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How to Explain This Market To Clients (September Update)

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How to Explain This Market To Clients: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • How to Explain This Market To Clients (September Update)
  • Weekly Market Preview:  Two Key Central Bank Decisions (Fed on Wednesday, BOJ on Thursday)
  • Weekly Economic Cheat Sheet:  Important Growth Updates This Week

Futures are little changed despite more negative Chinese economic data as investors look ahead to the Fed decision on Wednesday.

August Chinese economic data disappointed as Industrial Production (4.5% vs. (E) 4.7% and Retail Sales (2.1% vs. (E) 2.7%) both missed estimates, raising more concerns about Chinese growth (and global growth more broadly).

Politically, there was another assassination attempt on Trump, although the event shouldn’t alter the current race.

This week will be both busy and important for this rally, but it starts slowly as the only notable number today is the September Empire Manufacturing Index (-4.1).  An in-line to slightly better than expected number would be the best-case scenario for markets today.

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The Real Problem for this Market (Not Growth)

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The Real Problem for this Market (Not Growth): Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • The Real Problem for this Market (Not Growth)
  • Weekly Market Preview:  Does Weak Inflation Data Make a 50 bps Cut More Likely?
  • Weekly Economic Cheat Sheet:  CPI Wednesday is the key report.

Futures are seeing a strong bounce following a generally quiet weekend of news.

There was no specific positive headline that’s rallying futures and instead we’re seeing mostly technical dip buying.

Economically, Japanese Q2 GDP missed estimates (2.9% vs. (E ) 3.1% and that’s pushing back on BOJ rate hike expectations, which is a mild positive (the yen is down 1%).

This week focus turns back to inflation and that includes today’s NY Fed Inflation Expectations (E: 3.0%).  If they fall more than expected, it’ll further boost expectations for a 50-bps cut (and help support stocks).  The other notable economic report is Consumer Credit (E: $12.5B) and there is another important tech earnings report after the close (ORCL (E: $1.33)).  Solid guidance from ORCL would be a welcomed positive for investors right now.

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Market participants were also rotating out of this year’s winners

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Market participants were also rotating out of this year’s winners: Sevens Report Editor, Tom Essaye, Quoted in Barron’s

Technology and Energy Stocks Are Hit Hard

Sevens Report Research’s Tom Essaye told Barron’s that while the latest ISM manufacturing survey was weak, market participants were also rotating out of this year’s winners and turning to some underperforming sectors.

“The market was pretty resilient the last couple weeks on light volumes, and now people are coming back in, looking forward, and reasonably surmising that markets could be more volatile in the next couple of months, and probably just taking a little bit off the table,” he says.

“For the first time in years, the market would welcome a number as hot as could be,” Essaye says. “If you get more weakening in the labor market, then a hard landing becomes much more probable. And that’s obviously not priced in at all.”

Also, click here to view the full Barron’s article published on September 3rd, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

It’ll be Very Hard for This Market to RallyIf you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

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The Rotation Out of Tech Continues

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What’s in Today’s Report:

  • The Rotation Out of Tech Continues

Futures are modestly higher thanks to solid tech earnings and better than expected inflation data from Europe.

DELL and MRVL, both AI linked tech companies, posted solid earnings and guidance and that’s supporting futures.

Economically, EU HICP (their CPI) declined further to 2.8% y/y vs. (E) 2.9%, giving the ECB more room to cut rates.

Today is typically a quiet day in the markets as traders try to get a head start on the three-day weekend, but there is an important inflation report this morning:  The Core PCE Price Index (E: 0.2% m/m, 2.7% y/y).  If that report is better than expected, it’ll boost expectations for a 50-bps rate cut in September (positive for stocks) while a higher-than-expected number will push back against a 50-bps cut (negative for stocks).

Other data today includes the Chicago PMI (E: 46.4) and inflation expectations in University of Michigan Consumer Sentiment (1-Yr Inflation Expectations: 2.9%, 5-Yr. Inflation Expectations: 3.0%) but barring major surprises, neither of those numbers should move markets.

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It’s not structurally the most important stock in the market

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It’s not structurally the most important stock in the market: Sevens Report Editor, Tom Essaye, Quoted in Barron’s

Why Nvidia Is the Market’s Most Important Stock

“Nvidia is the most important stock because people have decided it’s the most important stock,” Sevens Report Research’s Tom Essaye told Barron’s in a phone interview. “It’s not structurally the most important stock in the market—their business focus is very, very slim. They just happen to be the tip of the spear of what people are convinced will be the next tech revolution.”

AI is important because the market expects AI to boost corporate profitability in the coming decades,” Essaye says. “And the whole second step of this entire thing is the uptake of AI and how it actually makes money. Nvidia is the picks and shovels of the gold mine. But people will only buy the picks and shovels if they can actually find gold, right?”

Also, click here to view the full Barron’s article published on August 27th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

It’ll be Very Hard for This Market to RallyIf you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

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Renewed Rotation Risks (Smart Money Is Getting Defensive)

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Renewed Rotation Risks (Smart Money Is Getting Defensive): Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Recent Sector Performance Points to Smart Money Getting Defensive
  • Chart – 10Y-2Y Yield Curve Spread Revisits the Zero-Bound

U.S. equity futures are slightly higher after a mostly quiet night of news as traders look ahead to NVDA earnings.

