Things you need to know.
– JJ ‘Locks it in’ – a September rate cut is all but in the books.
– NVDA – steals the spotlight this week and the sense is that they better blow the galaxy up because this Mag 7 rally is depending on it…
– RFK Jr. ends his campaign and joins the GOP…. Democrats outraged!
– And the Middle East begins to boil over again…
– Try the Cavatappi Rustica
The WSJ reported it like this:
“Powell Tees Up Rate Cuts” (note the plurality).
Investors, Traders and algo’s loved what they heard…..taking stocks up, up and away…The Dow + 465 pts or 1.15%, The S&P + 64 pts or 1.15%, the Nasdaq + 260 pts or 1.5%, the Russell +70 pts or 3.2% (the clear winner!), the Transports + 255 pts or 1.6% while the Equal Weighted S&P + 90 pts or 1.3%. Note – the Equal Weighted index outperformed the original S&P last week – suggesting investors are finding opportunity away from the Mag 7!
It was another ‘barn burner’ of a day…..traders giddy with ‘joy’…..(seems to be the word of the day lately)…..as JJ gave the strongest signal yet about the ‘coming’ rate cuts and the change in monetary policy…..that is meant to halt any further weakening of the US labor market –
In his statement JJ said
“We do not seek or welcome further cooling in labor market conditions, so the time has come for policy to adjust.”
Now what I find truly interesting is that this was completely EXPECTED – there was nothing here that should have surprised anyone…. yet, it appears as if it did…. Maybe because he emphasized the ‘cooling labor market’ or maybe because there wasn’t a hint of hawkishness in it causing them to expect a total of 100 bp cuts before the ball drops in Christmas Island – (located in the central Pacific and is among the first places to enter the new year due to its position just west of the int’l date line). Or maybe because he did not ‘remove’’ the word gradual from his speech – suggesting that 50 bps is a possibility at any point. In any event, it is what it is….
Just to be clear – he never put a bps move on the coming cycle…. He did NOT define the size or btw the start date…. he just said, ‘It’s time’, traders are doing the rest………. In the end – his comments now bring a conclusion to what has been described as ‘the FED’s historic* inflation fighting campaign’ – a campaign begun at this very place exactly 2 yrs. ago…. (Jackson Hole) ….
I guess it is all about perspective….I mean ask any member of the ‘silent generation’ (1928-1945), the baby boomer generation (1946-1964) or even the Gen X generation (1964-1980) out there – we found NOTHING historic about this move – in fact – I am going to say that WE found it a return to normalcy – after 15 years of incredibly misguided policy that left rates at zero for far too long….….something the Gen Y’er and Gen Z’ers….came to believe was completely ‘normal’. And THAT is the issue…. They thought this was ‘historic’, they called 5% rates ‘usurious’ suggesting that it was going to break the bank! But I will also say, it’s not their fault, that is all they knew, they can’t help themselves….…. In the end – the market was happy with JJ because his speech felt more dovish and left the door open for those larger cuts if the data continues to weaken…. OK. Time to move on….
*Historic was when Fed Chair Volker pushed rates to 21% in 1980/81! Now THAT was historic…. Again – go back and ask those 3 generations I defined for you!
Every major group in the S&P advanced…. Consumer Discretionary +1.9% (remember those are WANTS vs. NEEDS) and Real Estate +1.9% (think housing) led the way. Tech followed + 1.6%, Energy +1.5%, Basic Materials + 1.3%, Industrials +1%, Financials +0.9%, Communications +0.7%, Healthcare +0.4%, with Utilities and Consumer Staples +0.3%. (both are NEEDS vs. WANTS).
Homebuilders exploded up 4.3%, Retail +2.45%, Airlines +3.2%, Semi’s +2.5%, Metals & Miners + 2.4%, Cybersecurity +1.25%, Aerospace & Defense + 1%, Oil & Gas Exploration +2%, the SMID’s gained 3%, The Value Trade (SPYV) up 1% while the Growth trade (SPYG) + 1.15%, the triple levered long – SPXL gained 3%….and the list goes on…
The VIX (fear index) has given all the fear back – closing at 15.86 – (remember it hit a high of 65.50 on August 5th). This morning it is up 0.15 at 16.01 – as the mid-east boils over and investors await NVDA earnings…
Thursday August 28th – after the close…Jensen Huang (CEO NVDA) will take the stage to report his latest results….and while the last week of August is normally the doggiest days of summer – that is no longer the case….NVDA has the whole place on edge…..and let’s be honest….Everyone already forgot JJ’s speech……they forgot about his comments on inflation, the labor mkt and rates…. Why? Because it is no longer important…. That’s old news…. but NVDA – well that’s new news…and it’s gonna be a LONG week…. all kinds of speculation and what ifs!
Let’s just be clear…. NVDA is up 182% ytd…. got that? 182%…..It started the year at $49.52 (post-split) and closed at $129.37….That is a beautiful move…Now they did sell it off from the June high ($140.76) to the August 5th low ($90.69) – a 34% move lower, but have since rallied it by 40% off that low…….
Now, if he somehow disappoints, the options market says that they will take 10% out of it… Who cares? I’m a buyer….and if he doesn’t disappoint – then they say it will rally it by 10%. Great I’m an owner so I’m participating…In the end – he has to confirm that the AI hype is NOT just hype – but is the real story. And just fyi – It IS the real story…
He is expected to report a ‘double’ in earnings AND revenues y/y (which is also then a ‘double beat’). Which I do not think is impossible – since every industry is jumping on the AI bandwagon…. for both products and services – capisce? NVDA is at the nexus of this phenomenon. In any event – as a long-term investor – do not make any rash judgments…if there is any short-term negative chaos, it is sure to be short lived…. And if it flies – strap in and enjoy the ride.
