Things you need to know.
– August ends mixed – Will September be a boom or a bust?
– Today is all about the NFP report.
– Futures are UP – anticipating a better report and a FED Pause
– Oil is up – now trading at $84.40, Gold up, Dollar down, Bonds flat.
– Try the Chicken Pot Pie
Well, Hello September….
So stocks ended the day and month in negative territory – the Dow lost 170 pts or 0.5% (down 2% on the month), the S&P down 7 or 0.2% (down 1.8%), the Nasdaq gained 15 pts or 0.1% (but was down 1.7% on the month – which was a win!), the Russell gave up 4 pts or 0.2% (but was down 4.4% on the month) and the Transports gave up 202 pts or 1.3% (also down 4% on the month).
And while it appeared that it wanted to give the bears a run for their money – the bulls failed to pull it off – leaving stocks churning into what was an interesting and challenging month. Traders/Investors and algo’s all parsing thru the mixed economic data as they looked for hidden clues that might suggest what the FED is going to do in 3 weeks. Yesterday’s PCE Deflator report did show that prices rose y/y – but it was so interesting the way some media outlets positioned it…saying that ‘inflation showed cooling price increases’…and while inflation is not running at the 9.4% rate it was at, prices are still rising at a 4.3% rate – which while down from the higher level – it is UP from the most recent prior months…..so which is it? Is it cooling or is it ready to rear its ugly head again? And that is the conundrum….
In addition we found out that Personal Income fell (more than expected) while Personal Spending rose (more than expected) and that rise in spending can be tied directly to the higher cost of nearly everything we need on a daily basis….food, energy, housing and utilities….So, sports fans, while spending is up – we are not really buying more of anything…..in fact, you could argue and I will argue that we are buying less of it…
This morning, I went into my local Dunkin Donuts and ordered my usual large coffee w/cream and sugar for $2.99. The cup was noticeably smaller, and I thought it was a mistake – but alas it was not. They recently changed the SIZE of the cup – what is now the large is more like a medium and the EXTRA large is now what the large was…. the price though remained the same – yet the amount of coffee clearly declined…. Capisce? In the end – I got LESS for MORE money….and that is not the only place we see this happening….it’s called package shrinkage -which is different from the ‘theft shrinkage’ that is all the rage….You see – in the most recent reporting season – we heard so much about ‘shrinkage’ from the consumer/retail companies…that’s their way of calling out THEFT without saying the word THEFT – because that would be inappropriate to call it what it is…but don’t get me started…because that THEFT is also causing prices to rise -so that they make up for their losses and the increases in the cost of insuring those losses…. In the end – who pays? Not Joey, Not the Administration, we do – but that’s another story.
Today bring us the August Non-Farm payroll report – and the expectation is for us to have created 170k new jobs – which would be the slowest increase in months…It will be curious to see where those jobs are vs where they are not. The ADP report on Wednesday – showed us that leisure and hospitality (service) jobs fell (they have been one of the hottest parts of the job market) so, will today’s report suggest the same? Manufacturing jobs are also expected to be flat, yet unemployment is expected to remain at 3.5%…Hourly wages m/m and y/y are expected to fall – putting workers further behind the curve as prices are still rising – albeit at a slower pace – yet they are still rising.
Eco data will also include the S&P and ISM Manufacturing PMI’s and both are expected to come in at 47 – which leaves us in contractionary territory – a place we have been in since last December….Finally we will get Wards Total Vehicle Sales for August and they are expected to be down – which makes sense – why? Because the cost to carry a car loan has soared….Auto loans are now averaging 9.5% and that’s if you have a FICO score of 740+ , anything less will have you paying more than 10%….and considering that a gas powered car Ford Explorer is now running at $50k + you can see it gets more expensive and if you want to buy a comparable EV – then be prepared to spend $75k + (which is also more expensive to maintain – new battery pack is $20k+ when you need it and the tires? Yeah, they last for ½ the time of tires for gas powered cars…. because the car is so much heavier) – but let’s not go there either…. But be sure to ask your dealer to define what those costs are when you’re ‘looking’.
Now as of the end of August of the broad 11 S&P Sectors – we have Tech in first place- the XLK +41.16% ytd, while Communications – XLC is up 41.13% ytd. Consumer Discretionary – XLY is up 32% and then we have a significant drop off…..Industrials – XLI are up 10%, Basic Materials – XLB +7%, Energy – XLE +1.1%, Financials – XLF + 0.5%, and Real Estate – XLRE is up 0.25% and then we go negative……Healthcare – XLV – 2%, Consumer Staples – XLP – 2.5% and then we jump to Utilities – XLU are down 10% and you can blame surging treasury yields for that….
If we venture beyond the major sectors – we find Semi’s – SOXX are up 46% ytd, Robotics and Automation – BOTZ + 30%, Cybersecurity – CIBR +30%, Aerospace & Defense – ITA +4%, Home Builders – XHB + 38%, Airlines -JETS +12%, Disruptive Tech – ARKK +40%, Retail – XRT +6%, Industrial Renaissance – AIRR is up 25% ytd…and we can go on….
But we are now in September and that has been a historically tough month for stocks…. So, as I have been saying – tread lightly – let’s see how it starts. The next FED meeting is 3 weeks away – September 20th…we will have plenty of macro data points to digest, we will get 2 more reads on inflation – the CPI and PPI due out on September 13th and 14th….just days ahead of the FOMC meeting on the 20th – where right now the market is expecting a pause….
