ANGLES.

The final full week of September is historically on average the worst-performing week of the year for U.S. stocks. This time round, a very limited amount of consequential economic data ahead of the latest inflation reading on Friday and only a handful of earnings reports left the market feeling untethered and drifting, at the mercy of some notoriously unpredictable moving targets such as trader sentiment, global geopolitics, an erratic U.S. election campaign that feels like it could go off the rails at any moment, a looming government shutdown and lots and lots of Fed-Speak, with at least eight central bank officials, including chairman Jerome Powell on Thursday, scheduled to make speeches or participate in conferences during the week.

The Chinese central bank made a surprising cut in one of its key interest rates over the weekend as part of a massive package of moves to give an adrenaline shot to a rapidly cooling economy. There was more appalling carnage in the Middle East.

U.S. stocks, however, began the week by floating gently higher in a rather humdrum session on Monday on the back of the still high market-driven probability of yet another half point interest rate cut in November resulting from some very pro-rate cut Fed-speak from rate-setting committee members, Austan Goolsbee and Raphael Bostic. The S&P 500 index notched its 40th all-time record high close of the year.

It was more of the same on Tuesday. Tech stocks led markets higher, partly on the back of all the Chinese stimulus news, to all-time record high #41 of 2024 for the S&P 500. This was despite some evidence of declining consumer confidence and Fed-Speak from Governor Michelle Bowman, the only policymaker to dissent on the recent 0.50% cut, who said that the central bank should lower interest rates “at a measured pace” . Sounds like Michelle is still unconvinced by this whole jumbo half point cut malarkey.

Some air was let out of the balloon on Wednesday as the dearth of any significant data or earnings-based catalysts continued and investors maybe got a little bout of vertigo at the elevated stock price levels achieved over the last few weeks and decided to back off a bit for a while. In the background, the growing prospect of an Israeli ground invasion in Lebanon started raising serious geopolitical concerns. The indexes all finished lower, erasing most of Monday and Tuesday’s record-breaking gains.

Stock prices were strongly buoyed on Thursday morning by a very healthy Q2 Gross Domestic Product (GDP) final estimate of 3.0% annualized, robust sales forecasts from Micron (the stock surged 20% in a matter of minutes), a better-than-expected pre-market weekly jobless claims number, a further super-charging of the Chinese stimulus package and the emergence of a possible Israel/Lebanon 21-day ceasefire proposal.

Although markets gave some back later in the session as Netanyahu appeared to torpedo ceasefire hopes, the plethora of good news prevailed and Jerome Powell offered an optimistic picture of the economy in a major speech. It was another up-day across the board for stocks and yet again an all-time record closing high for the S&P 500.

The most impactful piece of data of the week hit the newswires before the opening bell on Friday. The latest Personal Consumption Expenditure (PCE) Price Index, which the Fed uses to judge where it believes inflation to really be, came in as expected at 2.2% annualized, still very close to the central bank’s 2.0% target number and clearing the path for more large and/or frequent interest rate cuts by keeping the Goldilocks narrative intact.

After initially reacting very positively in response to this data, stocks settled back into a holding pattern and ended basically unchanged for the session but largely higher for the week.

We cannot get into the minds of Fed interest rate-setting committee members to know what they are thinking, but if I had to guess I’d say it’s something like .. “If inflation was caused by the pandemic, stimulus spending and now-resolved supply chain issues and all those are now gone and inflation is pretty much back at 2%, then why do we need to have interest rates so high?”

To use a simple analogy, it’s like we were in a car hurtling down a steep hill. The Fed had to ride the brakes to stop inflation and make sure the car didn’t get out of control. But now the economy is back on a flat road and the Fed still has a foot on the brakes. If they don’t let off, the car will eventually stop (= a recession).

This is where the market’s strong conviction in more jumbo half point interest rate cuts before the end of the year and into 2025 comes from (see FEDWATCH INTEREST RATE TOOL below), despite the Fed itself only projecting a total of a half point cut across the remaining couple of meetings of 2024.

Either financial markets will be disappointed or the Fed will be bullied by Wall Street into cutting rates more than it would instinctively like. We’ll find out soon enough and one big clue will be this week’s Jobs Report.

OTHER NEWS ..

Higher And Higher .. As of Friday and measured by the S&P 500 index, the U.S. stock market had moved higher in 36 weeks of the last 52, which puts it in the best 5% ever of one year periods since 1957 by this count. On average, the S&P 500 tends to go up in 30 weeks per year.

The takeaway: as long as the economy is growing, the U.S. is adding jobs, corporate earnings are powering higher, and inflation isn’t a five-alarm fire, stocks have the capability to shake off any number of seemingly unsettling headlines and continue to march higher.

Not So Simple .. Conventional wisdom says that Wall Street likes split government (no one party controlling all of the House, Senate and presidency) since the resulting potential for gridlock maintains the status quo and reduces the seismic shifts and uncertainty that Wall Street detests.

However it’s not quite that simple. A split government does indeed mean that large scale policy changes (such as widespread tariffs, significant welfare or immigration reform, etc.) become less likely, but it also increases ongoing government shutdown risk and possibility that the Trump tax cuts will all completely expire at the end of next year. This will have basically the same effect as the shock of a sudden massive tax hike and could be damaging to businesses and markets.

On the other hand, a sweep certainly increases the possibility of performative, ill-considered and damaging colossal policy changes but - depending who it is that sweeps - could allow an extension or at least more thought-out and controlled amendments to some of the expiring tax cuts, thereby avoiding the de facto tax shock that frightens financial markets.

Massive Fashion Emergency .. Seems AI can’t get everything right. Wednesday was a mediocre day for the market in general, but it was a truly atrocious session for one-time highflier Stitch Fix. The stock plunged almost 40% in minutes and its market value fell to just $277 million, having peaked at $10 billion in early 2021 - a fall of over 97%. The company went public in 2017, promising to make customers look snappy in clothing selected for them by an AI-assisted algorithm.

ARTICLE OF THE WEEK ..

The most common outcome from buying a stock is that you lose all your money. Also stocks broadly have very positive, long-term expected returns.

Huh? How can those two things both be true? Here’s how.

THIS WEEK’S UPCOMING CALENDAR ..

The September jobs data provides this week's highlights. The Job Openings and Labor Turnover Survey (JOLTS) comes out on Tuesday. It's expected to show a roughly unchanged number of unfilled positions at the end of August.

But the week's main event will be the Jobs Report on Friday. The consensus estimate is for an increase of 145k payrolls in September, slightly more than in August. The unemployment rate is expected to hold steady at 4.2%. Americans' average hourly earnings are forecast to be up 3.8% from a year earlier.

LAST WEEK BY THE NUMB…

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The main focus of markets was on the week’s interest rate announcements from the heavyweight central banks in London, Tokyo and, of course, a highly consequential one in Washington DC on Wednesday afternoon, which finally resolved the passionate, frenzied “Will be it be 25 or 50?” debate of the last few weeks.

More data over the weekend confirming the accelerating deterioration of the Chinese economy which wasn’t helped by the biggest typhoon since 1949 smashing into Shanghai on a holiday weekend and another apparent attempt on Trump’s life provided a slightly jittery backdrop when U.S. markets opened on Monday morning.

Not much happened in Monday’s session with stocks mostly playing a waiting game. The S&P 500 ended fractionally higher for a sixth straight trading day of gains and Small Caps moved handily upwards. Tech/AI stocks, however, reversed course a bit after the previous week’s spectacular fiesta.

The futures market-driven odds of a jumbo half point interest rate cut over a quarter point one on Wednesday afternoon continued to climb rapidly throughout the day and actually moved into the ascendancy with a 67% probability by the close, having been as low as 15% just a week earlier.

This renewed optimistic buzz about a possible half-point cut the following day bolstered stock prices on Tuesday morning, Fed Eve. Also helpful was the pre-market release of Retail Sales and Industrial Production data which both came in better than expected. Later in the session, however, doubts crept in on fears that “only” a quarter point cut might actually trigger market disappointment and drag prices lower as a result. Stocks retreated to close essentially unchanged on the day.

