[Chart courtesy of MarketWatch.com]

1. Moving the market

In anticipation of the minutes from the latest Federal Reserve policy meeting, traders pushed the major indexes higher, as sentiment turned bullish following yesterday’s pause.

The latest retail earnings presented a mixed picture, with Target rallying 15% while Macy’s stock dropped more than 12%.

While the Central Bank maintained its stance and left rates unchanged at the last meeting, the released minutes indicated that a decrease in borrowing costs during the September meeting was increasingly likely. Most participants agreed that “loosening monetary policy would be appropriate if data continued to come in as expected.”

As a result, the odds of a rate cut rose to 100%, and the current conversation focused on the magnitude of the potential reduction in rates. Along with today’s release of the July minutes, upcoming commentary on Friday by Fed head Powell at the Jackson Hole symposium could provide Wall Street with more clues about what’s in store.

With all eyes focused on the Fed minutes, the shocking admission by the Philadelphia Fed that US jobs were revised down by 818,000, the second worst revision in US history, was simply pushed to the back burner. Ouch!

In other words, this was another nail in the coffin of an economy that has rolled over and is in dire need of resuscitation via lower interest rates—inflation be damned.

Of course, traders and algorithms only react to current headline news, which was focused on a possible rate cut in September, and that was immediately reflected in surging rate-cut expectations.

Bond yields dropped, while Bitcoin, stocks, and gold rallied, but the dollar and crude oil tumbled. Small Caps took top billing thanks to a fresh short squeeze, but the MAG7 basket treaded water.

Unless Fed head Powell sings a different tune at the end of his symposium, lower rates now appear to be baked in the cake.

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[Chart courtesy of MarketWatch.com]

1. Moving the market

Equities slipped early on, as bullish sentiment faltered slightly after the consistent recovery over the past week, with the S&P 500 registering eight straight winning sessions. Reduced volatility was the main contributor after the disastrous start to August.

Earnings reports were mixed, with Palo Alto Networks jumping while home retailer Lowe’s dropped after poor revenue and a negative outlook based on expectations of slowing consumer spending.

The latter contrasts with recent reports of strong retail sales data, which will likely be adjusted again, and softer CPI/PPI reports. A weak jobs report and an interest rate hike in Japan have been pushed to the back burner and out of traders’ minds.

This week, the focus is on the Jackson Hole symposium, where the Fed is expected to be clearer about a potential rate cut in September. Traders are convinced that such a cut will happen, so their current discussion focuses mainly on whether it will be 0.25% or 0.5%.

After all, the economy is rolling over, as I pointed out yesterday with the Leading Economic Indicators being down for the 29th month.

Today, we learned that the Philly Fed General Business Activity Index crashed to -25.1 in August, its weakest level since the Covid lockdowns. As ZH mentioned, on a non-seasonally adjusted basis, it was an even bigger collapse. Ouch!

At the same time, the Economic Growth data index dropped back to multiyear lows, also confirming that the Fed may no longer have the luxury to refer to this weakness as “transitory.”

The MAG 7 stocks managed to eke out another winning session, but Small Caps were hammered today, likely due to the most shorted stocks not giving an assist.

The dollar continued its southerly route, thereby helping gold surge to another record high, a move also supported by plunging bond yields, as the 2-year dropped back below its 4% level.

Crude oil headed lower and took out its $74 level, while Bitcoin surged overnight in Asia and Europe but was pulled back down during the US session.

This makes me ponder how such discrepancies could exist. Could it possibly be market manipulation?

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[Chart courtesy of MarketWatch.com]

1. Moving the market

Coming off a winning week, the major indexes initially slipped but managed to regain their footing, closing in the green once again.

The markets went through a significant downturn in early August due to the Japanese yen debacle and disappointing jobs data, which heightened traders’ concerns that the Federal Reserve was lagging in easing its interest rate policy.

However, recent headline news, including CPI, PPI, and retail sales, has temporarily alleviated those fears, despite underlying economic weaknesses persisting. As a result, conflicting data points will continue to fuel recessionary discussions.

There is hope that the Federal Reserve will provide insights into a potential rate cut during this week’s Jackson Hole symposium.

Before that, traders will closely analyze the minutes from the Fed’s latest meeting, set to be released this Wednesday. Despite the US Leading Indicators being down for the 29th consecutive month, as ZH pointed out, reaching levels worse than the trough of the Covid lockdowns, bullish sentiment remains strong.

Concerns were quickly dispelled by another substantial short squeeze, which boosted Small Caps and the broader market, including the MAG 7 basket, although they encountered overhead resistance.

The dollar’s continued decline benefited gold, keeping the precious metal above the $2,500 level. Bond yields remained unchanged, with the 2-year yield staying above 4%.

Bitcoin experienced a drop overnight but surged to $59k during the regular session, while crude oil was not as fortunate and fell below the $75 price point.

Traders are focused on the Fed’s Jackson Hole symposium, which has not been favorable to the markets in the past three years.

Will this time be different?

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