Stocks drop, bonds rally ahead of inflation data and investors brace for volatility

• Markets await today’s PPI.

• HD reports and beats, but stock is down 3%.

• Oil Rallies, Gold Rallies, Dollar weakens.

• Volatility subsides, but don’t count it out. 

• More eco data all week.

• Try the Spinach Salad w/Grape Leaves and Feta.

Stocks came to a halt struggling for direction as bonds rallied all as investors remained on the edge of their seats awaiting the latest inflation data after the roller coaster ride, we took last week. …… The Dow fell 140 pts, the S&P ended flat, Nasdaq up 35 pts, the Russell fell by 18 pts, the Trans lost 85 pts, and the Equal Weight S&P fell by 34.

The TLT ETF (20 yr. bond proxy) rose by 0.3% while the TLH ETF (10 – 20 yr. bond proxy) rose by 0.25% - leaving the 2 yr. yielding 4.019% and the 10 yr. at 3.90%.

Oil surged up and thru $80 and Gold pierced $2500 to end the day at $2512 – all on fears of more geo-political / mid-east conflict.

Inflation data begins today – and all that is doing is curbing the appetite for risk. After what happened last week – many are refraining from making any more bets until they get a sense of what the latest eco data is going to reveal and then speculate on the FED’s next move. 

Ok – let’s be clear – There will not be an ‘emergency’ meeting or an ‘emergency’ cut. September will bring a 25 bps cut, I do not believe the FED will push for 50 (unless of course the data suddenly goes off the rails) – and JJ will most likely indicate that the trend now is lower….and that the new range will be 4.25% - 4.5% once we get there…(again unless of course we go off the rails).  But let’s be honest – even those rates will do nothing to bring down the price of food, utility bills, insurances, education, housing…. etc.  What will bring down those prices? A deep recession…. Something which doesn’t seem to be part of the narrative (yet). 

Next – the unrest in the Mid-East is also causing some angst and that is reflected in what we saw happen to the price of oil and gold.  Oil shot higher on the idea that if the conflict breaks out -then the supply of oil could be impacted (think the whole Red Sea/Suez Canal thing).  While Gold shot higher in the classic ‘safety trade’…geo-political conflict always causes investors to run to gold as a safe haven play during times of unrest. 

This morning both are under a bit of pressure – Oil because the IEA now tells us that oil markets are ‘poised to swing from deficit to surplus next quarter’ if OPEC+ presses ahead to boost oil production beginning in October, in addition the IEA is also (once again) telling us that Chinese demand is weakening…..so if OPEC + continues down that road to raise production – the surplus created will only put pressure on oil prices. (something the Saudi’s do not want).  This morning oil is down 20 cts at $79.84/barrel.

Gold is down $5 at $2498 as traders take some profits after the 3.5% move up off the July lows of $2425. In addition, the markets remain hopeful that the Israeli/Iran conflict will not explode and that diplomatic efforts will change the path of the conflict.  Gold is also sensitive to the coming inflation data – and if it appears that we are on track for cooling inflation and lower rates, then expect gold to resume its ascent.  Lower rates = lower dollar = higher gold.

The dollar is now down 3% off the July high of 106 – it has broken thru all 3 trendlines and is now testing levels last seen in January and March at 103.30. 

Look – it’s a good time to sit back and take stock of where we are and how some of the best names have come under pressure – for no other reason than the angst and nervousness. And you can find them all over the place after the debacle last week…. …. Especially in Tech!  The XLK was down 18% but has rallied back by 6%,, NVDA was off 30% but has rallied back by 10% and was the sole reason for the Nasdaq advance yesterday , AAPL sold off 16% but has since rallied by 10%, MSFT down 17%, has rallied back by 5% and still a screaming buy (if you ask me!).  AMZN down 25% has rallied back by 10%....

How about the Financials?  The XLF sold off 7% - rallied back by 4%, JPM down 11%, rallied back by 8%, BAC down 20% has gained 9% (another name I love), C down 18% took back 8%. And the list goes on…And what do these names all have in common?  They are the biggest names in their respective industries – yes, they get sold, but they tend to snap right back (as long as the story has NOT changed). 

Did you notice that Consumer Staples and Utilities – two of the most boring groups you can imagine…but they hardly moved during last week’s volatility…. Why?  Because they are not ‘sexy’…. They ae boring sectors that play exactly that – DEFENSE.  And that is why you need to have some in your portfolio…Capisce?

Now, if you are a day trader then trade away, but if you are a long-term investor – you should be adding to the names that go on sale, not selling them when panic strikes. 

In any event do not discount more volatility in the weeks ahead…..If today’s PPI and tomorrow’s CPI come in much better than expected – then that could signal that we are heading for a recession rather than a soft landing….and if inflation rises – then it will tell investors that the FED may stand down and do nothing – something I do not think will happen. I think the numbers will be just as expected and that means we are on track for a 25-bps cut in rates in September.  

HD just reported and they beat, but the stock is down 3% in the pre-mkt – why? Because they warned of a slowdown in their forward guidance because of a cautious and tired consumer.

Today’s focus is all about the PPI  - and like I said it is expected to come in slightly better than last month…and if it does, then that’s a win for the FED….and would continue to support the current narrative of a 25 bps cut in September.  Tomorrow is the July CPI and then later in the week we will get Real Avg Hourly Earnings y/y and Avg Weekly Earnings y/y, Retail Sales, Industrial Production and Capacity Utilization. Friday finishes the week with Housing Starts and Building Permits.

US futures are up…. Dow +20, S&P’s up 18, Nasdaq up 100 and the Russell is down 2.   

European markets are struggling for direction as well – UK unemployment unexpectedly fell to 4.2% while economists expected it to rise to 4.5% in the 2nd qtr.…and that throws a monkey wrench into the BoE’s plans to continue down the path of lower rates.  UK wages grew by 5.4% y/y – apparently the slowest in 2 yrs. UK inflation is due out tomorrow – expectations are for it to tick up to 2.3% from 2%. 

The S&P closed at 5344 -   now only down 5.5% off the July highs after being down 9.2% last Monday.   We are now between the intermediate and short term trendlines 5314/5450.  I think we run into resistance at 5450 and test lower again as the market continues to repair the damage done last week.  Global markets continue to struggle to create stability after last week’s shock.   While volatility has declined do not dismiss it just yet.  Markets will reman on edge as we move thru the next 3 weeks of August – many participants are on vacation; volumes will remain subdued which only exacerbates any move up or down. 

Chopped spinach salad with grapes and crumbled feta cheese

This is an easy salad to make and one that works really well in the heat of summer. It’s lite, it’s cool and a real crowd pleaser.

For this you need –

Pignoli nuts, fresh baby spinach (chopped), Red and Green seedless grapes, Feta cheese (you can substitute Ricotta Salata – but the Feta adds a little zing) and your choice of a strawberry/walnut vinaigrette, or a raspberry vinaigrette – something that brings out the fruit in this summer salad.

Toast the pignoli nuts in a frying pan – for about 5 mins.

In a large bowl – add the chopped spinach, grapes (sliced in half), feta – season with a dash of s&p and then toss with either the strawberry walnut or the raspberry vinaigrette. Make sure that the salad bowl is cold to keep the spinach crisp and green. Serve this with grilled chicken or steak. Quick, easy and great for summer entertaining.