Fed Day finally arrived on Wednesday along with developing fears of a further escalation in the Middle East resulting from two days of deadly electronic device attacks in Lebanon. Traders managed to sit on their hands in advance of the 2pm ET rate announcement and the 2:30pm ET Fed chair Jerome Powell’s press conference.

In the end, the Fed went with the big cut of 0.50%, lowering the Fed Funds rate to 4.875% and released its projections for the months and years ahead. There was a note of dissent from committee member and Fed Governor Michelle Bowman who voted for only a quarter point cut (see OTHER NEWS below).

The Fed committee’s median estimate for where interest rates will be at the end of 2024 after two more meetings was 4.375% and then down to 3.375% by the end of 2025. That’s two more quarter point cuts before year-end and then another four more next year. The median projections for the unemployment rate were for an imminent slight increase to 4.4% and then staying unchanged in 2025.

There was an inevitable bounce in markets immediately following the announcement. Powell went out of his way in the press conference to emphasize that “nobody should assume that this is the new pace” for rate reductions going forward.

Fears resurfaced that the decision to make the bigger cut could indicate that the Fed was just scrambling to recover lost ground having waited too long and may have lost control of the economy. Despite Wall Street having apparently got exactly what it wanted, stocks still finished the session in the red and mortgage interest rates (that are tied most closely to the 10 year Treasury rate, not the Fed Funds rate) actually shifted higher on the day.

As expected, the Bank of England (BOE) left local interest rates unchanged, but promised “gradual cuts” going forward. In something of a delayed reaction, “upon further review” of the Fed’s jumbo cut the day before, U.S. stock markets sent prices sky-rocketing out of the gate on Thursday morning with Tech/AI names in charge of ripping higher. The cheery mood continued all day and we closed at another new all-time record high for the S&P 500, the 39th such milestone this year.

The euphoria faded somewhat on Friday. A dreadful earnings report and dismal outlook from economic bellwether Fedex causing the company’s stock price to plunge and ever-growing Middle East tensions didn’t help. The Bank of Japan ended up leaving interest rates unchanged.

Stocks in general gave back a small part of Thursday’s big gains in an ultra-high volume session (brought about by index rebalancing and mass futures and option contract expirations), but the major indexes still managed to show respectable gains for the week.

OTHER NEWS ..

Not Very Fine People On Both Sides .. Crass ignorance and naked politicking was openly on display from all ends of the spectrum last week when politicians decided to weigh in on where the Fed Funds interest rate should be. Before Wednesday’s half point rate cut, Senator Elizabeth Warren led many Democrats in an absurd demand for at least a 0.75% cut.

After the 0.50% cut was announced, spurred on by Trump, many Republicans floated the preposterous notion that the Fed was acting politically to specifically benefit the Biden administration/Harris campaign, ignoring the reality that, even if that were the case (which it obviously isn’t), such measures take a lot longer than seven weeks to be felt by any voters.

The Fed ignored all this idiotic politically-driven nonsense, of course, and will continue to do as long as it is able to maintain its position as independent of presidents and lawmakers.

And all the while, these are the same politicians who are happily letting the clock tick down towards a potential shutdown of the U.S. government and who - within hours of the Fed’s rate cut announcement - voted down a stop-gap funding bill for reasons of blatant political grandstanding.

Finally Some Dissent .. At Wednesday’s Fed interest rate setting committee meeting, Michelle Bowman cast the first dissenting vote by a Federal Reserve governor since 2005, preferring to cut rates by a smaller amount.

The Fed cut rates by half a percentage point, while Bowman was in favor of quarter point cut, according a statement by the central bank. She has always remained cautious about inflation.

Dissents at the Fed have been rare, especially during Chair Jerome Powell’s tenure. The last one came from a regional bank president in June 2022, when Esther George, then chief of the Kansas City Fed, dissented in favor of raising rates by a smaller amount.

#1 .. The Capella Hotel in Bangkok topped the list of the world’s best hotels released last week, finishing ahead of last year’s winner, the Passalacqua in Lake Como which took second place this time around. The highest rated U.S.-based hotel was the Carlyle in New York City which came in at #30.

ARTICLE OF THE WEEK ..

The evidence is that simply chasing dividend-paying stocks just doesn’t work.

THIS WEEK’S UPCOMING CALENDAR ..

A pretty quiet week ahead, data-wise. The main event will be the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index for August which comes out on Friday. The consensus call is for a 2.3% increase from a year earlier.

It will, however, be a busy week of commentary and clipped quotes from Fed officials, as several of them hit the speaker circuit following the central bank's decision last week to cut interest rates by half a percent.

The small number of earnings reports coming out this week include those from Costco, AutoZone, Micron Technology, Accenture, CarMax and Vail Resorts.

LAST WEEK BY THE NUMBERS ..

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) - up 3.6% for the week.

Last week’s worst performing U.S. sector: Consumer Defensive (two biggest holdings: Proctor & Gamble, Costco) - down 1.3% for the week.

* SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from among the largest U.S. companies. Its price rose 1.1% last week, is up 19.6% so far this year and ended the week 0.5% below its all-time record closing high (09/19/2024).

* IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-…

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Last week’s big data points were mostly inflation-related with the release of CPI and PPI, but all of a sudden inflation is no longer the big issue it used to be. The trajectory is very much set and meaningful unexpected bombshells are considered rather unlikely, which was borne out in the data on Wednesday and Thursday.

There was also the small matter of the presidential debate, with both candidates beginning to finally tease some actual economic policies that will provide more daylight between them and on which Wall Street can begin to make some financial judgements and, of course, the ever-present potential for implosion by one or the other candidate.

Markets rebounded nicely on Monday following the anguish of the previous week. Buyers finally seemed confident enough to dip their toes back in and snap up stocks at perceived bargain prices, including - but not limited to - names in the heavily beaten-down tech space. However, Apple’s desperate attempts to make their rah-rah product launch event seem even slightly interesting or relevant failed dismally and the stock did not participate in the market rally.

Chinese stocks hit a five-year low in the Asian session on Tuesday. Ahead of the evening’s presidential debate, U.S. markets were on edge particularly the energy and banking sectors (negatively impacted respectively by oil prices flirting with three year lows and some lousy future profit and margin forward guidance from some of the big banks) but the S&P 500 and the NASDAQ indexes still managed to eke out moderate gains.

The presidential debate on Tuesday evening was all heat and zero light with more time spent talking about the apparently routine execution of new-born babies and the eating of cats and dogs on the streets of Ohio than on providing any kind of new information or clarity on either candidate’s economic plans. Wall Street rolled its eyes and quickly moved on to the first piece of inflation data that was released pre-market on Wednesday.

The Consumer Price Index (CPI) measure of retail inflation came out as expected with the headline annualized rate moving lower from 2.9% to 2.5%. Under the hood, housing/shelter is the largest component of the calculation and moved higher (which was a little concerning) as did air fares/hotels, but food/groceries were flat.

When you take the average annualized inflation rate over the last six months, it’s now basically at the Fed’s target rate of 2.0% and over the last three months it’s actually down as low as 1.1%. Inflation is clearly now under control and the IMO already rather flimsy case for a “jumbo” 0.50% interest rate cut faded, leaving a 0.25% lowering on Wednesday as the favored outcome.

After initial investor disappointment that the jumbo cut likely wasn’t going to happen, an impressive tech/AI-powered afternoon recovery in stocks put lots of green on the screen by the close.

An avalanche of data dropped before the opening bell on Thursday morning. The European Central Bank (ECB) cut local interest rates by 0.25% as expected and the Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers mostly confirmed its CPI cousin’s benign findings, falling from an annualized 2.2% to 1.7%. Weekly Initial Jobless Claims also came in unchanged and as anticipated.

The stock market reaction was initially muted with some light gains but the rally gathered pace as the day went on as traders processed what was really very rosy inflation data and the impending interest rate cut and the indexes all finished substantially higher for a fourth straight day of gains.

