Things you need to know.
– Is the correction over already?
– S&P downgrades the regional banks. (Yawn!)
– Investors brace for NVDA tomorrow
– Jackson Hole starts on Thursday – JJ presents on Friday.
– 10 Yr. Treasuries hit 16 yr. highs – Revolving Credit skyrockets.
– Try the Emulsified Aglio e Olio.
Tech led stocks mostly higher yesterday…. the Nasdaq rising by 206 pts or 1.5%…which makes some sense for a Dead Cat Bounce – since it was the biggest loser over the past 3 weeks – down nearly 9% since the July high. The move powered by TSLA +7.3% (but remember – it is down 27% since mid-July), NVDA + 8.5% (again that name is down 15% off the July high) …META, AMZN, GOOG, MSFT…etc.…. You get the picture, no? All names that have seen double digit losses in the past 3 weeks as investors considered what higher rates and higher yields mean for investors… I mean, in the end – higher rates will hurt the sexy growth names and higher yields offer investors an alternative to stocks, an alternative that offers a ‘risk free’ opportunity… And, if you are getting a bit nervous about what JJ is doing – risk free is like music to your ears….
The other indexes put in a mixed performance…..the S&P up 30 pts or +0.7% (that is down 5.5% over the 3 weeks), the Transports up 4 pts or 0.03%, (down 7% over 3 weeks), the Russell down 3 or 0.2% (down 8% over 3 weeks) while the Dow lost 37 pts or 0.1% (down 4% over 3 weeks.) – this as bond yields surged to levels not seen for 16 yrs.…..the 10 yr. now yielding 4.339% (up from 4.25%), and that is wreaking havoc on the revolving credit card space, auto loans, HELOC loans, payday loans, and mortgages which in turn is wreaking havoc on the family budget…..….. In fact – the WSJ runs with this headline.
“Car Prices Might Be Unsustainable for Buyers – Surging loan delinquencies signal that many consumers can’t afford their auto loans.”
New car loans now commanding a 9.5% rate while the used car market is now kissing 13.7% – all carrying a 72-month amortization schedule…and that is leading to the highest rates of delinquencies since 2006…. And this is happening when the job market is STRONG…just think what is about to happen when the job market ‘breaks’…. Oh boy……and the average price of a new car is pushing $49k……and the average monthly payment is pushing $750+. Make sure you check you monthly Nordstrom’s, Macy’s or Bloomies charge account…because those revolving credit rates are usurious…think 30+%….
In any event – the action was a bit of a relief, but still feels like a Dead Cat Bounce to me……Just not sure that we can see a move much higher from here (at the moment). It just feels a bit tired to me…and we are in a seasonally weak time of year…. Patience is a virtue (for now).
Now, it is a BIG week for stocks and bonds….tomorrow brings us the NVDA news….as optimism continues to swirl around what they will report…the expectation is for them to report earnings of $2.07/sh….anything less will be a disappointment and if they don’t beat significantly – my sense is that investors will also be disappointed as well……Look, the street is looking for Jensen Huang to ‘wow’ them….and to reignite the tech sector, to report something unexpected surrounding AI….…..
Remember – they have taken NVDA up 221% this year…. It is trading at a nosebleed valuation and has a PEG ratio closer to 4…Now, in theory – a PEG ratio of 1 represents the perfect correlation between the market value and earnings growth…. Ratio’s higher then 1 suggest a stock is overvalued while ratio’s lower than 1 are considered undervalued – but we are in a different space…. the world is changing because of AI and NVDA sits at the nexus of it all….so Jensen – what say you?
And then we have the Jackson Hole Global Central Bank Boondoggle – the title is so impressive – ‘Structural Shifts in the Global Economy’….expect to hear from the likes of Christine Lagarde, (ECB), Andy Bailey (BoE), and any of the other 120 economists and central bankers that have descended on Wyoming….But let’s be honest – this is about JJ (Powell) and what he is going to say on Friday morning….. After last week’s FOMC mins – it is clear that most FED officials are concerned about ‘significant upside risk to inflation’…. there were two members that favored doing nothing – which then suggests a crack in the foundation – not a collapse – just a crack….
Recent macro data has been confusing….they tell us that prices are coming down (just tell me where?) and that wage pressure are subsiding…(again show me)….American Air just announced contact negotiations that include a 21% immediate increase in wages along with better benefit while other recent union contracts and upcoming UAW contract negotiations suggest even more increases – while NYC restaurants can’t find dishwashers at $30/hr.….never mind everyone you see is asking for a tip…… On the other hand – the labor market remains strong, and consumers can’t stop spending – something that is eating at JJ as it suggests ongoing entrenched inflation…. So, I’m just curious…. Where are we? Clarity is critical…. Is the FED still hiking, are they pausing, or are they cutting…… (Only your hairdresser knows for sure…. that is a nod to all the baby boomers out there – the Millennials and Z’ers won’t understand!) GTS (Google that S**t).
