Forgive us as we tear our greasy heads away from slumber's soft love. Forgive us as we rise, ready to shine, ready to strive, ready to counter risk aversion with pure aggression, and vice versa. Forgive us as we turn to the left, then to the right, and then decide that we like neither. Forgive us, for one thing we surely know with extreme confidence is that sometimes we just don't know. Forgive us, for you know us well.... we are "The Unhappy."
Going into Tuesday, all market participants, all economists, all sentient beings with at least something going on behind that stupid looks on their faces were focused upon the August U.S. CPI data released by the Bureau of Labor Statistics. Everyone, it seems, when considering consumer level inflation, focuses on the CPI. The Fed focuses on the monthly PCE numbers, released by the Bureau of Economic Analysis, I believe, and I could be wrong, simply because that series reads out at a lower level year over year - over the long term - than does the CPI, thus allowing the Fed more flexibility in making, or not making, commitments to act on policy.
The August version of the CPI gave everyone a little something. Inflation hawks could still point to year over year headline inflation of 5.3%, and 4.0% at the core that even if past-peak, remain uncomfortable for you, me, the butcher, the baker and the candlestick maker. "Team Transitory" could just as easily point to the month over month data, revealing increases of 0.3% at the headline and just 0.1% at the core, both below expectations, the core pace much more so.
So... why the long face, Cowboy? Should be "easy peasy." Slower inflation slows down the Fed. Now, they can't move on tapering. Heck, slower inflation is a product of a slowing economy. It's all bad. Sell, Mortimer, sell. We are a people that can not be pleased. Might we enjoy a beautiful sunset? Or are we disappointed that every sunset is not the most beautiful sunset that we have ever seen? We have forgotten that the greatest thing about getting out of the rack every morning, is simply getting out of the rack every morning.
With a renewed energy, we gratefully accept every opportunity, every challenge and are thankful for the strength and ability to meet every challenge head on in this, the arena of life. Strap on thy armor. For we stand united, shoulder to shoulder, with the knowledge that we will do our best this day and on all the days that follow. When all is said and all is done, we will relax, enjoy ourselves and tell tales of glory as we gather at the grand banquet hall with all who came before, and all who are yet are yet to come. Ooh, freakin' Rah.
The fact is that an elderly U.S. consumer will grab a bag of apples this afternoon, look at the price and then put that bag back down. The fact is that investors on Tuesday started moving back into longer-termed U.S. Treasuries, and depending on their age, either back into gold, or back into their favorite cryptocurrencies. Why? Flight to safety? Define safety. Flight to quality? Define quality. Flight to a perceived store of value as a means of capital preservation? Ding... Ding... Freaking Ding. We have a winner. Only problem. Algorithms have no day to day memory. Meaning that allocations and corrections roll, baby roll, in the year 2021.
I'm not telling you not to expect that we might have to drive through a financial minefield. I took a lot of marbles off of my table Monday night into Tuesday mid-day. I was on a roll, and it felt kind of relaxing. Think about it. Unless this game is just not your thing, you probably have one of the best years of your career going here. I have to take my eyes off of the markets for a few days in order to attend to some family matters, and I felt that this marketplace was just too risky right here. Right now. We have talked about the commonality of the mid-September swoon when there is no pandemic, and no economic slowdown underway. (See China's numbers overnight? Can you say global slowdown? Gee willikers.)
All of you have heard the adage... "Sell in May and go away." Less of you know that on Wall Street, traders have always added... "Make sure you're back by November." Why? Because September can be cruel, and October can be known for extreme volatility. I spent the majority of October 19, 1987 working as fast as I could within a stone's throw of the podium at the New York Stock Exchange where they ring the opening and closing bell. I spent most of that day within 20 feet of an EF Hutton floor trader named Mike Metrinko. Mike was the only human being to work on that trading floor both on that day and also on October 29th, 1929. Mike was smart, kind, funny, and cautious. He always warned us about this time of year. He was, no he still is "legend."
1) Does less hot inflation and an obviously slower pace of economic growth prevent the FOMC from working toward tapering its monthly asset purchase program?
I don't think this changes anything as far as next week goes. The Fed, in my opinion, will still pave the road that they intend to drive on. Continued cooler readings for core inflation will certainly take the pressure off as far as timing goes. The Fed would no longer feel the need to be able to tee up a potential schedule for rate hikes by H2 2022, but we are a long way from there. The central bank, at least for the moment, can get back to primarily focusing upon labor market repair.
2) Does the cooler core CPI print give the fiscal doves a leg up in negotiating the size and scope of whatever they'll end up passing, probably later this month?
It doesn't hurt, nor does the weaker economic performance, in that regard. That said, it's not like consumer prices are contracting, and it's not like the economy is collapsing, though there is now plenty of evidence that economic growth has become almost completely reliant upon policy, which is a terrible position to be in. This story remains political.