The stock market scored a clean sweep for the week after finishing higher on Friday with the jumbo interest rate cut proponents getting a boost from a rather surprising Wall Street Journal report that apparently the 0.25% vs. 0.50% rate cut debate is still live at the Fed and the market-driven probability of the bigger cut rocketed higher from as low as 15% earlier in the week and it’s now pretty much a coin flip again which it will be. Small Caps were by far the biggest beneficiaries.

Despite (or in fact even because of) an excellent week for the indexes, the stock market still has a problem and it isn’t so much the economic growth rate, it’s high valuations relative to historical norms and the resulting risk asymmetry that I talked about last week. A soft landing still remains far more likely than a hard landing, but Wall Street remains way too optimistic for the existing growth reality, not because that reality is so bad, but instead because current valuations are so stretched.

The economic environment is deteriorating but is not yet “nasty.” However, the stock market isn’t priced for a “just ok” environment, it’s priced for a spectacularly good one and that disconnect remains a near-term risk for investors.

OTHER NEWS ..

Euro Losers .. Apple lost its court fight over a $14.4 billion invoice for back taxes in Ireland and Google lost its challenge over a $2.7 billion fine for abusing its market power in a big win for the European Union’s crackdown on big tech. The court decisions are victories for EU antitrust chief Margrethe Vestager just weeks before the end of her second term. The Apple decision was by far the biggest in her decade-long campaign for tax equivalence and fairness in the EU, which has also targeted the likes of Amazon.

Who’s Buying My House? .. Businessman Leo Kryss is suing real estate company Douglas Elliman over the $79 million sale of his Florida mansion, a 7-bedroom, 11.5-bathroom home in Miami, FLA to Amazon founder Jeff Bezos, one of the world’s richest people.

Kryss claims that he asked Douglas Elliman CEO Jay Parker point-blank if Bezos was behind the purchase. Parker allegedly "misleadingly assured Kryss that Bezos was not behind the offer and was not the purchaser," according to the lawsuit. Clearly, the seller thinks that, had he known that Bezos was the buyer, he could have held out for a higher price.

It’s Baaaaaack! .. I literally cannot believe that this topic is rearing its extraordinarily ugly head again but a government shutdown on September 30th is back on the table. House Speaker Johnson canceled a planned vote on Wednesday on a stopgap government funding measure after facing opposition from fellow Republicans.

The proposal would have extended government funding through March 28th and avoided, at least temporarily, a partial government shutdown just weeks before the general election. Johnson was aiming to kick the spending bill ahead six months, when funding levels could be decided under a new administration and a new Congress.

Numerous lawmakers raised objections to the measure, which attached a requirement that people have to show proof of U.S. citizenship to vote. That requirement was almost certain to doom the bill in the Senate, where Democrats hold a majority. Republicans resisted Johnson’s bill either because it didn’t cut spending or because Trump instructed members to refuse to pass any government funding that did not include some kind of a list of measures on what he calls election security. This could run and run.

ARTICLE OF THE WEEK ..

Who are more despicable? The online scammers or the social media platform providers that aid and abet them, earning billions of dollars as a result? Why do we still put up with this s**t?

Maybe more importantly, how long should the FBI put up with it before they start raiding the headquarters of the likes of Meta/Facebook, X/Twitter etc. and start holding senior executives liable?

THIS WEEK’S UPCOMING CALENDAR ..

Bring on the Fed! The highly anticipated interest-rate decision by the Federal Reserve will be this week's highlight. Policymakers have signaled they will cut rates at this meeting, which ends on Wednesday afternoon, but there remains uncertainty about whether it will be by a quarter of a percentage point or by a half point (see above).

Importantly, officials will also present their latest quarterly “Dot Plot” with their updated econ…

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Septembers can often be tricky as professional stock traders begin to liquidate some of their positions ahead of the year-end with tax considerations, regulatory filings and the process of locking in profits in mind. This becomes even more of a potential issue with the S&P 500 starting the month so close to its all-time highs and an economic soft landing entirely assumed without any questions asked.

This has created something of an “asymmetry of risk” where there is greater potential for stocks to fall further on any disappointments than there is for them to rise on any upside surprises. The effect is a skewed environment where the stock market will tend to be constantly stressing about landmines everywhere represented by multiple data points. The result was a miserable week for all risk assets, by some measures the worst since the dark days of late 2022.

Wall Street reopened on Tuesday after the Labor Day long weekend in an anxious mood ahead of a week of primarily labor market-related data that would provide the first tests of this potential risk asymmetry. Special attention was focused on Friday’s highly consequential Jobs Report, the last big labor market indicator before the Federal Reserve's September 18th interest rate-setting meeting. Everyone understood that the outcome of this report was capable of influencing the size and pace of the rate cuts.

An alarming 9.5% daily plunge in the price of Nvidia stock (the company ended up losing over $400 billion in value in just four days last week) and then late breaking news that the firm is the subject of an escalating anti-trust investigation from the Department of Justice resulted in poor old CEO Jensen Huang being booted out of the $100 billion net worth club. We also saw some rather bleak Chinese economic data which added to the gloomy tone. All the price gains from the month-end rally in the indexes quickly dissolved.

The decline then began to feed on itself and sharply intensified as the high volume session wore on. Stocks ended the day substantially lower with the misery being most heavily inflicted on the tech/AI stock universe. Evidence is growing that investors may be steadily starting to take advantage of any strength in these kind of names to take highly-appreciated chips off the table and then later reinvest the proceeds into more defensive areas of the market including Financials, Consumer Defensive, Utilities, Healthcare and Industrials.

Global stocks took their cue and the rout continued into the Asian and European timezones including a 5% tumble in Japan. By the time Wednesday’s New York session began, however, there was a calmer vibe and Nvidia’s free-fall had at least temporarily come to a halt.

The Job Openings and Labor Turnover Survey (JOLTS) showed that U.S. job openings fell in July by more than expected to the lowest level since the beginning of 2021 and layoffs rose, consistent with the multiple other signs of slowing demand for workers. The major indexes mercifully closed the day just a touch lower, but still with a sense of unease ahead of Friday’s Jobs Report.

After starting out with some rather hopeful price action, Thursday quickly deteriorated into another choppy down-day for stocks. Wall Street was seemingly very unimpressed with the economic babble that it was hearing from both of the presidential candidates (including Trump’s promise/threat to get Elon Musk involved in the governance of an actual country). If there was a silver lining it was that at least the bruised and battered tech/AI names managed to outperform the rest of the market.

Friday morning at long last arrived and the pre-market Jobs Report was finally unveiled. It was frankly a noisy mess that resolved nothing. 142k new jobs were added in August which was only slightly less than expected, but the July number was revised sharply downward. Unemployment, however, ticked down from 4.3% to 4.2% which was a bit of a pleasant surprise. Overall the report seemed to reinforce the idea of a labor market that is weakening but not yet weak.

Wall Street initially seemed frozen in place when markets opened, not really knowing how to react to the mixed numbers, but eventually the risk asymmetry kicked in and stock prices dived hard for a fourth straight day of losses to close out a very sour week. Tech/AI names were especially brutalized, resuming their role of biggest losers.

Futures markets ended the week indicating that there’s now a 70/30 chance of a “standard” 0.25% interest rate cut over a “jumbo” 0.50% cut at the Fed meeting later this month (just so you know, I’m very much with the majority on Team 0.25%).

A 0.50% cut could serve to possibly juice some growth assets at first, but it would also send out a signal about the Fed's nervousness about the economy and possibly create a sense that they may have lost control of the situation and were scrambling just to keep up with events. Not a good look.

In my opinion, a jumbo half point cut would be like the pilot hitting the oxygen mask deployment button on an airplane. Helpful? Absolutely. In the interests of all the passengers? Undoubtedly. But the message is still; “Brace yourselves everyone, something has gone wrong. Things are going to get rough and you can forget a soft landing.” Pun intended.

The most likely response would be some kind of mass panic on the plane. I think we can all figure out where this analogy takes us in terms of what might happen to stock prices.

OTHER NEWS ..

