Today was spent recalibrating expectations now that the ‘dovish tilt’ is more of a distant spot in the rear view mirror. Following the ‘we will keep at it’ message from Powell on Friday, we also got messages of ‘larger sacrifices’ from ECB’s Schnabel and France’s Villeroy over the weekend, and this week we have a long list of Fed speakers poised to chime in. Markets felt hesitant today, as a UK holiday and an upcoming US holiday stifled activity. Fed fund futures are now implying a year end rate of c3.75%, and cuts sometime in 2023, contrary to what officials are saying, which leaves room for further interpretation this week. Economic data will still be a major focus for all parties, of course. The Dallas Fed Manuf. Survey came in below estimates this morning, although the 6 month outlook improved from -17.7 last month to -8.8 this month. This just added to the mixed messages that economic data continues to send —things are seemingly improving, but inflation is still rife. Either way, markets attempted to make a move into the green today, but it was a struggle and ultimately failed. The breadth for the S&P remained negative all day (55% decliners), clearly a drag on the index. With Value outperforming Growth again (1.3%), some of the growth ETFs tested their supports. Semis, Software and Comm fell below their 50-day averages, led lower by their constituents— Google (-86bps), Microsoft (-1.1%) and Meta (-1.6%), to name a few. With Oil +4% today and the 10yr back above 3%, its highest level since late-June, the Growth vs UST debate is likely to heat up…just as summer does the opposite.

Well, at least it wasn’t a nothing done? It was short and not very sweet. An address that was expected to last 30 minutes barely reached 10 and quite frankly, the Fed Chairman probably didn’t even need that long. The funereal look on Jerome’s face suggested “good” news was not coming and on that front at least, he delivered. It’s been a series of fits and starts for the market as investors have listened to (and subsequently ignored) what the Fed intends to do. The collective “No we haven’t” we heard when the Street started prematurely assuming a pivot was in place had been recognized and corrected for. Or so we thought. We are always parsing Mr. Powell’s language for clues within the message and his phrase “requires using our tools forcefully” is one that surely stood out. While we didn’t get further clarity on an increase of the funds rate ceiling, nor did he allude to one, the prospect for elevated rates for far longer than the market expected was clear. Despite various data points pointing to peak inflation having passed, the Fed is far from comfortable with the current level of inflation and will result in a restrictive policy stance for some time. And for good measure, Kashkari continues to enjoy his view from the cheap seats (non-voting) as he called inflation a “raging inferno.”

Stocks have successfully remained optimistic as investors digest hawkish comments from Fed officials and await further clues from JP in Jackson Hole tomorrow. Today’s data/headlines/quotes were all taken in stride, but further economic data this morning added some inconsistencies into the mix. GDP declined to 0.6% vse 0.7%, while Gross Domestic Income climbed 1.4% in Q2. These measures are supposed to be (roughly) equal, but the gap is particularly wide. It’s also worth noting that corporate profits increased at the fastest pace in the year, after falling for 3 months. Although inflation remains front of mind, and the busiest part of earnings season is behind us, there are still a handful of companies reporting.  This morning brought Dollar Tree & Dollar General, both of which saw an increase in thrifty shoppers, as the consumer continues to be crunched. Separately, US-listed Chinese stocks are also back in the news, as Chinese Stimulus & progress on a regulatory hurdle gave the Golden Dragon Index it’s best day since May. As mentioned, contradictions around every corner! The NBER confirmed we’re still not in a recession, but the likelihood of one certainly feels dependent on The Fed’s next few moves. Until then, investors seem happy to wait and see with volumes better, but not robust, and the VIX down another 4.3%. Either way, all eyes will be on Jerome tomorrow, and it will certainly be an interesting end to a week that served as an exercise in futility.

