Morning Market Update August 23

Providing Market Insights and Returns

Let’s see if this morning’s gains can hold! DOW FUT up 0.05%, S&P up 0.07%, NAS up 0.13%, Oil up 1.77%, Gold up 0.03%, and the US 10yr taking a breather down ~1bps @3.02%. Asian markets traded lower with Singapore inflation coming in at a 14-year high. Euro markets are mostly lower after some poor, albeit expected economic data and the Euro is sitting at a 20-year low. We have some flash PMI data out later this morning along with new home sales.

Oooof is all that can be said for yesterday, with just about everything in the red. No DOW members ended in the green and only 24 of the S&P members closed higher. It wasn’t surprising to us that the rally was halted yesterday but a move that large had some meaning to it. Whether you are looking at equal weight S&P or normal S&P the story is the same, they were overbought into resistance and couldn’t hold up. The breadth continues to deteriorate, and momentum is easing. We continue to be fascinated by the data coming out about retail investors. A report, by Vanda Research, suggested that retail investors were buying $1.36Bn per day of US stocks last week adding to the rally and helping to push markets into overbought conditions. The Fed has to be looking at the retail investors and Meme stocks as a huge red flag, something that was only possible berceuse of the idea of free money triggered by near-zero rates. Yesterday, CNBC and others kept talking about the market reversing its previous assumptions that the Fed had pivoted and that the red day yesterday was because the Fed will be more hawkish. This is astonishing to us as this implies that an 8.7% CPI YoY print and a likely 50bps hike in September is a pivot. 8.7% inflation is not low inflation and a 50bps rate hike is not a Fed pivot! It is our view that the Fed is trying to avoid a 70s-style mistake of stop and go policy. Either way, the market is spooked by what Powell will say on Friday and the market is pricing in a 50/50 chance of 50bps or 75bps in September. Rates have rebounded WoW and we expect them to continue higher.

Market News – The drought in Europe is continuing to add pain, Euro corn crops are drying up before they can be harvested and are expected to drop 16% below the 5-year average. In China, they are extending power cuts due to their drought. US nat gas hit $10 early this morning, a level not seen since the shale boom era. Fauci is stepping down in December after 20 years. HBOs House of Dragons had 10m viewers on the first night of streaming. TWTR whistleblower said that the company has a huge security problem, potentially helping Musk’s case to not buy the company. LA is receiving backlash for giving COVID tests to animals. Hurricane Tracker: 40-60% chance a storm off Baja turns into a cyclone and a small chance (<40%) that a storm in the Gulf turns into one.