Steeling For Some Big Moves .. Normally stodgy US Steel (X) traded like a meme stock last week as the Washington Post reported on Tuesday that Biden is said to be preparing to block Nippon Steel’s $14.1 billion takeover of the troubled Pittsburgh-based company. The proposed deal, which is opposed by the United Steelworkers union, has been subject to a review by the government’s secretive Committee on Foreign Investment in the United States and Biden plans to kill it as soon as the committee’s referral lands on his desk, according to these reports. The deal has sparked an election-year firestorm in the crucial swing state of Pennsylvania. Shares of US Steel plunged as much as 24% after news of Biden’s plan broke.

Just Don’t Use These Things! .. Losses from Bitcoin ATM scams soared above $110 million in 2023, a nearly tenfold increase in just three years, new data from the Federal Trade Commission (FTC) shows. And the scams are only increasing in pace. In the first six months of 2024, the FTC disclosed that losses to Bitcoin ATM scams exceeded $65 million. Older adults, especially those over 60, were found to be more than three times as likely to fall victim to these scams compared with younger people. Across all age groups, the median loss during this period was a whopping $10k.

These specialized Bitcoin ATMs, often located in high-traffic areas like convenience stores and gas stations, accept cash in exchange for crypto-currency, making them an appealing tool for scammers who often impersonate government officials, businesses, state and local agencies or tech support agents, and create a fake yet seemingly urgent need for the victims to withdraw money from their bank accounts and deposit the funds at a Bitcoin ATM to "protect" their savings.

Made Up Money .. A remote province in Argentina has created its own currency to offset the so-called “shock therapy” being imposed on the nation by Elon Musk’s new BFF, President Javier Milei. When monthly cash subsidies from the central government were slashed, the province of La Rioja literally went broke. In February, it fell into default and then quickly into a deep recession.

So the governor came up with a radical plan. He created the province’s own money, which he called the Chacho, equal to one official Argentinian peso. He had sheets of it printed up and started doling it out in wads of 50k each (equal to about $40 in a place where the average monthly salary is equal to about $240) to all government employees as a bonus payment that was a…

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Last week was all about Wednesday’s after-hours Nvidia (NVDA) earnings report. Since the stock accounts for more than 6% of the S&P 500's total market capitalization in terms of its index weight and its unique position as a proxy for the entire market-impacting narrative of AI, it has the capability to be a meaningful influence on the direction, trend and momentum of the entire stock market.

Which also means that even highly diversified index fund holdings in the form of mutual funds and ETFs in the 401(k)s, IRAs and brokerage accounts of regular people are going to be affected somewhat by the market reaction to the fortunes of just a single company. In advance of the data release, options markets were predicting a +/-10% move in the stock price either way after the opening bell on Thursday. So pretty much everyone had a reason to care.

Worrying developments in the Middle East over the weekend drove oil prices back up above $80 on Monday and bolstered the values of supposed “safe haven” assets. Stocks got off to a lethargic start with most of Wall Street’s attention squarely focused on the sizable risk event that was Wednesday evening’s long-awaited Nvidia earnings report and to a lesser extent, Thursday’s weekly jobless claims data and GDP estimate. But as the session wore on, markets became more apprehensive about a potential disappointment and tech and AI names (including Nvidia itself) got punished while the rest of the market barely stirred.

Monday’s losers stabilized on Tuesday but it was another light trading volume snoozer overall with everything very much on hold ahead of the Nvidia numbers and stock prices hardly shifted at all, despite a better-than-expected Consumer Confidence Index and some mixed housing data.

Markets churned lower again on Wednesday with investor jitters resuming about the effect of a possible Nvidia “letdown” (that is, anything less than total perfection) that evening versus the colossal market expectation level, resulting in tech and AI stocks getting particularly dumped on. Things weren’t helped by a brutal 26% intra-day plunge in the stock price of one of 2024’s unqualified winners, Super Micro Computer (SMCI) - see OTHER NEWS below.

When the report finally dropped after the closing bell, we learned that Nvidia delivered really strong Q2 revenue and earnings growth and a very robust financial outlook. Revenue for the quarter was an astonishing $32.5 billion which actually exceeded the average of all analyst estimates but didn’t match some of the more outlandish expectations of above $37 billion.

In the crazy, upside-down Alice In Wonderland world of Nvidia earnings, failing to beat even the most ridiculously optimistic forecasts was frowned upon by traders and the stock price tumbled in the after-market.

Wall Street’s attention finally began to zoom back out to a more macro perspective pre-market on Thursday morning when the weekly Jobless Claims number came in as expected at +231k and the latest Q2 Gross Domestic Product (GDP) data surprised to the upside with a raised growth estimate of +3.0% demonstrating that the economy is in great shape. Consumer Spending data came in better than expected, too. This all suggested a continued and orderly linear path towards the holy grail of a soft landing.

Stocks regained their footing when markets opened and the indexes initially rallied hard in spite of the price of Nvidia sliding over 6% and a continuation of the Super Micro Computer debacle. But the rally abruptly ran out of steam after lunch as it became clear that the dip-buyers weren’t yet ready to come to the rescue by piling straight back in to Nvidia at lower prices and the session’s gains swiftly evaporated.

It was yet another day of two very different narratives in the world of retail. Best Buy (BBY) surged 15% in a matter of minutes after a first-rate earnings report while Dollar General (DG) got crushed by a whopping 32% after a ghastly one as low income Americans appear to have simply stopped spending. The indexes ended the day unchanged.

The Fed got to see its preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index, before the opening bell on Friday. Entirely as expected, it rose +0.2% in July and +2.5% from a year ago, clearing the final hurdle for the now locked-in September interest rate cut.

Despite the long weekend ahead, trading volume was vigorous but for most of the day stocks drifted around aimlessly in a narrow range. A late surge, however, pulled prices higher with tech names outperforming. With more than 86% of the stocks in the S&P 500 rising on the day and all eleven sectors posting gains, the index ended the week just a hair’s breadth below its all-time record high.

Since the carnage of August 5th, surveys have shown an explosion of positive stock market sentiment amongst investors (while, notably, surveyed financial advisors remain a bit more reserved about the outlook). This matters because extremely bullish sentiment is evidence of complacent markets and complacent markets are vulnerable to “air pockets” like we saw at the beginning of the month.

This is particularly important because September (historically a highly volatile month) is shaping up to be very important. Not only will we get the Fed decision to cut interest rates by either 0.25% or 0.50% on September 18th (for what it’s worth, my money is still very much on 0.25%), but we will also get some color on how quickly and by how much rates will fall after that. Additionally, we’ll learn at the end of this week just how much the labor market is slowing.

Because investors are so “bulled up” right now, the markets are legitimately vulnerable to a negative surprise from either event that could possibly cause a repeat of early August (or worse) as a lot of the Johnny-come-lately buyers turn around and stampede for the exits.

OTHER NEWS ..

Hindenburg Crash .. Server and data center tech maker Super Micro Computer (SMCI) shares lost over a quarter of their value in the space of a few minutes after it announced on Wednesday it would be delaying the filing of its routine mandatory annual Form 10K disclosure with the Securities and Exchange Commission (SEC), following the famous activist investigative research firm Hindenburg Research disclosing a short position in the stock, citing widespread accounting manipulation, family self-dealing and sanctions evasion.

"Additional time is needed for SMCI’s management to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30, 2024." the company mumbled.

The stock, which rose over 300% between January and March this year on the back of the AI craze, recovered slightly but still ended the week 19% lower than where it was before the report came out and down more than 63% from its high.

Shopping Around .. Americans are seeking to change their insurance coverage more frequently than ever, after a surge in premiums that’s squeezed household budgets, a new industry report shows.

For car insurance, the share of people with existing insurance who searched for quotes from a different provider jumped by 16% from a year earlier in Q2 2024. The figure climbed even higher in July, exceeding 30%.

The search for money-saving alternatives reflects a massive and sudden run-up in insurance premiums in recent years, driven partly by the rising cost of car parts and repairs and some changes in insurance company policies, partly impacted by an strong increase in climate-related claims.

It’s not entirely evident that consumers are proving successful in their quest for lower premiums. While the overall cost of living has climbed some 20% since the start of the pandemic in 2020, auto insurance bills have jumped by almost 50%.