Today will also bring us some more economic news…. We will hear from 2 of the nation’s 12 FED regions…the Philly Fed Non-Manufacturing Survey (think Services and we are a service economy) …and the Richmond Fed Manufacturing Index (recall the Empire Manufacturing Index collapsed last week) and the Richmond FED Business Conditions report… In addition – we are going to hear about what is going on in the Existing Home Sales market….it is expected to be down 0.2%… I think that’s off…. but we’ll find out at 10 am. (Remember – mortgage rates are now solidly in the 7.25%/7.5% range and that’s if you have a FICO score of 740+…. anything less will see higher rates…Capisce?
This morning we wake up to news that S&P is joining the party and cutting some of the nation’s regional banks….KEY, CMA, VLY, UMB and ASB – noting that the impact of rising rates and deposit moves can significantly hurt these names…. But honestly – does anyone really care?
In their note they write that
‘Many depositors have shifted their funds into higher interest-bearing accounts, increasing banks funding costs…. the decline in deposits has squeezed liquidity for many banks while the value of their securities – has fallen.’
Recall that Moody’s lowered its credit ratings for 10 US banks and warned of more downgrades as the pressure mounts…. all while Fitch lowered the credit rating the US in late July….
Again, I ask – what’s the point? All 3 agencies sold their souls back in the early part of the century helping to give birth to the GFC, causing a near global collapse of the financial system…. (But that’s another story) So, are their downgrades really anything to get worked up about? Will the regional banks come under some pressure today – sure…. but could that pressure offer an opportunity for the savvy investor? Do your homework….
Ok – so US futures are higher this morning…. Dow up 80, the S&P up 18, the Nasdaq + 80 (more NVDA excitement) and the Russell up 9. The action once again suggesting a soft landing is POSSIBLE…. (Soft landing means higher tech prices). I am still in the bumpy (not so soft landing) – camp – another reason why I think it feels a bit toppy here….so I am playing it safe…. Not selling anything, buying selective defensive names and putting some money into the money mkt fund that is paying 5%….keeping me completely liquid – no time risk at all…..remember – you don’t HAVE to do anything if your already invested in a well-diversified portfolio….Give your advisor a call to discuss.
Oil is trading at $80.54, the dollar index is holding still at 103.30 as it struggles to continue to advance – it is up 4.4% in the last month and feels a bit tired as well and that is causing Gold to try and take back some of the recent losses – trading up $8 at $1931/oz.
European markets are also up this morning – all up better than 1% ….…. again – all of these mkt centers have been under a bit of pressure for the last 2 weeks….so a bounce is not unexpected…. it’s like the calm before the storm……In addition – European investors are also awaiting what comes out of Jackson Hole.
Today starts the BRICS summit in Johannesburg…. (Brazil, Russia, India, China and South Africa) …. where they are trying to become a counterweight to ‘the west’. Heightened tensions between Russia and the US, China and the US, Russia and the world and China and the world are all driving forces and play an important part in global governance reform and cooperation that they hope will strengthen that bloc and challenge the dollar as the reserve currency of the world. While I am not that concerned about it, it is something to be aware of…but this is not a factor in my allocation of capital – I don’t play in the emerging mkts…. nor do I see this event changing the world anytime soon.
The S&P ended the day at 4399 up 30 pts…. the dog days of summer are here…. We remain in 4290/4450 trading range (intermediate support and short-term resistance). At some point over the next couple of weeks – we want to see it test intermediate support and hold. A failure to hold those levels will create a new level of anxiety for investors – but remember – we are in a seasonally weak time of year…..This should not be a surprise at all…the only surprise will be if JJ suddenly does an about face and becomes dovish – something I can’t see….. I remain in the camp that we can expect more downside pressure in the weeks ahead…not a crash, but just some pressure.
In addition to all of the issues above – tomorrow night also brings us the first GOP Presidential debate of the 2024 cycle….Americans’ will have a chance to see if there are any break out stars….DJT refusing to attend and will challenge the debate by appearing with Tucker (Carlson) on Tucker’s Twitter space…… Expect to hear all about how Trump – Trumped the debate stage by NOT being there….Oh boy….Is anyone else tired of ALL of this? I mean – talk about a Banana Republic…. It’s ridiculous….
Again – do not make emotional decisions, get comfortable with being uncomfortable. There is no reason to have to do anything, but there is always a reason to do something if the opportunity presents itself.
Reach out to discuss – always happy to engage.
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace Capital Advisors.”
Emulsified Aglio e Olio w/Cayenne Pepper
YUM…. This is so wonderful – and it’s a play on the more traditional dish.
For this you need ½ lb. of spaghetti, 5 garlic cloves, olive oil and cayenne pepper (optional).
Begin by bringing a pot of salted water to a rolling boil. Add the spaghetti and cook until al dente.
In another small pot – add some water and also bring to a boil. Toss in the whole garlic cloves and boil for 3 mins…. – Strain – reserving a mug of water.
In a food processor – add in the garlic cloves, ½ c of the water and a c of olive plenty of olive oil…. blend until it’s all emulsified.
Now pour that into a large sauté pan….do not heat it up…. Using tongs – remove the spaghetti and add to the sauté pan…stir to coat. Now serve in individual bowls and garnish some of the sauce and the cayenne pepper ….Not too much, just enough to give it a punch.
Buon Appetito
