Markets churn amid speculation on Fed's next move – Investors cautiously await Jackson Hole insights

• Stocks take a break.

• BLS is due to make that revision today.

• Don’t expect the Fed to be surprised.

• JJ to speak on Friday at 10 am.

• Try the Classic Bolognese.

Churn, churn churn – stocks did nothing really…. after a stunning rally that took stocks up dramatically over the past 2 weeks…. leaving us within striking distance of making another NEW 2024 high – stocks backed off…. just a bit.

The Dow down 62 pts, the S&P down 11, the Nasdaq lost 60 pts, the Russell down 25 pts, the Trans down 145 pts while the Equal Weighted S&P gave back 30 pts.

The most recent rally sent the S&P up 8% - and is now about to kiss oversold territory (again).  The rally has added more than $15 billion in new investments – some of that is clearly just a ‘bet’ that the FED will announce a plan to cut rates while some of it is clearly invested for the long term.

The question is – what will happen to those investments if the FED does put the plan forth…?  Will they stay committed or will they hit the SELL button to ‘lock in short term profits? And what will happen if the FED does NOT put that plan forward? Oh boy…. Watch out! 

Now, to be clear -  I do not think that will be the case…I believe that the FED has made it very clear and that rates are going to begin to move lower in September – I also believe that they will take the 25 bps route…They are not going to ‘panic’ and make a jumbo cut at all…Even if today’s BLS (Bureau of Labor Statistics) report shows a MASSIVE (downward) revision in annual payrolls…..because I do not believe that the FED is unaware of what’s going to be reported…..I mean you  can’t tell me that today’s report is going to be a surprise to the FED chairman and the members of the FOMC committee.

And so it is what it is and everyone will react in a way that suits their profile…If you are a trader – then I would expect you to hit the sell button – and lock in those profits – because you are NOT a long term investor – you ‘trade’ on short term news events that affect stock prices day to day…..and if you are a long term investor then you are waiting to take advantage of the sale that is just ahead of us…because the sale is coming….Remember what we have been talking about….the end of August is a curious time….volumes tend to dry up and moves become exaggerated – and this recent move up is just another example of that exaggeration…And do not forget that we are in a seasonally weak time of year….that runs thru the end of October….So, again – do not assume that you ‘missed it’…you have not….No market moves in a straight line, the same way trees do not grow to the sky. 

Today we get Mortgage Applications – and I expect that they will surge as rates have come down…current 30 yr. rates are in the 6.25% - 6.5% range….We will also get the July FOMC mins that I do not think will reveal anything new, anything that we did not already understand. 

The BIG number today though, that is garnering a lot of attention – is the BLS annual payroll revision…and it is expected to be down substantially….which means all those reports that we got all year long – that told us how strong and robust the labor market was – may not be so strong….Thus the revision….  Now, in the end, does it really matter?  Are you changing your investment thesis because the gov’t mis-reported a monthly number?  Did you build your long-term portfolio around this number?  No, you did not…. So, while it is expected to be all dramatic (especially because this is an election year, and the election is only 2 months away – and early voting is only 3 weeks away) – in the end – it doesn’t change the thesis.

Recall yesterday I reminded you that when Uncle Warren Buffet announced he sold ½ his position in APPLE – many panicked and then hit the sell button as well (because he MUST know something)…and since then – APPLE is up 13%, now yesterday we learned that Uncle Warren sold  more stock in BAC…in fact Bloomberg reports that he sold 104 mil shares – leaving him with only 928 mil shares and still the largest shareholder in BAC…and remember – that he has a much lower cost…so again – is he selling it because of his investing discipline or is he selling because he no longer believes his own thesis….my gut tells me that it is because of his investing discipline…because if it was for any other reason it would be out there….Recent buyers that are ADDING to their positions include – Capital Group (30 mil), Wellington Funds (20 mil), Fidelity Funds (8 mil), Norge’s Bank (12 mil), Franklin Resources (34 mil) – which coincidentally adds up to 104 mil… But let’s move on.

Bond prices rose (as it is preparing for a pullback) – sending 10 yr. yields down 6 bps to end the day yielding 3.81%, the 2 yr. is yielding 3.98% down 7 bps. 

