“Thoughts are things, choose the good ones” ~ Mike Dooley 

Good evening:

August proved challenging for markets, with the three major indices posting losses for the month. The S&P 500 fell -1.8%, NASDAQ finished -2.2%, and Dow tumbled -2.4%. On 7/31, our Head of Research, Tom Lee, alerted market participants to “be wary” heading into August - an evidence-based call that has materialized. On 8/22, he flipped to a more optimistic tone, “timidly” recommending buying the August dip ahead of key Fed-speak at Jackson Hole and a final week loaded with economic data. The S&P 500 is up 3% since his call and he expects gains of 2-3% in September (see our Chart of The Week below). 

Much of the positive equity reaction since 8/22 can be attributed to a slew of tame economic data this week. The S&P 500, NASDAQ, and Dow all posted their strongest week since mid-June on the back of tame JOLTS, PCE, and Nonfarm Payrolls reports showing ‘goldliocks’ improvements for the Fed. Lee noted in one of his
⚡ FlashInsights that the market-based probability of Sep and Nov hikes are “down to 6.5% and 31% respectively.” Lee expects both of these to collapse to 0% - a scenario which would be positive for risk assets including stocks. Improvement on the inflation front would also help this scenario. Ken Xuan, Lee’s esteemed Data Scientist noted in our weekly huddle that “⅔ of the rise in Core PCE was due to the recent rise in equities.” He explained further, “Financial Services contributed 0.14 of the total 0.22 MoM rise in Core PCE. Financial Services is tied almost completely to equities, so stripping this out means Core PCE MoM would only have been 0.08 MoM if not for the sharp rise of stocks in June.” 

Despite the constructive economic reports this week, consensus remains offsides. As noted by Mark Newton in our weekly huddle, The NAAIM Exposure Index, which measures institutional exposure to US Equity markets, “fell to the lowest level of the entire year.” Investors are currently “skittish and that is a reason for optimism,” he added. From a sector standpoint, Newton mentioned Energy is starting to gain strength and is his favorite sector pick on a 1-3 month basis. In his view, an important catalyst could be the Saudi Arabia price cuts at the beginning of September, which has the potential to move Crude Oil  into the high 80s in the short run. 

Crypto spiked during the week after the Grayscale victory against the SEC. The court ruled that the denial of Grayscale’s Spot Bitcoin ETF was “arbitrary and capricious” because of its “different treatment of similar products.” While the decision does not greenlight the creation of a Spot Bitcoin ETF, our Digital Asset Strategist Sean Farrell views it as the most likely outcome of the SEC’s re-evaluation of Grayscale’s application. Sean Farrell added in our weekly huddle that Grayscale’s victory is a “huge regulatory victory on the path towards a spot ETF.” From a policy standpoint, Tom Block  noted that “it really puts pressure on the SEC to approve the ETF by Blackrock.” Although crypto prices largely fluctuated towards the end of the week because of the SEC’s continued delay of Spot Bitcoin ETFs, our strategist’s have more optimism for long-term price growth.

Chart of the Week:

Elsewhere

Workers at two of Chevron’s Australian liquid natural gas plants are set to go on strike September 7. Opinion is mixed as to whether this will lead to an increase in global LNG prices.

OpenAI, the Microsoft-backed startup behind ChatGPT, is on target to reach $1 billion in annual revenue over the next 12 months according to a recent report. The firm recently debuted ChatGPT Enterprise, a corporate version of the uber popular ChatGPT. The launch highlights OpenAI’s ongoing effort  to generate revenue from the ChatGPT product line.

Commerce Secretary Gina Raimondo concluded her trip to China this Wednesday, marking the first visit to China in 5 years by a U.S. commerce chief. The tour is the latest in a series of Biden administration official visits to China this year, following Secretary of State Blinken’s visit in June, and Treasury Secretary Yellen’s trip in July.  During the visit, Raimondo had meetings with senior Chinese officials including Commerce Minister Wang Wentao.  Secretary Raimondo stated she hoped to see some results in the coming months, but had not been anticipating any immediate breakthroughs. Fundstrat Head of Policy, Tom Block, saw this, along with the other bilateral meetings, as a positive development in US-China economic relations.

European Inflation remains stubbornly elevated although the core figure edged down, according to an initial release by Eurostat on Thursday. August headline inflation was unchanged from July, coming in at 5.3%, but higher than the 5.1% expected, underscoring  higher energy costs during the period. Excluding food and energy, prices eased to 5.3%, down .02% from the month prior. This latest release comes ahead of the ECB’s next policy meeting on September 14th. 

Student loans to start accruing interest again on Sept 1 since the pause that started in Mar 2020. This follows a recent supreme court decision in July to strike down Biden’s relief plan to forgive up to $20,000 in federal student loan debts. Collectively Americans are currently over $1 trillion in student loan debt and the impact on borrowers of a resumption of interest accrual without any form of substantial relief could be devastating.

And finally: 818 Hot Dogs are consumed in the US per second on Labor Day. Whether you are lighting up the grill with friends, family, or hanging low this weekend, we hope you enjoy your well-deserved long weekend.

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