Now bonds rose in the excitement and that sent yields lower…. the 2 yr. is now yielding 3.88% while the 10 yr. is at 3.78%…30 yr. mortgages are already moving lower and that is providing all kinds of excitement in the housing market – recall the XHB was up 4.3% on Friday – bringing its performance up 24.6% ytd, But with lower rates, are we to expect prices to rise? We are about to find out.
Oil rallied on Friday…. There were conflicting themes……1. global inventories shrink – leaving OPEC+ to make a decision to raise production or not and 2. Crude supplies outstrip Demand and 3. China demand slows! Now the first one is bullish for oil, while the second & third are bearish for oil….so what gives? Who is right? It depends on the day…and on who you want to believe.
I’m in the bullish camp…. I continue to think demand is strong and will only get stronger and if Kammy wins – then expect oil to surge…as she restricts further production (even though she told Pennsylvania that she ‘loves fracking’.) Then the latest mid-east turmoil will only push oil up…..If you did not hear – Hezbollah launched a ‘wave of hundreds of rockets and drones (320 to be specific) from Lebanon towards Israel over the weekend and Israel strikes back with 100 fighter jets at Lebanese targets……raising the temperature once again in the region, and raising the prospect of some disruption in supplies….This morning oil is up 80 cts at $75.66 – kissing the long term trendline which is now resistance vs. support…..the next move depends on what happens over the next couple of days in the region.
Gold is up $15 this morning at $2560/oz – again kissing all-time highs… 2 reasons….1. The whole JJ thing (lower rates = lower dollar = higher commodities) and 2. The Mid-East is in flames again as Iran ignites the fire. (think safety trade). …. Let’s not kid ourselves – Hezbollah IS Iran, Hamas is Iran…. So, Iran is the problem…. but we knew that too. So, we are left to wonder what Kammy’s policy will be concerning Iran….as she hasn’t told us anything yet and JoJo is asleep.
Eco data today includes Durable Goods – expected to be up 5%, Ex transports of -0.1%. Dallas Fed Manufacturing of -16.3.
US futures are mixed….…. Dow futures were up but are now down 18 pts, S&P +3, while the Nasdaq +22 pts and the Russell is +16. Right now – investors do not appear to be that concerned about the Mid-East – both sides appear to be backing down, although oil is up 1%…and will remain volatile. The VIX is up 1.2%.
While some investors continue to celebrate JJ – Let’s remember he did not ‘specifically’ define the plan…. he just confirmed that the next move will be down. He didn’t actually even say it was September – but that is the expectation. And I would argue that if rates do not go lower in September…. Then WATCH OUT below…because traders and Algo’s will not be happy at all as they all run for the door…. Remember – I think the next catalyst for the market is NVDA….
European markets are mixed…. Germany is down 0.3% while France is up 0.01%…The UK is closed for a holiday. Mid-East concerns driving the action….
The S&P closed at 5634 – up 64 pts….and with the latest Mid-East conflict on the front page again…. we can expect some churn…. Although cease-fire talks between Hamas and Israel continue in Egypt.
I suspect that some in the media will continue to focus on JJ’s comments while others will focus on NVDA and the race for the WH…. With only 9 weeks until the election – you can also assume that THAT will be very much a part of the conversation over the coming weeks. Now over the weekend – RFK Jr. jumped ship – leaving the Democratic party and joining forces with the GOP and that is causing anger on one side while curiosity on the other. Remember – while politics don’t normally affect long term investing – it does and can create short term chaos – and there is no lack chaos in the days ahead.
Remember – it is important to always take a ‘balanced’ approach to long term investing…try not to make ‘emotional’ or ‘rash’ decisions, yet do not become so complacent that you lose sight of what is going on around you.
Do not design a portfolio to bet on one party vs. the other – what we have to hope for is that neither party has complete control (split Congress), this way it stops the stupidity from the far left and the far right – leaving the bulk of the country and elected members of congress smack in the middle, like I believe most Americans are…Thus keeping your eye on the ball and keeping a well-diversified portfolio while continuing to add money to it is the KEY to winning the race.
Give me a call to discuss.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Cavatappi Rustica
A great summer dish and ‘end of summer dish’ as you get to use the fresh tomatoes from the garden and make a simple yet delicious fresh uncooked sauce. There is a magic that happens in your kitchen when you take beautiful ripe tomatoes, mix with fresh garlic, basil, s&p, olive oil, red onions, and maybe some really freshly made mozzarella and put it over hot pasta.
Essentially – you are making a summer tomato salad and then putting it over pasta….so dice the tomatoes, slice the red onion, slice the garlic, add chopped basil, s&p, “splash” of water, and a couple turns of olive oil.
Prepare and let it sit out and marinate. It will create its own juice the longer it sits. You want it to be room temp when you mix it with the pasta. If you make it the day before then remove from fridge and let warm up for about 30 mins….
Now bring a pot of salted water to a rolling boil – add pasta and cook for 8 / 10 mins…. or until aldente. Strain – always reserving a mugful of water…. return the pasta to the pot –
Now add the tomato salad, chunks of fresh mozzarella and 2 or 3 handfuls of grated Parmegiana cheese and toss well. Add a splash of the pasta water if you think you need it. Serve immediately in warmed bowls. Again – set the table outside, turn on some relaxing music to set the mood, light the candles and enjoy the setting sun on a great summer eve. Never rush – enjoy the moment.
Buon Appetito.
