Hello all,
Hope everyone had a great weekend and took some time off screens.
Last week we had Nvidia earnings which caused the stock to go up 900bps and eventually pushed rest of the semi complex higher only to be stopped in its tracks by Jackson Hole Symposium speech by Kevin Warsh.
The rate decision now is much closer to a cointoss than before.
SPX: S&P500 has shown some support near 7600 and that is the line in sand for bulls as of now. Any dips that are near 7600 and are shallow maybe bought up and then we can continue the march to all time highs. However, below 7600 a sustained weekly close can send the S&P to the next target of 7300/7260.
Nasdaq: As far as Nasdaq goes, the story is of the AI capex cycle and free cashflow decline/growth. We are in a position where hyperscalers eventually have to show profits on all the billions invested in AI to real profits.
Key risk monitors for me are understanding if the semiconductor complex keeps outpeforming SaaS ecosystem. If both advance at a similar pace that ensures a broad market rally suggesting risk is back on the table.
Problems start if one starts to lag versus the other. If Semis lag with respect to software, we might be hitting a ceiling on compute requirement on AI and if it is vice-versa we will see a decimation of Saas companies in the hands of Claude.
Russell: RTY is the most rate sensitive index, once labor releases cool down and lower yields can cause IWM to test 290-270 area. 270 is an extreme target.
Value: Value and industrials stocks seem to be a safe-haven for stocks if growth data holds up as broader tech keeps consolidating.
Dollars and Commodities
Dollar is hovering around 99 area and we expect a slide to 97-95 in the coming months due to the actions of the treasury. Bessent has shown willingness to kill the dollar to save the bond market and eventually it would be reflected in the strength of the dollar. We are not a rates newsletter so I will not go too much into depth of it here.
Gold is at an interesting crossroads with 4300-4400 seemingly good entry points for adding or establishing a long position. I’m a huge fan of metals here or anything that I can touch and feel(sorry Dario I cannot touch Claude yet)
Oil keeps staying elevated due to geopolitical risk in the Strait of Hormuz. Any escalation in the region can see oil hitting 90-95 and maybe having a call fly to hedge your shorts is a decent risk-reward trade around here. Eventually if the conflict winds down Oil can slide down to 66-68 (ouch Saudi they still gotta pay Ronaldo his entire contract)
THE WEEK AHEAD
This week we will have the August jobs report numbers on Friday which will sway the rate decision either way either cementing the “no-hike” rationale or deepen the “Family Fight” towards a 25bps hike.
Other than that we have crude oil inventories and a couple PMIs alongwith JOLTS data this week. As the summer ends the markets will start picking up steam into the fall with respect to volume and volatility.
The rate hike or not will boil down to the NFP numbers this Friday and the Fed would want to see UER stay in 4.2-4.4% so as to stick to no hike.
Anything under 4.1% and Fed would definitely pencil in a couple hikes into the year end. Conversely something like a 4.3% and payrolls below 75K would mean there would not be likely hike in the coming meetings.
The Fed also reiterated their desire to get PCE to 2% and will do everything that they need to do to reach it even if it means hiking to the displeasure of POTUS.
Another marked tonality shift has happened in the words of President Trump.
From incessantly Truthing(its like tweeting but on truth social, yeah I don’t even know what timeline this is) to cut rates, he has now taken a more somber stance of no hikes.
All in all, Warsh is walking a fine line here and probably would be relieved once the jobs report is out either way as it will give him more clarity towards the hike.
