Market resilience, Jackson Hole anticipation: A week of surprises and strategy

• Stocks advanced going into the weekend.

• It’s all about the Jackson Hole Boondoggle.

• DNC meets in Chicago.

• Try the Pasta Carbonara.

Ok – so stocks rallied into the end of the week in what has been a stunning show of strength. – The Dow up 97 pts or 0.25%, the S&P up 11 or 0.2%, the Nasdaq gained 38 pts or 0.2%, the Russell added 7 pts or 0.3%, the Trans up 72 pts or 0.5% and the Equal Weight S&P added 15 pts or 0.2%.  The S&P is now just 1.9% below the July high, while the Nasdaq remains 5.25% below its July high. 

Remember in the span of 10 days – Investors, traders and algo’s went from ‘panic’ - screaming about ‘emergency’ moves to prevent a ‘depression’ to the view – that everything is fine, growth remains resilient, the consumer is strong, and the job market is not dead and stocks are apparently ‘cheap’! The same algo’s that couldn’t sell stocks fast enough on the 5th – couldn’t buy them back fast enough last week….

It was a flurry of data during the week that set the mood….It started with the PPI, followed by the CPI, - both better than expected, while Real Avg Hourly wages y/y as a bit weaker, but then on Thursday – Retail Sales exploded higher…and that caused all the analysts to proclaim that the consumer was very much ALIVE and that was all the algo’s needed to hear.  On Friday we got disastrous numbers for Housing Starts -6.8% vs last months +3% and Building Permits – 4% vs. last months +4%...and all this did was give new life to the argument that the FED needs to begin the rate cutting process to save the housing industry.

In any event – if you want my opinion – I have to congratulate JJ and the team for NOT caving when names such as Jeremy Siegal, Mohammed El-Erian and a host of others pushed for the FED to not only make an ‘emergency’ cut but make a much bigger cut than the market had been pricing in….…in fact – Jeremy got so excited I thought he was gonna keel over on TV that day.  Bets were ranging from 75 bps to 1 full %age point cut ‘intra-meeting’…. (ridiculous!).    In any event – despite all of these pleas – JJ is more likely to stay the course – and cut rates by 25 bps in September and then 25 more in November and December….…. Nothing more, nothing less….

Now these same traders are betting that JJ is going to confirm that exact plan at this year’s Jackson Hole Boondoggle – (Aug 22 – 24th) appropriately titled: 

“Reassessing the Effectiveness and Transmission of Monetary Policy”

This conference is supposed to speak to the US economy’s ‘enduring’ strength in the face of 5 full percentage rate increases from March 2022 – July 2023 – while at the same time its defiance of multiple recession predictions.   Whatever!  In any event – the market is now expecting this to be JJ’s most important speech of they year…… we will have all FED heads present along with central bank heads from around the world coming together to discuss world events and financial trends and apparently the path of US interest rates.  

Remember – if they hear cuts are coming then they will all be happy, but if they don’t hear exactly what they want – they will stamp their feet – triggering another downdraft….Just so you know – JJ speaks at 10 am on Friday….and true to form – he is NOT expected to lay it out so clearly…..he will remain in character and take the cautious, non-committal approach.  Understand the Boondoggle is not usually a market moving event – but in light of what has happened – it could be a big catalyst as it is happening just 3 weeks before the next FOMC meeting.

Now if he somehow suggests that that is not the plan – then the $3.3 trillion rebound is at risk….and the $5.5 billion that investors put to work last week would also be at risk as well.  Everyone that ran out the door 2 weeks ago, were the same ones that ran back in the door last week and will be the same ones that run out the door again if they don’t get what they want. And again – this is just another reason to have a plan and to stick to it.

Remember – we are in a SEASONALLY WEAK time of year…. we have been talking about this, no one should be surprised and if you are – then you’ve been living under a rock for the past month.  Recall – the move lower on August 5th… caused the S&P to test 5116 – just a hair above the long term trendline….that day saw a fair amount of internal damage done to the market – that needs to be properly repaired….and the only way to do that is to retest it….to see where the bodies lie….so sit back.

Bond prices rose slightly on Friday sending yields a bit lower…. the TLT +0.35% while the TLH +0.3%.  This morning prices are steady, and 2 yr. bond yields are 4.03% while the 10 yr. is yielding 3.86%.

Oil fell by 2% on Friday…. After rallying on Thursday….on the idea of stronger US demand….and then on Friday- US demand was no longer the focus…..it was all about a weakening China…in addition – Libya is expected to increase output after some maintenance was completed on a damaged pipeline and don’t forget OPEC+ is expected to increase output in October – which likely will not happen if oil continues to decline and demand wanes…….remember – the Saudi’s want $80+ oil not $70 oil.   

