saying that if they see a significant (think real) drop in inflationary pressure then they could consider slightly smaller paces of increases….(dovish)…..so get ready for more vagueness….
What you need to do as an investor is manage your portfolio based on data that you discern….so if the tone is more hawkish – you remain a bit patient and look to put ‘additional’ money to work at lower prices and if it is more dovish – you are already participating on the upside with your current long positions – unless of course you are one of those ‘retail investor’ types that try to pick the top and bottom all the time – which I would say to you is NOT the way to position your long term portfolio account. Remember – stay the course and stick to the plan – use dollar cost averaging to build your portfolio taking advantage of the waves in the investing cycle.
Recall that we discussed how August and then the early fall can be an unpredictable and nervous time for investors and the markets……. …. Jackson Hole only adding even more drama this year………and I don’t expect that this year will be much different…. Mixed messages out of varying FED members all summer have continued to create uncertainty leaving investors to question what the ‘hell is going on’ and that has and will continue to cause angst. And now you expect JJ to set the record straight? Really? I don’t expect him to set anything straight – I don’t think he can, the pressures that have led to inflation have been building for ‘over’ a decade (think zero interest rates and QE and non-stop printing presses) – so if you think this is going to be over in 6 or 8 months – you need to revisit that thought….that is NOT happening…… Which doesn’t mean I am suggesting that you light your hair on fire – it just means exactly what I said – do not expect this to be over by the spring of 2023….
Treasury yields rose across the curve – the 2’s yielding 3.29%, the 5’s yielding 3.15% and the 10’s now yielding 3.05% – as you can see it remains inverted.
As noted, – Oil is now trading at $95/barrel, Gold is trading at $1764/oz and the Dollar index is teasing the highs at 108.64.
US futures are lower – but let’s call it flat (considering the last couple of days)…..Dow futures are down 30 pts, S&P’s down 2 pts, Nasdaq -7 and the Russell is off by 2 pts. Eco data today includes – Mortgage Apps (which will interesting to see), Durable Goods – which are expected to be up 0.8%, Ex Transports of +0.2%. Capital Goods Ordered and Shipped at +0.3% and +0.5% respectively. Then at 10 am – we will get a look at Pending Home Sales…. which are expected to be down 2.6% m/m and 21.4% y/y…….and that too will be closely watched – considering what we saw yesterday with New Home Sales.
Tomorrow brings us the 1st revision to 2nd qtr. GDP and that is expected to be -0.7% – up from the initial estimate of -0.9%. There will be a couple of other data points – but the one that everyone is waiting for will be Friday’s PCE Deflator report…. this is the FED’s favored inflation guide and it will be released 2 hours ahead of JJ’s appearance at Jackson Hole……Q: What will it reveal? A: Not much. Look the markets are worried about the RECESSION (that we are in) while the FED is laser focused on inflation….you see – they can’t tackle both issues at the same time – they have to choose one over the other – they can’t raise rates to battle inflation and lower them to slow a recession….….Watch to hear what he says about 2023 rate CUTS…..is he still gonna suggest that cuts are coming by late spring? And if he does – doesn’t that neuter him? Just because I do not see how they can even suggest rate cuts 8 months UNLESS he pulls out the whole ‘transitory’ argument again….and I don’t think he wants to go there.
Yesterday – the newest HAWKISH voice once again took the stage….Minneapolis’s Neely Kashkari (who is dying to kick JJ out and take over at the FED – I mean could he be any more obvious? ) now telling us that ‘investors do not understand how high inflation CAN go’ and that his biggest fear is that the FED misreads the ‘extent and persistence of price pressures and will need to deliver even MORE aggressive rate hikes to control inflation’. Wow! How’s that for ‘floating the balloon’? Some on the street now suggesting that Neely is calling for year-end rates to have a 5 handle on them! Just to remind you- we are currently at 2.25% – 2.5% and we have 3 meetings left in 2022. So – do the math and let me know how YOU get to that rate by December. What will be an interesting sub-plot is the internal fight between Lael, Loretta, Ester and Mary in terms of who is next to head the FED…..and if they have anything to say – it won’t be Neely or Jimmy B…..…but we have 4 more years to worry about that…..JJ’s terms is not up until May 15th, 2026. So, unless something happens to JJ – all of them just have to back off – unless there is a coup d’état! And if recent history is a guide – we know that they can ‘try’ that!
In Europe – stocks are lower….down about 0.4% across the board- investors there also waiting for what Jay will say….and then what that means for the ECB and the BoE…..We know that inflation is alive and well across the zone and in the British Empire….in fact – the Brits expect inflation to ‘peak out’ at 13% by end of year and REMAIN at that elevated level through all of 2023…..
The S&P ended the day at 4128…. down 9 pts…. It had a tight range – 4124/4159. Support can now be found at 4085 – it’s a moving average – it changes every daily…. I suspect that we will churn in here until we hear from JJ on Friday. And while I do not expect him to offer any real clarity – I do expect that he will be a bit more hawkish than dovish – but that’s me…. You have to come to your own conclusion….
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Beef Tenderloins
You will need: crushed garlic, olive oil, butter, the beef tenderloin cut into 1 1/2-inch-thick pieces, flour, s&p, and a nice full bodied red wine….
Ok – begin by selecting a sauté pan that will accommodate the tenderloins without crowding…. Now – heat the pan on med hi…. add in a bit of olive oil and about 3 tblspns of butter…. (The oil prevents the butter from burning). Drop in the crushed garlic and sauté.
While the butter is warming up – dredge the filets in flour and when the butter is all melted – add the filets and brown the meat nicely on both sides. Once you are satisfied – remove the meat and place on a platter – season with s&p.
Add in about ¾ cup of red wine to the pan….let the alcohol burn off – always using a wooden spoon to scrape the bottom of the pan….when the wine is almost boiled off – add back the filets and cook for about 1 or 2 mins per side….Remove and immediately serve on a warmed plate with a green veggie…I suggest roasted balsamic brussel sprounts and a mixed green salad. Season the salad with s&p, oregano and a splash of lemon juice…toss and serve.
Buon Appetito.
