Things you need to know
- Stocks buck the trend and end the day higher even in the face of all the news
- The FED makes it clear – the tapering to start in November, finish by July 2022
- Rates are not expected to move until 2023
- China extends a hand to the Taliban – Rare earths are KEY.
- Oil sitting on trendline support – OPEC not expected to increase supply
- Try the Apricot Chicken Thighs
US Stocks started the day lower but then managed to pull it out slight gains at the end of the day.….… Unlike Asian and European stocks that started the day lower and ended the day even lower…US stocks wiped out nearly all the early losses to end the day in better territory. The S&P rose 11 pts to set yet another new high…. the Dow gained 110 pts while the Nasdaq lost 30 after being down more than 220 pts at 10:30 am….so down 30 was a WIN and the Russell gave back 20. Gains were seen in Healthcare – XLV up 1.1%, Utilities – XLU up 0.6%, Consumer Staples – XLP up 0.6% (recall I pointed this out in yesterday’s note) and the Industrials – XLI +0.4%.
Afghanistan – while horrific – was not the focus for investors yesterday at all and btw – nor was the delta variant….….the focus was squarely on the FED – since they released a ‘teaser headline’ at 5:45 am on Monday morning…..saying that Fed Officials Weigh the End of Buying Program and then at 6:30 the next story tells us that the FED announces that they are ‘nearing an agreement’ to scale back their asset purchases – and that is all investors needed to hear…..
The initial headline, pre-opening, sent futures lower, and then when the bell rang stocks took a hit…falling quickly as everyone tried to interpret the headline and ‘teaser’. How fast do they want to exit? 6 months? 8 months? 10 months? And then does that mean that rates will start to rise and if so, when, and how fast? There were so many questions and not a lot of clarity that the first move is always ‘sell first, ask questions later’….and that is exactly what we saw…. the Dow losing 300+ pts by 9:50 am, the S&P off 30 pts, the Nasdaq down more than 200+ pts and the Russell off 30 pts as well…. It felt like, maybe this was the beginning of that re-pricing that everyone has been talking about, which would not be a bad thing, but then investors took it all in stride and Bought the Dip, a strategy that has worked out well for so many for so long. And then, it was that slow grind higher that left stocks in a better position than when the day started.
It was the clarification that gave investors the confidence they needed…. You see, it was always about three questions. When to start, how quickly would it happen and what does that mean for rates? The first two questions are now answered…. The process is set to begin in 3 months (November), if the recovery continues, and it will take until Mid-2022 – which would be July – so that means it’s 10 or 11 months depending on how you count it. Think $12 billion/month between the two programs….
So, you ask, why did the headline come out yesterday? Well, a couple of thoughts – first the FOMC (Federal Open Market Committee) minutes of the July meeting are due out on Wednesday – and maybe that information is buried within those minutes – so Jay, wanting to control the narrative, leaked the story so that on Wednesday there would be NO surprises. And secondly, the excitement/speculation around the Jackson Hole Summit has now been neutered, thereby hoping to control any market reaction or over-reaction. And third – someone was hoping it drew attention away from what was happening in Afghanistan. I will say, it was a classic FED policy play…. create the speculation, send out differing opinions about when and what, take the temperature of investors and then create and control the narrative – I mean, no one can really say that any of this was a surprise at all, can they? Hasn’t this message been telegraphed ad nauseum over the past 3 months? All yesterday did was toss it out there to be formalized next week.
Now on the rate increase issue – the story made it clear that the two actions are mutually exclusive – the tapering does not mean that rates are going to rise in tandem, in fact the story quoted Jay Powell from his July 28th press conference – “the FED is still a way away from considering raising interest rates. It is not something that is on our radar screen right now.” – and investors seem to be ok with it – or at least they were yesterday, because that can change as well. (But let’s leave that for another day.)
The talk of the delta variant, while simmering on the back burner has done absolutely nothing to ‘sour’ investor appetite, in fact, I would say that while there is all this talk about how disastrous the variant is, investors are discounting all of it… Both JPM and GS continue to say that any impacts related to the delta variant are expected to be localized and ‘unlikely’ to be significant. Which is in complete contrast to the narrative – but they are JPM and GS.