ARTICLE OF THE WEEK ..

You’re not a billionaire. So stop trying to invest like one.

THIS WEEK’S UPCOMING CALENDAR ..

The start of a new month and a holiday-shortened week is headlined by a key Jobs Report. Stoc…

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Things got off to a somewhat muted low-volume start on Monday with many A-list institutional traders at the beach this week. Their B squads seemed to be under orders to basically tread water, waiting to see if anything of interest emerged from either the annual Federal Reserve jamboree in Jackson Hole or the Democratic National Convention in Chicago.

As the session wore on, however, the level of investor conviction and general chatter about a possible upcoming signal from the Fed on Friday concerning the start of a multiple interest rate cut process before year-end seemed to intensify and stock prices ripped higher for the S&P 500’s eighth straight day of gains, its longest winning streak of the year. Remarkably, the index closed the day less than 1% away from its all-time record high.

And the NASDAQ, with an eight-day win streak of its own, shifted back into a bull market just eleven trading days after having fallen into a correction, the fastest such turnaround since 2011. It entered a technical correction (defined as having fallen >10% from its recent high) on August 2nd, then kept tumbling until August 7th (including the washout plunge of August 5th). Then from August 8th through the 19th the index rose more than 10%, ending the correction.

Stocks took a breather on a quiet Tuesday, with the indexes finally flashing red rather than green to end the winning streaks, but the technical evidence suggested that this was probably only a pause and consolidation in the rally caused by low volume profit-taking in possibly overheated short term conditions rather than any kind of fundamental negative re-evaluation of where stock prices should be.

On Wednesday, the annual Jobs Report fact check (see OTHER NEWS below for more details) showed a largely expected downward revision of payrolls, reminding us that growth is definitely slowing. We also saw a tale of two retailers; Target’s earnings and sales report was very solid, but Macy’s not so much and their respective stock price moves reflected that.

At an index level, the rally resumed (particularly in Small Cap names) after the minutes from the last Fed meeting indicated that there was a high level of confidence among members about a September interest rate cut.

The Fed’s two-day Jackson Hole fiesta began on Thursday but Wall Street didn’t expect to learn too much until Friday when Chairman Jerome Powell was scheduled to address the media. With no real catalyst before then and anemic summer trading volume, stocks and other risk assets floated lower on the back of profit-taking and bets on the fact that we may be experiencing something of a short term overbought condition on the back of the recent rocket ride that began on August 7th, especially in tech and AI names.

Powell’s address began at 10am ET on Friday and as well as being a victory lap, it gave Wall Street the signal that it was looking for.“The time has come for policy to adjust. The direction of travel is clear”, he said and expressed confidence in the continuation of inflation’s decline and the Fed’s ability to pull off a historic soft landing, signaling definitively that the process of interest rate cuts is now finally under way.

The word “methodical” was routinely used in reference to the process and reading between the lines of what Powell said and listening to Fed speakers in interviews after the event, a jumbo cut of half a percent up front in September would now seem much less likely than a steady stream of quarter point cuts in the Fed Funds rate over the upcoming Fed meetings in September, November, December, January, March and maybe even beyond.

Stock markets loved it and prices zoomed higher, once again disproportionately led by tech and Small Cap names. The S&P 500 wasn’t quite at a new all-time high by the end of the session, but it was pretty damn close.

Since August 7th, we have seen several examples of U.S. economic data that has been better than feared, but those fears were mostly irrational and they are obscuring the fact that the U.S. economy is slowing. We still don’t yet really know the answer to the question; is the Fed merely normalizing interest rates into a soft landing or is it cutting to rescue the economy from a recession?

For a couple of trading days in early August investors piled into bonds and dumped stocks after a disappointing Jobs Report and “recession” became a trendy buzz word. But that was ridiculous and mostly the result of hysteria from a few attention-seeking commentators, political operatives and a financial media desperate for viewers and clicks. None of the economic data was then or is now pointing towards a recession. To think that one is imminent simply isn’t backed by any facts, but that doesn’t mean that one can’t happen. It absolutely could.

On the flip side, the removal of an imagined possibility doesn’t actually mean the situation has got any better, so buying everything in sight because a non-existent risk seems to have suddenly disappeared is just as irrational!

The truth that the data shows is that U.S. economic growth is slowing and the only question is by how much. The stock market is pricing in a perfectly executed soft landing by the Fed, whereby they cut interest rates aggressively enough to relieve stress on consumers and corporations and boosting profits for U.S. companies without tossing the country into a dumpster fire of a recession. It is generally underestimating how bad the effects of a soft landing failure will be, even though such a failure is still not anywhere near a base case scenario, as things stand.

P.S. .. While there will be mostly smiles all over Wall Street when the Fed rate cuts arrive, retail investors do need to prepare for something less welcome. Those delightful 5% high yield savings accounts will likely start to cut their rates roughly step-for-step in line with what the Fed does in the coming months. Many savers have got very used to these kind of returns on their cash for taking zero risk and will have to get used to a somewhat lower stream of free money going forward. Even then however, it’s still going to be way more than any bank or credit union pays you in their regular savings account.

OTHER NEWS ..

Rich Yet? .. Americans on average believe it takes a net worth of $2.5 million to be considered “wealthy” in 2024, according to annual survey results released by Charles Schwab last Wednesday. That’s a 14% jump from last year, when Americans thought it took $2.2 million to be considered rich.

The older someone is, the higher their definition of wealth in the survey. Baby boomers said being wealthy takes $2.8 million, while millennials put it at $2.2 million. Overall, slightly more than 20% of Americans said they were “on track” to be wealthy.

When asked what average net worth you’d need to be considered “financially comfortable,” Americans said $778k. This was a big drop from last year’s results when hot inflation drove the number to $1 million, the highest reading since the survey’s 2017 start.

Finally A Million .. For the first time ever, one bar of gold is worth $1 million. The milestone was when the precious metal’s spot price surpassed $2,500 per troy ounce, an all-time high. With a typical gold bar weighing about 400 troy ounces—well, you can do the math.

Disappearing Jobs? .. With victory over inflation almost in the bag, there’s a greater focus on the other half of the Federal Reserve’s mandate; the labor market. The Fed has always claimed to be data dependent in its interest rate decisions, buy how dependable is that data?

We got a peek last Wednesday when we got the annual fact check review from the Bureau of Labor Statistics (BLS) of all the notoriously inexact monthly Jobs Reports from April 2023 to March 2024. Jobs Reports have often featured at the center of the interest rate debate, none more so than the most recent release which triggered a short-lived but intense stock market crash earlier this month.

The annualized data showed a downward revision…

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It’s less than two weeks since financial markets seemed to be teetering on a precipice. Japan had raised interest rates, a complex currency trade had broken down and a disheartening Jobs Report had come out in the U.S., sparking a chain reaction that triggered record-setting volatility levels and the worst stock market crash in decades in Asia which then cascaded around the world, cratering markets in Europe and the U.S., which suffered its worst one-day plunge since early in the COVID panic of 2020.

Many big-name analysts and economists were wetting their pants (yeah, I’m looking at you, Jeremy Siegel), hysterically squealing in the media for the Fed to make an unscheduled emergency interest rate cut to save the country from the horrors of the recession that was about to engulf us all. But markets began to gradually crawl back upward soon afterwards, mostly on the back of a lot of investor bargain-hunting and a growing sense that there had maybe been an over-reaction.

As last week wore on and we saw much more upbeat economic data, that crawl quickly became a high-speed dash, resulting in the best week of the year so far for stocks. The major indexes have now completely round-tripped, closing on Friday higher than they were when all this s**t started.

Stocks wobbled between slight gains and losses on a tepid-volume summer Monday, ultimately going nowhere ahead of some important and high-stakes updates later in the week on inflation, retail sales and earnings from major retailers. Half an eye was also being kept on geopolitics, with Ukrainian troops swarming into Russian territory and ceasefire hopes in jeopardy on the back of a soaring body count in Gaza at the same time as a potential escalation in Iran/Israel tensions and American warships edging closer to the region.