Oil lost another 60 cts to end the day at $73.09…It’s the same story….weak China, more supply – the API reported that US crude stockpiles rose by 347k barrels – and that is supposed to suggest that US demand is waning…Ok – whatever…..Remember what I said earlier this week – we are below all 3 trendiness – but specifically below the long term trendline at $75.88 and if we failed to take it back then expect a test of the June/July lows of $72 – which is what appears to be happening.  

Gold ended the day at $2,552 after testing as high at $2,570 – all on the idea that the FED is cutting rates in 3 weeks. This morning it is down $7 at $2,544 as traders are taking some money off the table – but it still remains near all-time highs.

US futures continue to churn…. Dow futures +50, S&P +2, while the Nasdaq -12 pts and the Russell is +8. 

European markets are up…UK public sector net borrowing rose to $4 billion up from $2.3 billion – Alex Kerr – a UK economist suggests that it just ‘continues the recent run of bad news on the fiscal position’ and that tax increases should be expected when the new budget is presented on October 30th.  

Overall, though, markets across Europe are quiet…. (think end of summer) as they too await any news out of Jackson Hole.  

The S&P closed at 5597….and is very close to becoming overbot (again).   Mkts await Friday’s speech – and I am expecting that we will see market retreat once they hear it.  I mean – they have bought it up in anticipation….so unless he says something very different then I expect the algo’s and traders to hit the SELL button – which doesn’t mean you should panic, it just means let it go until after labor day…..in the weeks ahead we will get 3 more inflation reads – the PCE next week – which is expected to remain unchanged at 2.7% y/y and +0.2% m/m and then another round of PPI and CPI in the days right before the next FOMC meeting – so sit tight.

TGT just came out and beat on nearly every line…. Prices matter and guidance forward has been raised – sounds very much like the WMT story …. stock is up 11% in the pre-mkt.    

On a side note – while politics do not matter very much in the long run, it can create chaos in the short run and negatively price your portfolio……. thus, I should mention.

The second day of the DNC convention is now in the books and the delegates have confirmed Kammy and Timmy as their ticket.  All while we await more policy announcements….So far we have a 44% tax on capital gains, 25% tax on ‘UNREALIZED’ gains….and suddenly all kinds of guardrails around her ‘no tax on tips’ policy…..She wants to give free healthcare, housing and  education to all illegals – but says nothing about Americans.  I can’t wait to hear what her foreign policy sounds like……. think Iran, China, Russia, North Korea, Syria…. etc.…. Her website remains blank.

Remember -in the end -  You are invested, so you are participating in both directions….….You are not missing out on anything….and if you have more money to put to work – be patient…you’ll get your chance…for now – keep it in the gov’t mm fund that is paying you 5%.  

Classic bolognese

This is a hearty Bolognese…it is NOT saucy per se.  So do not expect it to be…but it is sooooo good.

You need Olive oil, butter, I cup each of diced onion, diced celery, diced carrot, 4 cloves of garlic, 1 lb. of ground beef, 1 c of whole milk, ¼ tsp nutmeg, 1 c of white wine – not chardonnay – a pinot grigio works, 1 28 oz can have crushed kitchen ready tomatoes and 2 parmegiana cheese rinds.

Heat some olive oil in a large pot. add the olive oil and butter – once melted add the veggies, season with s&p.  Sauté for about 10 mins. 

Now add the garlic.

After a couple of mins – add the meat, breaking it up with a fork – season with s&p. When it’s all browned – add the cup of milk – turn heat to low and let it simmer – stir it often. You want the milk to be mostly absorbed and cooked out – should be about 15 mins or so.  Add the nutmeg and the wine.  – again, simmer until the wine is absorbed/evaporated. 

Now add the tomatoes and the rinds. – turn the heat up to a slow boil and then immediately turn it down to simmer – leave it uncovered.  Let it simmer for 3 hrs.…. stirring every 10 mins or so.  You can add a splash of water halfway thru.  Season with s&p.  and then remove the rinds. 

Serve this over a nice hearty Rigatoni…. Delish.