I mean look at the S&P ever since the variant started to show its ugly head in December 2020…. At that time – the S&P was at 3756 and today it is at 4479 – up 20%! The Nasdaq was at 12,870 and today it is at 14,793, up 15%, the Transports were at 12,188 and today they are at 14,986, up 20% and as you recall, the transports are key, because it speaks directly to the health of the economy as products get shipped around the country and the world and apparently there is plenty of that going on
This morning US futures are down, and global stock markets are all lower…. Asian markets down between 1% and 2% – the issue there was supposedly how the Chinese gov’t is about to come down hard on tech and internet stocks, this on top of the weaker eco data from Sunday continues to put pressure on stocks. Now on the flip side – rumor has it that Xi Xi wants to take the Taliban under its wing to exploit all the rare earth minerals that are apparently buried deep within the mountains of Afghanistan…. Expect more to come.
In Europe, the talk of that Chinese regulation, the surging virus and the new geo-political implications following the fall of Afghanistan are all top of agenda….and that is causing investors to be ‘less aggressive’. Less aggressive does not mean they aren’t there; it just means that they are not going to chase sellers – at least not today. At 5:15 am – European markets are all off about 0.4%.
Dow futures off by 170 pts, the S&P’s down 20, the Nasdaq off by 54 pts and the Russell is down by 26 pts. The headlines this morning is blaming the ‘virus angst’, Really? You can use any argument for the tone today…. more analysis on the FED announcement, more analysis on the impact of the virus, more analysis of Afghanistan, more analysis of increased Chinese regulation, blah, blah, blah. Whatever it is, it is…. anyone of those headlines would work to create a negative narrative. The question now is – just how negative could you make it?
And while 2nd qtr. earnings are mostly over, the retailers still must walk the runway and today we will hear from HD and WMT while TGT, LOW and M are due out later this week.
The 10 yr. treasury yield continued to fall and this morning is yielding 1.23%, the Dollar index is up 7 cts at 92.70, Gold is up $5 at $1795, and Oil continues to churn, it was up yesterday and is down 32 cts at $66.98/barrel this morning – sitting right on it intermediate trendline….the expectations that OPEC + will supply more crude is not happening and this is helping oil find support while the ongoing fears of the pandemic are putting pressure on oil. (Remember, what I said two paragraphs ago – both JPM and GS are not concerned about the pandemic derailing the recovery and GS still has an $80+ price target on oil by year end.)
Eco data today includes Advance Retail Sales – exp of -0.3% (which makes no sense at all to me), Ex Autos and Gas of +0.2%. Industrial Production of +0.5%, Capacity Utilization of 75.7%
The announcement made yesterday, and which will be formalized next week at Jackson Hole – in fact – it may be formalized on Wednesday – when the FED releases it’s FOMC (Federal Open Market Committee) minutes of the July meeting. Maybe the headline came out yesterday because it is going to be in the minutes from last month and Jay Powell is trying to control the narrative.
Bitcoin is trading at $46,500 and Ethereum is at $$3,250.
The S&P ended the day at 4479 – on it’s high for the day…. and this morning’s action does suggest that a test lower is in order. But there is no panic at all, it’s just a test…. The action today will be driven by the eco data. The Taliban and Afghanistan now relegated to the back pages of the newspapers as the MSM tries to insulate Joey from the images and the stories.
The announcement made yesterday, and which will be formalized next week at Jackson Hole – in fact – it may be formalized on Wednesday – when the FED releases its FOMC (Federal Open Market Committee) minutes of the July meeting will also be at the top of the agenda for months to come. These next two weeks could see diminished volumes as summer vacations come to an end. But expect the heat to get turned up in September when everyone is back. Businesses putting off that ‘return to work’ mandate in favor of being more cautious are now looking at a January 2022 return date.
Remember – Stick to the plan…. don’t rush, if you are a long-term investor building a portfolio, you are not missing anything…. investing is dynamic, not static…. talk to your advisor.
Remember you can text the word INVEST to 21000 on your cell phone to get my digital business card. Feel free to download it and send me off an email or text. Happy to engage and talk markets, planning, thoughts, concerns, and ideas.
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Take Good Care
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Grilled Apricot/Honey Dijon Chicken Thighs
Easy marinade and works well with chicken on the grill.
For this you need: 6 thighs, (bone in), Apricot Jam, Honey Dijon mustard, s&p, onions, and butter.
Sauté the butter and chopped onion in a pan on med hi – until translucent. Now add 2 tbsp. of the apricot jam and stir…. after about 3 mins – remove from heat and add 1 tbspn of honey and 1 tsp of Dijon and s&p – taste to adjust. Let cool for 10 mins.
In a large bowl – add the thighs and the marinade – let sit for 30 mins.
Heat the grill – place foil on the grate and then place the chicken on top of the foil.
Turn heat to medium and cook until nicely browned and the juices run clear.
Serve this dish with corn of the cob and a large mixed green salad. Great for an evening BBQ.
Buon Appetito.
