By Wed am, clarity on two macro datapoints = Winner of Prez debate + August CPI. Clarity allows stocks to stabilize in front of Sept FOMC next week.

VIDEO: By Wed am, the market will have clarity = good as the Prez debates and CPI are released.  While next 8 weeks are choppy, we think the fact the Fed is set to cut next week remains a support and that is why we continue to see August lows holding (5,100).

Please click below to view our Macro Minute (duration 4:28).

By 8:30am ET, equity markets will have clarity on two important macro data points, which in turn, will aid in determining whether the “soft next 8 weeks” is front-end loaded:

• The two data points:
  – first, the winner of first 2024 Presidential Debate (9/10 9pm ET)
  – second, August Core CPI released Wed 8:30am ET (Street +0.20%)
• To us, the fact these will be behind us (not “anticipated”) is arguably more important. That is, I am not sure the outcome of either really sways markets. Instead, the fact these are behind us is the “clarity” and helps markets regain some footing. Let me explain.
• On the Presidential debate, betting markets are favoring VP Kamala Harris, according to polymarket.com. The bet (“who will polls determine as the winner”) give her 76% advantage. According to Nate Silver, the renowned pollster, he says two things are behind this:
  – first, she is the “underdog”
  – second, she is known as a better debater
• So, it seems like many are expecting her to win. If so, this will boost her standings in the polls and betting markets likely shift odds back towards her winning:
  – currently, using composites (realclearpolling.com) gives Trump 51.9% odds of winning vs 51.3% a day ago
  – Nate Silver’s forecast is Trump odds of White House at 61% down from 64% yesterday.
• But barring a catastrophic performance by either party, the outcome of the debate is likely modest changes to the market’s thinking of election outcomes. This is important because until markets see a clear winner (odds >80%, even odds >60%), no investor will make a decisive shift in investment strategy.
• We spent a few days at the Excell Conference in Orlando (put together by the Carson Group) and we heard this echoed by many. Investment advisors are simply unwilling to commit capital until there is clarity on the election outcome. The election day is 11/5, so in some ways, this just reinforces why stocks are stuck in a range until then (next 8 weeks).
• As for Core CPI, the median estimate MoM (month over month) is +0.20%. We think anything in this range is very good. Several reasons:
  – first, +0.20% is 2.4% annualized, a great figure
  – second, this is the 5th month that Core CPI is coming in tame
  – that is beyond a “fluke” and only solidifies case for Fed to cut next week
• In fact, inflation is falling like a rock. The August Core CPI is likely +3.2% YoY.
  – that is below the 60-yr average of +3.7% YoY
  – that is a smidge above the 40-yr average of 2.8% YoY
  – that is above the Fed target of 2.0%, but the Fed doesn’t need this right away
• In summary, from a fundamental perspective, by Wed am, we think investors should be incrementally less worried. That was a lot of consternation last week post the August jobs report. But those fears of a hard landing, or “Fed too late” just did not seem justified.
• That being said, we are still in the bad 8 weeks until election day. This means we expect stocks to be range-trading with:
  – upper end being S&P 500 5,700
  – lower end being S&P 500 5,300-ish
• And as we noted, this means we expect the August lows to hold (5,100):
  – since 1928, the most common month for Summer low is August (46%)
  – since 1928, the most common month for Volatility peak is Oct (63%)
• You get the picture, choppy but the lows hold.
• Here are the 6 reasons we expect S&P 500 to finish the second half (2H) strong:
  – “Soft landing” intact, not barreling towards recession
  – High-yield bonds rallied in Sept, positive divergence versus S&P 500
  – S&P 500 advance/decline reached new high in August, signaling new highs inbound for 2024
  – NVDA 2.08%  -25% drawdown is the 21st past 25 years (since 2000)
  – 2024 already a “strong market” year, 2H gain +10%
  – While VIX might peak near election day, S&P 500 bottoms in August 46% of time.  Meaning, we expect August lows to hold

BOTTOM LINE: Small-caps lead, Fed is dovish

Keep in mind the Fed is dovish and there is a focus on keeping labor markets strong. We could be seeing turbulence for the next 8 weeks, but this is also in the context of a very strong stock market in 2024. One where the S&P 500 has gained in 7 of the last 8 months.

