Well, the S&P closed at another record high on Thursday as the algo’s celebrated a PPI headline that appeared to say inflation is cooling caused markets to once again focus on Kevy and the FED – that September rate hike that has been on and off the table multiple times over the past month – well, it got taken off the table again yesterday – the odds now? 31.8%! Remember – this number was as high as 70% just two weeks ago.
So, at the end of the day – the Dow had gained 70 pts, the S&P up 50 pts, the Nasdaq added 215 pts, the Russell added 7 pts, the Transports gained 323 pts or 1.5%, the Equal Weight S&P gained 66 pts while the Mag 7 added 420 pts or 1.2%.
8 of the 11 S&P sectors finished higher, led by Communication Services up 2.1%, Real Estate up 1.4%, Tech +1%, Consumer Staples up 1.1%, Financials up 0.6%, Utilities up 0.5%, Consumer Discretionary gained 0.5% and Energy which was up 0.1%. It was Healthcare, Basic Materials and Industrials that finished lower.
Other areas of strength – Home Builders added 1.1%, Retailers up 0.6%, Airlines up 0.8%, Disruptive Tech + 1.5%, Cybersecurity up 1.8%, Semi’s up 0.8%, Software added 3.1%, The Value Trade added 0.6%, while the Growth Trade gained 0.8%.
SanDisk surged by 13.6% after wowing the street…. leaving it up 530% ytd…. after they took advantage of their ‘Investor Day’ to lay out a very bullish long-term outlook…. all driven by AI infrastructure buildout and demand for storage. Add in the ‘multiyear’ customer agreements and it was off to the races….as you can imagine it dragged the whole sector up – the DRAM gained 3.8%, MU + 4.2%, STX up 5% while WDC gained 7.3%.
CSCO on the other hand failed to live up to its revenue forecast and elevated expectations….so it got slammed – falling 8.4% taking the other names in the industry lower as well. ANET – 3.3%, ONDS – lost 8.8%.
The message is the same. The AI infrastructure buildout continues, the spending continues and investors remain willing to pay for companies that can show real demand, real revenue and real earnings. Expectations are sky-high, so if you fail to clear the bar, watch out!
Ok – away from that – the PPI – which measures inflation at the producer level – was the real catalyst for the action yesterday. Headline PPI was unchanged m/m vs. the expectation for a 0.2% increase. That was down from a revised decline of 0.1% in June. On a year-over-year basis, headline PPI rose 4.7%, down from 5.5% in June and below the expected increase of approximately 4.9%.
Core PPI — which excludes food and energy — rose 0.2% month-over-month versus the expectation for a 0.3% increase.
So, on the surface, the report was better than expected, so the algo’s immediately decided that inflation was behaving and that the Fed could remain on hold. Ok, slow down big boy…. because the internals tell a more complicated story.
Final-demand goods prices fell 0.7%, driven by a 3.1% drop in energy prices and a 0.9% decline in food prices. Gasoline prices alone fell 5.7%, accounting for more than half of the decline in goods prices.
Services? That’s where it gets interesting. Final-demand services prices rose 0.2%, construction prices jumped 2.2%, portfolio-management fees surged 6.5% and services excluding trade, transportation and warehousing rose 0.6%.
And the PPI measure that excludes food, energy AND trade services rose 0.4% month-over-month and 4.7% year-over-year.
So yes, the headline was cool — but the underlying services data remains sticky.
In other words, energy and gasoline were mostly responsible for the decline but remember – this was the July report. The latest surge in oil will show up in the August inflation reports that we will get in September. Either way, I am still in the camp that the FED does nothing – no cuts, no hikes – in September or for the balance of the year.
Recall though, there are 3 members – Hammack, Logan and Khashkari that all wanted to raise rates last month and Hammack took the opportunity to remind us of that yesterday – saying that she is not ready to give in as long as inflation remains decisively above the 2% target. Great!
Now the bond market rallied just a bit – the TLT and TLH both gained about 0.6% and that caused bond yields to decline – just a bit….and I emphasize that it was just a bit. The 2 yr is now yielding 4.14%, the 10 yr is at 4.65% while the 30 yr is yielding 5.23%.
And then came the $25 billion 30 yr auction…..It priced at 5.216% — the highest borrowing cost at a 30-year auction since 2001. Demand was considered steady because the result was close to where the bond was already trading, so it wasn’t a “failed” auction by any definition. But that isn’t the point.
The point is that the U.S. government had to pay more than 5.2% to borrow money for 30 years. Do you remember when Janet Yellen could have refinanced a major part of our debt at 1.8% for 30 yrs but chose NOT to? How’s that working for you?
In any event – this is the bond market’s response to the massive $40 trillion in national debt, massive, expected Treasury issuance, a $432 billion monthly federal deficit and inflation that remains above target.