Before the opening bell on Tuesday, we got a very Fed-friendly release of the Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers in July, underscoring the continued moderation in price pressures in the economy with the annualized rate falling to just +2.2%.

Wall Street took this as a hopeful sign for the next day’s CPI inflation number. There was a sea of green on the screen with stocks rocketing higher across the board as traders reloaded their bets on an extension of the rally after the previous week’s mauling. Tech names enjoyed a particularly buoyant session.

The inflation genie appears to be finally back in the bottle and an interest rate cut next month was as good as sealed on Wednesday morning pre-market when the Consumer Price Index (CPI) measure of retail inflation came out in line with expectations, falling to a +2.9% annualized rate, a fourth consecutive monthly decline and down from a peak of over 9% in June 2022 and below the 3% level for the first time since March 2021. This kept the possibility of a “jumbo” interest rate cut of 0.50% on the table, although a reduction of 0.25% on September 18th remains the base case.

Investor reaction to CPI was a little muted with most of the enthusiasm having already been priced in by Tuesday’s monster rally but the indexes still managed to eke out some small gains by the close in what was another light-volume session.

It was a busy pre-market morning on Thursday with lower-than-expected weekly initial jobless claims, a spectacularly impressive Walmart earnings report with very cheerful forward guidance and a gigantic acceleration in Retail Sales which rose +1.0% in July after a -0.2% decline the prior month for its biggest climb since early 2023 even in the face of high prices and borrowing costs. This pointed to a resilient American consumer and a still-solid economy that's two-thirds measured by consumer spending.

In this renewed “good news is finally good news again” environment, stocks were turbo-charged higher at the open and stayed elevated throughout the session, with tech stocks and Small Caps distinctly outperforming. The major indexes completed a full recovery of all of the losses suffered during the shaky period that began with that big drop on August 1st.

Some of the air was let out of the balloon on Friday morning by some disappointing U.S. housing data which showed that new home construction fell in July to its lowest level since May 2020 along with a decline in building permits as homebuilders responded to weak demand. We also got to see the monthly Consumer Sentiment index which showed Americans are feeling a little better than expected about the economy and the prospects for inflation. Stocks shifted moderately higher and once again held onto those gains - bringing a very cheerful week to a close.

The odds of a soft landing are still considerably greater than those of a hard landing, but there’s no doubt that the gap between the two probability sets is closing. Stocks have proved to be impressively resilient as we saw last week, but the economic risks facing this market are non-trivial and potentially consequential should they come to pass (like, end-of-the-bull market consequential).

Think of your team having a 4-0 lead at half-time in a soccer game, but then early in the second half the opponent scores two quick goals. It’s still far more likely than not that your team will go on to win the game, it’s just less likely than it was at half-time.

OTHER NEWS ..

Unruly .. Only Turkey and Russia are at more risk than the U.S. among the world’s largest economies of political civil unrest and deadly violence (an extreme version of which was depicted in the intense recent movie Civil War) in the next year, according to a Bloomberg Economics analysis in conjunction with the U.S. government’s Political Instability Task Force.

While the probability of such violent internal conflict in this country is low, put at just 2.9%, it is more than double that of nations such as Canada, Germany and Australia that are often considered to be America’s democratic peers.

The analysis seeks to apply a quantitative lens to trends that have provoked fears of such unrest in the years since the January 6th 2021 insurrection and deadly attack on the Capitol building.

You Can Bet Your Future On It .. As sports gambling takes off in the U.S., turning quickly into a multi-billion dollar business, a worrisome trend is starting to emerge: Americans appear to be yanking money out of their investment accounts to fund their online betting habit.

This is the key finding laid out in a recent working paper titled Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households. It claims to find evidence that for every $1 spent on sports gambling – now legalized in most states since 2018 — net investments in stocks and other financial instruments dropped by just over $2.

The phenomenon is most noticeable among the most financially-strained households, potentially the same ones attracted to nonsense and dangerous get-rich-quick schemes in financial markets like meme stocks and speculative options including crypto scams, frequently promoted on social media.

What Happened When The COVID $$$ Went Away? .. Consumers fell behind on debt payments as pandemic-era wealth disappeared, leaving some households in dire financial shape as the economy slows. That's the takeaway from a new study by economists at the San Francisco Federal Reserve that shows how wealth built up during the pandemic helped support consumer spending in the face of high interest rates and inflation.

Now that "extra" wealth is gone, the opposite is the case: Spending is cooling, and many consumers have a much smaller cushion to fall back on if the economy were to enter a recession. At the peak in 2021, the top 20% of households by income accumulated $1 trillion more in liquid wealth than would have been the case absent the pandemic. The bottom 80% built up an additional $270 billion in liquid holdings.

Economists estimate that the 80% saw this extra wealth fully drained by late 2021. But it didn't dry up for the 20% until over a year later. The fact that i…

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It’s not often you get the kind of violent, concentrated two-way turbulence that we experienced last week. In the course of three days, the S&P 500 had both its worst day since 2020 and its best day since 2022 and still ended the week unchanged.

The ferocious global market rout from the end of the prior week intensified on Monday as more storm clouds rapidly gathered over financial markets around the world. All hell broke loose in Asia where Japanese stocks got smashed by over 12%, suffering their worst day since Black Monday in 1987 and European markets rolled over.

It was likewise a bloodbath for risk assets over here once the U.S. came online, with the Big Tech/AI darlings and crypto in particular in the eye of the storm and getting ruined as large institutional market participants with huge, leveraged positions in these type of assets were forced by market conditions to unwind them all in short order, creating a vicious feedback loop.

After what was the worst trading session for U.S. stocks since the early COVID panic of March 2020, indexes closed off their lows of the day, but with no immediate signs of any kind of circuit breaker as we are currently in the midst of a “mini dead zone” for economic data releases.

The bloodied baton was passed back to Asia and a chunk of Monday’s wreckage was immediately repaired, with Japanese stocks jumping over 10% (their best day since 2008). Europe didn’t exactly rebound, but at least managed to stop the worst of the bleeding.

Some semblance of order and calm returned to U.S. stock markets after the opening bell on Tuesday as investors began to cautiously sniff around for bargains after the massive selloff. The storm clouds retreated further as the sense slowly grew that (shocker!) markets may have possibly over-reacted to an admittedly underwhelming but hardly godawful Jobs Report the Friday before and the indexes finished the session nicely higher, clawing back around a third of Monday’s losses.

The Asian and European recovery continued on Wednesday and initially followed through into the U.S. as the Fed continued to wheel out officials to vigorously push back against the narrative that the central bank has been caught offside and is losing control of the economy.

However, stocks failed to hold on to the impressive early gains as a broad-based wave of selling resumed after lunch and the indexes finished lower on the day, underscoring the market’s continued fragility.

Asia and Europe slid a touch lower on Thursday but U.S. markets benefited from lower-than-expected weekly jobless claims and the continued sense that Monday’s carnage was maybe just a fever dream and that the reality police had perhaps arrived. Stocks raced higher from the start, led by rapidly recovering tech names. The rally gathered pace as the session wore on, helped by more decent earnings reports including from the Magnificent Seven wannabe, Eli Lilly. The S&P 500 ended up having its best day since November 2022.

A schizophrenic week came to a close on Friday after mostly positive Asian and European sessions fed into the U.S. markets which paused for breath and drifted a tad higher in a rather exhausted, super-light volume session ahead of an economic data-heavy week (see THIS WEEK’S UPCOMING CALENDAR below). Astonishingly given the extent of Monday’s massacre, the S&P 500 finished Friday exactly where it had been a week before.

It’s really, really important to note that these sharp, brutal declines we’ve seen in the last couple of weeks are far more a result of the investor complacency about a sudden economic shock and resulting highly-leveraged over-optimistic positioning that I have been banging on about for months now and NOT (yet) about a significant deterioration in economic data.

Many big tech stocks and particularly in AI and crypto world have rocketed upwards in the last year mostly on a vibe and a sugar high rather than on any kind of commercial reality.