Indecision seems to be the name of the game ahead of Jackson Hole as headlines of all kinds are impacting sentiment in regard to the trajectory of rates. One such example is of the “Fed Whisperer” Nick Timaroas at the WSJ today who noted that “Several former Fed officials who have worked closely with Mr. Powell say he is likely to err on the side of raising rates too much, rather than too little”. Despite the hawkishness, markets moved off opening lows and spent most of the day in the green. Tech was able to find its footing, as positive headlines boosted names like Peloton (PTON,  20.36%), who will now sell equipment on Amazon (AMZN, 0.13%). Travel & Leisure was also strong, as government data showed that commercial aircraft bookings climbed. This space has been on our 3m relative low list so this could be a welcome changing in the tide, but the recent trend here says different. Meanwhile, an announcement that President Biden will be forgiving some student loans sparked a lot of opinions, but did little for companies like Sallie Mae, as some analysts noted the company remains well-provisioned for today’s announcement. Also worth noting that the EUR/USD broke parity this week, reconfirming the downtrend. Our team thinks the next stop is 0.9, although it could go as low to 0.82, the 2000 low. As we turn our attention to the rest of the week, the parallels between 2008 are hard to ignore. The market stopped just short of it’s 200 day 2 weeks ago like in ’08, and we remain below that level. Although the VIX was down 6% today, with the last trough at 8/15, the 50 day cycle is calling for the next peak on 9/20 (and on an annual seasonality basis the VIX picks up this time of year). Friday will be critical for sentiment, but we can’t glaze over the plentitude of data between now and then – GDP, Initial/Continuing Claims, and Personal Consumption data, all tomorrow.

A sobering day of red as the S&P (SPX) saw a 95% down day and the Dow (INDU) pitched a no hitter with a 100% down day (down over 640 points, though there are only 30 stocks in the Dow). We were watching for support levels of 4177 on the SPX and 12,900 on the NDX, neither of which held today. Next stop for the SPX is 4112 then 4079, and the NDX’s next stop is the 50dma of 12,346. Today’s weakness did not discriminate — every sector was in the red. Semis were the worst performers led lower by NVDA (-4.6%) and ON (-5%) after Citi put out a negative report on chip makers. Palo Alto (-1%) reports after market today and Nvidia and Splunk (-2.8%) both report after the close on Wednesday. But the chip makers were not the only culprits —Apple (-2.3%), Amazon (-3.6%), Microsoft (-3%) and Tesla (-2.3%), which make up a major chunk of the larger indices, also heavily contributed to losses. Amazon weakness was due to its battle with United Health (-0.7%) over Signify Health (+32%). Separately, Ford (-5%) was also crushed after a $1.7bn ruling in a pickup truck accident in Georgia. Aside from major equities moves, the other story was dollar strength (and EUR weakness) in which we see 120 as the next target. We were also keeping a close watch on the 10yr breaking 3%, an achievement which could now lead back to 3.25%. The Chicago Fed Nat Activity was positive this morning, a good sign, but this week will bring even more eco data (PMIs, GDP), as well as Jackson Hole on Friday. It seems as if the market is coming to terms with the fact that rate cuts are still far off. It’s now a near 50/50 split on whether we get 50 or 75 bps next month. With the VIX up +16% but volumes down 13% today, the extreme moves were unsurprising. And also disconcerting. Though of the Mondays that fell 2% or more in the last 10 years, 75% had an up day Tuesday.

The day had a bad flavor from the start, after global inflation fears were worsened post-German PPIs that came in well above expectations. In addition, supply chain issues were on full display this morning, after Deere narrowed its net income forecasts. Despite the negative headlines, the S&P was on track for its 5th weekly gain in a row – instead we got the first red week of the past 5. Certainly some element of a summer Friday on display, with plenty of seats empty, as shown by S&P volumes down 4.8% vs. the 20-day average despite options expiry. We remain above important levels though, notably 4107 on the S&P cash. With earnings dying down the USD hit a one-month high, and oil sits in a range (watch the 90 support on December Brent). There were only a few sectors in the green for most of the day, most notably Pharma & Energy. The first held on better thanks to positive news on Eli Lilly drug sales, in addition to an optimistic Pfizer management presentation. Along with the headlines, some easing of negative sentiment after the recent Zantac lawsuit is giving names much needed room to breathe. Energy’s move was helped by Berkshire Hathaway proposing to take a stake of up to 50% in Occidental Petroleum. On the underperforming side high growth spaces like Semiconductors & Consumer Discretionary lagged. Value outperformed growth today, as 10-year yields moved higher. Next week brings the Fed’s Jackson Hole conference, ahead of which multiple Fed speakers re-iterated that it is far too early to be focusing on rate cuts. Next week also brings PMI, GDP, and the all important PCE Deflator. The last the Fed’s preferred measure of inflation, and with expectations for a YoY decline it provides the opportunity for markets to once again get caught up in cooling data. Enjoy the weekend.

