Got people here
Down on their knees and prayin'
Hawks and doves
Are circlin' in the rain
- "Hawks & Doves" Neil Young, 1980
The Main Event
The first rock concert that I ever attended in person was a show done by The Kinks. Don't know what year, probably the late 1970s. I was in high school. The "rich" kid (rich, because his parents had bought him a used car) drove us from Queens out to the Nassau Coliseum in Nassau County. There were eight of us. We were loud and stupid. I knew nothing about anything. A band took the stage. They weren't The Kinks. Who are these guys? I forget their name, but whoever they were, they were opening for The Kinks on that tour. I did not know their music, and they were kind of boring. Fortunately, they left the stage in short order, and the show that I had paid to see finally began.
Thursday reminded me a little bit of that concert. I am here for the main event. Who are these guys? Will they finally leave the stage? The show that we have been waiting for begins this (Friday) morning at 10 a.m. ET. Fed Chairman Jerome Powell is set to speak to the public, to the markets, and to us macro-nerds on inflation and monetary policy. My wild guess is that Powell will try to say as little as possible in the way of detail while re-affirming the committee's commitment to driving down consumer inflation. At least that's what markets appeared to be gaming as Thursday wore on. It was as if someone knew something. Not that Powell would be dovish, but that he might not be intentionally and overtly hawkish.
The Warm-Up Acts
A number of Fed officials spent the first day of their three-day retreat to the beautiful Jackson Hole, Wyoming, area talking to the financial media. Some sounded thoughtful. Others sounded reckless and displayed a keen and quite alarming lack of situational cognizance.
First, I bring up St. Louis Fed President James Bullard, who will vote on policy through this December. Speaking to CNBC, Bullard said, "I like front-loading. I like the idea that you get the rate increases in earlier rather than later. You show you are serious about inflation fighting and you want to get up to the level that will put downward pressure on inflation. We are at 2.33% right now. That is not high enough." Now, there is nothing wrong with thinking that rates have to end up higher. That is opinion, and opinion is welcome. I see the words spoken here as reckless.
The Federal Open Market Committee (FOMC) has already been highly aggressive on the short end without truly having any way -- because these things take some time -- of knowing where monetary conditions will be on Main Street in a few months. Maintaining an overtly aggressive posture will force recession, a deep recession, and will reverse labor market strength. I have said it before. I will say it again. The time to use the sledgehammer has passed. It's time to proceed with a scalpel.
The day passed with Kansas City Fed President Esther George, who is hosting the events in Wyoming, telling Bloomberg News, "It's very important that we are clear in our communication about the destination we are headed. We have to get interest rates higher to slow down demand and bring inflation back to our target." George added, "I think we will have to hold - it could be over 4%, I don't think that's out of the question." While George is clearly hawkish, she does not even mention speed or getting out ahead of conditions. Indeed, later in the interview, she speaks of listening to the data.
About that data, the Fed's target for consumer inflation is 2%. The Fed focuses on PCE (Personal Consumption Expenditures) inflation and not the CPI (Consumer Price Index). Though you might recognize headline inflation of 8.5% off of a peak of 9.1%, the Fed sees headline inflation of 6.8%, which may have peaked in June. That said, due to conditions of the supply side in food and energy markets, shifts in monetary policy can only impact demand for goods and services covered under core inflation. The Fed's focus needs to be on the core. July core CPI hit the tape at growth of 5.9%, down from a peak of 6.5% in March. As for core PCE, that data point printed at 4.8% for June (July print is due at 08:30 a.m. ET), well off the 5.4% apex that crossed the tape in February. That's what we are talking about. Realistically getting that 4.8% down to 2%, while so many folks think we are talking about getting 8.5% down to 2%.