There was no economic data overnight but the BOJ’s Deputy Governor, Himino, reiterated that policy makers would continue raising rates with the “utmost vigilance,” which supported a modest bid in equity markets and other risk assets overnight.

Looking into today’s session, there are no notable economic reports and just one Fed speaker after the close: Bostic (6:00 p.m. ET).

There is a 5-Yr Treasury Note auction at 1:00 p.m. ET and given the strong performance in the belly of the duration curve since the start of August, traders will be looking for demand to remain solid to confirm the recent drop in yields is sustainable.

Finally, likely the biggest catalyst of the week will come after the close today with NVDA earnings ($0.65) due shortly after the bell. Other notable companies reporting quarterly results today include CRM ($2.35) and HPQ ($0.86) but the main focus will be on NVDA as options traders are pricing in a volatile 10%+ reaction (up or down) to the earnings release and given the stocks heavy weight in the major indexes, a move of that magnitude will have an impact on the broader market in the back half of the week.

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Powell Speech Preview (What’s Expected, Dovish If, Hawkish If Scenarios)

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Powell Speech Preview: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Powell Speech Preview (What’s Expected, Dovish If, Hawkish If Scenarios)

Futures are solidly higher ahead of Fed Chair Powell’s speech thanks to not hawkish commentary from BOJ Governor Ueda.

Ueda stated that rates would continue higher but that increases would be data dependent and in conjunction with monitoring market conditions (meaning the yen spike from last month won’t be repeated, which is a good thing).

Economically, Japanese CPI rose 2.7% y/y, as expected and that’s further reducing hawkish BOJ concerns.

Today focus will be on Fed Chair Powell’s speech (10:00 a.m. ET) and as long as he removes any lingering doubts about a September rate cut, this rally can continue.

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An economic downturn resulting from a ‘Fed mistake’

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An economic downturn resulting from a ‘Fed mistake’: Tyler Richey, co-editor at Sevens Report Research

WTI Extends Losses After API Reports Small (Surprise) Crude Build

“An economic downturn resulting from a ‘Fed mistake’ would lead to a bear market in the global energy markets,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

So “if we start to see economic data deteriorate in the coming weeks or months, demand estimates penciled in based on the optimistic hope of a soft landing will fall considerably amid an emerging recessionary reality.”

Also, click here to view the full ZeroHedge article published on August 20th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Lastly, If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

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Watch the BLS Revisions Today

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Watch the BLS Revisions Today: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Something to Watch Today: BLS Revisions
  • How a Fed Mistake Would Impact Commodities
  • VIX Expiration Poses Threat to Short-Volatility Trade – Chart

Futures are slightly higher as traders await job growth revisions from the BLS after a mostly quiet night of news.

Economically, Japanese trade data revealed a deeper than anticipated deficit in July but amid solid import/export growth numbers which importantly helped pause a rally in the yen and reduced pressure on risk assets overnight.

Looking into today’s session, there are no typical economic reports on the calendar, however, the BLS Revisions to Net Payroll Growth for the trailing 12-months through March 2024 will be released at 10:00 a.m. ET and a significant downward revision could rekindle the recession fears initially sparked by the July jobs report which would result in broad market volatility.

In the afternoon, there is a 20-Yr Bond auction at 1:00 p.m. ET which could move yields and influence equity markets before investor focus will turn to the release of the July FOMC Meeting Minutes at 2:00 p.m. ET.

Finally, earnings season continues to wind down but a few notable companies reporting today include: TGT ($2.17), TJX $0.92), ZM ($1.21).

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U.S. oil futures fell to new lows for the week

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U.S. oil futures fell to new lows for the week: Sevens Report Co-Editor, Tyler Richey, Quoted in Morningstar

U.S. oil prices end lower for the week as demand fears outweigh Middle East war jitters

U.S. oil futures fell to new lows for the week as Chinese data showed declining imports and refinery input demand suggested that a further slowdown in the Chinese economy will weigh on total global demand, Tyler Richey, co-editor at Sevens Report Research, told MarketWatch. Data from China reportedly showed refinery runs fell 6.1% year over year in July.

That followed a negative International Energy Agency report on Thursday, which mentioned a likely surplus emerging in the physical market in the quarters ahead, and a “lackluster” weekly Energy Information Administration report Wednesday, which showed a surprise build in headline crude stockpiles, Richey noted.

Gains early on this week were geopolitically driven amid heightened tensions between Israel and Iran, said Richey.

Looking ahead, Richey said that “geopolitical tensions remain an influence on the market … with a mild fear bid remaining in place.” However, “recession fears have emerged to be a more important factor for the market as we approach the end of the summer driving season, and any rallies driven by headlines out of the Middle East are likely to be capped in the low $80s.”

A soft economic landing is “continuing to be priced in with oil at current levels but if a hard landing becomes more likely in the weeks or months ahead,” expect oil prices to fall, Richey said – with WTI moving toward the low to mid-$60s “not only possible, but likely.”

Also, click here to view the full MarketWatch article published on Morningstar on August 16th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Oil Inventories

Lastly, If you want research that comes with no long-term commitment, yet provides independent, value-added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

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