Following a weak-volume, low-volatility trading week in the stock market that nevertheless solidified August’s gains and a generally quiet weekend on the newswires, Monday marked the expiry of the 60-day Memorandum of Understanding, intended to be a pause during which a resolution to the US/Iran war could be crafted but which has clearly been a total failure.
Trump, faced with record low approval ratings, went back to bashing and threatening international allies, picking particularly on South Korea and Oman (“we’ll bomb the s**t out of them”) and re-floated the idea of an illegal US ownership claim over the Strait of Hormuz.
While energy prices continued to head north on the back of this cack-handed diplomacy, stock markets still seem desensitized and uninterested, eventually drifting aimlessly into the red in another low-volume trading session but with some juicy retail earnings to look forward to later in the week.
Longer term US bonds sank further as 20 and 30 year interest rates continued their relentless march higher into multi-decade high territory and the same story is unfolding in Japan and Europe as bond vigilantes around the world flex their muscles.
Home Depot posted solid results on Tuesday morning but it wasn’t enough to offset deepening oil price, inflation and interest rate concerns and the indexes stumbled out of the gate and fell badly, dragged down by another bloodbath in chip stocks.
A busy pre-market on Wednesday saw Target (stock price up 57% so far this year) put out an encouraging earnings report but Lowe’s and TJ Maxx, not so much. Oil prices moved back above $90 as rhetoric from both sides ramped up again.
Treasury Secretary Bessent blinked in the face of the strong bond market pushback and scrambled to announce government intervention to try to artificially stop the recent surge in long term interest rates. These soaring long-term rates are an embarrassment for the Trump administration and this was a transparent attempt by Bessent to try and make the picture look prettier, even though this means potentially undermining the Federal Reserve.
The immediate reaction from the bond market was to push long term interest rates much lower, but without much conviction that this would last very long.
Non-tech stocks rebounded to close higher, boosted by Moderna which more than doubled in value in a matter of minutes after the company reported positive results from a late-stage trial of its melanoma vaccine (but is still 70% down from its COVID high). Chipmakers and AI names, however, remained mostly in the doldrums.
Walmart’s earnings disappointed on Thursday morning and the stock got whacked. The euphoria surrounding Moderna swiftly evaporated and the stock gave back a chunk of Wednesday’s gains. Oil prices continued to grind higher for the fifth straight day.
As widely anticipated, the brief bond rally brought about by Bessent’s band-aid attempt from the day before completely unravelled in less than 24 hours and long term interest rates resumed their advance with confirmation of an accelerating $40 trillion+ national debt (once projected by the Congressional Budget Office in 2001 to be zero by 2009) generating interest payments alone from US taxpayers of $3 billion per day.
This was all just too much bad news for stocks to handle and an ugly trading session saw all the indexes drop precipitously.
BJ’s Wholesale rounded off retail earnings week with some decent numbers. Dip buyers finally emerged from under their rock on Friday and the indexes rebounded, finishing higher on the day, but still in the red for the week. Despite Bessent’s best efforts at market manipulation, the 30-Year Treasury interest rate ended the week higher than it began.
Bond market 1, Scott Bessent 0.
Potential fireworks this week include Nvidia’s earnings report on Wednesday and the Federal Reserve’s annual boondoggle in Jackson Hole where every word out of chairman Warsh’s mouth will be micro-analyzed by Wall Street for clues about Fed interest rate policy.
Some other things I’m thinking about ..
* Americans would rather live near a nuclear power plant than an AI data center. This is becoming a live electoral issue with midterms coming up and the 2028 general election a little over two years away. Yet close to a trillion dollars has been pledged to data center buildouts by Amazon, Microsoft, Alphabet/Google, Meta and Oracle alone. Some states are welcoming them with open arms (Texas, Georgia, Virginia), while others are imposing severe restrictions (New York, Pennsylvania, Maine). There’s definitely a world where this AI backlash starts to become a real combustible planning problem for these firms and begins to impact stock prices .. Veda Partners’ Henrietta Treyz probably put it best on Bloomberg TV; “If you’re polling worse than nuclear waste, then I can’t help you.”
* Bitcoin had its best week in three years and and gold is on track for its best month this century (see LAST WEEK BY THE NUMBERS below). With waning confidence in the global dominance of the United States impacting the value of the US Dollar, the supposed alternatives are having a moment.