And just like that, we’re back in the green again. Markets managed to shake off inflation fears and rally into the close today— a truly impressive feat. Early on, data showed that the economy was still in strong shape, with Initial and Continuing claims both coming in below expectations. While this data is more regular, the slightly better numbers let investors believe the Fed will keep rates higher for longer. Philly Fed data this morning also added to the narrative, which despite its volatility, showed improving manufacturing activity expansion. Despite the implications that the economy could handle more hikes, the probability of a 75bp hike remained in the mid-30% range (as of this am). Yields moved lower throughout the day, while the dollar strengthened. Energy led thanks to crude’s move on the back of a report showcasing the further dip in US stockpiles. On the other hand were Telcos,  which underperformed on the back of broker downgrades. While value led growth for most of the morning, by the end of the day they were neck in neck. It is also worth noting the move in Bed Bath & Beyond (BBBY, -19.6%), which fell after news broke that Ryan Cohen’s firm was pulling out. The day also brought mixed messages from  Fed speakers – “Bullhorn” Bullard urged another 75bp hike, while Kansas City’s George struck a more cautious tone. The probability of a 75bp hike did increase to 40%, but with little fanfare. Tomorrow brings options expiry, Manufacturing PMI, and further Fed data (along with housing data). While the VIX is below 20, volumes remain muted and thus, moves exaggerated. The week is still far from over.

Green was noticeably absent from the screen today as markets took a well-deserved pause from the recent rally. Based on the lack of volumes (SPX -15.5% vs 20d), as well as the fact that both the S&P and NDX failed to go below their support levels (4190 and 13k, respectively), the weakness felt fleeting. After all, 21% of the SPX still advanced and the selling was not elevated (using overall volume as an indicator), so there were no signals to indicate a permanent change to upward momentum. There was nothing sinister to instigate the fall which began with futures’ weakness pre-open. Retail sales data stagnated last month as we saw declines in auto and gas spending, but gains in other categories suggested spending still remains resilient. Net/net — the number wasn’t great, but TJX (+2.8%) and Lowe’s (+58bps) reporting better than expectations helped balance the weaker number a bit. Quite frankly, the most annoying move was of the meme-madness sort in Bed, Bath and Beyond, which was up another 12% (up almost 65% this week alone) defying all laws of physics. No comment.

The dog days of summer are here and that may be helping keep US markets elevated. Volumes on the S&P 500 were down 14% versus the 20 day, and overall volumes were only helped by a surge in interest in the meme stocks (Bed Bath Beyond up another 29% today). But before traders pass the blame, the repositioning that started last month is continuing to find its way into stocks. In July, the BofA Fund Manager survey showed cash levels at their highest levels since 2001, and equity positioning at 2008 levels, and today’s survey showed a slight decrease to those fears (“apocalyptically” was the word to describe July). While managers are still bearish (58% see a global recession), they cannot sit on cash if the S&P starts to move higher (it is +11.4% since July 15th) and therefore even nibbles are helping support the indexes. Retailers were the center of attention today with earnings from Home Depot (HD +4.1%) and Walmart (WMT +5.1%) helping spur a late morning rally for the S&P (10 of the top 20 performers were in the Retail sector). But as the index tested its 200-day moving average (4326) for the first time since late-April, the S&P could not manage to punch through, still closing above 4300 however. The consumer theme will continue tomorrow with July Retail Sales expected the show a m/m increase of 0.1%. Plus, investors will see earnings from Lowe’s, Target and TJX. Perhaps the biggest datapoint to monitor will be the Fed Minutes at 2pm. Since the Fed raised rates 75bps last month, estimates have been oscillating between 50 and 75bps for September, and traders will be keyed into any insight to direction, especially after the CPI last week. So far, Fed heads have maintained their rate hike communication discipline, even if the Street is looking for a transition to cuts next year. A realization that higher for longer is the reality could impact the recent momentum in stocks, but maybe the next downdraft could be met with sponsorship by the “apocalyptic” crowd.

Saw the Tina Turner musical over the weekend (it’s been quite the trip down memory lane pop-culture wise for yours truly lately) and it was outstanding. But it wasn’t all peaches and cream for the Queen of Rock ‘n’ Roll with a series of ups and downs until making the ultimate comeback. The market has been on a similar journey of late, but it’s comeback hasn’t been as warmly received as Private Dancer. The summer season and its accompanying light volumes have provided the right tonic for a market that many still question. But like Proud Mary it keeps on rolling, today’s move higher somewhat perplexing given the data we got before the session got underway. There have been various canaries in the coal mine emanating from China for some time, and the misses on industrial production and retail sales overnight did little to dissuade that thought. The US data we received wasn’t much better, orders and shipments  for the empire mfg index coming in at shockingly low levels. This was accompanied by a weak housing sentiment figure, with the buyer traffic number hitting the lowest levels in 8 years. And yet…