Last Week
“It’s the economy, stupid” was a phrase coined by James Carville in 1992, when he was advising Bill Clinton’s presidential campaign. The related phrase in the stock market recently could be “It’s the Fed Funds rate, stupid”. Following tame inflation data, the stock market reached new record highs on Thursday, before retreating on Friday. The positive surprise came on Wednesday as the August producer price index showed an unexpected decline from the previous month. The rally gained steam on Thursday, after the core August consumer price index came in equal to the previous month and matched analyst expectations. The recent evidence of cooling in the labor market, combined with the PPI and CPI reports, solidified the case for a 25-basis-point interest rate cut at the upcoming FOMC meeting. Additionally, the CME FedWatch tool shows traders predict 75-basis-points in cuts by year-end.
Tech stocks once again took the leadership spot, aided by Oracle’s guidance for dramatically accelerated growth. The Company’s shares surged about 36%, adding nearly $250B to the stock’s market value and allowing Oracle co-founder and Chief Technology Officer Larry Ellison to surpass Elon Musk as the world’s richest person. That lead does not reflect the proposed potential trillion-dollar pay package that Tesla’s board wants to offer Musk. In the trailing 12-month period, Tesla has posted net income of $6 billion, suggesting that Musk is individually worth 160 times those earnings. There must be another catchphrase with “Stupid” in it to describe the valuation levels for some of Wall Street’s favorite stocks.
For the week, the benchmark S&P 500 index finished +1.6%, the tech-heavy Nasdaq Composite gained 2%, while the Russell 2000 inched up just 0.3%. Gold climbed to new record highs, as the yield on the 10-year Treasury slipped 3 basis points to 4.06% to its lowest level since the early April “Liberation Day” scare. The Dollar held steady near multi-year lows.
On the Chicago Sports Scene, the Cubs are still in great shape for the top wildcard spot, while the White Sox continue to play better ball, albeit still sporting the worst record in the American League. The Sky’s WNBA season mercifully ended, with the squad on a losing streak that left them tied for the worst record.
Bear Down or Bears are down? It was a grim Sunday in Detroit as the Lions crushed the Bears 52-21.
This Week
On Wednesday, the FOMC releases its monetary policy decision. The market has fully priced in a 25-basis point cut, with a slim chance of a 50-basis point cut. At the Press Conference, Powell is likely to focus on downside risks to employment, given the uncertain and potentially transitory nature of the tariff-induced inflation. A dovish tone could spark a further rally, while a hawkish tone could lead to “selling the news” as stocks have risen sharply in anticipation of the rate cut.
The economic calendar is light, with the latest retail sales data in focus. Earnings from FedEx will also provide some color on the health of the global economy.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvest.com.