It is my 57th birthday today. It is always a day of reflection for me with thoughts and prayers for the thousands of poor souls that perished so close to me some 22 years ago, as well as for their families that were forever scarred by that tragic event. Please be sure to read Stephen "Sarge" Guilfoyle's moving remembrance of 9/11 as well as Doug Kass's tribute.
We are getting to the final stages of summer and of the third quarter. Trading at the opening of a new trading week is likely to be muted as investors await the monthly PPI and CPI reports on Wednesday and Thursday. Both are likely to jump a bit thanks to the recent rise in energy prices.
I doubt this changes the odds of a rate hike when the Federal Reserve meets later this month as the market overwhelmingly believes the central bank will do nothing in regards to the Fed Funds rate. The readings could make investors more concerned about a possibility of a rate hike at the next Fed meeting in November.
I will also be watching August retail sales that are due out Thursday. July's big retail numbers benefited from a large drawdown in personal savings. August's numbers are likely to give us a better reading on the economy as Covid related savings have now largely been burned through and the jobs market has deteriorated in recent months.
Apple (AAPL) might get a boost from its much-anticipated iPhone 15 launch on Tuesday. I closed out half of my bear put spreads against the tech giant late last week for a decent profit. The October expiration on them was looming, but I will look to reset that position with longer dated expirations if AAPL gets a good boost from the launch event this week.
As we emerge from the Dog Days of Summer, I continue to very cautious with my outlook for equities. Breadth remains uninspiring to say the least. Outside the "Magnificent Seven", the S&P 500 has done little more than squat for investors in 2023. The small-cap Russell 2000 lost just over 3% in last week's market downdraft and is now up just 6% for the entire year.
The energy sector remains with the highest weighting in my portfolio, outside of short-term Treasuries that now make roughly half of my holdings. Oil prices don't seem to have fully factored in the production cut extensions from Saudi Arabia and Russia earlier this month. Economic growth remains solid, at least for now, and the Strategic Petroleum Reserve is down some 300 million barrels from its levels prior to the pandemic, and needs to refilled at some point.
It is also hard to get too excited about stocks when risk free short-term Treasuries are paying 5.5%. Especially in light of so many things signaling a recession lies ahead despite recent assurances from Treasury Secretary Yellen as well as Goldman Sachs that a 'soft landing' is just ahead. The yield curve remains inverted, the Leading Economic Indicators have declined for 16 straight months now and default rates continue to rise for both consumers and for commercial real estate.
Most importantly, monetary policy always acts with a large lag. The last time the Federal Reserve implemented such a robust, sustained and restrictive monetary policy was over a decade and a half ago. The last Fed Funds hike from that policy implementation occurred in April of 2006. It wasn't until late 2007 that major cracks became apparent in the credit markets and the economy.
Now, things might be indeed be "different" this time around. However, with the massive amount of debt - especially governmental - that exists, I am not willing to bet in any substantial way on that scenario unfolding pending further developments.