And with inflation softening, the mandate focuses on strong jobs. That acts as an implicit “put” on the equity market, as falling asset prices would threaten to weaken labor markets.

Given the dovish Fed, this remains our 2024 playbook:

• Stick with what is working
• Small-caps IWM -0.03%  IJR -0.46%
• Financials and Industrials XLI -0.04%  XLF 0.18%
• AI/Tech NVDA 2.08%  CDNS 1.40%  ARM AMD 0.03%  AIQ 1.01%
• Ozempic-related  LLY 0.74%  NVO -1.39%
• Bitcoin & Proxies
  BTC MARA 1.06%  PYPL 0.12%  COIN -0.19%  MSTR 1.24%  SMLR 7.87%

But as we noted multiple times, we stick with the top 2 (small-caps and financials and industrials).

Source: natesilver.net

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Key incoming data September:

• 9/3 9:45 AM ET: Aug F S&P Global Manufacturing PMI Tame
• 9/3 10:00 AM ET: Aug ISM Manufacturing PMI Tame
• 9/4 8:30 AM ET: Jul Trade Balance Tame
• 9/4 10:00 AM ET: Jul JOLTS Job Openings Tame
• 9/4 10:00 AM ET: Jul F Durable Goods Orders Tame
• 9/4 2:00 PM ET:  Fed Releases Beige Book Tame
• 9/5 8:30 AM ET: 2Q F Non-Farm Productivity Tame
• 9/5 8:30 AM ET: 2Q F Unit Labor Costs Tame
• 9/5 9:45 AM ET: Aug F S&P Global Services PMI Tame
• 9/5 10:00 AM ET: Aug ISM Services PMI Tame
• 9/6 8:30 AM ET: Aug Non-Farm Payrolls Tame
• 9/9 9:00 AM ET: Aug F Manheim Used vehicle index Mixed
• 9/9 11:00 AM ET: Aug NY Fed 1yr Inf Exp Tame
• 9/10 6:00 AM ET: Aug Small Business Optimism Survey Tame
• 9/11 8:30 AM ET: Aug CPI
• 9/12 8:30 AM ET: Aug PPI
• 9/13 10:00 AM ET: Sep P U. Mich. Sentiment and Inflation Expectation
• 9/16 8:30 AM ET: Sep Empire Manufacturing Survey
• 9/17 8:30 AM ET: Aug Retail Sales Data
• 9/17 9:00 AM ET: Sep M Manheim Used vehicle index
• 9/17 10:00 AM ET: Sep NAHB Housing Market Index
• 9/18 2:00 PM ET: Sep FOMC Decision
• 9/18 4:00 PM ET: Jul Net TIC Flows
• 9/19 8:30 AM ET: Sep Philly Fed Business Outlook
• 9/19 10:00 AM ET: Aug Existing Home Sales
• 9/23 8:30 AM ET: Aug Chicago Fed Nat Activity Index
• 9/23 9:45 AM ET: Sep P S&P Global Manufacturing PMI
• 9/23 9:45 AM ET: Sep P S&P Global Services PMI
• 9/24 9:00 AM ET: Jul S&P CoreLogic CS home price
• 9/24 10:00 AM ET: Sep Conference Board Consumer Confidence
• 9/25 10:00 AM ET: Aug New Home Sales
• 9/26 8:30 AM ET: 2Q T 2024 GDP
• 9/26 10:00 AM ET: Aug P Durable Goods Orders
• 9/27 8:30 AM ET: Aug PCE Deflator
• 9/27 10:00 AM ET: Sep F U. Mich. Sentiment and Inflation Expectation
• 9/30 10:30 AM ET: Sep Dallas Fed Manuf. Activity Survey

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: