Investors were easing out of cyclical / value sectors, especially Financials and Energy stocks. The debate between value and growth seems to be fading quickly as bond yields turned lower. However, the Federal Reserve is not going to stop the party. Growth crushed it, and investors that didn’t have an appetite to chase many classic momentum stocks opted for defensive names in Utilities, Consumer Staples, and Real Estate.

S&P 500 Index	+0.43%
Communication Services XLC	+0.68%
Consumer Discretionary XLY	+0.75%
Consumer Staples XLP	+0.45%
Energy XLE		-1.18%
Financials XLF		-1.41%
Health Care XLV	+0.56%
Industrials XLI		-0.11%
Materials XLB		-0.10%
Real Estate XLRE	+1.22%
Technology XLK	+1.08%
Utilities XLU	+0.15%

Market breadth was mixed with more decliners than advancers on the New York Stock Exchange (NYSE) and the NASDAQ Composite, with strong new highs to lows. Volume was light and more bearish with blue-chip names.

Market Breadth	NYSE
Advancing	1,395
Declining	1,898
52 Week High	193
52 Week Low	29
Up Volume	1.17B
Down Volume	1.66B

Hold My Beer

I’m not sure if Loretta J. Mester, President and CEO of the Cleveland Federal Reserve Bank, is a beer drinker or not. But a lot of investors want to say cheers to her comments, which leaves all the boxes necessary to taper and eventually hike rates unchecked.

• Inflation
• Labor Market
• Delta variant/Covid-19

Mester is one of the more hawkish members of the Federal Open Market Committee (FOMC). However, she sounded more dovish and understanding about current conditions that might otherwise trigger monetary policy tightening being short-term in nature.

Even Jerome Powell admitted inflation is high enough to remove accommodation. But, of course, all these other comments from members of the FOMC, including Mester, are all over the place. I wonder if the new focus will move back to temporary inflation to offset a spike in jobs.

FED'S MESTER: I BELIEVE GROWTH WILL CONTINUE TO BE HIGH, BUT THE KEY CONCERN IS HOW THE ECONOMY WILL RESPOND TO THE DELTA VARIANT.

FED'S MESTER: I EXPECT SOME OF THE HIGH INFLATION READINGS SEEN THIS YEAR TO TEMPER NEXT YEAR AS SUPPLY CHAIN ISSUES ARE RESOLVED. HOWEVER, SOME MAY LAST LONGER.

FED'S MESTER: THE US LABOR MARKET IS NOT YET AT MAXIMUM EMPLOYMENT.

FED'S MESTER: INFLATION REQUIREMENTS FOR AN INTEREST RATE HIKE HAVE YET TO BE REACHED.

FED'S MESTER: ONCE THE FED BEGINS TO TAPER ASSET PURCHASES, MONETARY POLICY WILL REMAIN ACCOMMODATIVE.

Taps

Yesterday, this headline ran across my ticker:

#Breaking News Gunfire rings out in Kabul as pro-Taliban Twitter accounts report US troops have left

It was time to leave, but no one could have imagined it would be botched so badly. And sadly, there are still Americans stuck in Afghanistan.

It’s so heartbreaking. But let’s never forget the bravery of American soldiers in an all-volunteer military that goes around the world to protect the vulnerable and to stand for freedom.

Portfolio Approach

We took profits on two Consumer Discretionary positions yesterday in our Hotline Model Portfolio.

Today’s Session

We are waiting for updates on Consumer Confidence and the Chicago PMI.  I’m very concerned about the Manufacturing Renaissance, which has been tripped by supply chain issues just as demand is growing.

Comments

What is the thinking on "the Squad" wanting oust Jerome Powell from the FED? Marty Potsdam on 8/31/2021 10:31:24 AM

It's very serious...everyone sees the Fed and its unlimited power to print money and make all the rules.  It's too powerful and omnipotent so they want Brainard in there as she has not been bashful about wanting the job.  There has been scuttlebutt about here becoming Vice Chair and run regulatory agenda but that's not going to be enough for AOC & Co.  I think Biden will stick with Powell as long as Powell doesn't mess up the rally.  Yellen also backs Powell but this will be a nail biter.  CP Charles Payne on 8/31/2021 10:52:32 AM

The global supply chain is not healing quickly and globalization is on the retreat as well which tells me inflation is hear to say for quite some time! Actual prices for goods are rising as well as services locally due to labor problems! People often just look at the gross price of something without going deeper especially in the area of consumer goods. One example is lessening the quality of the components or reducing the volume of the product yet keeping the price the same. Next time you buy a product at the grocery store check the volume/price ratio! garro on 8/31/2021 11:20:00 AM

This administration is a nail biter. bruce renick on 8/31/2021 12:25:33 PM

Would you please explain for those of us less educated what you mean by "cyclicals" and "value sector." Maybe some examples would help. Thank you. John Hudson on 9/1/2021 2:09:02 AM

Value generally refers to stocks that trade at lower multiples (PE, PS and PB ratios) and outperform in a stronger economy.  Right now, many see the economic cycle moving from recovery to expansion, which has been a tailwind for value stocks.  Charles Payne on 9/1/2021 9:34:11 AM

A. Value generally refers to stocks that trade at lower multiples (PE, PS and PB ratios) and outperform in a stronger economy. Right now, many see the economic cycle moving from recovery to expansion which has been a tailwind for value stocks. I’m not sure if we are in this part of the cycle, however. All the cash from the Federal Reserve and government has skewed the economic cycle. Right now, the market acts like we are between expansion and peak as more recently the barbell that’s worked best is defensive (staples and real estate) and growth (communication services and discretionary). Charles Payne on 9/1/2021 9:41:41 AM

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