Now financial markets have finally been forced to admit what was frankly obvious to anyone who had been paying attention; that the fully priced-in absolute perfection of never-ending economic growth, continually explosive earnings, guaranteed AI riches for all and relatively tranquil geopolitics does not exactly correspond to what we are experiencing right now.

That disconnect is starting to be corrected by these violent mini-crashes and subsequent rebuilds and that’s a good thing in the long term as it solidifies the foundation of future stock price rallies and increases the likelihood that they could be sustainable and long-lasting.

One last thing. To be clear, heavily falling markets are a feature of investing for your future, not a bug. They are going to happen frequently over your investing timeline. For those with longer time horizons (ten, fifteen or twenty years or multiple decades) these moves provide delicious opportunities to buy equities through ETFs at lowered prices and this weekly report is absolutely not intended to shake such investors out of their stock positions. Quite the opposite.

Stock markets have never, ever failed to subsequently rally back to new all-time highs following any steep declines. There’s no reason to think that’s ever going to change. Just keep buying for the longer term.

OTHER NEWS ..

Vacation Woes .. Airbnb Inc. shares plunged after the company issued yet another disappointing outlook and warned of slowing demand from U.S. vacationers. The company is “seeing shorter booking lead times globally and some signs of slowing demand from U.S. guests.”

At the same time, shares of Booking Holdings also got hit, with “moderation” in the European travel market and U.S. consumers opting for lower-star hotels and much shorter stays being blamed.

Moving Out .. The pandemic changed where Americans are likely to live and work, with a growing portion of job openings moving away from the biggest cities and into smaller metro areas, according to a Federal Reserve Bank of New York analysis.

Job listings in large central metro areas now account for about 38% of total listings nationwide, down from 46% pre-pandemic. The portion of job openings in smaller metros increased and the share of openings in “fringe” metros outside of large central cities held steady, the study showed. Increased remote work led to a decline in the share of jobs concentrated in major cities that require people to commute into an office. As people relocated to the smaller urban centers, it created more demand for food workers, health care and other services in those areas.

Pancake Money .. Wealthier Americans are visiting IHOP and Applebee’s more often and they’re looking for deals on their pancakes and wings. Dine Brands Global Inc., the two chains’ parent company, announced a drop in visits from lower-income customers in recent quarters but is attracting more guests from households that make $100k+ annually. All diners, regardless of how much they make, are gravitating to value offerings including unlimited riblets at Applebee’s and a special breakfast combo deal at IHOP.

ARTICLE OF THE WEEK .. Bumper triple issue.

* Steep declines like we have seen recently can generate a multitude of tempting reasons to sell your stocks. Here’s why every single one of them is wrong.

* A trillion dollar time bomb is ticking in the housing market.

* Insurance companies are quite literally trying to steal your retirement money.

THIS WEEK’S UPCOMING CALENDAR ..

For those who nerd out on Federal Reserve policy, this week's highlight will be new inflation data. Q2 earnings season begins to wind down.

The latest Consumer Price Index (CPI) measure of retail inflation will be released on Wednesday morning. The consensus estimate is for +2.9% from a year ago. The day before, we will get to see the Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers

On Thursday we will get the important latest Retail Sales data and the big Consumer Sentiment Survey comes out on Friday.

Earnings reports to watc…

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There are three main factors that have propelled the S&P 500 higher in 2024 .. i) solid economic data, ii) impending Federal Reserve interest rate cuts, and iii) AI enthusiasm. Last week provided challenges for all three of those narratives. With key earnings reports, central bank interest rate decisions taking place in Washington DC, London and Tokyo and a pivotal Jobs Report, it always looked like it was going to be a highly volatile week. From that perspective at least, it didn’t disappoint.

Stocks cautiously meandered around with no real purpose on Monday and ended up essentially unchanged, with traders acutely aware that potentially impactful economic data and crucial earnings reports were all on the docket for the following few days, rendering this session something of a lame duck.

The real business of the week began on Tuesday with the Job Openings and Labor Turnover Survey (JOLTS) which came in unchanged and as expected showing 8.2m open job positions in the U.S., further evidence of no imminent recession. Paypal, Jet Blue and Pfizer released impressive earnings. Procter & Gamble, Starbucks and Merck, not so much. These were only appetizers, however. The main course was Microsoft after the closing bell.

Dragged down again by tech and AI, stocks dipped partly due to pre-earnings positioning, but also as a result of the increasing geopolitical temperature in both the Middle East and Venezuela and the potential effect that could have on oil prices and thereby the global economy.

Microsoft’s Q2 sales and earnings were fine, but its mostly AI-related capital expenditure was off the charts, up by 55% from a year earlier with a perceived lack of resulting direct revenue in return. When markets opened on Wednesday, Microsoft notably failed to participate in what was otherwise a substantial rebound in the beaten-down tech sector in advance of the Fed declaration at 2pm ET.

Before attention turned fully to Fed’s interest rate announcement, the first of the week’s three big global central bank resolutions was made by the Bank of Japan, which raised the local interest rate by 0.25% to its highest level since 2008.

As was universally anticipated, there was no change in interest rates from the Fed with only very limited tweaks to its accompanying policy statement, giving Wall Street little to work with. Chairman Powell successfully navigated a rather feisty press conference, playfully dropping plenty of breadcrumbs about a September cut without actually confirming it (“A reduction in the policy rate could be on the table as soon as the next meeting in September.").

As so often happens, the Fed gave an inch and markets took a mile and stocks extended their considerable session gains, powered by Nvidia which shattered the all-time record for a one-day increase in any company’s value, adding $330 billion in just six and a half hours.

Oh and by the way, Meta/Facebook announced earnings after the closing bell and it was smiles all around as estimates were surpassed and the stock screamed higher when markets opened the next day. The Bank of England completed the global central bank divergence full house, narrowly voting on Thursday to cut interest rates in the UK for the first time since early 2020.

Unexpectedly cool manufacturing data and a hot weekly jobless claims number triggered a lunchtime collapse in stock prices. There was also a growing sense that investors might be exiting stocks (particularly the highly-valued ones) as a profit-taking exercise and rushing into increasingly attractive bonds as Treasury yields fall sharply in response to expected Fed policy. All of Wednesday’s gains were quickly wiped out.

The tech earnings parade concluded after the close with releases from Apple, Amazon and Intel. In descending order of good news:

* Apple beat estimates on overall sales and profitability, but the company is clearly still having problems with iPhone sales in China and the fact that (shocker!) no-one seems to be buying any Vision Pro headsets at $3500 a pop.

* Amazon showed decent sales growth in Q2 but missed on revenue and profitability and gave rather gloomy income projections for the rest of the year.

* Intel’s report was a complete catastrophe. The company missed estimates on just about every imaginable metric, announced mass layoffs and spending cuts, admitted that it was late to the AI party, gave grim forward guidance and made the kryptonite decision to suspend its dividend (there’s nothing Wall Street hates more than this).

Asian markets crashed overnight in their worst session in years. Europe did little better. The pre-opening bell Jobs Report over here on Friday was all that stood between the U.S. markets and a similar fate. It utterly failed to do so. Payrolls rose 114k in July, way below the 175k estimate and the two previous months were also revised downwards. The unemployment rate rose from 4.1% to 4.3%, its highest level in nearly three years.

Treasury yields tumbled in breathtaking fashion, accelerating the stocks → bonds exodus referred to above. The sudden growth scare that I have been warning about for months may well have arrived. The Fed’s decision on Wednesday to delay cutting interest rates until mid-September was suddenly viewed as a grave policy mistake and there were loud shouts for a double rate cut in September, a full 0.50% rather than just 0.25%. There were even some calls for the Fed to make an unscheduled interim cut ahead of the meeting, something I must say is highly unlikely.

It was a brutal sea of red when the stock market opened, with much of Wall Street’s venom reserved for Intel which fell over 25% in the first two minutes of trading and Amazon which dropped 10%. There was absolutely nowhere to hide with Small Caps getting heavily whacked as well. All the major stock indexes, particularly the NASDAQ, closed the day and the week badly battered and bruised. For those keeping score, more than $2 trillion in value has been obliterated from the NASDAQ-100 index in the last three weeks alone.