Fed Fund Futures are putting an 11% chance of a rate hike in September on the table (which means that there is an 89% chance of a pause) – which explains the month end rally in stocks….because in the middle of the month – it was closer to a 50% chance….and so – we wait…..Futures markets are pricing in a 50% of a 25 bps hike in November and I am still in the camp that the FED wants to take the terminal rate to 6% which means they need to raise rates by 50 bps before we hit their sweet spot.
In the end – the question will be – Given the strength of the US labor market and the fact that we continue to grow above the trendline – Will JJ view the recent eco data suggesting a cooling as cooling enough? According to a survey done by 22V Research – The majority of investors (60%) say yes…. So, will it be a RISK ON day?
US futures say a resounding YES…. Dow futures are up 125 pts, the S&P’s up 15, Nasdaq is ahead by 21 and the Russell is up 8 pts. But remember – it is Friday going into a long weekend….Trading desks are empty, investors have placed bets well above or below current levels to take advantage of a spike in moves while they are away…..Expect an exaggeration to the upside if the data comes in as expected….as the algo’s will drive the action…but I suspect that some investors will sell into any rally and raise cash to take advantage of coming weakness. And if the data suggests some concern, then I would expect a swift change of heart as the algo’s go from buy mode to sell mode….and once again – it is a long weekend….
Treasuries rallied slightly yesterday and that keeps the pressure on yields, and this suggests that bond buyers are betting on a pause…This morning the 2 yr. is yielding 4.85%, the 10 yr. is yielding 4.11%.
The dollar index is holding tight at 103.61, Gold is trading at $1970/oz and oil is up 1.3% or $1.10 at $84.70….and all that means is that gasoline is higher and that will cause transportation costs to rise and that will cause the cost of everything else to rise as well. And remember the most recent union contracts were written with substantial wage and benefit increases – so expect higher prices from the likes of UPS, FDX, UAL, AAL, DAL etc.
And with economists estimating that food prices are expected to rise by 6% in 2023 don’t expect much relief at the supermarket – add in rising energy, utility, healthcare, insurance and housing costs – I don’t see any relief in the near term…..…..….So, before you bet the ranch – I’d proceed with caution….which doesn’t mean light you hair on fire and jump out of the window – it just means what it means…proceed with caution. Don’t go chasing the names (sectors) that are stretched…. build some boring into your portfolio – because in a volatile market boring is beautiful.
European stocks are up…. small but up. They are also awaiting the US NFP data to see what it says about the US economy……Remember – Europe is still experiencing higher inflation and that is keeping the ECB and the BoE on high alert…both central banks are expected to keep raising rates at the upcoming meetings.
The S&P ended the day at 4507 down 7 pts… Futures right now are up…but let’s see what happens at 8:30…….it is a new month and we are about to start a new season….September can be a tough month (historically the worst month) and so can October (think crash of ’29 and ’87). I suspect that we will churn lower and then rally into year-end that will take us back to S&P 4500…… which means a 17% return for the year…. not bad…. for a kid from Boston….
Don’t stress – stay focused, talk to your advisor, remember – this is a long game and there is always an opportunity somewhere. Enjoy your long weekend – with Labor Day upon us – expect to see Halloween stuff in the next week followed by Pumpkins and Turkeys and the Christmas Trees all before the end of September. I hate that, but the retailers have to draw you in early…. I tend to shut it all out and enjoy the moment. Take a deep breath and try it…. And then cook the Chicken Pot Pie (See below).
Take good care.
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.
Old Fashioned Chicken Pot Pie
This is so good, and I made it last night – see the pictures on my Twitter feed – @kennypolcari (with the blue check – it is the only way to keep imposters away)
This is not difficult – and it reminds me of being a kid all over again.
For this you need – a roasted chicken – that you have deboned and shredded. Use both white and dark meat…. I used ½ of the chicken and saved the other half. (You can buy one already roasted at your local grocer), Pie Crust – homemade is always better, but in a pinch buy the Pillsbury pie crust by the milk case. 4 garlic cloves – sliced, 2 c Shredded carrots, 1 Diced large yellow onion, 1 pkg of sliced mushrooms, frozen peas, s&p, flour, chicken stock, heavy cream and butter!
Start by preheating your oven to 425 degrees.
In a large pot- melt a stick of butter – when melted, add the onions and carrots – sauté for 10 mins…on med high…. then add the mushrooms and garlic – sauté for another 10 mins….
Now add in 1/3 c of flour and stir. Add in 2 c of chicken broth and 1 c of heavy cream…. stir to blend and allow it to become thickened – maybe 3 – 4 mins… Now add in the shredded chicken and a bag of frozen peas. Stir to combine and then take it off the heat and allow it to cool while we prepare the pie plate.
Grease your pie plate with more butter! (LOL) and then place one crust onto the plate making sure to press it onto the plate and up the sides. Now add the chicken mixture – making sure to fill the pie…. Now take the second pie crust – unroll it and place it nicely on top, making sure to fold it over the edges and then crimp the two crusts together. Bruch with an egg wash and the using a knife make 4 slits to allow the steam out.
Place in the middle rack and bake for 30 – 35 mins…. or until you get a nice golden top. Remove and let sit for 10 mins before you cut. Serve and enjoy…You don’t need anything else. Should serve 6 people – unless of course you are really hungry.
Buon Appetito
