Dear Valued Clients and Friends –
We ended one of the worst weeks in over a year and a half last week with nonfarm payrolls coming in below expectations at 142K versus 160K with combined downward revisions to both June and July of 86K. That aside, the actual unemployment rate ticked lower by a tenth to 4.2%, and we saw wage gains a tenth higher than forecast, too, so I think today’s move higher was some acknowledgment of what was actually a more mixed report than what was priced in at Friday’s close.
The question still remains whether the Fed is perceived to be behind the curve enough to jeopardize the soft landing currently priced into markets. I could paint as many scenarios as to why it would be better to start with 50bps vs. 25bps at this point. Although Fed futures are now at 70/30, we’ll start with the latter. With 100bps lower by the end of this year and another 125bps lower by the end of next year, all priced regardless, markets are caring less and less where we actually start. Watching those longer-term expectations will be more important going forward.
Its a treat for me to be with you on this longer format Dividend Cafe today while David returns from travel. There is plenty of good stuff to chew through today, so I’ll let you jump in and get started from here!
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Market Action
- We opened up this morning from the start, building on gains to over 600 and the session highs mid-morning. We held onto gains the entire session and ended up closing just off the highs by about a hundred points.
- The Dow closed up +484 points or 1.20%. Both the SP500 and Nasdaq closed up +1.16% on the day.
*CNBC, DJIA, September 9, 2024
- Even with last weeks move lower, market internals remain quite positive. While down from the summer highs, over 70% of stocks in the S&P remain in an uptrend and while technology has weakened on a relative basis, other sectors like Financials and REIT’s both have over 80% of names in uptrends.
- We have rallied across the curve in bonds, with the spread between the 2-Year and Fed Funds now at over 140bps wide. This is as clear an indication of where monetary policy is headed as any.
- The ten-year bond yield closed today at 3.70%, down -1 basis points on the day
- Top-performing sector for the day: Consumer Discretionary (+1.56%)
- Bottom-performing and only down sector on the day: Communication Services (-0.10%)
Top News Stories
- In hopes to avoid a workers strike at its Seattle factories, Boeing closed a labor deal over the weekend with its largest union that included raising wages by 25% over the next four years.
- Headline inflation in China measured 0.6%, and stripping out food and energy, Core inflation registered just 0.3%, the lowest level in over three years. A deflating real estate market and weaker consumer spending and investment have broadly brought down growth in the world’s second-largest economy. This has global repercussions, from energy and commodifies to currencies and inflation. I would expect policy action by the CCP to spur the economy and stamp what is becoming a clear deflationary reality very soon.
Public Policy
- In a speech at the Economic Club of New York last week, former president Trump cited supporting lower energy costs as a key initiative in his economic policy goals.
- The Justice Department’s anti-trust trial against Google began today.
- Former President Trump will debate Vice President Harris tomorrow night at 9 PM EDT in Philadelphia.
Economic Front
- Wholesale inventories rose less than originally forecast and were revised up just 0.2% for July from 0.3% previously. This is the stock of unsold goods held in inventory and a part of GDP. Lower numbers show more retail demand a leading indicator of economic growth.
- Quite likely, tied to my point above, Consumer Credit doubled expectations today, up $25.4B vs. $12.30B expected in a big move up in consumer spending. The US dollar was higher on the day following the report.
Housing & Mortgage
- The abysmal supply of homes for sale in this country is on the rise. Active listings for August were up a stunning 36% nationally from the same month a year ago, which was the 10th month in a row of gains. I do think we will begin to see price discovery and start to weigh on prices as this picks up, but keep in mind we are still 25% below pre-pandemic levels in supply. Also, the longer it takes for that supply-demand imbalance to normalize, the less it may matter on price pressure. That said, if I were to guess where it may become evident, it would be in some of the cities with the largest rise in supply from a year ago, like Tampa, up 90%, San Diego, up 80% and Miami, up 72%.
Federal Reserve
- The New York Fed’s Survey of Consumer Expectations report showed that one year of inflation expectations was unchanged at 3%.
- Fed Governor Waller cited the softening labor market and a sub-break-even level on job creation. NY Fed’s Williams said it was appropriate to start reducing rates towards a more neutral position. Neither of them indicated anything definitive as to whether it would be appropriate for a 25bps or 50bps cut starting next week.
Oil and Energy
- WTI Crude closed at $68.58, up +1.33%.
- Its worth noting that in light of last weeks 5.6% decline in energy stocks, how well the midstream pipeline names held up on a relative basis with the top five biggest names down under two percent. With far healthier balance sheets, the reoccurring fee midstream space has become the lower beta and less cyclical positioning in the energy landscape. It would not surprise me at all if M&A in the space accelerated in years to come.
- OPEC delayed their slated production increases by two months last week in hopes of supporting prices. The EIA report Friday showed a march larger drop in crude inventories down -6.8% vs. just -0.3% expected. This along with a potential new storm in the gulf had prices up on the day.
- Energy Transfers Kelcy Warren is expected to win his decade long battle with Greenpeace over the legality of methods used to block the Dakota Access Pipeline. If successful, the total damages are in the $300MM range which could effectively bankrupt the US arm of the Greenpeace initiative.
Ask TBG
| “I am a client, and I listen regularly to David’s podcasts. I retired last year after forty years in the medical field at age 66. In David’s recent offerings about work, he seems to disparage early retirement as abandoning the workforce, but TBG is managing portfolios for clients who plan to retire, many in the early years. This seems like a disconnect. Please connect the dots for me.” ~ J. Pye |
It is tough to answer in one or two paragraphs, as my longer treatment on this very important topic took a whole chapter in my new book. But to do a reader’s digest summary, let me just say that:
I hope this helps. I do believe the more exhaustive treatment is better. ~ David L. Bahnsen |
On Deck
- Tomorrow we will have the NFIB small business optimism index out and then a heavily anticipated new read on CPI this Wednesday.
I hope you all enjoyed the return of NFL games this weekend as much as I did. Enjoy your evening and reach out with your thoughts and questions, we love them.
With regards,
Brian T. Szytel
Co-CIO, Senior Managing Director
bszytel@thebahnsengroup.com
The Bahnsen Group
www.thebahnsengroup.com
The Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.