Which brings us back to the point I’ve been making…. The Fed may not have to raise rates because the bond market is already doing it.
Next up – oil it finally broke after a five-day run higher. WTI fell $2.02, or 2.4%, to settle at $81.25. Why? NOT because the geopolitical crisis is over. It fell because inventories rose and global demand forecasts weakened
US commercial crude inventories surged by 17.4 million barrels — the largest weekly increase since January 2023 — as exports declined. That brought total inventories to 424.4 million barrels.
Then OPEC lowered its forecast for 2026 global oil-demand growth to just 580,000 barrels per day, while the IEA said global consumption could contract by 1.6 million bpd this year – worse than its previous forecast for a one-million-barrel decline.
So, the oil market was suddenly forced to confront a weaker-demand narrative at the same time that US inventories rose. I’m not sure I completely believe that, but that is what they want us to believe, so that’s the story.
But this morning – oil is on the rise again – up 1% at $82.10 – Overnight – the Hootie’s attacked a Saudi Aramco refinery. Trump and the Ayatollah continue to argue about who is in control and the UAE accused Iran of attacking two of their container ships navigating the strait.
Now, here is an important sidenote: An estimated 7–9 million bpd are still moving through the Strait of Hormuz, while another 5–7 million bpd are being redirected through regional pipelines — including Saudi Arabia’s East–West Pipeline to the Red Sea port of Yanbu.
That means approximately 13–16 million bpd are still making their way out of the Gulf region, compared with roughly 20 million bpd before the conflict. So, the idea that Gulf oil shipments have completely stalled is wrong. Yes, the flow has been disrupted, but it has not stopped and that helps explain why oil is trading in the low $80s instead of closer to $100 a barrel.
Gold – well that did exactly as we discussed….it broke out of the trading range last week ($4160/$4200) and made a run for $4500. Yesterday, it kissed $4,450 – up 11% since August 1st….. before hitting the wall. Buyers became exhausted so the sellers wasted no time in taking profits off the table – leaving gold to end the day at $4,350. This morning – it is unchanged
Eco data today includes – Retail Sales m/m expected to be +0.1%, Ex autos and gas of +0.3%. U of Mich surveys are expected to be in line – so no surprise there.
Earnings season is mostly over – the results have been ‘stunning’ – strong revenues, powerful earnings growth and historically high profit margins. And importantly, the strength extends beyond just one or two companies. Technology, financials, communications, AI infrastructure, memory and energy all delivered.
The headline number will tell you that second-quarter S&P earnings growth is running at 50% y/y – but that headline is distorted by enormous one-time investment gains at Alphabet and Amazon. Strip out those gains, and underlying earnings growth is closer to 26%, which is still outstanding and more than strong enough to support the broader market rally. Just fyi.
But there is ONE more announcement that will hold the market hostage – and it is NVDA and they report on August 26th….so expect the excitement to build next week as everyone positions themselves and opines on what they think those results will say about the market. NVDA is up 20% ytd.
European markets are mixed.
US futures are mixed as well. Dow futures down 61 pts, S&P’s up 3, Nasdaq up 42 pts while the Russell is flat.
The S&P closed at 7,798 – up 50 pts…. Don’t be surprised if we take a breather today. Near term support is 7700… Trendline support is at 7500 with resistance somewhere between 7,900/ 8,000. We are now into the end of August – expect trading volumes to decline over the next two weeks which means moves can be exaggerated in either direction.
I’m still in the camp that we could see another draw down as we move into September – ahead of the mid-terms – valuations are stretched, volumes are thinning out and the midterms will only add another layer of uncertainty.
Bucatini All ‘Amatriciana
A classic Roman pasta dish with a bit of heat.
Ingredients olive oil, guanciale (or pancetta), cut into small strips, red pepper flakes, dry white wine, 1 can of San Marzano tomatoes, hand-crushed, s&p, 1 lb. bucatini pasta, freshly grated Pecorino Romano cheese.
Bring a pot of salted water to a rolling boil.
Heat olive oil in a large sauté pan over medium-high heat.
Add guanciale and red pepper flakes, stirring occasionally, until the guanciale is lightly browned and crispy (about 5 minutes).
Deglaze with Wine – scraping up any browned bits from the pan. Let it cook until the wine is almost completely evaporated.
Add the hand-crushed tomatoes, season with s&p, and bring to a boil.
Lower the heat and let it simmer for 15 minutes, stirring occasionally.
Add the bucatini to the boiling water and cook until al dente – about 8 mins.
Using tongs, transfer the pasta directly into the sauce, add a ladle of the pasta water to help emulsify the sauce.
Turn the heat up slightly and toss everything together until the sauce thickens and coats the pasta.
Remove from heat, add a handful of Pecorino Romano, and stir rapidly to combine.
Serve in warm bowls with extra cheese on the side—because there’s no such thing as too much Pecorino!
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