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ARTICLE OF THE WEEK:
Stock-picking continues to be an absolutely horrible investment strategy.
.. AND I QUOTE:
“I detest the expression ‘higher for longer’ which implies that we absolutely have to have lower interest rates. 4%-5% medium term rates is a perfectly acceptable and healthy level and probably the new normal.”
Ed Yardeni, economist and head of Yardeni Research, who originally coined the term “bond vigilantes” in the 1980s
LAST WEEK BY THE NUMBERS:
* SPY, a US Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest US companies.
* Down by 1.4% last week
* Up by 3.7% over the past month
* Up by 3.1% over the last three months
* Up by 12.3% so far this year
* QQQ, a US Large Cap ETF, tracks the NASDAQ-100 index, made up of the largest 100 non-financial companies listed on the tech-heavy NASDAQ exchange.
* Down by 2.4% last week
* Up by 3.1% over the past month
* Down by 0.2% over the last three months
* Up by 16.1% so far this year
* IWM, a US Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest US stocks.
* Down by 1.7% last week
* Up by 2.7% over the past month
* Up by 6.2% over the last three months
* Up by 21.9% so far this year
* VXUS, an International Non-US ETF, tracks the MSCI ACWI Ex-US index, made up of over 8,500 of the largest names from a universe of stocks issued by companies from around the world excluding the United States, in both developed and emerging markets.
* Unchanged last week
* Up by 4.9% over the past month
* Up by 3.7% over the last three months
* Up by 16.3% so far this year
* BRENT CRUDE OIL .. $93.60 (up by 5.5% last week)
* GOLD .. $4,662 (up by 4.8% last week)
* BITCOIN .. $78,915 (up by 24.2% last week)
All data courtesy of finviz.com as of Friday’s close.
INTEREST RATES:
* FED FUNDS RATE * 3.625% (unchanged from a week ago)
* PRIME RATE ** 6.75% (unchanged from a week ago)
* 3 MONTH TREASURY 3.88% (3.86% a week ago)
* 2 YEAR TREASURY 4.24% (4.17% a week ago)
* 5 YEAR TREASURY 4.43% (4.36% a week ago)
* 10 YEAR TREASURY *** 4.74% (4.68% a week ago)
* 20 YEAR TREASURY 5.25% (5.25% a week ago)
* 30 YEAR TREASURY 5.27% (5.25% a week ago)
Data courtesy of the Federal Reserve and the Department of the Treasury as of Friday’s market close.
* Decided upon by the Federal Reserve Open Market Committee at periodic meetings 8x a year. Used as a basis for overnight interbank loans and for determining high yield savings interest rates.
** Wall Street Journal Prime Rate as of Friday’s close. Moving in lockstep with the Fed Funds interest rate, this measure is used as a basis for determining certain consumer loan interest rates such as credit cards, auto loans, personal loans, home equity loans/lines of credit and securities-based lending.
*** Used as a basis for determining mortgage interest rates.
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
* 6.65%
One week ago: 6.67%, one month ago: 6.57%, one year ago: 6.58%
Data courtesy of the Federal Reserve Bank of St. Louis.
INTEREST RATE EXPECTATIONS:
Where will the Fed Funds interest rate be after the next rate-setting meeting on September 16th?
* 0.25% higher than now .. 40% probability (32% a week ago)
* Unchanged from now .. 60% probability (68% a week ago)
* 0.25% lower than now .. 0% probability (0% a week ago)
With three more rate-setting meetings this year, what is the most commonly-expected number of remaining Fed Funds interest rate changes in 2026?
* One increase, 45% probability (a week ago: one increase, 45% probability)
Data courtesy of the CME FedWatch Tool and is derived from futures market pricing as of Friday’s market close based on the current Fed Funds interest rate of 3.625%.
PERCENT OF S&P 500 STOCKS ABOVE THEIR OWN 200-DAY MOVING AVERAGE:
* 70%
One week ago: 73%, one month ago: 63%, one year ago: 42%
Data courtesy of barchart.com as of Friday’s market close.
This widely-used technical measure of market breadth is considered to be a very robust indicator of the overall health of the S&P 500 index.
A high percentage (above 70%) generally suggests broad market strength and a bullish trend, while a low percentage (below 30%) may indicate market weakness and a bearish trend.
FEAR & GREED INDEX:
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffett.
Data courtesy of CNN Business as of Friday’s market close.
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal.
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