Tuesday was an ugly day for equities, but I'll tell you this. It wasn't as ugly as it might have been. There is still a belief on Wall Street that the coming four to six weeks of increased volatility will be as transitory as the often spoken of consumer level inflation now appears to possibly be. In other words, there is some profit taking (hand raised), and there is some trading (hand still raised), but there is nothing out there that might be even remotely considered fearful.
For the day, defensive sectors outperformed cyclical type groups as all 11 Sector Select SPDR ETFs closed in the red. Health Care (XLV) , and the REITs (XLRE) hung in there pretty well, while Energy (XLE) and the Financials (XLF) took one in the teeth on contracting yield spreads. Interestingly, Technology (XLK) ran with the leaders, nearly closing unchanged, supported by the Dow Jones U.S. Software Index that closed up more than one half of one percent.
Bear in mind that a couple of major indices are in some technical trouble here. The S&P 500 suddenly sees the 21 day EMA as resistance and is leaning upon the 50 day SMA for support.
This, while the Nasdaq Composite finally lost its battle at the 21 day EMA. There will likely be at least some kind of an attempt made to take that line back on Wednesday morning.
As we know, growth in economic activity is best reflected in both the transports and small-caps. Once that is understood, the following two charts should be enough to cause traders, in my opinion, to at least take their foot off of the gas for a little while.
Now, to be sure, these two indices could find some help as they close in on their own 200 day SMAs. Fact is that if the economy continues to underperform, then TINA will come to the rescue, but not for everyone. Certainly not for the reflation/ reopening trade.
So, Senator Elizabeth Warren (D-MA) sent Fed Chair Jerome Powell a letter calling on the Fed to revoke Wells Fargo's (WFC) status as a financial holding company as a means toward affecting a separation of the firm's traditional banking business from it's investment arm. This comes in the wake of renewed regulatory action against Wells Fargo and a new $250 million fine for a lack of visible progress in addressing long-standing problems.
Wells Fargo is one of my longs, and not one I cut back on ahead of this busy five day weekend that I will be taking. Even well off the highs, this position is still up 25%+ for me. Let me explain. I have a certain amount of faith in the new-ish CEO Charles Scharf. Haven't had lunch with the man, but he comes off as a straight shooter. I think he ultimately rights this ship. If he doesn't, who's to say that two parts don't equal more than the current whole. While I find that possibility highly unlikely and probably more in the way of being visible politically, the idea does not scare me out of the equity.
The downturn provoked by that "double top reversal" seems to have abated. I think. What I know is that the shares suffered a swing trader's or "mini" death cross last week, and have only rallied since. In fact, even Senator Warren and falling yields did not hurt WFC on a day where the banks badly underperformed the broader marketplace.
The stock sets up nicely, with both the Full Stochastics Oscillator and RSI pulling away from oversold conditions, and as the daily MACD appears to be ready to cross the 12 day EMA over the 26 day EMA and then perhaps even the nine day EMA, forcing both the 12 and nine day into positive territory. I think WFC is a long-term long. I also think that for right now, technically... This stock is a short-term long.
Knock, knock. Anyone home? Anyone else watching Entegris (ENTG) ? Oh, baby. Semiconductor equipment companies often steal the headlines. Just yesterday in response to some commentary made at Susquehanna (not the hat company), Applied Materials (AMAT) , Lam Research (LRCX) , and KLA Corp (KLAC) all bounced around in the whirlwinds of volatility. Nobody and I mean nobody is paying attention to Entegris, the provider of products and systems that purify, protect, and transport critical materials used in the semiconductor fabrication process. Heck, the company operates in more countries (12) than there are sell-side analysts (9) that even cover the name. Trades at just 30 times forward looking earnings, remarkably consistent earner, almost no short interest. Gargantuan current ratio. Check this out.
You know what they say about closing "ascending triangles" right? They tend to explode to the upside. RSI? Full Stochastics Oscillator? Daily MACD? They all say "overbought". I am also long this name. Do I bow and take my exit right now? Tempting. The indicators all say it's okay to do so now, but we are only now just breaking past pivot. Whatever is the 12 year old Mets fan from Queens that I will always be to do?
Being this is the fourth time that ENTG has knocked on the door at this resistance level, there is certainly (I don't know that for sure, I am but a man) less ammo up here for the sellers. I have created enough cash this week to let this one play out. Target Price: $150. Rock and Roll.
Economics (All Times Eastern)
08:30 - Empire State Manufacturing Index (Sept): Expecting 17.9, Last 18.3.
08:30 - Import Prices (Aug): Expecting 0.3% m/m, Last 0.3% m/m.
08:30 - Export Prices (Aug): Expecting 0.5% m/m, Last 1.3% m/m.
09:15 - Industrial Production (Aug): Expecting 0.5%, Last 0.9% m/m.
09:15 - Capacity Utilization (Aug): Expecting 76.4%, Last 76.1%.
10:30 - Oil Inventories (Weekly): Last -1.529M.
10:30 - Gasoline Stocks (Weekly): Last -7.215M.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (JKS) (-.16)