Moreover, hedge funds have significantly increased their long positions in oil….betting on a rebound….but in fact could set it up for a further decline IF prices do not rebound soon…remember – HF’s tend not to be patient people and if they don’t get what they want – they will be the first to hit the ‘sell’ button.  (Does the Japanese Carry Trade ring a bell?).  We are now once again below all 3 trendlines…. the long term trendline is $76.55.  A failure to take back this trendline could see oil test the June and July $72 lows…This morning – oil is trading down 50 cts at $76.17 after testing as low as $75.83 - Down 5% in the last 7 days.

Gold is rallying, kissing new highs as we speak…. this morning it is up $7 at $2544/oz. as the focus shifts to JJ’s speech on Friday. Gold is up 18% ytd – which is a massive move for this non-interest-bearing non-dividend paying asset. It has been stuck in the $2375/$2525 trading range since early April – It has tested the upper limits ($2525) 3 times – before backing off to test $2375/$2400. It has now pierced the upper band (4th attempt) – remember - Lower rates, will send the dollar lower and that is supportive of Gold and other commodities.

Eco data this week – includes the Philly Services Index (known as the Non-Manufacturing Activity), the July FOMC mins, Chicago Fed Index, S&P Manufacturing and Services PMI’s, Existing Home Sales, Kansas City Fed Activity, New Home Sales. 

US futures are taking a break (again)…. Dow futures +12, S&P -4, while the Nasdaq is down 50 and the Russell is up 2 pts.  Goldman expects to cut the chances of a US recession from 25% to 20% after the September NFP report on the 6th. 

European markets are mixed as well…. Spain up 0.8%, Italy +0.5%, Eurostoxx and France up 0.1%, while the UK is down 0.15% leaving Germany flat on the day. BoE governor Andy Bailey is also expected to speak at Jackson Hole on Friday.

Global markets are starting the week on a cautious note after the recent rally that took stocks off of their August 5th lows.  We will hear from a range of countries concerning rate policy – Sweden, Turkey, Thailand, South Korea and Indonesia. 

While the KEY event is Jackson Hole, let’s not kid ourselves….  it is also the DNC convention in Chicago – Harris and the Dems are expected to announced their latest economic spending plan – which includes all kinds of NEW spending and taxes…..something we can ill afford…She is due to accept the nomination on Thursday evening….(Hillary’s head must be spinning…)

The S&P closed at 5554 up 11 pts….  We are now in the final weeks of summer – volumes tend to be lower – resulting in more exaggerated moves in either direction…..Do not be so quick to judge….You are invested, so you are participating….While we are now in a position to challenge the highs….  we are also in a seasonally weak time of the year…and I, like many, expect the markets to trade lower and test the lows created two weeks ago at some point before the end of October.

In the end – update your shopping list, take advantage where it makes sense if your favorite names pull back, add to defensive positions.…. make sure you know what you own and in times like this talk to me if you are concerned.

Pasta carbonara (spectacular)

I made this on Saturday evening…posted the pic to my X acct (@kennypolcari).

For this you need Pancetta (or you can use Guanciale or Thick cut Plain Bacon).  1 lb. of spaghetti (I used freshly made Tagliatelle and thick cut bacon) 4 egg yolks, finely diced med sized yellow onion, fresh grated Parmegiana and off course – the ‘tears of the Gods’ (Pasta Water).  You also need a large mixing bowl to put this all together.

Begin by getting everything ready. Dice the pancetta – set in a bowl, peel and dice the onion – set in a bowl, Crack the eggs – taking ONLY the yolk.  Scramble.  Now add 3 handfuls of cheese and combine.  Set aside.

Bring a pot of salted water to a rolling boil on the back burner.

Start by sautéing the pancetta in a frying pan. Once it is all crispy – using a slotted spoon – remove and place in a bowl. Leaving the fat in the frying pan. 

Now add the diced onion to the frying pan and caramelize.  – should take no longer than 10 mins…. make sure you do not burn the onions…. you can turn the heat to medium hi.  The onions add texture and will dissolve once you mix the dish.

At the same time add the pasta to the water and boil for 8 min – until aldente….and here we go.

Using the large glass mixing bowl – add the onions and the oil from the frying pan – now strain the pasta (saving 2 mugful’s of the water) – add the pasta directly to the glass bowl and mix to coat the pasta with the oil…now slowly add the egg yolks and cheese – always mixing to coat the pasta….Add back ½ the pancetta (or guanciale or bacon)  to the bowl – mix.  Now add about 1 ladle of the ‘tears of the Gods’ and mix well.

The ‘tears will help emulsify the cheese and make it nice and creamy. 

Serve immediately.