With a September interest rate cut now assured (it’s just a question of how big it is), any bad economic news has now shifted in Wall Street’s eyes from being good news since it that could prompt a rate cut to just being straight-up bad news.

If you thought July was wild ride, strap in for August.

OTHER NEWS ..

Ignorant politicking .. At his press conference on Wednesday, Fed chairman Jerome Powell understandably bristled when he was faced with questions about the possibility that there could be a political element to any interest rate decision in advance of the November election. There is only one more rate policy announcement between now and then (September 18th), with the next one taking place two days after the event.

The frankly embarrassing ignorance and pathetic showboating instincts of politicians on both sides was on full display last week. Democrats moaning at the Fed: “if you don’t cut interest rates in advance of the election, it’s a political call!”. Republicans whining to the Fed: “if you do cut interest rates before the election, it’s a political call!”. This conversation is being exacerbated by increasing speculation, driven by Friday’s Jobs Report, that there could even be a double rate cut in September, 0.50% rather than just 0.25%.

The Fed’s job is to act in an informed and dispassionate manner and everyone else is welcome to react however they want. What would be an economically damaging move would be to NOT make any changes that are informed by the data regardless of any perceived political consequences one way or another. Aggrieved politicians just need to deal with it and STFU.

Americans Earn A Lot More Money Than They Think .. The Economic Innovation Group published an interesting report that compares U.S. workers with the rest of the world and showed that the lowest paid workers in the U.S., who live in Mississippi, still earn more than the average worker in Germany and Canada. Other low earnings st…

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With Biden finally realizing last Sunday that he needed to walk the plank, the Democrats swiftly clearing the runway for Harris and the resulting shift in the election narrative, Wall Street’s prior assumption of a comfortable Trump victory in November was thrown into some doubt. It always had the potential to be a volatile week anyhow with a flood of Q2 earnings reports, including from some high profile names, as well as big GDP and inflation data releases and so it proved to be.

On Monday morning, the dip buyers at last returned from a one week vacation as the tech stocks that had been battered the week before were heavily bought up from their significantly lower prices (except for Crowdstrike obviously, which was savagely smashed lower again, about a quarter of the company’s entire value was erased in just two trading days). The generally positive euphoria intensified as the session wore on ahead of potentially consequential earnings reports and all of the indexes ended the day substantially higher.

There were some solid earnings before the opening bell on Tuesday from the likes of Spotify, GE, General Motors and Coca-Cola, although UPS (sometimes regarded as a bellweather proxy for the U.S. economy) badly disappointed and the stock price got butchered. The headline indexes meandered in and out of positive and negative territory all day, finishing a touch lower. The rotation trade that I talked about in last week’s report seemed to be back on as Small Cap stocks resumed their significant outperformance once again.

After the closing bell, Alphabet/Google’s results lacked a wow factor, with concerning levels of spending burn, although profitability slightly surpassed most estimates. Tesla, however, totally whiffed on earnings expectations yet again for the fourth straight quarter and also provided distinctly underwhelming forward guidance, despite Musk’s awkward and evasive attempt at smoke-and-mirrors on the analyst call. Both stocks ended up getting punished in after-hours trading and then again when real markets opened the next day.

A palpable change in tone emerged on Wednesday morning after Bill Dudley, former New York Fed president, publicly suggested that an interest rate cut should be made at this week’s Fed meeting rather than waiting until September. This sentiment was quickly echoed by a number of other analysts who suggested that, at the rapid rate that the economy appears to be cooling, a September rate cut might possibly be too late to save it from falling into recession.

Wall Street was spooked partly by this recession talk revival, but mostly by the Google and Tesla earnings and a growing concern that recent massive AI investment is actually not going to translate into materially higher productivity or revenue any time soon.

Stock indexes were pounded across the board from the moment that markets opened. The worst of the ugliness was saved for Mega Cap Tech and the NASDAQ in particular got slammed by waves of furious selling to experience its worst session since the dark days of October 2022. The carnage cascaded through Asian and European markets, pushing Japanese stocks into a technical correction (down >10% from the recent high). It also crashed other risk assets like crypto and commodities.

But then, before the New York opening bell on Thursday, we got the first estimate of Q2 Gross Domestic Product (GDP) which showed that the U.S. economy is in tremendous shape with a surging +2.8% annualized growth rate, blowing through the +1.9% expectation and +1.4% rate in Q1. This derailed fears of an upcoming recession and appeared to give the Fed breathing space until September for its destined rate cut.

The earnings reports kept on coming, including a profitability and outlook horror-show from Ford whose stock price was mercilessly punished as a result, all of its 2024 gains were wiped out in a matter of minutes. The indexes initially stabilized on the back of the GDP print and then bounced around rather chaotically for the rest of the session, to finish little changed but with Mega Cap Tech and AI still feeling very fragile.

Stocks turned higher and finished what was a tough week with some nice gains on Friday, with the Large → Small rotation trade very much back in play as the latest inflation reading did nothing to alter bets that interest rate cuts are definitely coming in September (see FEDWATCH INTEREST RATE TOOL below). Fed actions rely heavily on the Personal Consumption Expenditures (PCE) price index which showed core inflation (ex-food and energy) rose +0.2% last month and +2.6% annualized, all just as expected and further evidence of a continued declining trajectory towards the Fed’s 2.0% target.

While many of the more dramatic analysts out there are explaining this current pullback as a warning on future economic growth or extrapolating some kind of political commentary by the markets, my view is that it is being caused by much less sexy (yet still important) factors: institutional trader positioning and earnings. The recent meaningful decline in stocks is being driven by the correction of an overextended tech sector (particularly AI-related) and some disappointing earnings from a few specific corporations.

There is no evidence that the defensive sectors of the market are starting to notably and consistently outperform the broader market and until that happens, any weakness in stocks should not be viewed as a lasting top being established - but instead as a relief of over-heated short-term conditions and profit-taking pullback by major market players.

Of course, the persistent recession fear-mongers and Chicken Littles will eventually be right one day simply by virtue of the broken clock theory. For them, fear springs eternal, you might say.

OTHER NEWS ..

Trump Is Fluttering His Eyelids At The Crypto Bros. Regulators Are Worried .. On Saturday, Trump’s sudden enthusiastic embrace of crypto (and its potential donor dollars) resulted in a rousing speech at some Bitcoin convention in Nashville which was heaving with whooping, fist-pumping crypto bros, where he boasted that, if elected, he would immediately fire the Securities and Exchange Commission (SEC) chairman Gary Gensler and replace him with some pro-crypto individual who would push the agenda of the crypto industry in the U.S.

This, along with a weird Republican plan to force the U.S. government to buy and long-term hold billions of dollars-worth of Bitcoin for at least twenty years which could only ever be used to pay down national debt, is causing alarm among investor protection regulators and in the more sane corners of Wall Street. This follows Trump’s recent threat to put to an end the independence of the Federal Reserve and place interest rate decision-making partially under the individual control of the President.

Next Up, Ethereum .. The supposedly vehemently anti-crypto SEC approved the immediate listing of multiple spot Ethereum exchange traded funds (ETFs) on Monday, less than a year after approving a whole suite of Bitcoin ETFs. Investors can now safely and easily hold Ethereum in a regulated and secure ETF wrapper on a proper stock exchange in a normal brokerage account or IRA instead of inside some dodgy wallet or on one of the expensive and potentially unsafe crypto exchanges.

The ETFs based on the spot price of the second largest cryptocurrency with a $420 million market capitalization, started trading the next day.

Light At The End Of The Tunnel? ..The housing market again showed a slowdown in sales but a rise in prices in June. The median existing home sale price in the U.S is now $426,900, up 4.1% from last year and the second record high in a row.

Sales of existing homes dropped 5.4% from last month and the same amount from a year ago. However, in a sliver of hope for buyers, inventory in June rose to a 4.1-month supply, a 3.1% improvement over May and a sign that purchasers may finally gaining a bit more leverage in the market.

Champagne And Coffee .. D…

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