Elsewhere, Philadelphia Fed President Patrick Harker told CNBC, "There are glimmers of hope on inflation. I just emphasize "glimmer" - our job is in no way done. So, we can take that as a positive, but we need to keep acting to raise rates to get inflation under control." Atlanta Fed President Raphael Bostic told The Wall Street Journal... "At this point, I'd toss a coin between the two. (50 basis points or 75 basis points) We all, as policy makers, understand that inflation is a big problem and is a challenge that we're going to do all that we can to handle." Bostic also mentioned that he sees the neutral rate close to 3%. Now, on that, I can agree.
Far To Go?
Thursday's child. Price discovery was interesting on Thursday. Very bullish. Rallied into the closing bell. On improved (but still not convincing) trading volume, too.
Pick your favorite equity index. They all appeared to gain at least 1% for the session. The Philadelphia Semiconductor Index ran 3.66% higher after coming under pressure earlier in the week. Remember the charts we discussed just 24 hours ago?
Both the S&P 500 and Nasdaq Composite recaptured their respective 21- day exponential moving averages (EMAs) in what looks like an act of violence after that line had proven to be resistant over the first three days of the week. I'm still looking for signs of bullish life in those daily moving average convergence divergences (MACDs).
All 11 S&P sector-select SPDR ETFs managed to shade green for a second consecutive day on Thursday. This time it was Materials (XLB) that led the way, up 2.27%, followed by the two growthy sectors, Communication Services (XLC) and Technology (XLK) . Staples (XLP) finished the day in last place but were still up 0.46% for the session.
Winners beat losers by a rough 4 to 1 at the New York Stock Exchange and by about 5 to 2 at the Nasdaq Market Site. Advancing volume took a 63.8% share of composite NYSE-listed trade and a 73.3% share of that metric for Nasdaq listings. Aggregate trading volume moved sideways at already low levels for NYSE names but increased 9.64% day over day for Nasdaq names, lending some conviction to purchases seen across the tech space.
Less Than Marvell-ous
I had been in Marvell Technology (MRVL) due to the chipmaker's lack of direct exposure to the consumer. Primarily, I saw Marvell as making great strides in the data center arena while already holding a leadership position in the 5G space. The quarter reported Thursday night was fine. Marvell posted adjusted earnings per share of $0.57 on revenue of $1.52 billion. These numbers beat the street by a penny on the bottom line and met expectations for the top line. All said, MRVL was able to show earnings growth of 68% for the three-month period on sales growth of 41%. Not too shabby.
Unfortunately, primarily due to supply constraints, guidance for the third quarter was a bit light. Marvell for the third quarter sees adjusted EPS of $0.59 on revenue of $1.56 billion. The street was looking for something like $0.61 on $1.58 billion. Marvell sees a sequential decrease in data center driven revenue and adjusted gross margin of 65% versus the 65.2% that the street had in mind.
For the full fiscal year, Marvell sees percentage revenue growth in the high 30s, which is precisely where Wall Street is.
Do I take profits here? I will probably lop off some minority exposure. I think Marvell may be setting itself up for a third-quarter beat, and at least right now I think I want to be ready for that day in three months. Until then, I am likely to trade a rough 30% of the position.
Economics (All Times Eastern)
08:30 - Personal Income (July): Expecting 0.6% m/m, Last 0.6% m/m.
08:30 - Consumer Spending (July): Expecting 0.4% m/m, Last 1.1% m/m.
08:30 - PCE Price Index (July): Expecting 6.2% y/y, Last 6.8% y/y.
08:30 - Core PCE Price Index (July): Expecting 4.5% y/y, Last 4.8% y/y.
08:30 - Goods Trade Balance (July-adv): Last $-98.6B.
08:30 - Wholesale Inventories (July-adv): Expecting 1.3% m/m, Last 1.8% m/m.
10:00 - U of M Consumer Sentiment (Aug-F): Flashed 55.1.
13:00 - Baker Hughes Total Rig Count (Weekly): Last 762.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 601.
The Fed (All Times Eastern)
Kansas City Fed (Jackson Hole) Economic Symposium
10:00 - Speaker: Federal Reserve Chair Jerome Powell.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (JKS) (0.73)
