Q. Did anyone catch the license plate of that truck…or see the driver?

A. Yes, they were vanity plates that matched the driver: FED

Yesterday’s Fed minutes confirm there is movement on tapering, which is far different than hiking rates.   Their comments were telling, revealing significant pressure from the hawks to act sooner rather than later.

All the drama surrounds the extreme efforts to curb or mitigate an extreme reaction from Wall Street that the party has to end. The infamous Taper Tantrum of 2013 still lingers in the minds of policymakers.  There was also a mini tantrum when Janet Yellen hiked rates once after years of lingering at zero. She changed course and waited until after the 2016 election with a new president before trying that stunt again.

But Wall Street is a collective bunch of babies that have even trained their computer programs and algorithms to have tantrums as well. Sometimes, too well - think Dr. Frankenstein and his monster.

Fait Accompli?

I’m still dumbfounded over the great conventional wisdom that the Fed is champing at the bit to pare back asset purchases with so many unanswered questions:

• More jobs need to be created
• Cost may have peaked
• Delta variant great enough to need a third jab – are we sure the coast is clear?
• Signs of a slowing economy

Undoubtedly, the inflation part of the agenda has been met, but it’s been completed because of massive fiscal largess and supply chain issues. 

The employment part of the conversation could be assumed to be on the right path, but the Federal Reserve does not believe something will happen. So, Powell dumped the Phillips Curve admitting wages don’t automatically mean higher inflation. We just saw a jobs report that shows when the free money stops pouring into a bank account, and folks’ pull back on spending.

Meanwhile, one has to worry that repeated disruptions in the supply chain will continue, and at some point, dent demand.  I’m not talking about buyers’ remorse – I’m talking about the moment simply fading away (we just asked for our money back for a bedroom set after six months of waiting – we were promised two months).

So Sloppy, We Shouldn’t Fret

• S&P 500: -1.07%
• Russell 2000: -0.84%
• Dow Jones Industrial Average: -1.08%
• NASDAQ Composite: -0.84%
• Crude Oil: -3.24%
• 10-Year Yield: +1.19%

Yesterday, all major indices closed at the lows of the session, as chatter increased over the probability of Fed tapering. The hits were deathblows, but the close was brutal.

Market Breadth

Market Breadth	NYSE	NASDAQ
Advancing	901	1,766
Declining	2,368	2,571
52 Week High	74	66
52 Week Low	72	164
Up Volume	1.09B	1.85B
Down Volume	2.62B	1.88B

For the year, things look fine, but this has been a front-loaded year that has seen us succumb to a series of rolling pullbacks and a number of corrections.

S&P	NASDAQ
Winners · 433 average gains: +24.27% · Top twenty average gain: +81.44% Losers · 71 average losses: -8.01% · Bottom twenty average decline: -17.71%	Winners · 578 average gain +35.49% · Top twenty average gain: +282.77% Losers · 376 average losses: -23.53% · Bottom twenty average decline: -66.93%

NASDAQ Composite

We are holding our share of the NASDAQ Composite listed names that have been slammed. It’s frustrating to be sure, and it’s even demoralizing to hold them against hope. These high Beta names make outsized moves to the upside, and at times, to the downside. 

Take a look at the chart on top – hidden in that parabolic spike – it’s higher where there were a few periods of severe pullbacks and pain. The challenge is revealed with the shorter-term chart that sees the rally flatten out and a close slightly below the 50-day moving average. There has to be a stand very soon.

Yesterday saw the lightest volume of the year, which means a part of the action was exaggerated, and it’s another reason to consider not panicking. 

Chips Trip

Semiconductors have tumbled almost 7% in less than two weeks, and closed below the 50-day moving average. 

Last night, Nvidia (NVDA) posted earnings beats that were okay but not as large as I would have thought.  The stock initially moved lower, then higher on stronger guidance. It is an important stock and significantly influences perhaps the most important industry in the market.

Chips are the brains that make the Fourth Industrial Revolution possible.

We need them to hold up and turn them around.

Portfolio Approach

There were no weighting changes in our Hotline Model Portfolio.

Today’s Session

The big news this morning is the big revision for third quarter GDP from Goldman Sachs (GS), which is seeing the rise of the Delta variant and growing economic restrictions.   While the firm did raise its fourth quarter estimates, the net change is much slower economic growth.

Goldman GDP Estimates	New	Previous
3Q21	5.5%	8.5%
4Q21	6.5%	5.5%

Its not about red or blue states as the majority are seeing case increases.

 

The Delta Conundrum

The Federal Reserve has made it clear there will be no movement on policy without a clear understanding the Covid crisis is contained.  The problem for the Fed is impacts to supply are creating inflationary pressures, not to mention fiscal policy that continues to shower the economy with emergency funding.

Guidance

There are a number of factors negatively influencing the market:

• Delta spread and restrictions
• Fed tapering
• Slower economic growth
• Higher prices
• Conventional sense drawdown is due
• Disastrous Afghanistan retreat and blow to America’s image

The market was already struggling even as it was ringing up new records.  The same drivers that made me bullish going back even before the election is still in place. 

• Lots of cash out there among corporations and households
• Domestic demand from experiences to houses still in place
• There will be massive cap-ex boom
• We are in the midst of productivity boom
• We have entered the Fourth Industrial Revolution (4IR)

I think investors have to have cash to take advantage of an ensuing pullback.  Its important to hold names with strong value propositions.  It can be painful, but honestly, I’m in more pain closing CROX too soon to “bite the bullet” and watching it up 1200% in past year then the pain I was in holding at a loss.

This is the time to be licking your chops and ready to pounce. 

You don’t have to be first just have to beat the smart money.

Comments

Am retired and can actually understand Charles's comments and appreciate them. Keep it coming! Market is ONLY place I can make any money. CE Carver on 8/19/2021 10:39:14 AM

We can't fill the jobs that are open! Now Yellen is trying to pull an end run and extend the $300 a week unemployment. Honestly I never in my life witnessed such a clue Administration. They botch everything they touch! And, the 2nd in command is more clueless that the 1st in command! How have we stooped to such incompetence? I was not a DJT guy but darn if his hubris and ego wasn't more palatable than the ineptitude we are now witnessing. If it was just the WH group and not the entire Congress we might have a chance at finding some way forward regarding all the major issues facing us but is there a Democrat other than Joe Manchin who has the guts to put a halt to the impending disaster Biden, Pelosi and Schumer are trying lay on America and it Citizens? garro on 8/19/2021 2:25:06 PM

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