First, if you missed last week's update. Check your inbox from last Monday and read it. Good info in there. Now, moving on to this week. The Week On Wall Street Stocks tumbled on Friday, sending stocks to a weekly loss after an otherwise quiet August week of trading. The Dow Jones Industrial Average slipped -0.16%, while the Standard & Poor’s 500 lost 1.21%. The Nasdaq Composite index declined 2.62% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, fell 0.88%. The market rally that began in mid-June paused last week. Despite the week’s losses, stocks exhibited resiliency in the face of a string of troubling economic news that included flat retail sales, weak housing numbers, an inversion in the yield curve, and tepid economic data out of China. Nevertheless, stocks tumbled on Friday amid hawkish comments about future rate hikes, rising bond yields, and ahead of the annual meeting of global central bankers in Jackson Hole, Wyoming, in which Fed Chair Jerome Powell is scheduled to speak on August 26th. The market never moves straight up, or down, along its path. This may be the pause that refreshes into year end. Expect More Rate Hikes Minutes from July's Federal Open Market Committee meeting indicated that additional rate hikes would be needed to help manage inflation. Fed officials did acknowledge that further rate hikes risked unintended economic weakness because of the time it takes for higher rates to work through the economy. The committee indicated that they might slow rate hikes to determine the impact of previous rate increases. The minutes also contained the Fed's latest economic forecasts, which projected inflation to decline faster than its June estimate due to a bigger economic slowdown in the year's second half. This is really no surprise to the market or anyone else. They will push rates up at least two more times. The question is, how much? This Week: Key Economic Data Tuesday: Purchasing Managers’ Index (PMI) Composite Flash. New Home Sales. Wednesday: Durable Goods Orders. Thursday: Jobless Claims. Gross Domestic Product (GDP). This Week: Notable Companies Reporting Earnings Monday: Palo Alto Networks, Inc. (PANW), Zoom Video Communications, Inc. (ZM). Tuesday: Intuit, Inc. (INTU). Wednesday: Nvidia Corporation (NVDA), Salesforce, Inc. (CRM), Snowflake, Inc. (SNOW). Thursday: Marvell Technology, Inc. (MRVL), Dollar General Corporation (DG), Dell Technologies, Inc. (DELL), VMware, Inc. (VMW). Final Thoughts As I mentioned above, the decline of the last several days is no surprise. The market ran really hard from the June low. This is most likely an echo of the selloff that preceded the recent run up. As you know, echoes become more faint each time. Inflation is now moving in the right direction. Of course, the Fed is going to continue with tough talk on rates as posturing is one of their greatest tools. They are able to talk rates in a certain direction without having to really do anything. Rates will go up a few more times, but how much will depend on the data. Make no mistake, inflation does appear to have peaked and the data supports this. We won’t see year over year declines until next year, but we have and should continue to see month over month declines as we move forward. Last week, I sent out some of the soft data the Fed is looking at that leads into the hard data reports like CPI. The National Federation of Independent Business (NFIB) is a business federation with a mission to promote and protect the interests of small business in the United States. It is a diverse group consisting of high-tech manufacturers, retailers, farmers, professional service providers and many more. They survey their constituents and their pricing plans have lead inflation by an average of 3 months. As you can see below, pricing plans have been trending down. The market will be glued to his speech and there will be much anticipation this week about what he will say. I can tell you what he will say. Ready, here you go. He is going to talk tough and acknowledge softening in certain areas. He will acknowledge softening in certain areas because the data supports this. He will talk tough in order to facilitate softening in the stubborn areas like rent. It’s possible they raise rates too high and cause a recession. It wouldn’t be the first time in history. However, we now have one of the most progressive Feds in history and if any of them ever made decisions in real time it is this one. Lower inflation will mean they won’t have to push interest rates to extremes. Extremes are what stock prices were anticipating in June. Since June inflation has begun to cool and markets realized the worst-case scenario is probably not the likely one. Remember my discussion on Horizon Theory and how what is happening right now “feels” like it will last forever. In reality it doesn’t last forever. Lot’s of data this week, but it is really all just noise. Powell’s speech on Friday will be the real news and all the market really cares about. Stay tuned…
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