Tuesday was a swing and a miss. The S&P 500 tried twice to rally, and both came up short, although the NASDAQ Composite and the Russell 2000 eked out gains for the session. It was close; five sectors finished higher, but Industrials (XLI), led the downside.

S&P 500 Index		-0.08%
Communication Services XLC		-0.42%
Consumer Discretionary XLY	+0.15%
Consumer Staples XLP		-0.11%
Energy XLE	+0.23%
Financials XLF		-0.14%
Health Care XLV	+0.15%
Industrials XLI		-0.53%
Materials XLB		-0.24%
Real Estate XLRE	+0.02%
Technology XLK	+0.04%
Utilities XLU		-0.27%

Internals

The good news is that internals are improving. Yet, there were more new lows on the NYSE and the NASDAQ, underscoring the risk of falling out of favor with investors during periods of heightened angst.

Market Breadth	NYSE	NASDAQ
Advancing	1,782	2,540
Declining	1,475	1,873
52 Week High	38	57
52 Week Low	46	97
Up Volume	1.91B	2.36B
Down Volume	1.81B	1.55B

Here Comes the Fed

The Federal Reserve wraps up its two-day Federal Open Market Committee (FOMC) gathering. While it’s a foregone conclusion, there will be no rate action today; perhaps there will be louder hints about their tapering timeline. The Street has been bracing for clear tapering language. But there will still be a fair number of tantrums once that happens. However, I think it would be short-lived. 

Meanwhile, the balance sheet keeps climbing higher and higher – more than double where it was at the start of 2020.

The Fed has to consider many things today, including the impact of inflation, which is beginning to chip away at corporate margins and profits.

Look at Me; I’m the Captain Now

Jay Powell has to find a way to admit inflation will linger longer and cause more economic damage than the Fed assumed, but still suggest its transitory.

Even areas of the weakness (flexible) in the most recent Consumer Price Index (CPI) release were down because of the Delta variant, and could pop again once cases decline and restrictions are removed.

Whether Powell will acknowledge it or not, inflation is the ‘boss’ now.

 

Rent: Too Damn High

Yep, the rent is too damn high, but it’s going higher - and it’s a big chunk of household inflation - that can’t be avoided. Supply is an issue. Although there were some moves in permits and starts, the problem is the demand in cities that are still too crowded.

Single Family	Annualized Rate	Month to Month	Year to Year
Permits	1,054,000	+0.6%	+0.1%
Starts	1,076,000	-2.8%	+5.2%

 

Multi-Family	Annualized Rate	Month to Month	Year to Year
Permits	632,000	+19.7%	+52.7%
Starts	530,000	+21.6%	+60.1%

FedEx Loses Altitude

After the close, FedEx (FDX) posted results that were impacted by the usual suspects, including rising labor and shipping costs. As a result, earnings were missed big time with EPS of $4.37 against the consensus of $4.97.

• Labor took an additional $450 million bite - finding workers for its ground businesses (drivers), led to higher wages and lost business opportunities.
• Management also lowered its internal guidance.

The company also mentioned tougher comps, as there will be lower E-commerce as folks go back to work and get out of the house. On that note, Macy’s (M) announced it would hire 76,000 full and part-time workers for the holidays.

Portfolio Approach

There are no sector weighting changes to our Hotline Model Portfolio this morning.

Today’s Session

The major indices are up in part to China.  Overnight, Evergrande said it would make a debt payment. There are few details, but for now it’s a relief.  The issue is probably not going away without A) China government intervention B) Evergrande officially going bust. 

We are waiting for August existing home sales data to be released at 10am ET and the FOMC to wrap up their 2-day meeting.

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